Les Mills International Internal and External Operating Environment Analysis in Context of Uniqueness of Small Businesses Theory

1.0 Introduction

Les Mills International (LMI) is a sports and fitness company founded by Phillip Mills in 1997 in Auckland, New Zealand. The company’s vision is to create a fitter planet through health living (Crossley, 2012). This report analyses the operations of LMI by looking at its strengths and weaknesses and attempting to find ways of optimizing those strengths and mitigating the weaknesses. It applies theories unique to operation of small businesses to help put the analysis in its right context. The report also fronts recommendation on the way forward for LMI. The final part outlines limitations of this report due to challenges encountered in its preparation. The structure of the report aims at establishing a good flow of the ideas; first performing a diagnosis, then a prognosis, while bearing in mind the limitations of the whole operation.

2.0 Uniqueness of small businesses and the agency theory

Small and medium sized enterprises have features that set them apart from the conventional forms of business, for example; their management structure is often incomplete and informal. The businesses are by-products of the entrepreneurial acumen of first generation entrepreneurs who pass on the baton to subsequent heirs. This is true of LMI, which is now in the hands of the second generation of the family. Owners of these businesses tend to have undiversified interests in the business, which is likely to be unlisted in the stock exchange since owners feel the need to maintain control (Fama & Jensen, 1985). All these features are evident in LMI.

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This creates a special agency problem that is different from the traditional manager-owner agency relationship. The proprietor/owner in LMI is the manager. This may increase the cost of monitoring the business for outside stakeholders since they have lesser access to information than they would if the company was a public corporation. The business is also likely to suffer lack of managerial depth since top positions are a preserve of family members. Another problem that may arise is the risk of the company running into management problems due to succession hitches especially if the current management fails to put in place a good succession plan. To overcome some of these unique challenges the management have to come up with unique solutions, for example to overcome high cost of credit, LMI should establish long-term relationships with a small number of creditors thereby ensuring a high number of transactions. With time, the creditors will have enough information about the company and the cost of credit will come down (Ang, 1991).

3.0 Strengths

3.1 Internal Strength: Marketing

 The company is thoroughly familiar with the market terrain. LMI is an offshoot of the LMN, which started operations in 1968. This gives the company several advantages relating to longevity in the market. Forty-five years of operations is a long period and the company has accumulated tomes of research data of trends recorded over long durations. Longevity gives the company credibility, as people seem to trust institutions that have operated for a long period. For instance when looking for credit, financial institution are jittery when dealing with a start-up (Education for Enterprise, 2010). Established firms like LMI do not experience such problems since they probably have a long history of relationship with a particular bank. Such relationships may help the firm access credit on more favourable terms than if the firm was new. According to Gibson (2011), an investor approached Les Phillip (The majority shareholder) in 2011 with an offer to purchase the company for $ 100 million he turned down the offer. This underlines the credibility that LMI enjoys.

3.2 Internal Strength: Management

 The company also enjoys a stable ownership and management structure. Crossley (2012) acknowledges that this has played an important role in the success of the company. The company has maintained a familial look from the beginning except from that brief period between 1984 and 1990 when the company listed in the NZST. After the stock market crash, the Phillip Mills bought back the company (Education for Enterprise, EFE, 2010). The company has few shareholders with the bulk of the company belonging to Phillip and the others distributed among the company’s staff and a few private investors. This has provided stability for the company as decision-making is swift since fewer people need to ratify decisions. Decisions such as profits to plough back and the projects to pursue can be made quickly thus affording the company flexibility that is not found in public corporations.

3.3 Technological Strengths

The international market and advances in information communication technology offers LMI an interesting mix of opportunities that the company has started exploiting. Communication technology offers new ways of training and keeping clients interested in exercise. LMI has leveraged on information technology to create an exercise management application that can be installed on mobile phones. The website Gladeye (2014) features this application, named Momentum, and provides further information about the program. The application helps individual to meet their training needs by enabling them to schedule their training programs. According to the site, the application also has customisable timetables, offers training tips, offers rewards for performance, and gives the user feedback. This represents a creative application of technology.

4.0 Weaknesses

4.1 Economic and Financial

Delisting from the stock exchange was a double-edged sword; while it brought stability and flexibility to the firm, it also limited the firm’s capacity to raise funds for expansion. According to the EFE (2012), LMI is worth about $ 100 Million. The company has to expand at a very slow pace due to this financial constraint. The family is however not willing to loosen their grip on the company. In this case, the company will continue to expand at a slow pace.

