Competencies & Strategic Factors Affecting Icp - Inner-City Paint

COMPETENCIES & STRATEGIC FACTORS AFFECTING ICP

CASE SUMMARY

Inner-City Paint Corporation of downtown Chicago Illinois manufactures primarily flat white wall paint and serves the immediate downtown Chicago area competing mainly on speed of production turn-around. This strategy served Inner-City Paint well for the previous five years resulting in an organization that grew from a two-person company with $60,000 in annual sales to a $1,800,000 in annual sales organization with 38 employees. As is often the case with closely held, often family owned, organizations that experience rapid growth, Inner-City Paint continues to utilize the same controls and hands-on management style as a 38 person organization as it did when it was a 2 person shop. The approach that was appropriate as a smaller start-up company is not advantageous or sustainable for a larger more complex organization.

The challenges facing management include developing processes to streamline and understand production, improved cash flow management, company image and branding improvement, and finally adjustment of management's role within the organization. I will access Inner-City Paint Corporation from the point of the challenges identified and make suggestions in regards to strategic alternatives and a recommended course of action.

SWOT & FINANCIALS

CASE ANALYSIS

Strengths - Inner-City Paint's location, pricing and fast product turn-around has driven significant business growth over the past 5 years.

Weaknesses & Opportunities - Inner-City Paint has many key issues driving poor performance. First noted is the lag between the time when they are paying their suppliers (immediately with C.O.D.) and employees versus the time to it takes to collect receivables from customers (30 - 60 days). The current ratio of .92 indicates an inability to pay short-term liabilities from short term assets. Cash is paramount to the financial management of a growing company like Inner-City Paint and the current cash flow situation is causing financial and production stress on the organization.

Secondly, lack of organizational controls is impacting many facets of the business. One area in particular is product pricing. With a current gross profit margin of .20 (($1,784,080-$1,428,730)/$1,784,080), Inner-City Paint Corporation's gross margin isn't large enough to cover other expenses beyond cost of goods sold and still yield a healthy profit to sustain and put money back into the company. Other areas reflecting poor controls include inventory management, product quality management, and manual operational processes that require direct oversight by the owner to ensure quality. Also, the President's salary (Stanley Walsh) of $132,000 and the Office Manager's salary (Stanley's mother) of $66,000 are both excessive and draining the organization of working capital.

The key issues driving poor performance mentioned above are reflected in the poor facility conditions and lack of responsive service which in turn drive employee morale and customer perception of the business as disorganized, desperate, and strategically and financially uncertain. Inner-City's company image, customer/employee confidence and overall organizational strategy and reputation also need improvement to increase profitable future sales.

Threats - Threats impacting Inner-City Paints include lost customer confidence, economic slowdown and possible new competition that could come into the area.

STRATEGIC ALTERNATIVES

Strategically, owner Stanley Walsh could consider selling the company to someone who is better equipped to handle all of the challenges facing Inner-City Paint Corporation; however, taking into account the current poor state of the company, Stanley should expect to receive at best a discounted offer for the company. Another viable option includes implementation of controls in many areas of the company to allow Stanley to strategically lead the organization. Controls assist management with oversight and direction of the organization without personally having to touch every area and aspect of the organization. Finally, the third option for Inner-City Paint Corporation is to continue to do business as they always have and in the very near future cease to exist due to a lack of cash and capital while blaming the company's demise on uncontrollable negative economic forces. This third choice of "status quo" is the unfortunate option many small businesses take due to an inability to adjust with changing factors such as the economy, company size and/or technology.

RECOMMENDED COURSE OF ACTION

AREAS OF FOCUS

As a hired consultant of Inner-City Paint Corporation, I recommend owner Stanley Walsh work with an outside business expertise (i.e. hiring the talent or bringing in short-term consultant) to incorporate controls, processes and procedures into the organization. It is critical that someone from the outside assist with the needed organizational improvements, because changing from the inside can be challenging, especially for businesses like Inner-City, that have an ingrained culture which needs drastic improvement in the following areas:

* RECEIVABLES - Management and oversight of receivables to automate and speed up the billing process with the use of technology can improve overall cash flow. Suggested techniques to improve receivables include automating the billing process, discounts for rapid payment, application process for noncash