Crisis Management Plan for Wesfarmers

Discuss about the Crisis Management Plan for Wesfarmers.

Introduction:

Crisis can be defined as any event that leads to an unstable or disastrous situation that affects an individual, group, society or organization (Booth 2015). Every business organization will face a crisis at some point or other in its lifetime. In order to overcome the crisis point, the management needs to articulate an excellent crisis management plan. The planning of crisis management includes the designing and applying strategies to deal with any abrupt event that may harm the commercial organization, its stakeholders, or the public (Booth 2015).

The techniques of responding to crisis affect the reputation and credibility of the organization. The best way to successfully overcome a threatening crisis is to have a crisis mindset always at the forefront of the organizational strategies. These strategies will need to include steps for survival, support, adjustment, reconciliation and lastly recovery (Baxter et al. 2013). This report will attempt to construct a crisis management plan applicable for a recent business crisis. The organization chosen for the report is the financial breakdown faced by the Australian organization Wesfarmers around mid 2015.

Appropriate case identification:

The term of financial crisis can be described as a succession of uneventful situations that leads to financial assets losing their monetary worth (Brigham and Ehrhardt 2013). In the early 2^1st century, as recession started dominating the money market, many organizations faced financial breakdowns. In order to escape the melt down, the conglomerates started taking over the small fishes of the retail world (Gabriel and Constanta 2014). . However, these profit making master plans to recover their own sinking ships sometimes led to disasters. One example of such financial bubble burst would be the acquisition of Coles by the Australian retail giant, Wesfarmers.

According to The Sydney Morning Herald, this was the biggest business takeover that Australian money market has seen and the directorial body undoubtedly had a lot of expectations from this merger. Unfortunately, due to the impending global financial crisis the merger smashed the cost price of a chunk of their shares. That led to a financial breakdown that left the organization shaken for quite a few months (Bibow 2013).

This fiscal predicament faced by Wesfarmers provides an adequate model for evaluating the characteristics, reasons and outcome of a standard financial crisis. Due to this reason this crisis is chosen for this report to critically evaluate the crisis and provide a systematic and strategized management plan required to overcome the crisis.

Analysis of the issue:

Wesfarmers bought the supermarket in the year of 2007 with high hopes of outstanding returns. Unfortunately, the year of acquisition was witness to the beginning of a global financial crisis that lead to the vast overpricing of all kinds of assets (Heffernan 2017). The chief executives of Wesfarmers however, were not very concerned about the inflated rates and the fact that Coles had a history of quite a few years of underperformance. According to the point of view of the directorial board, their perception of the annual ratings of Coles was not what it turned out to be. However, the lack of apprehension cost the company severely (Heffernan 2017).

The debt-laden takeover of 22 billion dollars led the shares of Wesfarmers to drop drastically and the organization was forced into multi-billion dollar capital raisings in the matter of two months (Heffernan 2017). It affected the stakeholders profoundly due to the escalating refinancing needs of the company that led to rapid liquidation of majority of their shares. The executive board had no other option but to share the burden with institutional and retail shareholders as the company was exposed during the hard times of its GFC raisings (Heffernan, 2017).

In spite of two capital raisings, Wesfarmers hit a high of total 14% higher after a couple or more years of the takeover of Coles (Heffernan 2017). The company recovered from the melt down fast enough but at the expense of their stakeholders. It would be long time before the stakeholders eased out of the whirlwind that their trusted conglomerate put them through.

Ethics, theories and strategies

Corporate ethics monitors all aspects of corporate conduct of an organization and whether the dealings of the organization are ethically appropriate. The huge loss experienced by the Wesfarmers after acquisition forced it to collect capital raisings of a huge sum from its institutional and corporate shareholders (Guitian 2015). The shareholders had to overcome a financial loss that they had no hand in directly while the company smoothly reverted back into track. It represents a misconduct that challenges the principles of professional ethics. Such a crisis demands swift application of appropriate theories to construct a crisis management plan.

The event of crisis demands swift and immediate action taken by the organizational body to minimize the damage as much as possible. There are three basic crisis management theories that are applicable to the crisis:

Theory of Triggering Event and Uncertainty

It describes few key terms that characterizes the segments of a financial crisis management. According to the theory, a triggering event challenges the structure and survival of the entire organization and consists of high threat, urgency of decision making. It can be concluded undoubtedly that the crisis faced by Wesfarmers was a triggering event that deserved the acquisition of an immediate turning point (Brigham and Ehrhardt 2013).

It dictates transparency, the employees and stakeholders will feel more endangered if they feel the directorial body is withholding information. On the other hand, if the organization is forthcoming about the complexities of the situation it not only will assure the staff and stakeholders it will also diminish public speculations, which can seriously damage the viability of an organization (Brigham and Ehrhardt 2013)

It is another relevant theory, according to this theory, involving all the employees and the stakeholders not only lessen the burden of the crisis but also provides acknowledgement to the same of their value in the company. It can be argued that a crisis as big as the Wesfarmers faced cannot be immediately solved by employee involvement only but the gesture can assure the staff and stakeholders so that they do not abandon the company at the time of need (Brigham and Ehrhardt 2013).

