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Long range corporate planning Moudgill, Pravin 1972

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c LONG RANGE CORPORATE PLANNING PRAVIN MOUDGILL M. Sc. ( Indus t r i a l E n g . ) , North Caro l ina State U n i v e r s i t y , Rale igh, N . C . , U .S .A . A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION i n the Faculty of Commerce and Business Adminis trat ion We accept th i s thes is as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA October, 1972 In presenting t h i s thesis i n p a r t i a l f u l f i l m e n t of the requirements for an advanced degree at the University of B r i t i s h Columbia, I agree that after December 1977. the Library s h a l l make i t f r e e l y available for reference and study/ I further agree that permission for extensive copying of t h i s thesis for scholarly purposes may be granted by the Head of my Department or by h i s representatives. It i s understood that copying or publication of t h i s thesis for f i n a n c i a l gain s h a l l not be allowed without my written permission. Department of 0nmm^o  The University of B r i t i s h Columbia Vancouver 8, Canada Date January 30, 1973 i ABSTRACT Long Range Corporate Planning by Pravin Moudgi l l ; a thes is submitted i n p a r t i a l f u l f i l l m e n t of the requirements of the degree of Master of Business Adminis t ra t ion, Facul ty of Commerce, Univer s i ty of B r i t i s h Columbia, under the super-v i s i o n of Professor James W.C. Tomlinson; October 1 9 7 2 . The thes i s i s i n two d i s t i n c t parts . The f i r s t part deals with the theore t i ca l aspect of long-range corporate planning. S p e c i f i c a l l y i t : 1. Traces the h i s tory of development of long-range planning; g iv ing evidence of maturing of the d i s c i p l i n e , i t s e f f i c acy , and i t s acceptance i n the business world. 2 . Introduces the concepts of long-range corporate planning and develops them into a comprehensive theory. 3« Outl ines and analyses the advantages of long-range planning, d i s t ingu i sh ing between 'defens ive ' and ' c r e a t i v e ' advantages. 4. Suggests broad out l ines on 'how to p l a n ' . Includes some i n t e r e s t i n g (to the author) models developed by others as an a id to the planning exerc i se . The second part contains de t a i l s of a r e a l - l i f e app l i ca-t i o n of long-range planning. A h e u r i s t i c approach i s u t i l i z e d to develop a 4-year plan for two associated f i rms, a metal-stamping organizat ion and a dis tr ibut ing-cum-sales organizat ion . The exercise involves : 1. Se t t ing up ob ject ives . 2 . Examination of the e x i s t i n g resources of the two i i f i rms. Locat ing sources of present and potent ia l strengths and weaknesses. 3. A study of the market. 4. E s t a b l i s h i n g a time hor izon. 5 . Developing a product-market p o l i c y . 6. Integrat ing a l l the above into a compre-hensive long-range p lan . The p r i n c i p l e s developed i n the f i r s t part f ind norm-at ive a p p l i c a t i o n i n the above p lan . The plan therefore serves a dual purpose: a vehic le for in tegra t ion of various planning p r i n c i p l e s , as also for guiding the corporate destiny of the two f i rms. i i i TABLE OF CONTENTS Page Abstract i L i s t of Tables y L i s t of Figures v i i Preface v i i i INTRODUCTION I 1 CHAPTER I - HISTORY OF LONG-RANGE PLANNING 3 The Business World 3 Scholar ly A c t i v i t y 5 Summary 3 CHAPTER II - LONG-RANGE PLANNING : THE CONCEPT 10 Introduct ion 10 Long-Range Planning 10 The Expected Gap 13 Clos ing the Gap l 6 Long-Range vs . Short-Range 18 Behavioural Analysis 19 Post Long-Range Planning A c t i v i t y 2 0 CHAPTER III - ADVANTAGES OF LONG-RANGE PLANNING : AN ANALYSIS • 21 Elements of Long-Range Planning 21 Advantages of Long-Range Planning 21 Analys i s 22 Conclusions and Comments 24 CHAPTER IV - HOW TO PLAN 26 Planning to Plan , 26 The Planning Horizon 27 Def ining Objectives . 28 Appraisa l 31 Develop Strategy 35 T a c t i c a l Planning 37 Implementation, Control and Review 43 Summary 44 INTRODUCTION II 46 CHAPTER V - OBJECTIVES 49 CHAPTER VI - STRENGTHS, WEAKNESSES AND GENERAL COMMENTS 50 The Marketing Organizat ion 50 Management 53 The Package Concept 56 iv Page Organization 58 Competition 59 F i n a n c i a l Ratios 6 l CHAPTER VII - MARKET SIZE AND POTENTIAL 66 The Shelter Market 67 Res ident ia l Market 69 The Apartment Market 76 Non-Residential Construction 86 The Door-Product Market 87 Products Not Related to Doors 90 The Market i n Alberta and Washington ( U . S . A . ) . . 91 CHAPTER VIII - PLANNING REQUIREMENTS AND THE TIME HORIZON 94 Shortage of Working Cap i ta l 96 Construction Workers' S tr ike 97 The Proximate Period 98 Planning Requirements 99 The President 101 Construction Workers' S t r ike i n Washington and Alberta 101 CHAPTER-IX - THE PLAN 102 Constraints 102 Pre-Str ike Period 104 The Post-Str ike Period 105 F i n a n c i a l Reports 107 CHAPTER X - PRODUCT-MARKET POLICY 116 Products for other than the Shelter Market . . . . 118 Non-door Products 119 Door-related Products: R e t a i l Market 121 I n s t a l l a t i o n 123 Door-Related Products: Wholesale Market 124 CHAPTER XI - SUGGESTIONS FOR REVIEW 127 BIBLIOGRAPHY 12 8 APPENDICES 133 V LIST OF TABLES Page TABLE 1 Corporate F i n a n c i a l Ratios . . . . . . 62 TABLE 2 Breakup of Sales Between the Shelter and Non-Shelter Markets 68 TABLE 3 Populat ion and Household Project ions for B.C. and Alber ta 71 TABLE k Comparison of Rates of Increase i n Number of Households i n B.C. and A l b e r t a , pre-1972 and post-1972 (expected) 72 TABLE 5 Tota l Expenditure on New Residen-t i a l Construction i n B.C 73 TABLE 6 To ta l Value of New B u i l d i n g Construction - B.C 75 TABLE 7 Accuracy of Forecast : Investment i n Housing - B.C 77 TABLE 8 Dwell ing S tar t s , B .C. and Alberta (Dwelling Units) 78 TABLE 9 Dwell ing S ta r t s : B.C 79 TABLE 10 S tar t s : Apartments - B.C 80 TABLE 11 Average Number of Bedrooms per Dwell ing Unit - B.C. 82 TABLE 12 Ratio Between the Cost of Construc-t i o n of a Non-Apartment Dwell ing Unit to an Apartment Dwelling Unit 83 TABLE 13 Construction Dol lar s Expected to be Spent i n B.C. and Alberta 85 v i Page TABLE 14 Percentage Change i n Various Indices When Compared to the Previous Year • 89 TABLE 15 To ta l Value of New B u i l d i n g Construction - Alberta 92 TABLE 16 Dwell ing Units Started i n B.C. s Break-up by Quarter of the Year 95 TABLE 1? Year-ending F i n a n c i a l Reports 103 TABLE 18 Product - Market Posture: Expected Sales - Thousands of do l l a r s 117 TABLE 19 Expected Slack at Di f ferent Levels of Market Share of the Door-Related Product Market i n Van-couver and V i c t o r i a , based on the Assumption that the Market Grows at 6% per Year from a $10 m i l l i o n base i n 1972 126 v i i LIST OF FIGURES Page FIGURE 1 The Miss ion of the Corporation . . 