Business management case study analysis

Business Management Case

Over the last several years, globalization has had a profound impact upon the transportation industry. Where, it has created a number of unique challenges for a variety of tour operators. A good example of this can be seen by looking no further than the Irish Ferry company Continental Group. What happened was the company reported a 25% decline in revenues during 2009. (Irish Passengers Numbers Down 10% 2009) This is problematic because they are wrestling with a number of different issues that are causing it to face a variety of challenges going forward. This is significant, because it underscores a trend that has been occurring with many European Ferry operators. In the case of the new company that is being established, there will be obvious challenges that must be dealt with. To fully understand the overall scope of these challenges requires examining key issues that are relevant, in the areas of: strategic human resource management and financial resource management. Together, these different elements will provide the greatest insights, as to how the new company can overcome the challenges in the industry, to become a profitable business venture.

Strategic Human Resource Management

The biggest human resource issue that is going to be faced by all ferry operators is labor costs. Given the fact that the company is going to be traveling, between Dublin and three major European shipping ports, means that labor costs will be something that must be accounted for. The problem is being able to strike a balance between using unionized workers and the less expensive, Eastern European-based crews. In this situation, you have the Irish labor unions that are demanding to be paid higher wages. Where, the average salary for someone who works in the union is 42,000 euro per year, while the Irish minimum wage is 18,615 euro per year. To bring costs down, many companies have bypassed the union and outsourced the work to the cheaper Eastern European crews. For the companies, this helps them to be able to increase their profitability over the long-term and remain competitive. Over the short to medium term, these kinds of issues can cause disruptions such as: work stoppages and slowdowns. A good example of this occurred in 2005, when Irish Ferries decided to replace 543 unionized workers, with a non-unionized crew. The results were: that the company would lose money because of this decision, as the union would organize it members and began striking various ports / offices. This would lead to the suspension of services for three weeks, as the Labor Relations Commission was forced to arbitrate the dispute. (Irish Ferries Dispute Resolved after Bitter Stand off 2005) This is significant, because it shows how the cost of labor is major factor that must be accounted for. Where, the company cannot take unilateral actions to reduce costs. Instead, there must be some kind of balance between the unionized costs of labor and a reasonable cost for the company to operate.

A second issue that is tied to the cost of labor is total hours worked. In this case, many of the non-unionized crews are willing to work well beyond the required number of hours under the law. This problematic, because many ferry operators are tempted to use this group of people, as a way to maximize profits, while keeping their labor costs low. A good example of this occurred with the Irish Ferries ship MV Normandy, where the union crew was replaced by a non-unionized crew that would work 12 hours per day (including holidays) with no extra pay. As a result, the dispute would end up before the European Commission. This is significant, because it shows how ferry companies will have to wrestle with the issue of hours and holiday pay. As they struggle with, trying to determine how to increase hours beyond the traditional union hours, without creating a major labor dispute. Since the cost of labor and the number of hours worked are interconnected, means that some kind of balance must be achieved, to have sustainable growth. (Pressure Grows for EU Ferries Directive to Combat Social Dumping 2005)

Financial Resource Management

The biggest financial challenges that will face the company are: its exposure to the economic cycle and high fuel prices. These two issues are interconnected, because fuel prices will have dramatic impact upon the costs for the company and can adversely affect its bottom line. Where, the costs for transporting both cars and passengers will increase, while the fare price will remain the same (at least for a certain amount of time). However, if fuel prices continue to rise, this could mean that ticket prices will have to increase or some type of a fuel surcharge must be imposed. In either case, this would have a negative impact upon demand, as rising costs will force many consumers not to use the company's services. (Irish Passengers Numbers Down 10% 2009)

Then, you have the overall impact that this will have upon consumer demand in general, which could possibly cause an industry wide slowdown. This is because the rising price of fuel, will dramatically affect consumer spending and psychology. When fuel prices are increasing, it will have an impact upon the costs of a variety of goods and services in the economy. Once this occurs, it means that many consumers will reduce their spending, which will cause the economy to slow dramatically. At which point, the company and all its competitors will have extra seat capacity and slowing demand. This will result, in a sharp decline in earnings, as the company could struggle with excess capacity, which would require drastic cuts in service. A good example of this kind of situation can be seen with Irish Continental Group which saw: a 10% decline in passenger traffic, a 5% decrease in cars and a 29% decrease in goods shipped. This is significant, because these result occurred in 2009, when fuel prices had damaged consumer demand so much that it would have profound impact on earnings. In many ways, one could argue that fuel prices and the company's possible exposure to economic forces are the biggest challenges going forward. As these two factors: can cause earnings to become more volatile, while affecting the financial foundation of the company. Therefore, it is prudent to create some kind of strategy that can be used to mitigate these effects as much as possible. (Irish Passengers Numbers Down 10% 2009)