A crisis management plan consists of a list of specific strategies. Appropriate strategies for this crisis can be as follows:

• Employing an efficient team of crisis detection, analysis and management as the first step of crisis management strategy (Zugrav 2015)
• The second step of crisis management should be the detection of the extent of the crisis. The stage of severity determines the direction of its planning system and regulatory standards to be implemented during the damage control (Zugrav 2015)
• Followed by the detection of the extent the next step would be the investigation of the factors and reasons that contributed to the crisis (Zugrav 2015)
• The preparation of anti-crisis policy involving the selection of effective internal mechanisms regarding financial stabilization of the organization concerned (Zugrav 2015).
• Lastly, the selection of effective modes of company reorganization and efficient monitoring the outcomes of the anti-crisis policies to prioritize the restoration of the viability of the concerned enterprise (Zugrav 2015)

Media and Environmental Scanning

Wesfarmers and its recent collaborations have brought about indefinite changes in the retail sectors. For any organization, there are some predetermined regulations and conditional terms with the media. They are the major representative of the external shareholders.

• Apart from serving its stakeholders, Wesfarmers have been under strict scrutiny of media. The effective way of reaching out to the public in cases of financial crisis can be accounted with the media. The framed laws that are built on the business structure of firms like Wesfarmers have to abide by the rules, because media can be helpful in retrieving useful information regarding the crisis. (Varley 2014).
• It also plays the role as the public communicator focusing on the working policies of any business organizations (Lam 2014). Operations carried out by organizations must be concerned with the stake of environment involved through it. In fact environmental negligence or act of treachery could have been revealed through the inspection of media which was evident during the press conference held right after the Wesfarmers crisis.

Stakeholder Analysis

The largest Australian conglomerate, Wesfarmers have been associated with the development of the retail industry from over a decade.  It has undertaken the sales and business operations of Bunnings and Turning which happens to be two of its important embodiments therefore entertaining a huge number of stakeholders.

• There are two types of stakeholders, whose interest lies in the returns from their investment. The external stakeholders have been subjected to major damage because share prices reached a new low during the Global Financial Crisis. The internal stakeholders were affected by the Coles acquisition as their dues were not met and the payroll had to bring about several alterations reducing the executive payment figures.
• The engagements made by the organization over the last few years had a significant impact on the annual turnover and business dynamics (Lam 2014). The infamous acquisition of Coles, by Wesfarmers established their entry into the Australian retail sector. The internal and external shareholders both suffered huge loss, mainly the retail individuals.
• Two of the important participants in coping with the crisis compose of the retail shareholders and the major financial institutions which aids during the fiscal backlogs of the organization (Christopher 2016). Wesfarmers suffered a crisis which had far reaching effects on their stakeholders mainly due to its association with Coles. This incident coincided along with the leverages brought about by the global economic catastrophe which was more harmful to the stakeholders.
• In fact the condition of the crisis was so lethal that the authorities curbed the elements of temporary refinancing tools. Therefore the individual stakeholders received a disproportionate cut on their investments, which increased the liability of Wesfarmers. The catharsis of the shares amounting to $13.50 could hardly provide any quantitative returns to the stakeholders (Varley 2014).
• The strategies to raise capital within a weak economic standing has accounted to a great deal of loss for the Perth based firm. According to Financial Times, the issues of Coles have been subjected to the business prospects in the Australian shore for the last few years (Wesfarmers.com.au 2017).

Risk Management Strategy

Conglomerates like Wesfarmers have been indulging various engagements. (Christopher 2016).The ventures sometimes prove to be fruitful and sometimes it turns out to situation like the case with Coles. The risks that approached through this involvement questioned the validation of the company.

• In spite of been regarded as one of the successful endeavor in the Australian business sector the decision of Wesfarmers to completely underwrite its  shares received as lot of flaks from the business forum (Wesfarmers.com.au 2017).  There was strong disapproval from its group of stakeholders.  The static situation was generated by following certain mitigation procedures.
• As a planned strategy is involved while improving the skills of business optimization in the same manner planning the response activity to the risk also require policies to overcome the situation (Varley 2014). Wesfarmers approached with a plan that would provide the same priority treatment to both the institutions as well as the retail investors which has fostered the whole scenario. The adopted strategies helped in stabilizing the market situations, and gradually the investors have confided into the capacity of Wesfarmers (Varley 2014).
• The risks that were involved during the Coles acquisition term caused several factors for leveraging the finances and investments of the organization (Waters and Rinsler 2014). Financial opportunities that were raised by the business aesthetic have progressed over time, thus adapting to the new policies. The public undertakings and the resourcing the capital while acquiring billion dollars are effective in nature (Moatti et al. 2015). The proceedings must facilitate the financial decisions taken in the time of crisis

Tactics employed by Wesfarmers

The event of crisis demands specific requirements that must be employed to reduce the effects of the deluge. Therefore in the same way, the organization has employed techniques that lead to maximizing their returns. Two important objectives that the organization must meet include the due to the stakeholders and the remuneration of their executive. 