11 FIGURE 2 What i s the Expected Gap 15 FIGURE 3 C los ing the Achievement Gap 17 FIGURE 4 Influence of Company Resources and Environmental P o s s i b i l i -t i e s and Constraints on Company Objectives 32 FIGURE 5 A Generalized Model for Long-Range Planning 38 FIGURE 6 Questions to be Answered i n Long-Range Planning 39 FIGURE 7 Internal and External Appraisa l 4 0 FIGURE 8 Developing T a c t i c a l Plans from the Corporate Plan 4 l FIGURE 9 The Long Range Plan 4 8 FIGURE 10 Adka Industries L t d . , Monarch S tee lcra f t L t d 54 v i i i PREFACE ADKA INDUSTRIES LTD. (establ ished i n 1950) and MONARCH STEELCRAFT LTD. (acquired i n 1958) are two associated organizations owned by Mr. E .D . Boyd, who on the death or retirement of his partners became sole propr ie tor i n 1969* MONARCH STEELCRAFT LTD. manufactures and assembles doors, door frames, concrete accessor ies , e tc . ADKA INDUSTRIES LTD. i s p r i m a r i l y a sales organizat ion which markets the produce of MONARCH STEELCRAFT LTD. and i s a lso a d i r e c t d i s t r i b u t o r for various l i n e s of hardware. While the two are separate* e n t i t i e s on paper they are 2 for a l l operat ional purposes one organizat ion. In ear ly 1972 Boyd contacted Professor J .W.C. Tomlinson of the Facul ty of Commerce and Business Adminis-t r a t i o n , U . B . C . , request ing a study of his organizations and t h e i r problems. 1 Under the e x i s t i n g arrangement Monarch " s e l l s " i t s produce to Adka and then;Adka d i s t r ibu te s i t . Monarch s e l l s to Adka at a pr ice lower than that which Adka s e l l s i n the market. Monarch pays 11$ federal sales tax on i t s s e l l i n g p r i c e . Adka does not have to pay any federal tax on these goods. I f the two were amalgamated then Adka would have to pay federal sales tax on i t s s e l l i n g p r i c e , or the company would have to pay a l a rge r amount as federal tax. Again, i f the two companies amalgamated then Adka would have to pay 5$ p r o v i n c i a l sales tax at the time of a c q u i s i t i o n of Monarch. Thus i t i s advantageous to keep the two organizations separate. 2 Hereafter I w i l l use the term Adka to re fer to both Monarch and Adka unless there i s reason to d i s t i n g u i s h between the two. The undersigned and C a r l Heino, a fel low student, were assigned to study the organizations as part of the course requirements of Commerce 591/592, May-June 1972. Later on I undertook to develop a long-range plan for the company as a Thesis towards p a r t i a l fu l f i lment of the degree of Master of Business Adminis t ra t ion . Needless to say the Thesis was made poss ible only because of the i n t e r e s t , time and e f for t generously contributed by the top management of Adka who had to suffer through, among other things , several questionnaires and other harassment at my hands. The debt i s g r a t e f u l l y acknowledged. Thanks are due to Professors J .W.C. Tomlinson, the Thesis supervisor , and V . F . M i t c h e l l , my advisor , for t h e i r encouragement, assistance and support; both i n the w r i t i n g of the Thesis and i n other academic and personal areas of my l i f e . I am g ra te fu l . I would also l i k e to thank Miss Karen Calderbank, the l i b r a r i a n at the Dominion Bureau of S t a t i s t i c s , Vancouver for assistance i n c o l l e c t i o n of s t a t i s t i c s , and Mrs. Anne Teacy for typing the manuscript. PART I 1 INTRODUCTION I L i t e r a t u r e on long-range planning can be roughly-c l a s s i f i e d into two broad categories : 1. Theories of long-range planning. 2. App l i ca t ions ; case h i s t o r i e s , e t c . Long-range planning has evolved and matured as a d i s c i p l i n e during the 1960 ' s . Drawing upon the theory of the administrat ive and psychologica l aspects of organiza-t i o n a l behavior and " s c i e n t i f i c " d i s c i p l i n e s l i k e s t a t i s t i c a l analys i s and mathematical programming, e t c . , i t has developed a comprehensive theory of i t s own. Part of the l i t e r a t u r e concerns i t s e l f with th i s development. The remaining describes or suggests means of a p p l i c a t i o n of the body of theory to actual or hypothet ical s i t u a t i o n s . Because of the diverse nature of corporat ions , there can be no one un iver s a l ly appl icable model. Because of continuous evolut ion no one model can be appl icable to the same corporat ion over i t s corporate l i f e . The problem therefore requires h e u r i s t i c r e s o l u t i o n . I propose to follow the above taxonomy i n th i s thesis on long-range planning. The paper s h a l l be i n two parts : The f i r s t part introduces, develops and c r i t i c i s e s the theory. S p e c i f i c a l l y i t : 2 1. traces the h i s tory of development of long-range planning. 2. introduces and c r i t i c i s e s concepts. 3» out l ines and analyses i t s advantages. 4. suggests broad out l ines of 'how to p l a n ' . In the second part the theory i s appl ied to develop-ing a long-range plan for two associated f irms, Adka Industries L imited and Monarch S tee lcra f t L t d . The planning exercise i s introduced and described i n the second part . 3 CHAPTER I HISTORY OF LONG-RANGE PLANNING "Formal long-range planning - perhaps the most s i g -n i f i c a n t new management development to emerge i n the 1960's" (Vanci l 1970, p. 98), defined var ious ly as comprehensive planning, comprehensive corporate planning, integrated planning, o v e r - a l l planning, t o t a l planning, and corporate planning (Steiner 1969, p. 6; 1970, p. 133) i s now an in tegra l part of management a c t i v i t y . In other words, long-range planning has ' a r r i v e d * . Comments and observations from the worlds of business and s cho la r ly a c t i v i t y are reproduced below as evidence for the above statement. The Business World  Europe My own empir ica l observations, together with discussions with corporate planners and top executives of major companies at a research seminar held at Fontainebleau i n 1964, lead me to the conclusion that the very rapid increase during the past two years of seminar d i scuss ions , management consul t ing engagements to introduce formal planning, and a r t i c l e s i n European business publ ica t ions about comprehen-s ive planning, w i l l undoubtedly r e su l t i n an important growth of comprehensive planning i n European companies. (S te iner , 1969, p. 15) 4 There can he few developments i n the science of management which have excited the business world more than corporate long-range planning. V i r t u a l l y unknown i n the U.K. f ive years ago, i t has burst l i k e a rocket over the mangement scene, i n f e c t i n g many with enthusiasm and crea t ing a new type of manger - the profess ional corporate planner. (Hussey, 1971, p. l ) Japan A comprehensive and de ta i l ed examination of 372 companies i n Japan i n 1965 (Japan Management Assoc ia t ion 1966) showed that 78 percent claimed to have formal, wr i t ten corporate plans . (S te iner , 1969, p. 15) U . S . A . Data on formal planning are poor, but there i s no doubt about the fact