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Report on Plant & Gardens NZ Ltd

1.0 Introduction

This report is written for CEO and the board of directors of Plant & Gardens NZ Ltd (referred tohereafter as PNG). It is aimed to reflect the companys current status and give the management

of PNG recommendations based on the external and internal analysis in an attempt to maximize

profitability on investment.

The landscaping industry has been a dynamic and growing component of the Auckland region

for the last two decades particularly due to population growth and housing fuelled byimmigration. The PNG clearly makes multiple contributions to the economy and quality of life in

Auckland by developing and maintaining attractive urban landscapes.

However, the growth of landscaping industry began to slow down due to decrease in

immigration quotas and housing. Although PNGs reputations and backgrounds would placethem in the competitive position in the landscaping market, it is estimated that profits would

decrease in the business. The company are looking for growth opportunities of moving into moreprofitable areas of business with 3 new enthusiastic equity investors who are unafraid to take

risks and believe in PNGs potential.

This report is can be used to attain an understanding and to guide PNG in the process offormulating its competitive strategy for future growth.

2.0 Fundamentals of PNG

The core business of PNG is landscaping and garden maintenance concentrating on large scaleprojects for the commercial and government organisations. Competition is fierce and we have

even seen a number of large landscaping projects were being awarded to small industry players.

This clearly shows that small companies can easily compete with the major market leaders, suchas PNG, in providing services to large customers.

Experience, reputation for our quality work and professionalism can no longer be our sustainablecompetitive advantage under the current economic climate. Small companies operate with

significantly reduced overheads; therefore tend to be highly competitive on price.

2.1Desirability and feasibility

PNG faces a number of challenges and issues that need to be addressed and resolved. GAP

analysis has been used in an attempt to identify the issues and to determine gaps between thedesirability and feasibility of each operation.


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Operations management is concerned with the flow between operations, processes, and resources

where the external and internal supply networks are formed and become each others customerand suppliers. Therefore, the two primary objectives of operations management are the provision

of customer satisfaction and the efficient resource utilization. Customer satisfaction has to be

sustainable and balanced with efficient use of resources and reduce costs.

However, management and equipment costs are mainly fixed; the profitability of PNG isdependent on the operational efficiency and the demand volume of services.

The Voice of the Customer The Voice of the Business

Operation

CS

v/s

RU

Spec Timing CostMachinery

Systems

Prework

Raw

Materials

Labour

Type

Soft

landscapingCS

Finish on time

and budget***** ***** ***** ***** *****

External

maintenanceCS Scheduling ***** ***** ***** ***** *****

Interior

maintenanceCS

Suitable plants

Keep

Plants alive andhealthy

***** ***** ***** ** ***

Yard

OperationCS ***** ***** ** ***


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Nursery

CS

&

RU

Long term

growing

Plant supply to

SL,EM,IM,Special event

*** * * ** *

Composting RU * * * * *

Delivery

OperationCS

On-time

delivery ***** ***** ***** * **

Special

EventsCS

On-time

delivery

Suitable plants

***** ***** *** **** ****

2.2 Competitive Advantage

Operations Competitive Advantages

Large supply yards Our own four large supply yards with a nursery, composting and

inventory yards to support each of our operations. PNG retainsafety soil stock as soil delivery time is crucial.

External maintenance Well trained and experienced crew providing ongoing maintenance

services after the completion of the projects. Customers see this

PNG offer value added services.

Large nursery All plants for our projects are insourced from the nursery. Thisreduces cost significantly.

3.0 What happens if we do nothing?

PESTLE analysis is a useful method for understanding the external and internal factors affecting

the companys current position and potential, and developing future plans for the progress of thebusiness.


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3.1 PESTLE Analysis

PESTLE analysis for PNG

Political

change in the NZ immigration policies ecological/environmental issues current legislation home market future legislation regulatory bodies and processes trading policies

Economic

Reduction in immigration quotas andhousing impact on the economy on the

business

Current NZ economy increasingcompetition

overseas economies and trends seasonality/weather issues customer/end-user drivers High NZ dollar

Social

Angelas garden show is a success Medium to large landscapers is the buying

population which is divided into small and

large segments

Lifestyle trends Changing population demographics Strong brand image

Technological

Just-In-Time for exotic plants delivery of top soil on time Nursery maturity and capacity Information and communications

3.2 Porters five forces

Michael Porter's Five Forces Model has seen as the most analytical and influential method forassessing the competition in an industry, which is described as follows:


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Source: Porter, M.P., The Five Competitive Forces(Harvard Business Review, 2008)

Porter identifies five forces that determine industry attractiveness and long-term profitability.The five competitive forces in the landscaping industry are;

Threat of New Entrants

The threat of new entrants to the landscaping industry is high as the entry barriers are low.Consequently, the level of competition is very high and it reduces its business attractiveness.

