Failure of Excellent Corporate Story: Case Learning Experience in Plantation Sector.

Abstract

The founders of Austin Plantation opted to do many things different from others, and strong tradition of looking outwards to the plantation community they serve. Having a heritage of 174 years, the company were known to follow the best practices and core values throughout. Thus, the company has been established a reputation for generations. Further, it was noted that until 2011 the financial position of the company was very healthy and the company had a strong asset base. Further Austin Plantation had been earning over 200Mn profits every year. However, when carefully analyzes the financials since 2012; it was noted that the performance of the company had started to decline. Further, it was evident that the company has been making continuous losses since 2012 and the recorded net loss after tax in 2014 was Rs. 225.0 Mn. This was mainly attributed to reduced gross profit margin and high financing cost. In 2015, the operating loss was Rs. 230.2 Mn and resulted a net loss of Rs 449 Mn. after tax. Accumulated losses as at 31 December 2015 stood at Rs. 804.7 Mn. Thus, net of revaluation reserves of the company had recorded a negative net worth position in the referred period. Austin Plantations boasts of long standing heritage of its mother company Sheerwoods and following best practices. However, if the company has actually been able to withstand the crisis faced by the tea industry in general, thanks to the reputation and heritage of its mother company otherwise, are there any unrevealed factors affecting the performance of the company. In that case, have the company effectively made use of value chain and the competencies to overcome current situation of Austin Plantation. Have the company properly aligned the strategy to value chain seem to be very pertinent questions to be raised. This case attempt to explore and ascertain the answers for above questions via this case study. With a manifested vision “to be the benchmark among plantation companies”, Austin Plantations Ltd was established in 1992 as a fully state - owned plantation company managed by Sheerwoods Plantations (Pvt) Ltd. After a study of publicly available information on the company, the writer has been able to establish that the company had been going through a major financial crisis that resulted in disposal of the company. Subsequent to a careful analysis of the company’s financial statements since 2011, facts found on numerous news articles and paper articles that are available online (Colombo stock Exchange site, paper articles) and information obtained from public, the writer is of the view that the failure of the company could be attributed to number of reasons. The first reason being financial indiscipline by the company as it was notable that the company had not followed or concerned about the various rules and regulations issued by relevant authorities in the financial management context. The second main issue would be family involvement of strategic decision making process of the company while having conflicts among them, as a result it is highly doubtful whether they were able to effectively contribute to enhance the value of the company since their emotions will lead the decision making rather than rational decision making process. The third main issue is in the context of working capital management which led the company to a position where their daily operations were badly disturbed. Finally there is a major concern in the area of poor HR policy practices and people management by the company. In addition, the writer is in the view that the core values, competencies of the founders and knowledge sharing had not been transferred to the next generation of the company. Thus, they have failed to manage the company. This gap reflected the way they handle the current crisis in the tea industry whereas many competing companies apparently have effectively managed same which reflected in their financial performances. These companies have subsidized the losses incurred in the tea industry by operational excellence and diversification which is a hybrid strategy that had worked extremely well, thus contributed towards creating value for their shareholders. In the traditional view of a company, only the owners or shareholders of the company are important, and the company has a binding fiduciary duty to put their needs first, to increase value for them. However subsequently this stance had changed and instead argues that there are other parties such as employees, customers, suppliers, communities and government etc.. who are connected to the business. Finally due to above reasons Austin plantation was up for disposal and has been acquired by Green Company PLC., with a controlling shareholding of 60.8% that was previously held by Sheerwoods Plantation Private Limited. Further study of available information disclosed that Mr. Perera,Chairman of Sheerwoods Plantations, has arbitrarily disposed the said shareholding without due authorization and approval of the shareholders of Sheerwoods Plantation Private Limited. Although Green was able to acquire Austin Plantations after a prolonged controversial period, Green did not hold it but sold to another leading corporate in Sri Lanka. Lakpro, the latest major shareholder of Austin Plantations, is particularly known for its focused strategy and innovative business model. It would be interesting to find out what has motivated Lakpro to make this investment. Could it be a strategy which might help their core competency? This case study followed content review methodology and has been developed with the support of secondary data obtained from annual reports, web sites, company publications and other secondary sources. In the ensuing section, the writer makes an attempt to elucidate the significance of having well managed working capital requirements of the company, how HR policy could be supportive to the sustainability of an organization. Prior researches have confirmed the significance of matching the characteristics of senior executives with requirements of strategies of their organizations. Firms that have achieved higher levels of “strategy‐manager alignment” at both corporate and business unit levels were found to have correspondingly higher levels of organizational performance. Further this synergy could have brought well effective solutions for the industry crisis as well. Accordingly it is evident that there is a strategic gap where the said gap has sealed the fate of the Austin Plantations.