that during the past ten years the growth of planning s taf fs to help top managers conduct formal planning programs has been nothing short of phenomenal. In 1956 the National Indus t r i a l Conference Board reported that only 8 percent of the companies surveyed had one or more persons engaged f u l l time i n long-range planning dut ie s . At that time long-range planning was roughly synonymous with the concept of comprehen-s ive planning used here. A few years l a t e r Management Methods reported 18 percent of the firms i t studied had formulated advanced plans on a formal bas i s . Another study made i n 1962 (Mason, p. 4.) reported that l e s s than 20 percent of a l l U.S . manufacturing companies with annual sales over $10 m i l l i o n had organized planning on a corporate-wide bas i s . A study made i n 1963 (Stanford Research I n s t i t u t e , p. 4) reported that among the 500 l a rges t i n d u s t r i a l companies i n the U . S . , 60 percent had organized, foramlized corporate planning programs and another 24 percent intended to develop them. I f most of those who said they were going to introduce formal planning a c t u a l l y did so, and I would expect that they d i d , at l ea s t 75 percent of the l arges t i n d u s t r i a l companies the the U.S. today have formally organized comprehensive planning programs. In mid-1966 a survey of 1965 companies revealed that 9 out 5 of 10 said they did long-range planning, as d i s t inguished from annual budgeting (Brown, Sands, and Thompson). A National Planning Assoc ia t ion study i n 1966 of 420 companies showed that near ly 85 percent said they pre-pared long-term plans. Hal f of them prepared plans for only a f ive-year per iod , wel l over h a l f had inaugurated long-term planning since i960, and about ha l f had planning s taf f s at top management l e v e l s . (Ste iner , 1969, pp. 14-15) In a study reported by S t e i g l i t z (1969, p. 21) 65% of 280 ch ie f executives i d e n t i f i e d t h e i r most important a c t i v i t y as long-range planning and sa id they spend 44$ of t h e i r time on i t . In add i t ion to managers themselves, even the r e l a -t i v e l y more conservative profess ionals have accepted long-range planning. " . . . the majority of s ecur i ty analysts and i n s t i t u t i o n a l investors passing through companies i n s i s t on spending time with the planner and often emphasize his c a p a b i l i t i e s i n t h e i r evaluat ion r e p o r t s . " (S te iner , 1970, p. 134). Scholar ly A c t i v i t y  Seminars "Seminars on corporate planning are the order of the day." (Hussey, 1971. p. l ) . The American Management Assoc ia t ion conducts annual week-long seminars on long-range planning. S i m i l a r l y the I n s t i t u t i o n of Management Sciences conducts seminars on long-range business planning. (Mockler, 1970, p.154). 6 Schools The Harvard Business School has begun a program of research and i n s t r u c t i o n designed to develop new knowledge about formal planning systems and to show business executives how to put th i s knowledge to work promptly and e f f i c i e n t l y . (Mockler, 1970, p. 154). In 1969 some 60 p a r t i c i p a t i n g companies joined i n e s t a b l i s h i n g a vast "data bank" with the school ( V a n c i l , 1970, p. 98); quant i ta t ive evaluations are awaited. The effects of long-range planning are being q u a n t i t a t i v e l y evaluated at other centres a l so . Ansoff (1970, p.2) reports the f i r s t quant i ta t ive and s t a t i s t i c a l l y s i g n i f i c a n t study that planned a c q u i s i t i o n i s more p r o f i t -able than unplanned a c q u i s i t i o n . He also reports a yet- to-be-published study by Robert J . House and Stanley Thune of the Bernard M. Baruch Col lege , "Where Long-Range Planning Pays O f f . " The study offers "quant i ta t ive proof that firms which do long-range planning outperform firms which do not do long-range p lanning . " (Ansoff, 1970, p .7) . Learned Soc ie t ie s The rapid development of in teres t i n corporate planning i s r e f l ec ted i n the growth of the Society for Long Range Planning, which i n i t s f i r s t two years of existence reached a member-ship of near ly 1000 people. The Society has a number of members outside the U . K . , and i t s o f f i c i a l journal Long Range Planning i s i n t e r -nat iona l both i n i t s e d i t o r i a l concepts and i t s actual c i r c u l a t i o n . (Hussey, 1971, p . l ) 7 Books The f i r s t hook on long-range planning, "Long-Range Planning for Management," edited by Ewing was published i n 1958. I t contained a c o l l e c t i o n of major a r t i c l e s on the nature and p r i n c i p l e s of planning, planning s trategy, and the steps to be followed i n making an o v e r a l l corporate p lan . There has been a phenominal increase i n publ i sh ing a c t i v i t y s ince then. Over 25 book length studies on the subject were published i n the 1960's. (Mockler, 1970, p. 154). Maturing of the Concept Perusal of these books reveals a d e f i n i t e maturing of the concept of long-range planning. The e a r l i e r l i t e r a t u r e could be c l a s s i f i e d into two broad categories : some authors attempted to develop (for the f i r s t time) a systematic body of planning concepts and p r i n c i p l e s ; others focused on planning p rac t i ce s , t e s t i n g v a l i d i t y of planning theories i n working s i tua t ions and explor ing what could be l ea rnt from studying how successful executives a c t u a l l y planned. Please see appendix 2 for a b r i e f review of some of these books. 8 The e a r l i e r books were general ly developmental and exploratory. Later books, wr i t ten when the d i s c i p l i n e had matured, summarized the experience of the past , integrated and synthesized previous work and added new dimensions to both the s t ra teg ic and implementational aspects of planning. Summary Herold (1972) reports evidence of the e f f i c i e n c y of long-range planning i n his study which concludes that formal planners outperform informal planners on sales and p r o f i t s ; and also outperform themselves when compared to t h e i r i n -formal planning stage. While the samples reported by Steiner (1969) have not been taken from the same populat ion, the fo l lowing re su l t s indicate de f in i t e trends i n acceptance of long-range planning! Percentage of corporations Year surveyed which report develop-ment of long-range plans  1956 8 1962 20 1963 60 1966 85-90 Trac ing the development of the concept through books on the subject , indicates that long-range planning has evolved from a normative a c t i v i t y supported by rudimentary theory into a sophis t icated d i s c i p l i n e with a sound theore t i ca l base and empir ica l confirmation. 9 Thus we see that long-range planning has proved i t s e l f , has matured as a concept and has been accepted, and i s now an in tegra l part of management a c t i v i t y . 