It is relatively inexpensive to start a new company. A new company can advertise locally and

service a relatively small geographic region and incur minimal operating and capital costs. Those

companies can establish significant customer loyalty and more likely to be successful with thesolid customer base.

Intensity of rivalry between existing competitors

The rivalry between existing competitors in the landscaping industry is intense where there are

many equally sized or small players. PNG being a market leader has 20percent of market share

but there are no companies with a dominant market share in this industry. High fixed costsencourage competitors to fill excess capacity by price cutting. Little product differentiation and

low switching costs creates greater rivalry in the landscaping industry. Small companies are


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pursuing cost-cutting strategies aggressively under the current economic crisis, rivalry became

even more intense.

Threat of Substitutes

There are no significant substitute services or emerging trends that would diminish the industryattractiveness or established industrial methods for commercial, industrial and residential

landscaping services. Therefore, threat of substitutes is low.

Competition with occasional do-it-yourself (DIY) homeowners cannot be a threat to the industry.

Bargaining power of suppliers

Suppliers bargaining power is medium high. Volume, time and the cost of materials such as top

soil and exotic plants bought from suppliers can have a significant impact on PNGs profitability.There are many landscaping buyers but few dominant top soil suppliers and are highly valued

products. We cannot threaten to integrate backwards into supply such as top soil and exotic

plants

Bargaining power of buyers

The bargaining power of buyers is greater as many sellers in the industry and competitions are

fierce. Landscaping services are undifferentiated and standardized, and buyers are price sensitive.

Landscaping is to be cut easily during economic downturn as it is often a discretionary spending.It is expected the decrease in the sale growth and the pressure on margins.

3.3 Key success factors and Key limiting factors

Key Success Factors High VP Medium VP Low VP

Service Range

Quality of Service

Experience

Personnel

Value

Brand Image

Customer Intimacy

GAP

GAP

GAP


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Design

On-site Nursery

Key Limiting Factors High Threat Medium Threat Low Threat

Cyclical fluctuation

revenue

Loss of momentum

Competition

Yard rental

Top soil supply

3.4 Key success factors for PNG

Experience

PNG has been able to leverage its experience and knowledge of the market to become successfulin the industry. PNG doesnt necessarily receive benefit from being the largest operator in the

industry and be more price competitive.

Quality

PNG has established a reputation as a market leader in the high-quality landscape design and

maintenance industry, and developed a strong customer base with a proven track record of

successful projects for commercial and government organizations.

Design

Our international award-winning designers work with the customers from the initial planning tothe completion of the project. They are on site to ensure the project fulfill the goal.

Value

The client chooses PNG based on a combination of their budget and our reputation. We have to

Game

Chan er

GameChan er


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give the best we can and be paid appropriately. Through excellent planning, quality products and

most efficient landscaping and maintenance services, we provide the value to our customers.

Personnel

A strong management team is critical in the landscaping business. Rachel is the most respectedand highly sought after landscape designer and Rod is a renowned landscaper and builder in NZ.

Our professional team also includes plant material experts, well-experienced construction and

maintenance crews. Each member of our team contributes valuable skills and knowledgenecessary throughout all the phases of design, installation and maintenance to achieve a

successful outcome.

On-site Nursery

All plant materials for our project are insourced through our on-site nursery. The nursery has

been successful and has undertaken a number of value adding activities

Customer Service

The critical component to business success is customer retention and referral. The success of

PNG has been a direct result of our ability to provide excellent personal service creating a strong

customer satisfaction and customer loyalty.

3.5 Key limiting factors for PNGSeasonal income

The success and profitability of the PNGs landscape business is directly affected by seasonal

changes. Revenue drop significantly once winter transition into the summer and spring months

giving a financial hard time for the company. The bad weather could have resulted in a

significant loss as momentum lost. Staff turnover is also high and unavoidable due to the

seasonal nature of the landscape business.

Yard rental expense

Our profit has been eaten up by the rental expenses for our 4 supply yards.

Soil delivery

Soil delivery timing is critical for the project success. Safety stock in case of bad weather

emergency or a delay in the soil delivery results in high rental expense and high inventory costs.


