Strategic Management

Strategic Management

The parable of the boiled frog comes from the idea that if a frog is put in a pan of hot water the frog jumps out to escape danger. If the frog is put in a pan of cool water and the heat is increased gradually, the frog does not notice the heat and it will therefore be boiled to death. The meaning of the parable is that people respond quickly when the environment that they are in suddenly changes. If however the changes in the environment are slow, a person may fail to notice and will not be quick to respond. Managers fail to implement the necessary changes to their businesses. They do not realize the changing business environment and they are comfortable doing things the way that they have always done them. Failing to recognize the slow and gradual changes may lead to the eventual downfall of the business.

In order for a business to develop, it has to embrace change. This requires planning and formulating strategies to deal with the changes and to make sure that the business has attained its objectives. A business has to strategize on how it will achieve its objectives. A business should be ready to change the strategies that it had set earlier if they are not improving the business. This is because there are always unanticipated and unforeseen events that will always come in. Many companies experienced a financial crisis during the recession that was experienced in 2008. Some of them went bankrupt and they had to close. Like the frog in the parable, they failed to feel the gradual heat that was there. They were comfortable in their position. They were affected by both external and internal factors. They made poor financial decisions and this contributed to their downfall. Workers received very high salaries and other benefits. The company also failed to catch up with the auto industry and their competitors took that advantage.

Toyota provided the competition that GM was lacking. It has quality and it designed better models (Welch, et al, 2005). Toyota improved car brands and managed to make fuel-efficient cars. This is something that GM should have caught on. Although there was a recession, Toyota managed to sell cars during that time. GM should have followed suit. They should also have reduced the benefits that they were paying the workers. They had a retirement package where retired workers were paid although they contributed nothing to the company. Those who work there are also paid a lot of money. Gm should have reduced their operational and administrative costs. They instead opted to please their employees. When the crisis worsened, people lost their jobs and GM had to ask for a government funding (Yau, 2009).

Circuit city filed for bankruptcy during the recession. It was one of the biggest electronic retailers in the United States. Apart from the economic crisis, it also faced cash flow problems. It had to close some of its outlets and many people lost their jobs. It overlooked the competition that was coming from the newly opened Best buy back in the nineties. Best buy emerged to be one of Circuit’s City main competitors. Circuit city had enjoyed a large market share for a long time. They did not see any threat from best buy. They also opened many stores in the United States and Canada. They used large shops and they paid some workers highly.

In an attempt to reduce their expenses and save what was left of the company, they replaced the workers who were highly paid with the ones that they could afford to pay at that time (Msnbc, 2009). Their problems started before the 2008 recession. Like the frog in the parable, they did not realize that they were getting hot as the water was getting hotter. The company could have acknowledged the competition that Best Buy would bring. They had already penetrated the market and they had made a name for themselves. They also had some loyal clients. When people had that it would shut down, they still went to buy goods from them.

Poor financial management and lack of a strategy contributed to their downfall. A business should be ready to re-strategize if the plans that it had before are not working. The management should go back to the drawing board to see what they can do to improve the situation. In their case, circuit city should not have continued to borrow when it realized that it would not be able to pay. Had they used less space in their stores, they would have saved some money. They would also have checked where they went wrong in customer service. Although there was less consumer spending in 2008, this did not stop Best Buy from selling and making some money.

It is imperative for any business to have a customer support system where customers can give their feedback on the products they have bought, the service they have received and the store in general. This will make the customer feel more appreciated and he or she will feel that their needs are catered for. They will therefore enjoy coming to the store more often and will not go to other stores. Best buy also capitalized on the locations where they set their stores. They found better locations that circuit city where people could easily access and this increased their profits.

The boiled frog phenomenon is one of the most relevant parables in the business world. It teaches two important business principles. Managers should not be too quick to jump into something because they see a potential for growth or because it looks profitable. Just like the frog, they might find the heat too strong to endure. They need to do a thorough evaluation of the business environment. Secondly, they should not be too comfortable in the position that they are in. In areas of free trade, every business has competitors. Someone might just notice an opportunity to grow and they will seize it. A person who starts a business learns from the mistakes of the first business. They will improve on the mistakes that the first business did and they will offer better services and products that are more efficient. A business should therefore make sure that it has a solid foundation.

References

Msnbc. (2008). Circuit City to Liquidate Remaining U.S. Stores. Retrieved 20 August 2010, from http://www.msnbc.msn.com/id/28691963/

Welch, D., Beucke, D., Kerwin, K., Arndt, M., Hindo, B., Thornton, E. & Kiley, D. (2005). Why GM’s Plan Won’t Work. Retrieved 20 August 2010, from http://www.businessweek.com/magazine/content/05_19/b3932001_mz001.htm

Yau, N. (2009). Visual Guide to General Motors’ Financial Woes. Retrieved 20 August 2010, from Visual Guide to General Motors’ Financial Woes