10 CHAPTER II LONG-RANGE PLANNING : THE CONCEPT In th i s chapter I w i l l develop an overview of the corporat ion and show how long-range planning f i t s into the corporate 'scheme of t h i n g s ' ; the part i t plays i n fur ther ing the corporate miss ion. During the above process I w i l l also develop and define the concept of long-range planning. Introduct ion There i s an environment w i t h i n which the corporat ion funct ions . The environment contains sets of needs, values and resources . The nascent corporat ion has ava i l ab le to i t a subset of resources and has i t s own subset of values . It addresses i t s e l f to f u l f i l l i n g a subset of environmental needs. This i s the miss ion of the corporat ion. The concept of the miss ion i s depicted i n f igure 1. The above concept has inherent i n i t the necess i ty for long-range s u r v i v a l . An organisat ion must survive i n order to be able to f u l f i l i t s miss ion. Thus the miss ion has a time dimension - the future . Long-range planning i s an attempt at r e a l i s a t i o n of th i s future. Long-Range Planning An on-going organizat ion has at any given time a c e r t a i n momentum ( i . e . , a mass, speed and d i r e c t i o n of The Mission of the Corporation 1. Environmental needs - Needs to he met 2. Environmental values ( l ) r\ (2) = Subset of needs which should be met 3. Environmental resources ( l ) A (3) = Subset of needs which can be met 4. Set of missions = ( l ) A (2) A (3) 5. Corporate resources - what the corporation can do 6. Corporate values - what the corporation would l i k e to do L 7. Corporate mission = (4) A (5) O (6) Note: A. indicates set of i n t e r s e c t i o n Figure 1 12 of movement), and a certain rate of change of momentum. It has i n e f f e c t a certain 'naturally occuring' future, a state or condition i t w i l l a rrive at or be i n , at a given point i n time i n the future, i f allowed to continue under the presently foreseen circumstances. This may however be d i f f e r e n t from the state or condition desired at that point i n time. I f we c a l l the point i n time i n the future the time horizon or planning horizon (and the intervening period the proximate period), the expected state or condition of the corporation at the time horizon becomes i t s reference projection. S i m i l a r l y the desired state or condition at the time horizon becomes i t s wishful projection. In the case that the expected future i s not also the desired future there w i l l be an expected projection gap. The corporation has to intervene i n order to ensure a t t a i n -ment of the desired future, to close the expected gap. This intervention has to be planned. Long-range planning i s defined as the interventional a c t i v i t y which aims at "imposing before-the-fact control over the r e s u l t of events that may take place . . . i n the future" (Heyel, 1963, p. 453); which deals with the f u t u r i t y of present events; which seeks answers to the question 'what should we do today to deal with tomorrow,' i n order to close the expected gap. 13 The Expected Gap As seen above the gap i s the dif ference between the state the corporat ion would l i k e to be i n and the state i t expects to be i n , at a given time i n the future. Before we can estimate the dif ference between the two states however, we have to reduce them to a common scale of measurement, i . e . , r e l a te them to a common frame of re fer -ence. Let us determine th i s frame of reference. Let the state of the corporat ion be expressed i n terms of a l e v e l of achievement scaled (both q u a l i t a t i v e l y and q u a n t i t a t i v e l y ) against miss ion requirements. The mission projected at the time horizon determines a required l e v e l of achievement - what the corporat ion would l i k e to a t t a i n , or to be at that t ime. The present momentum and rate of change of momentum are also re la ted to the miss ion. Ext rapo la t ion of t h i s current momentum and rate of change of momentum determines the expectedlevel of achievement at the time hor izon. The dif ference between the two l e v e l s of achievement, required and expected, determines the ant ic ipated gap. Thus the miss ion of the corporat ion becomes the frame of reference for gap eva luat ion. This mission however i s i t s e l f subject to change. I t may be noted that the corporate miss ion was o r i g i n a l l y defined under the constra ints of: 14 1. The set of environmental missions ((4), f i g . l ) . 2. Corporate a c h i e v a b i l i t y - associated with resources ava i lab le to the corporat ion ((5)» f i g ' l ) « 3. Corporate d e s i r a b i l i t y - associated with the values of the corporat ion ((6), f i g . l ) . I t i s quite poss ible that one or more of the above may change or may be expected to change with time. This may lead to a s i t u a t i o n where the corporat ion expects to be unable to achieve i t s miss ion i n the future . I t i s also poss ible that even though i t expects to achieve the current miss ion, changed circumstances open up other a l t e rna t ives which are more meaningful than the current miss ion. Thus the current mission when projected on the planning horizon may turn out to bes 1. Neither achievable nor de s i r ab le . 2. Achievable but not d e s i r a b l e . 3. Desirable but not achievable . 4. Both des irable and achievable . I f condit ions ( l ) , (2) or (3) p r e v a i l , the corporat ion has to revi se i t s miss ion, i n such a way that i t s new expected miss ion at the planning horizon i s both des irable and achievable . The dif ference between the new mission and the current miss ion , both projected at the planning hor izon, scaled both q u a l i t a t i v e l y and q u a n t i t a t i v e l y i s , what we w i l l c a l l , the 'miss ion gap. ' 15 What i s the Expected Gap? 1. The corporat ion at time 0. 2. Expected achievement scaled against current mission projected at planning horizon : reference p r o j e c t i o n . 3. Desired achievement scaled against desired miss ion projected at planning horizon : wishful p r o j e c t i o n . Figure 2 16 I f condi t ion (4) p reva i l s then the gap ( i f any) between the expected achievement and desired achievement i s , what we w i l l c a l l , the 'achievement gap. ' The concepts of reference pro j ec t ion , wishful pro-j e c t i o n , the mission gap, and the achievement gap are depicted i n f igure 2. C lo s ing the Gap It may be noted that there are b a s i c a l l y three dimensions the gap and i t s associated gap-clos ing planning a c t i v i t y . 1. Time. 2. Mis s ion d e f i n i t i o n re la ted to time* 3. Achievement re l a ted to miss ion d e f i n i t i o n (and therefore re l a ted to time). Once the planning horizon i s defined however we are l e f t with only two dimensions to the gapi 1. The miss ion gap. 2. The achievement gap. In case the current mission i s not achievable or des irable at the planning hor izon, i t has to be dropped, modified or rev i sed ; l ead ing to a new miss ion d e f i n i t i o n . This d e f i n i t i o n automatical ly r e su l t s i n : 1. C los ing the o r i g i n a l miss ion gap. 2. Determining the required achievement l e v e l associated with the new mission. 