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4.0 Opportunities

According to the PESTLE analysis and Porters Five Forces analysis, the industry is in a mature

stage of its life cycle and is estimated to maintain a stable share of the Auckland regional

economy over the long term. The industry demand fundamentally determined by the cyclical

fluctuations in population growth, housing and construction investment.

We need to critically analyse whether it is feasible to change the business for future growth or

retain the current operations. Current economic crisis and decrease of immigration causes the

increase in competition among existing players. It is estimated this will lead to a decrease in

profitability of PNG. Therefore, maintaining the status quo seems not a safe option.

We also needs to strategize about the tough competition that we will face from competitors

including small players. However, no other landscaping company in New Zealand can matchPNGs ability to provide the full range of integrated services on large scale projects or

commercial development.

4.1 Core Competencies

Core Competencies should be flexible in responding to changes in the business environment. As

Hamel and Prahalad emphasize PNG must not lose the sight on the future to come while more

focusing on current situation. As a business evolves, develop growth strategies for adding new

businesses to the portfolio, whilst deciding what businesses should no longer be retained to lead

PNG into the future.

4.2 New operation policyBusiness Objective

Profit maximization

Market to be Served

High-end home owners

Public-private sector large organization

Type of Products

Landscape design

Exterior maintenance

Interior maintenance

Plant materialsComposting


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Manner of Serving the Market Effective customer service combined with efficient

resource utilization

Quality Policy High quality, technically oriented landscape services

Demand Volume of Services Small quantity to a large number of end customers

4.3 PNG New organization chartPNG split into 3 main divisions namely; B2B, Yard Operations, B2C

based on 4 main assumptions

adding high-end home garden services outsourcing soft landscaping installment purchasing land for nursery closing 3 yards and keep Mt Wellington


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5.0 What are the opportunities?- Strategy and implementation summary

5.1 B2C Division

5.1.1 Home garden services

Giving up big landscape installation provides us to explore new business opportunity for creatingresidential landscapes. We will have a modest profit initially but to be expanded over the next

three years. Switching to smaller private customer may represent a high-risk opportunity but I

am confident about our ability to grow the business in the residential sector.

According to Maslows hierarchy of human needs model, aesthetic need and satisfaction ofcognitive need are important. Successful landscape design can be directly associated with this

principle and individuals quality of life.

The competition in this market segment is overwhelming but often lacks professionalism andquality of service. We will deal with predominantly an upscale market that may not be as

affected by the unsteady economic swings. The projects can cost 10 to 20 percent of the value of

their property and the margins are larger as we can charge more for the higher-skilled work.

There is also seasonality of demand with higher demand for home gardening services in spring

and autumn as opposed to lower demand for large projects during theses months. This willsupport the business through the leaner months as a business with highly seasonal profits.

5.1.2 Future home garden business strategy

Take a fresh approach to the landscape business and create a niche that competitors are not

offering.

Oriental garden design landscaping: This unique and premium service can create a larger

profit margin.

Organic garden: The popularity of eco-friendly and health-aware organic gardening continues

to increase.

Manipulating demand

The landscape demand is seasonal and fluctuates according to the weather. Manipulate demand

in the off peak season by introducing gift cards and loyalty cards. This can also lock in customers

creating a constant demand.

Buy out smaller landscapers


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PNG should buy out smaller landscapers in the residential sector in order to increase market

share.

5.2 Yard operations

5.2.1 Nursery

Nursery operations have been successful generating the highest revenue. PNG grows most of the

plants we use in our landscapes and purchases some trees for some specific applications. We

should expand nursery business because of its lucrative profits. We should grow plants not onlyfor our own projects but also sell wholesale to other landscapers. We should grow expensivetrees and exotic plants and be knowledgeable and flexible to be aware of new trends in plant

materials.

5.2.2 Composting

Composting is seen as a good business opportunity with money coming in both from saving

material tipping fees and use of the end product further reduces grounds maintenance costs. It

also has been catering to our nursery.

5.2.3 Purchasing supply yard

The company currently leases 4 large supply hubs and pays high rental fees. We will close 3

supply yards except Mt Wellington site. With an additional equity investment the company willhave sufficient funds to purchase land for future expansion. PNG should purchase either

currently leased Mt Wellington supply and nursery yard or affordable land within the proximityto greater Auckland area. Property maintains a cash reserve, and by owning the yard will enablePNG to divert the current rental expense into equity growth. Therefore, we will be able to

maintain good cash flow and increase profitability.

5.3 B2B Division

5. 3.1 Public and commercial division

Demand for urban area landscaping in the greater Auckland region are expected to continue togrow even though the fear of public sector spending cuts and weak economic condition.