4.2 Cultural

Crossley (2012) provides us with one of the threats inherent in LMI’s business model, that is, different cultures have different attitudes towards music and exercise. Culture is an important determinant of success of a product in the market. The notion that the internationalization process is constrained by the ability of firms to surmount cultural and institutional barriers across borders has been around for a while. Researchers have suggested that firms need to learn about the cultural practices and customs of different markets before committing their resources abroad (Trompenaar, 1999). Crossley (2012) offers an example of the cultural challenges facing LMI. Music used in their workout videos is not universally acceptable. Some of the Jewish and Muslim communities in the USA feel offended by pop music used in some of the videos. This may harm the appeal of the company.

4.3 Technological and legal

LMI’s like all enterprises dealing with intellectual property is vulnerable to piracy. In an interview with Gibson (2011), Phillip Mills admitted that this is a considerable concern for a business that is easily replicable. The CEO gave the example of a case that happened in North Carolina, USA. A group of people operating as an organisation were found illegally distributing LMI’s products. The group’s mastermind was a former fitness club trainer who had worked with LMI’s products at the club. The group had established an illegal distribution network that had even started exporting the product to Netherlands and Britain. LMI sought the intervention of the authorities and eventually the parties reached an out of court settlement. Such incidents are likely to increase as the group widens its global reach.

5.0 7 Ps Marketing Mix and Creating New products

The 7Ps marketing mix is a marketing management tool that LMI can use to ensure their products meet the customers’ expectation. This approach is expedient when developing a wholesome product. The chartered institute of marketing, CIM (2009) in its interpretation outlines the 7Ps as follows. The first P helps us to come up with a product suitable to the tastes of the target group. The price should be competitive and sufficient to generate profit. Promotion is essential in creating awareness and communicating to the potential customers. The place should be convenient and suitable for the product. The people working for you need to possess the right skill set to offer the product efficiently. The process of dispensing the service should be customer friendly to keep your clients happy. Customers need physical evidence of what they are purchasing, that way they feel they have received their money’s worth. The company needs to develop products that respond to customers’ needs. In addition, LMI must anticipate emerging trends to ensure that it does not lose touch with its customer base.

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The 7Ps marketing mix is an important tool in creation of new products in a market a competitive market environment that is rapidly changing such as the one that LMI faces. The fusion of technology into fitness provides special challenges for LMI since technology is dynamic and therefore the company has respond fast in creating new product. This tool provides parameters that should guide the company on the nature of products it should create to remain relevant.

Another emerging area that should capture the attention of the company is the issue of emerging trends. Such trends provide opportunities for the business and analysis of the trends can help come up with new products that conform to the trends.  One emerging trend in physical fitness training is the trend towards personal training. Most people now want customized training that is geared towards optimizing specific features of their body. Traditional physical training espouses group training and generalized training where all the people use similar equipment and techniques to achieve fitness. People now do not want to run just to collect points or do a certain number of push-ups just because it is considered healthy. Individuals now plan with their trainers specific methods to achieve optimum levels of fitness. They collect the information from their workouts and analyze it with their personal trainers to determine whether the plan is achieving any tangible benefits (Green, 2014). However, this has not eliminated group training, as people still love the sense of community that a group creates. The only difference is that people gravitate towards groups that share their training needs. Otherwise, people can take common activities in groups but do their customized tasks alone or with a small group of maybe three individuals (Pai, 2014).

6.0 Recommendations and Conclusion

6.1 Marketing: Strategic Marketing and Market Intelligence

To understand trends emerging in the industry in which the business is operating, and the needs of the customer it is important to know what the recent developments in the industry are as well as what the organisation’s competitors are doing to enhance performance and to improve their share of the market (Bose, 2008). Market research is important in understanding the needs of the customers and identifying ways to better position the products so that they satisfy those needs. Additionally, market research plays an important role in monitoring and if necessary modifying the marketing strategy. Market research involves systematic application of scientific methods to study the market, various dynamics, and their interplay (Vessene, 2003).