17 Clos ing the Achievement Gap Achl l*v\OW\a.v\V<JVV\ _p\ CVVN^VVVC^ 10^ fi forces r e s u l t i n g from implementing short-range programs (assumed to act at the beginning of the plans for ease of d e p i c t i o n ) . Figure 3 After the new miss ion has been def ined, the current rate of achievement can then be projected on the planning horizon and compared with the required achievement re la ted to the new miss ion to obta in the achievement gap. Once the gap i s establ i shed correct ive forces can be brought to play on the corporat ion at or along d i f f e rent points i n time i n order to give i t the new desired momentum so that the gap can be c losed . This concept i s depicted i n f igure 3« The above f igure also suggests one of the several dif ferences between long-range and short-range plans, the time dimension. Long-Range vs . Short-Range Long-range planning i s at times ca l l ed o v e r - a l l or t o t a l planning (Ste iner , 1969, P« 6 ) . This sometimes leads to a confusion of concepts. There i s more to the t o t a l corporate planning a c t i v i t y than just long-range planning. The t o t a l corporate planning a c t i v i t y has two dimensions t 1. Planning to plan the p lan , and planning the plan - s t ra teg ic planning. 2. Planning to operat ional ize the plan -implementational planning or t a c t i c a l planning. Under the above dichotomy, long-range planning i s synonymous with s t ra teg ic planning. I t d i f f e r s from short-19 range planning along several dimensions, some of which are de ta i l ed i n Appendix 1. General ly speaking long-range or s t ra teg ic planning i s more comprehensive and, according to Ste iner (1964) i s " . . . t h e process i n which the basic miss ion, ob jec t ives , and s t rateg ies for the company are hammered out to guide the a c q u i s i t i o n , use and a l l o c a t i o n of resources to achieve ob jec t ive s . " (Ste iner , 1970, p. 135). Thus long-range planning deals wi th : 1. The mission gap c l o s i n g a c t i v i t y ; and 2. Planning the achievement gap c l o s i n g a c t i v i t y . Short-range planning on the other hand deals with implementing the achievement gap c l o s i n g a c t i v i t y . Behavioural Analys i s Long-range planning behaviour i n an on-going organiza-t i o n can be broadly categorised in to : 1. Search behaviour ( for resources and information) - seeking answers to the questions 'where i s the corporat ion headed' and 'what are the c o n s t r a i n t s . ' 2. Bargaining behaviour (the goal formation process) - seeking answers to the question 'where would i t l i k e to go . ' 3. Deci s ion making behaviour ( r e l a t i n g means, i . e . , resources and information, to ends, i . e . , goals) - seeking answers to the question 'how can i t get t h e r e . ' The long-range planning a c t i v i t y t r iggers search ( leading to problem formulat ion, modi f i ca t ion , a l t e rna t ive generation and se lec t ion) and enforces appra i sa l of the 20 organizat ion and i t s environment and i d e n t i f i e s resources and cons t ra int s . I t also enforces managerial communica-t i o n and i n t e r a c t i o n , both i n the search process and goal formation and modi f ica t ion process. It provides a structure for dec i s ion making, both in terms of modifying goals and acquir ing and r e a l l o c a t i n g resources. Post Long-Range Planning A c t i v i t y Af ter closure of the achievement gap has been planned, i t i s implemented. This i s done by developing and implementing short-range plans which d e t a i l and schedule resource a c q u i s i t i o n and a l l o c a t i o n . Operational elements c r i t i c a l to gap closure would have been con-sidered i n the long-range p lan . The short-range planning a c t i v i t y would general ly be l i m i t e d to development and a p p l i c a t i o n of n o n - c r i t i c a l resources. Implementation of short-range plans i s contro l led to ensure that i t proceeds according to p lan . Deviance i s analysed for errors i n implementation or changes i n exogenous var iables or other planning parameters. Plans are reviewed from time to time i n the l i g h t of changed circumstances, or expectations, or both. 21 CHAPTER III ADVANTAGES OF LONG-RANGE PLANNING s AN ANALYSIS In th i s chapter we w i l l use our conceptual develop-ment of the long-range planning a c t i v i t y to analyse the various advantages ascribed to long-range planning. Elements of Long-Range Planning We note from the previous chapter that long-range planning i n an on-going organizat ion involves the per iodic or continuous determination of the fo l lowing : 1. Where i s the corporat ion headed : reference pro jec t ion? 2. Where would i t l i k e to go s wishful pro ject ion? 3. Where can i t go » the constra ints? 4. How can i t get there? Elements 1 and 2 above can be col lapsed into one element t 'determining the gap! . S i m i l a r l y elements 3 and 4 above can also be col lapsed into one element 'determining how to close the gap'. Let us use the 4-element and 2-element frame-work to analyse the advantages of long-range planning. Advantages of Long-Range Planning Proponents of long-range planning ascribe several advantages or benefi ts to the a c t i v i t y . L i s t s of claims vary, but the fo l lowing i s , we f e e l , f a i r l y representat ive : 22 Many companies f e l t they were tending to get bet ter value for t h e i r c a p i t a l inves t-ment, and were making fewer mistakes. A number of respondents f e l t that planning indicated problems before they occurred. Many f e l t that planning had resu l ted i n a dramatic change of i n t e r e s t , and a t t i t u d e , throughout t h e i r organizat ions . One claimed that i t had r e - v i t a l i z e d the interes t of senior managers i n the future of the company. Some saw planning as a d i s c i p l i n e which cont inua l ly points out that there i s change and the need to plan ahead to meet i t . One executive re ferred to "an awareness forward that enables us to ant ic ipa te changing market c o n d i t i o n s . " Many companies have been forced to rethink the nature of t h e i r business and set more s p e c i f i c long term ob ject ives . In some organizations for the f i r s t time there has been a co-ordinated un i f i ed e f for t to achieve predetermined ob jec t ives . The r e su l t has been improved morale and more e f f i c i e n t use of resources. Perhaps the most s i g n i f i c a n t benef i t claimed was that planning enables departmental managers to have a much c learer understanding of the whole operat ion. It was sa id to have resu l ted i n broader horizons and a change i n a t t i tude from parochial ism to business o r i e n t a t i o n . (Taylor and I r v i n g , 1971. p. 26) Analys i s The various advantages claimed above can be broadly categorised into advantages a r i s i n g out of : 1. Improved information : greater f a m i l i a r i t y with the organizat ion and i t s environment. 