Prior to its collapse, Hastie Group Limited (ASX: HST) had enjoyed year-on-year growth courtesy of a booming global economy and an acquisition trail that ensured steady growth in Australia, NZ, the UK and the Middle East.
In the absence of a strategy that clearly defines how a firm will compete (a focus), the risk of failure is never far away for business entities such as Hastie, who participate in highly commoditised industries where all too often the key to success is solely that of price. Hastie’s size helped it to benefit from a favourable cost advantage over smaller competitors, realised through the receipt of discounts on bulk purchases; its size also helped it to win contracts in an era where service was second only to price. Beyond that, it’s implied strategic intent offered little guidance on other ways in which it would differentiate itself from its competitors: “Hastie provides core technical installation and maintenance services to the building and infrastructure sectors, with well established operations in Australia, NZ, the UK and the Middle East”.
At a Business Unit (BU) level, the nucleus of a competitive advantage is even harder to find, Hastie’s division level managers clearly struggled to relate to the overall direction of the business. As an example, Hastie’s biggest BU, the Australian Electrical, Commercial Plumbing (MEP), Refrigeration and Fire division identified nine strategic objectives; three of which are described as “1. benefit from centralised human resources and management information systems; 2. strengthen succession planning capabilities and create opportunities for accelerated career paths, and; 3. focus on strengths in sectors identified as having the greatest potential”.
What do these mean? Not much more than an observation that Hastie was going to be a corporation, one that intended to sell as much as it could to the highest bidder; hardly the basis for differentiation or the realisation of a sustainable competitive advantage; certainly not a foundation for flawless execution.
What Hastie hadn’t realised was that rather than acting as a foundation for growth, their acquisition trail was making their future competitiveness much harder. Operating in an ocean of low cost, unpredictable albeit less organised independent contractors, Hastie would always struggle to compete in the absence of a value proposition that has low cost as a given rather than a sole basis of advantage. Ironically, just as Hastie would have fought to realise a lower cost base through rationalisation of overheads as it acquired new businesses, the faster it grew the more overhead costs were being added and the harder that made it to realise lower costs as a way of staying ahead.
Coles Supermarkets is also a highly commoditised business, operating in a market that is arguably more competitive than that experienced by Hastie. Coles strategic intent is concise and includes a value proposition rather than a description of “what they do”, it is to: “give the people of Australia a shop they trust delivering quality, service and value”.
Results speak for themselves, after nine consecutive quarters of industry out-performance revenue has increased by 6.9%, earnings have increased by 21.2% and fresh food sales have enjoyed a double digit pattern of growth. In the face of intense competition from the industry leader Woolworths, Coles has a clear strategy that emphasises value over price; promotes an ethic of working smarter not harder; offers customer experience over service, and; expresses a passion for individual personality in front of customers over a promise of career paths for its “talent”.
As an illustration of flawless execution, Coles CEO Ian McLeod suggests that “in the coming year, we will continue to improve our fresh food offer, enhance our customers’ experience and further progress the rollout of new store formats, building on our current momentum and providing better service, quality and value. I am confident we can do so, given the terrific commitment from our team members”.
In contrast, the chairman of Hastie’s noted that in their year ahead (prior to its collapse) their focus will be very conservative with an emphasis on doing more of the same (still doing little to help differentiation from competitors): “acquisitions will not be a priority, our focus will be on delivering good quality work and making sure we are being paid in a timely manner… we purchase more than any other company in our particular market, and we need to use this strength to ensure we get the best terms from our suppliers. We have strengthened and will continue to strengthen our risk management processes and procedures”.
The Hastie chairman concludes: “Our fundamental strategy of focusing on providing core technical services is unchanged, and today, Hastie Group remains a leading international designer, installer and maintainer of mechanical, electrical, commercial plumbing (MEP), fire and refrigeration services to the building and infrastructure sectors, with well established operations in Australia, NZ, the UK and the Middle East.” I think that is where we started; but regrettably where Hastie ends.
Paul Hunter is the founder and chief executive of the Strategic Management Institute (SMI) a membership organisation that provides certification to strategy practitioners through in-house Certified Strategy Practitioner (CSP) accreditation programs.