• In fact with brands like Target and Bunning’s it must develop reviews on a temporary basis so that the huge risks can be minimized (Varley 2014).The annual reports of the year 2015- 2016, of Wesfarmers has declared the increase in the revenues of the whole operations (Wesfarmers.com.au 2017).
• According to the fundamentals of supply chain and retail administration, the risk must outline the optimum opportunities that can be identified and put to use (Moatti et al. 2015). The resources those were employed by Wesfarmers provided a great deal of marginal cost that acts as a fighting tool during times of crisis. The escalations that were raised during the time of acquisition were met with a certain remedial procedures that are still prevalent in these times (Christopher 2016).
• The reports published by the Australian Securities Exchange gave implicit references for Wesfarmers and its large scale acquisition which further developed through the consequences where it has been forwarded. The concerned retail groups have been accustomed with the nature of business it deals in the Australian market, but on a global scenario it must generate better tactics to fight the impacts of the risk (Waters and Rinsler 2014).

Conclusion

There are several risk management plans that are effective in the concerned scenario. The plans that have been generated while drafting the strategies includes the mitigations and recoveries that will provide an interesting account in scenarios faced by Wesfarmers and will enhance the credibility of the company.  Coles has sustained the global emergent situation and Wesfarmers must utilize a proper risk management plan to minimize the future risks. For preventing any difficult situations in the future, and for increasing the scope of improvement, the company must be ready with alternative plan. The organization has recovered the situation by resourceful allocation but disproportionate priority can lead to other unfeasible conditions.

Reference

Baxter, R., Bedard, J.C., Hoitash, R. and Yezegel, A., 2013. Enterprise risk management program quality: Determinants, value relevance, and the financial crisis. Contemporary Accounting Research, 30(4), pp.1264-1295.

Bibow, J., 2013. Keynes on monetary policy, finance and uncertainty: Liquidity preference theory and the global financial crisis. Routledge.

Booth, S.A., 2015. Crisis management strategy: Competition and change in modern enterprises. Routledge.

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

Christopher, M., 2016. Logistics & supply chain management. Pearson UK.

Drennan, L.T., McConnell, A. and Stark, A., 2014. Risk and crisis management in the public sector. Routledge.

Farivar, F., Farivar, F., Scott-Ladd, B. and Scott-Ladd, B., 2016. Growing corporate social responsibility communication through online social networking in Iran. International Journal of Organizational Analysis, 24(2), pp.274-290.

Gabriel, S.G. and Constanta, E., 2014. Financial Crisis From The Macroeconomic Level To The Microeconomic Level. Annals-Economy Series, 4, pp.277-282.

Greenblat, E. and Greenblat, E. (2017). Coles defended in milk crisis. [online] Theaustralian.com.au. http://www.theaustralian.com.au/business/wesfarmers-ceo-goyder-defends-coles-in-milk-crisis/news-story/1d7e39dfe53b2a63ee09af0e0b8db65c

Guitián, G., 2015. Service as a bridge between ethical principles and business practice: A Catholic Social Teaching perspective. Journal of Business Ethics, 128(1), pp.59-72.

Heffernan, M. (2017). Wesfarmers laments GFC raisings. The Sydney Morning Herald. Retrieved 19 January 2017, from http://www.smh.com.au/business/retail/wesfarmers-ceo-richard-goyder-regrets-gfc-raisings-20150504-ggtsku.html

Lam, J., 2014. Enterprise risk management: from incentives to controls. John Wiley & Sons.

McNeil, A.J., Frey, R. and Embrechts, P., 2015. Quantitative risk management: Concepts, techniques and tools. Princeton university press.

Moatti, V., Ren, C.R., Anand, J. and Dussauge, P., 2015. Disentangling the performance effects of efficiency and bargaining power in horizontal growth strategies: An empirical investigation in the global retail industry. Strategic Management Journal, 36(5), pp.745-757.

Varley, R., 2014. Retail product management: buying and merchandising. Routledge.

Waters, D. and Rinsler, S., 2014. Global logistics: New directions in supply chain management. Kogan Page Publishers.

Wesfarmers.com.au. (2017). Home. [online] http://www.wesfarmers.com.au/

Zugrav, I., 2015. Methods for Overcoming the Financial Crisis of Enterprises. Economy Transdisciplinarity Cognition, 18(1), p.111.