2. Improved communication « greater f a m i l i a r i t y with the thought processes and asp ira t ions of management . 3. Creative th ink ing involved i n modifying goals in the face of cons t ra int s . 4. Creative th ink ing involved i n devi s ing means to achieve ends. The f i r s t two sets of advantages, those associated with gap determination, are , according to us 'defensive ' advantages. These advantages can be ascribed to any a c t i v i t y (as also to long-range planning) which enforces d i s c i p l i n e and order; which forces management to f a m i l i a r i z e them-selves with t h e i r organizat ion , t h e i r col leagues ' thought processes and t h e i r environment. Any a c t i v i t y which provides a s tructure which requires and allows management to ' l e a r n the f a c t s ' , to acquire more complete pert inent information w i l l r e s u l t i n s i m i l a r advantages. These advantages are however only due to improved e f f i c i e n c y a r i s i n g out of a bet ter understanding of the organizat ion and a sense of corporate cohesion and d i r e c t i o n ; advantages associated with problem formulat ion; with an understanding of the 'gap ' . The l a s t two sets of advantages, those associated with gap c losure , are , according to us, ' c r e a t i v e ' advantages. This i s where the exercise leads to synergy, a r i s i n g out of creat ive th ink ing involved i n modifying the problem i n the face of constra ints and devi s ing so lut ions to the problem. 24 Learning the strengths and weaknesses of the organizat ion and the potent i a l of the environment leads to better information and understanding, which i s undoubt-edly advantageous. However, d i f f e rent managements may handle the same information d i f f e r e n t l y , a more creat ive management d i s t i n g u i s h i n g i t s e l f by devi s ing a superior s o l u t i o n . Conclusions and Comments We have seen that the advantages ascribed to long-range planning can be broadly c l a s s i f i e d as defensive (those a r i s i n g out of a c q u i s i t i o n of information and improved communication, or s e n s i t i s i n g the organizat ion to i t s e l f , i t s environment, and the organizat ion-environment inter face) and creat ive (those a r i s i n g out of u t i l i z a t i o n of information r e s u l t i n g i n problem refinement and improved resource a l l o c a t i o n ) . Use of the words 'defens ive ' and ' c r e a t i v e ' i s not however to imply that the l a t t e r are i n any way superior to the former. The c l a s s i f i c a t i o n i s based on the nature of the advantages; i t does not r e f l e c t t h e i r q u a l i t y . I t may be noted that while improved information and communication can lead to greater e f f i c i e n c y i n dec i s ion making without neces sar i ly r e s u l t i n g i n any creat ive th ink ing ; and that while there i s genera l ly scope for creat ive th inking 25 even with l i m i t e d information, p r o b a b i l i t y of synergy increases when both a c t i v i t i e s are pursued i n unison. CHAPTER IV HOW TO PLAN We have seen that long-range planning aims to e s t ab l i sh a frame of reference for current and future dec i s ions . In t h i s chapter we w i l l examine how a company can go about e s t ab l i sh ing t h i s frame of reference. Planning l i t e r a t u r e i s f u l l of suggestions, schemes and models for long-range planning. They range i n d i v e r s i t y from a conceptual treatment of the subject -which merely suggests the nature of questions to be asked, to p rov i s ion of exhaustive check l i s t s - which d e t a i l s p e c i f i c questions. While these may contain suggestions which are not relevant to the s p e c i f i c problem at hand, most of these are general ly appl icable to most s i t u a t i o n s . The planner can draw upon s p e c i f i c models, examine them, and e i ther use them per se (with necessary modif icat ions) or use them as guides to b u i l d hi s own h e u r i s t i c model. In th i s chapter we intend to present a general scheme as an a id to model b u i l d i n g . We have already introduced the concepts underlying long-range planning so our treatment below w i l l tend to be normative. Planning to Plan The f i r s t step i n any planning a c t i v i t y i s planning to p lan . This requires e s t ab l i sh ing a sui table c l imate , and making the organizat ion planning conscious. It i n -volves making the fo l lowing basic decis ions and assump-tions s 1. Who w i l l do what i n planning : e s t ab l i sh ing a communication, and author i ty and r e s p o n s i b i l i t y structure. 2. What i s being taken for granted : o v e r a l l assumptions which provide the framework for planning, e . g . , populat ion movement, steady increase i n GNP etc . 3. What i s the time horizon? The above gives the planners and the support organ-i z a t i o n a set of premises which determine the constra ints of the planning a c t i v i t y , provides a general d i r e c t i o n and suggests the personnel mechanics of the a c t i v i t y . This leads to e s t ab l i sh ing the status of the planners and planning p r i o r i t i e s , r e s u l t i n g i n improved co-ord inat ion , and general e f f i c i e n c y of the long-range planning process. The Planning Horizon The length of the planning period var ies from company to company. There are no r i g i d requirements. The only 1 guide l i n e s for an on-going organizat ion are: 1. I t should not extend too far into the future , where the extreme uncertainty Planning to wind-up the organiza t ion , say, i n one year i s a pe r f ec t ly feas ib le requirement. 28 does not permit meaningful planning. 2. I t should not cover too short a durat ion which might re su l t i n the corporat ion l o s i n g i t s overview or perspective of the s i t u a t i o n . A general requirement of the length of a plan i s that i t should cover the period of time encompassing important f i n a n c i a l commitments and t h e i r pay-offs . For example, depending upon subject matter, coverage should embrace product development time and period of major f i n a n c i a l impact fo l lowing development; resource development time ( e . g . , sources of supply, management t a l e n t , or labor s k i l l s ) ; and time required to develop phys ica l f a c i l i t i e s plus pay-off period for major cap i t a l investments. (Ste iner , 1964, p. l 4 l ) Def in ing Objectives Two sets of object ives heed to be def ined: 1. The object ives of the organizat ion. 2. The object ives of the long-range planning exercise and the r e l a t i o n -ship of planning goals to other goals . Let us elaborate upon the former. Corporate object ives are r e f l e c t i o n s of the values and asp ira t ions of the i n -d i v i d u a l members of the organizat ion and are re f l ec ted i n proport ion to the power the i n d i v i d u a l exercises v i s - a - v i s the organizat ion (his bargaining power). These asp ira t ions are expressed as economic and e t h i c a l or moral considerat ions . 