However, business will get tougher and more competitive as small landscapers have fiercelypursuing price-cutting strategy into this market.

Public and commercial component has been the key to PNGs growth. At present, about 35% ofbusiness is from public and commercial landscape services. Despite its high level of business

share this division generates a low profit but operational cost is very high to sustain its growth.


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Large landscaping business is seasonal, with the high season being late autumn through

winter. There is very little activity in the spring through autumn period. Managing employees isa challenging task as we need to keep an eye on staffing requirements and be prepared to fill in

when necessary while driving overhead cost down.

Nevertheless, PNG will continue working in the public and commercial projects on a larger scalebbecause most of the maintenance and special event jobs from our soft landscaping clients.

PNG's established brand reputation and our impressive credentials enable PNG to win theprojects. We should retain landscape design but outsource landscape installation. The design

phase is typically the most important in developing any new landscape installation or renovation.

Landscape design is core strength as PNG has award-winning in-house landscape architectsgenerating profitable revenues by charge the highest fees.

5.3.2 Exterior maintenance

Exterior maintenance is very profitable with a low overhead cost. At the completion of each

project, customers often wants ongoing, professional maintenance programme which is essentialin protecting their landscape investment. PNGs professional maintenanceservice aims for the

highest possible standards and ensures the viability of the plant materials many years after the

initial installation.

0%

5%

10%

15%

20%

25%

30%

35%

40%

ShareofBusiness

PNG Share of Business & Margin Ratios

Cost

Profit
http://www.connellylandscaping.com/services_maintenance.htmhttp://www.connellylandscaping.com/services_maintenance.htmhttp://www.connellylandscaping.com/services_maintenance.htm


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6.0 Recommendations and conclusion

This paper has provided a strategic and holistic view of the landscape industry. Within the

landscape services industry in Auckland revenue has fluctuated significantly recent years due to

the continuation of economic downturn. Decrease in outsourcing levels among private andgovernment business sector resulted in increase in competition and the decrease in the industry

revenue.

PNG continues to gain market share in the public and commercial market, however, the soft

landscaping business in this sector is no longer sustainable as its operational cost is very high

given its low profit margin. The high level of competition also reduces its business attractiveness.

Therefore, PNG must explore market penetration opportunity into home garden segment

targeting exclusively the high-end homeowners who have high level of discretionary income andaesthetic taste. Switching to smaller private customer may represent a high-risk opportunity but I

am confident about our ability to grow the business in the residential sector.

In conclusion, my main recommendations are;

Close the three of our supply yards and retain only one in Mt Wellington. Our profits arebeing eaten up by a high rental expenses.

Outsource delivery using 3PL trucking company. Soil delivery timing is critical for thebusiness success but the safety stock in case of bad weather emergency or a delay in the soil

delivery results in high rental and high inventory costs.

Continue composting operation. This creates synergies with other business such as nurseryand external maintenance.

Purchase the land and expand nursery business. Nursery operations have been successfulgenerating the highest revenue. It creates a competitive advantage that ultimately results in

superior value creation for the company.

Retain Landscape design and maintenance for large organizations but outsource installation.Exterior maintenance is a value-added service. It has been very profitable with a low

overhead cost.

Develop high-end home garden service market. PNG has established a reputation as a marketleader in the high-quality landscape design and maintenance industry, and developed a strong


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customer base with a proven track record of successful projects for commercial and

government organizations. This will create a competitive edge in penetrating the market.


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Bibliography

Hamel, G., & Prahalad, C. (1994). Competing for the Future. Harvard Business Review, 72(4),

122-129.

Kinicki, A., & Kreinter, R. (2009). Organizational Behavior: Key concepts, skills & best

practices, (4th ed.). New York, NY: McGraw-Hill/Irwin.

Porter, M.E. (2008). The Five Competitive Forces That Shape Strategy. Harvard Business

Review, 86 (1), 78-93. Retrieved from http://www.exed.hbs.edu/assets/Documents/hbr-shape-

strategy.pdf

Wright, J. N., & Race, P. (2004). The Management of Service Operations, (2nd ed.). London:

Thomson Learning.contracted out as needed.
http://www.exed.hbs.edu/assets/Documents/hbr-shape-strategy.pdfhttp://www.exed.hbs.edu/assets/Documents/hbr-shape-strategy.pdfhttp://www.exed.hbs.edu/assets/Documents/hbr-shape-strategy.pdfhttp://www.exed.hbs.edu/assets/Documents/hbr-shape-strategy.pdf

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