Reference no: EM133290032

James felt a puff of pride. Four years in the driving seat and he had turned an ailing building business, trading at a loss, into a multi-million-dollar success story. The end-of-financial-year figures on his desk were proof that Comfort Homes had disclosed a healthy growth in profit for the fourth year running. Not bad for a former building supervisor turned owner-manager. James recalled when he'd first bought the business that he'd boasted to workmate Kevin - now one of his own employees - that a business could not only survive trading cycles and but also grow if it was focused. Well, he'd proved his point.

Old Hands, New Roles

Kevin had been cynical about a small business that built steel-framed transportable houses competing in a trading environment dominated by the big boys. He thought James lacked the outgoing, gregarious personality that would win orders, and that his mate's trade background was insufficient preparation for the role of owner-manager. However, James knew all about sour grapes and personal agendas. He believed ownership brought new responsibility and personal accountability-two key ingredients for success in any venture. Kevin didn't realise that, as owner-manager, James viewed Comfort Homes from an entirely different perspective.

Being in charge is quite unlike being a paid employee.

Slow and Steady

James was the silent type, but his quiet confidence and straight talk had won him respect from customers, employees and suppliers alike. His business style was careful and considered, like his speech - slow and steady with the long-term view in mind. He never acted on a whim and made few mistakes. True to character, James' decision to buy Comfort Homes was careful and considered. The business had been trading at a loss for a couple of years, and the owners were desperate to sell. The purchase price was fair, based on the poor trading performance. He paid only for plant and equipment and nothing for goodwill, for the client list or for intellectual property. He was not out to make a fast buck but, as the results demonstrate, his financial success had surpassed many get rich quick schemes.

Minimise Overheads

Controlling overheads is always a big concern in the building industry, and many high-profile companies have gone under in the past. James didn't have deep pockets and he had no intention of taking any unnecessary risks. From day one, he set up a low-overheads business. He minimised his wage exposure (a big cost for any building

company) by ensuring all work was done on a sub-contract basis. Although this added a premium to normal award wages, it reduced the company's exposure significantly in an industry subject to trading cycles. All sub-contractors had to meet fixed quality and delivery standards. As a result, shop floor productivity was high and the company's sales break-even point was lower than if all tradesmen were on the payroll.

Home from Home

In his own quiet way, James was a pioneer in the building industry. He saw a niche in the market and grabbed it. The resources industry was booming. Most mines had a lifespan of 1-10 years, and so it made economic sense to erect transportable homes onsite and then transfer them elsewhere when the mine shut down. Competition between individual mining companies was fierce, and many recognised the link between employee comfort and productivity. James knew from his own onsite experience that employees working in remote locations were more productive and suffered less stress if they had good living accommodation. This 'home comforts' concept offered the perfect selling pitch - the home-away-from-home transportable. Comfort Homes started to manufacture top quality transportable houses for the mining industry. They were constructed with invisible steel frames to look like a real home from the outside. Floor space was optimised to provide comfortable self-contained accommodation. Several mining companies tested this superior accommodation on their senior employees, and soon others were forced to follow suit in order to attract skilled labour and to reduce staff turnover.

Better Building, Reducing Risk

James' own building competitors soon pirated his ideas, but he just took up the challenge and designed even better transportable homes using the latest building concepts. As a result, Comfort Homes remained at the forefront of the industry. However, Comfort Homes was not quite the high-risk trailblazer that its promotional pitch suggested. The new designs were simply imported residential housing improvements applied to the transportable market. The cost of researching and developing new designs was insignificant in terms of the company's annual turnover, and the construction methods made economic sense. The transportable houses were manufactured in town where labour costs were low and tradesmen were abundant, and they were then transferred to the mine sites.

Quality control was paramount. Each transportable was checked thoroughly by the building supervisor before it left the company premises, as it was easier and cheaper to rectify problems before delivery.

Window of Opportunity

James recognised another window of opportunity and began to market Comfort Homes to the rural sector. As farm properties were valued on a per hectare basis, often with little value attached to the homestead, he could see the attraction to canny farmers of erecting a transportable, low-cost home that could be moved when the farm was sold or passed on to the next generation.

Marketing and Management

To promote an existing product to a new market is a smart move, even if it is not part of a considered strategic or marketing plan. Kevin's lack of confidence in the company's future was based on his perception of James' personality and his mate's lack of marketing experience. Marketing was James' responsibility, and he does not always make time for it. He was a perfectionist and found it difficult to delegate. He realises that, whilst he had steered Comfort Homes to financial success, the company's marketing was limited to chasing leads in the mining industry and, to a lesser extent, in the rural sector. He had no marketing program aimed at specific industries or geographic regions, and the idea of building business networks had been overlooked. Although at heart he knew it was important, urgent issues always took precedence over the valuable but not-so-pressing need for marketing. Somehow James had to learn to delegate the daily, routine tasks to his staff so that he can devote his time and energy to working on the business.

Delegation is fine in theory, but difficult in practice. At Comfort Homes, communications between management and staff was poor. James and Kevin had never sat down together to discuss ideas, despite their long years of friendship. Kevin was a long-term employee whose knowledge and skills had not been used to their full potential. James lacked experience in human resource management. He liked to be in control and was not comfortable sharing ideas with employees. On the whole, the job 'got done', but his employees never felt that they were part of a team.

Four Factors for Financial Success

Despite these in-house management problems, Comfort Homes had performed well in an industry subject to trading cycles. Four factors contributed to this success:

James was very astute in financial matters. He ensured that all contracts earned a good profit margin and generated cash flow by way of progress payments invoiced on completion of agreed milestones. Apart from a nominal bank overdraft, the company has no debt. Turnover ran into the millions, but the debtor position at any point in time was insignificant.
There was no incidence of bad debt. Most clients were established blue-chip mining companies who paid on time.
Demands on plant and equipment were modest, but substantial industrial land was required for construction. Comfort Homes had no capital to invest in property, and had opted to lease suitable premises. James was a model tenant and paid rent at market prices.
James was fastidious about product quality. He built a team of loyal, conscientious sub-contractors, and he rarely ventured outside this core team. He ensured sub-contractors were briefed before each job commenced and he always paid his tradesmen on time as soon as they reach the agreed milestones. He almost had the advantage of having his 'own' work force without the financial responsibility of having permanent staff.

Quality Control

James knew quality control was one of Comfort Homes' critical success factors. He had spent 4 years complying with Government Quality Assurance requirements, and was critical of his competitors. He believed that they relied on official paperwork to ensure that quality assurance procedures were followed. James, however, preferred to inspect construction first-hand against accepted national benchmarks of quality.

Future Directions

As he contemplates the future and how to expand the business, James is considering a potential new market-to supply transportable homes to the Queensland Housing Commission. As a State Government agency, the Queensland Housing Commission demands Quality Assurance under ISO 9002, but this Government directive irritates James. He believes it is administered by bureaucrats with no idea of the difference between Quality Assurance and quality standards. In his deliberate, considered way he has begun to weigh up the benefits of winning this contract against the hidden costs.

Question: Discuss different components that are important in this model? like customer value, customer relations, resources and other components that you think are available in this case?