29 The economic object ives f ind expression i n requirements of growth, expressed i n terms of sa les , assets , employees, p r o f i t s , or product l i n e ; s t a b i l i t y , usual ly expressed i n terms of sa les , manpower, and p r o f i t s ; f l e x i b i l i t y , expressed i n numerous ways, such as, a b i l i t y to innovate, speed of response to new environment, e spec i a l ly competit ion; d i v e r s i t y i n preparedness to compete; s e n s i t i v i t y to technologica l and market changes; and a c q u i s i t i o n of a given status of technica l s k i l l . (S te iner , 1964, p. 142) The moral and e t h i c a l considerations are general ly described i n terms such as leader-ship of the f i rm i n the industry , i n t e g r i t y and honesty i n deal ing with others , mainten-ance of amicable community r e l a t i o n s , and assumption of s o c i a l r e s p o n s i b i l i t i e s with respect to community problems. (Ste iner , 1964, p. 42) Since corporate object ives are r e f l e c t i o n s of i n d i v i d u a l pe r sona l i t i e s who are themselves at times unable to e s t ab l i sh a hierarchy among t h e i r personal ob ject ives , and since each i n d i v i d u a l has a unique changeable set of needs, a sp i ra t ions and values , the resul tant set of cor-porate object ives represents a dynamic continuously changing hierarchy containing elements which c o n f l i c t with each other. One of the primary object ives of the long-range planning a c t i v i t y therefore i s to e s t ab l i sh a set of corporate ob jec t ives , which has both an i n t r i n s i c worth and i s con-s i s t ent over the expected l i f e of the company and over the planning hor izon. 30 Indiv idua l components of the set of corporate object ives can be examined for 'meaningfulness' along the fo l lowing c r i t e r i a : 1. Is i t , general ly speaking, a guide to action? Does i t f a c i l i t a t e dec i s ion making by helping management se lec t the most des irable a l terna-t ive courses of action? 2. Is i t e x p l i c i t enough to suggest ce r t a in types of action? In th i s sense, "to make p r o f i t s " does not represent a p a r t i c u l a r l y meaningful guide to a c t i o n , but "to carry on a p ro f i t ab le business i n e l e c t r i c a l goods" does. 3. Is i t suggestive of tools to measure and contro l effectiveness? "To be a leader i n the insurance business" and "to be an innovator i n ch i ld-care serv ices " are suggestive of measuring tools i n a helpful way; but s tate-ments of desires merely to par t i c ipa te i n the insurance f i e l d or ch i ld-care f i e l d are not . 4. Is i t ambitious enough to be challenging? The ac t ion c a l l e d for should i n most cases be something i n add i t ion to r e s t i n g on one's oars . 5« Does i t suggest cognizance:of external and^internal constraints? 6. Can i t be re la ted to both the broader and the more s p e c i f i c object ives at higher and lower l e v e l s i n the organization? (Granger, 1964, p. 65) 7. ; Is i t too deta i l ed or i n f l e x i b l e ? Some of the object ives w i l l define the c h a r a c t e r i s t i c s of the company, w i l l d i s t i n g u i s h i t from other s i m i l a r organizations - w i l l const i tute the philosophy of the company. These w i l l f ind expression i n q u a l i t a t i v e terms and w i l l guide search for information and become c r i t e r i a i n choosing 31 between two otherwise equally a t t r a c t i v e a l t e r n a t i v e s . For example a company may choose to go into the wholesale business, deal with manufactured products only and service i n d u s t r i a l consumers; even though there may be equal ly l u c r a t i v e opportunit ies i n the r e t a i l d i s t r i b u t i o n of goods for domestic consumption. Once the philosophy has been determined the remaining object ives w i l l address themselves to considerat ion of products, serv ices , f a c i l i t i e s , research and development of the above, manpower, organizat ion , marketing, f i n a n c i a l matters and management. Appraisa l In order for the object ives to be r e a l i s t i c they have to be consistent with the resources ava i lab le to the company and the po tent i a l of and constra ints posed by the environment. Thus while object ive formulation guides the d i r e c t i o n , nature and depth of appra i s a l , the appraisa l i n turn guides formulation of ob ject ives . There i s there-fore a c i r c u l a r i t y . This c i r c u l a r i t y or interdependence i s depicted i n f igure 4 (Foster , 1971. p« 72) where future corporate object ives take into cognizance both environmental (marked with an a s t e r i s k , * ) and in te rna l (marked with a double a s te r i sk , v i z . , * * ) f ac tor s , and where current object ives determine d i r e c t i o n of appra i s a l . 32 Influence of company resources and environmental p o s s i b i l i t i e s and constra ints on company ob ject ives . Today's p o s i t i o n Current p o s i t i o n audit WHAT BUSINESS ARE WE IN? Future p o s i t i o n audit WHAT BUSINESS SHOULD WE BE IN Resources audit **WHAT ARE OUR FIN-ANCIAL RESOURCES Where i s the company now? what markets & why? what products & why? who are our customers why do they buy from **What are our s k i l l s and resources? **WHAT ARE OUR STRENGTHS AND WEAKNESSES? *WHO ARE OUR (MAJOR) COMPETITORS? -how do they compete? -where do they? - what products? -where do they NOT compete? -what are THEIR strengths and weak-nesses? *WHAT ECONOMIC AND OTHER FACTORS AFFECT US? LABOUR AND MANAGERIAL TALENT AVAILABILITY? I etc. WHAT BUSINESS DEFINITION IS RIGHT FOR THE FUTURE? WHAT LENGTH OF TIME ? IS "THE FUTURE"? us? WHAT PERIPHERAL GROWTH IS POSSIBLE? WHAT ADDITIONAL OR "NEW" GROWTH IS NEEDED? *H0W ARE TECHNOLOGY MARKETS, CHANGING? *HOW ARE ENVIRONMENTAL FACTORS (economic, s o c i a l , p o l i t i c a l , demo-graphic , e t c . ) CHANGING? e tc . WHAT ADDITIONAL FINANCE CAN BE PROCURED? - over what time? WHAT OTHER RESOURCES? (p l ant , sk i l l s ,men)? HOW CAN THESE BE DEVELOPED? -bet ter u t i l i s a t i o n -manpower t r a i n i n g & management development? -cost reduct ion and cost saving to free assets? e tc . WHAT ADDITIONAL RESOURCES CAN BE ADDED OVER THE PROPOSED PERIOD OF THE PLAN? etc . FUTURE CORPORATE OBJECTIVES AND TARGETS P r o f i t / p r o f i t a b i l i t y Return on assets managed (ROAM) (Growth of nett worth) Sales Market Shares Annual rates of growth P i <TIir>o li. I •f-rnm F n s t . p r . 