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Marketing strategy is a philosophy that provides a mechanism to focus resources of the firm in such a way as to ensure that needs of the customer are the firm’s priorities. This customer-focused approach is the basis of the strategy that makes up the entire marketing process. A proactive, and focused marketing plan should provide guidance for pursuing the right customers at the right place and at the right time, this in turn optimizes the return on investment and increases profitability. As Trim (2003) observes, building a strong and profitable organization requires one to develop a strategy. Marketing is a process for creating value for the customer (Vessene, 2003). A marketing strategy is a plan that allows the management of the organization to direct the resources and the activities of the business in such a way that money is spent wisely guaranteeing maximum revenues for the business. As a firm that has existed for a long period and has a good understanding of the market terrain, LMI can solidify its position by adopting strategic marketing techniques.

6.2 Management

The company should adopt two strategies to strengthen management. The first is to put in place a succession plan. In this regard, the family has made some progress. In an interview with The New Zealand Herald, Phillips admitted to Gibson (2011) that the business will stay in the family. The entrepreneur also added that the business is putting in place a succession plan for his son, Les who works in the USA division and daughter Diana, who works as creative director at LMI headquarters to take over the business once the father gets out of the picture. That implies that the company may continue to enjoy stability and flexibility well into the foreseeable future. The second strategy is to make it possible for outsiders to rise to the highest level of management. The family can achieve this by taking the role of oversight and allowing non-family executives to run the business. This will widen the talent available to run the business.

6.3 Technology

From the analysis in the preceding sections, it is clear that the trends in the fitness industry point towards using more technology and using lesser time. The company therefore needs to re-align its business models towards this direction in order to respond to the demands of the younger generation who are using the gyms more (Dale et al., 2014). One emerging trend is the accelerated fitness concept. This entails achieving fitness using techniques that require less time than conventional exercises. One of these techniques is vibration training. The individual lies on a vibrating platform that exerts vibration pressure on joints or the whole body at intervals causing the individual to feel like they are exerting pressure on their body. As an advantage, this method offers efficiency in terms of time taken to achieve fitness. According to some advocates, a vibration regime involving a 15–minute work out three times a week can have equal effectiveness to a 30 –minute workout plan five days a week of conventional exercise (Edward & Laskowski, 2014). LMI needs to conduct research into this method and find out ways of exploiting the trend.

Another trend that the company must aim to exploit is use of computer and mobile applications in fitness training. The company has done well in developing its fitness management application, Momentum, but it must do more to develop applications that actually integrate training techniques in the applications. For example, the company should consider designing an application that has actual training techniques and one that can collect users’ data to customize the training methods to the specific user’s needs. That way, the company will cut on distribution costs since the users will only require to update the application regularly to get new methods and workout plans (Green, 2014). Users can pay annual or monthly subscription costs to ensure the company makes money from the venture. This will also solve the problem of piracy since duplicating an application and updating it regularly is almost impossible.

6.4 Overcoming Economic and financial constraints

Due to the limited financial muscle, the company should continue forming symbiotic relationships with other companies to help widen its reach. For instance, LMI has collaborated with the international food manufacturer, Nestle to promote its products. According to Nestle (2014), LMI and the company have an agreement to promote LMI products through its breakfast cereal in a product named Nestle Fitness. The cereal is packaged together with a free workout DVD to help Nestle customers exercise. In addition, LMI also has an important partnership with BeachBody, a multi-level marketing company that distributes fitness products in the USA. As part of this agreement, BeachBody distributes some L MI products to customers in USA (BeachBody, 2014). This will serve to diversify the company’s revenue base and increase brand recognition.

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6.5 Overcoming Cross-cultural Barriers

When developing a cross-cultural marketing and management policy the first step is to internationalize the headquarters HR team. With every new country that the firm touches down, there is an added dynamic to the existing cultural balance since the new culture always carries with it certain biases that will challenge the effectiveness of the already existing human resource and management policy (Jackson, 2002). Even if the stated policy is to be culturally neutral, there will still be silent cultural biases and nuances which if not recognized will render the entire policy ineffective or totally impotent. By engaging new international expats, or redeploying current local personnel from international divisions to headquarters and letting them take part in the designing LMI’s strategies and policies, the firm will acquire an outsider’s view and mitigate the likelihood of cultural bias quietly compromising the firms agenda (Hofstede, 2001).

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6.6 Limitations

Getting information for a small enterprise like LMI is difficult. This is because most media outlets, analysts, and scholars prefer to analyse public entities that attract greater interest from the public. In addition, it is impossible to access financial information from about the company due to its ownership model. The analysis is therefore based on limited information from scattered sources about the company. The company website provides a significant source of information, which limits its usefulness since such information, is likely to be biased in favour on the company.

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