1 Q71 . n.72) 33 To begin wi th , the planners should general ly out l ine object ives consistent with the company c a p a b i l i t i e s and environmental constra ints and p o s s i b i l i t i e s - as revealed by a r e l a t i v e l y cursory appra i s a l . This helps formulate the basic planning problem, which i s l a t e r modified i n the face of new information. I d e n t i f i c a t i o n of a problem before a l l information i s i n helps reduce cost of search by guiding the d i r e c t i o n and depth of the search a c t i v i t y . (Cost of information i s proport ional to the amount of information, while value of information i s proportioned to the amount of relevant information.) Appraisa l of company c a p a b i l i t i e s involves an inven-tory of i t s e x i s t i n g strengths and weaknesses. These i n conjunction with environmental p o s s i b i l i t i e s determine the d i r e c t i o n the company w i l l take - e x p l o i t i n g i t s strengths and manouvering round i t s weaknesses, or t r y i n g to overcome some or a l l of i t s weaknesses. Once a general d i r e c t i o n i s establ ished in te rna l appraisa l w i l l be aimed at uncovering potent ia l strengths and weaknesses. This w i l l help i n the planning of resource a c q u i s i t i o n and a l l o c a t i o n . External appraisa l s i m i l a r l y involves a study of e x i s t i n g and future needs, values and resources. The exercise w i l l h igh l i ght var iab les which af fect the f i rm. I t w i l l also help d i s t i n g u i s h between constra ints or uncontrol lable 34 v a r i a b l e s , eg. populat ion growth, p o l i t i c a l environment general pr ice l e v e l s , tax rates and p o l i c i e s , e t c . , and semi-control lable va r i ab le s , eg. share of market, labour s i t u a t i o n , industry l e g i s l a t i v e p o l i c y , e tc . The company w i l l develop a f a i r idea of the degree of manouverabil ity and po tent i a l i n the d i r e c t i o n i t wants to t r ave l even before i t begins to formulate s trategy. Checkl i s t s for i n t e r n a l appra i sa l vary i n d e t a i l from one company to another. They are however structured round the main funct ional un i t s , v i z . , f inance, marketing, engineering, personnel , general management, e tc . Checkl i s t s for one company are not general ly appl icable to another. Checkl i s t s for external appraisa l vary s i m i l a r l y from one company to another. Since they focus on the same environment however, companies i n one industry can use a common check l i s t for the industry (with minor modi f i ca t ions ) . The fo l lowing i s a general ly appl icable out l ine for industry ana lys i s : 1. Product-Market Structure a. Products and t h e i r c h a r a c t e r i s t i c s b. Product missions c. Customers 2. Growth and P r o f i t a b i l i t y a. Hi s tory b. Forecasts c. Re la t ion to l i f e - c y c l e d. Basic determinants of demand e. Averages and norms t y p i c a l of the industry 3. Technology a. Basic technologies 35 b. His tory of innovation c. Technological trends - threats and opportunit ies d. Role of technology i n success 4. Investment a. Cost of entry and e x i t - c r i t i c a l mass b. T y p i c a l asset patterns i n firms c. Rate and type of obsolescence of assets d. Role of cap i t a l investment i n success 5. Marketing a. Means and methods of s e l l i n g b. Role of service and f i e l d support c. Role and means of adver t i s ing and sales promotion d. What makes a product competitive e. Role of marketing i n success 6. Competition a. Market shares, concentrat ion, dominance b. Charac ter i s t i c s of outstanding f i rms , of poor firms c. Trends i n competitive patterns 7. Strategic Perspective a. Trends i n demand b. Trends i n product-market s tructure c. Trends i n technology d. Key ingredients i n success (Ansoff, 1965> P- 126) Develop Strategy Once the object ives have been out l ined and company and environmental po tent i a l and constra ints have been estab-l i s h e d , the problem or the gap has been def ined. The next step i s to determine ways and means of c l o s i n g the gap - or developing a s trategy. It may be emphasized here that i t i s not necessary to plan for a s ingle future or a s p e c i f i c gap. 36 General ly speaking, i t i s poss ible to conceive of more than one future, and plan accordingly for ant ic ipated contingencies . Various p o s s i b i l i t i e s may be envisaged and d i f fe rent plans worked out for d i f fe rent s i tua t ions . An o v e r a l l s trategy may be developed. Then, depending upon the shape the future takes, a s p e c i f i c plan may be implemented. The plan should, of course, be f l e x i b l e enough to adapt to changing circumstances, or , i f condit ions change d r a s t i c a l l y i t may be necessary to drop the p a r t i c u l a r plan and implement another one instead; (a plan which has already been thought out i n d e t a i l ) . Some aspects of the future w i l l be more uncertain than the others . I t may not be possible to develop any "plans" for them due to t h e i r extreme uncerta inty . It i s possible however to develop deta i led plans for the more c e r t a i n por t ions . Thus as soon as the uncertain port ions are known i t w i l l be poss ible to plan for them and act accordingly . This makes the t iming r e l a t i v e l y uncertain but the f i rm can at l ea s t ''take off'' with le s s lo s s of time. It may be mentioned that object ive formulat ion, appra i sa l and development of a stategy do not neces sar i ly take place i n a chronological sequence. A l l three a c t i v i t i e s take place more or l e s s simultaneously and serve as information feed-back loops for each other. Objectives and strategy are reviewed against constra ints posed by the environment and revi sed through a ser ies of i t e r a t ions t i l l the exercise re su l t s i n a p lan . (This plan i t s e l f i s however never f i n a l and may require modi f ica t ion i n the face of a l tered circumstances.) The various major steps lead ing to a long-range plan have been deta i led d i f f e r e n t l y by d i f ferent authors. Figures 5» 6 and 7 depict three such schemes which I f ind eloquent and worthwhile. A l l three are se l f-explanatory and i f pursued should re su l t i n an o v e r - a l l plan complete i n s t ra teg ic d e t a i l . T a c t i c a l Planning We have already dis t inguished between s t ra teg ic and t a c t i c a l plans. (See appendix l ) However the same plan (or a part of i t may be both s t ra teg ic and t a c t i c a l , depending on the context. E . g . , the o v e r a l l plans for each funct ion of the company would be considered t a c t i c a l plans i n r e l a t i o n to the o v e r a l l master plan for the ent i re company. They would however become s t ra teg ic plans i n r e l a t i o n to implementational plans devised by the funct ions . Thus we see that the long-range plan i t s e l f i s a complex of plans which provides a framework for ty ing i n and i n t e r l i n k i n g more deta i led funct ional plans of varying time-spans. "I t i s a vast cobweb of short-term and long-term i n t e r r e l a t i o n s h i p s between marketing, production, f inance, i n d u s t r i a l r e l a t i o n s , executive development, and a l l the r e s t . A l l of these plans are b u i l t on ce r t a in assumptions, and A Generalised Model for Long-Range Planning WHAT IS THE WORLD IN -WHICH WE OPERATE GOING TO BE LIKE? OPPORTUNITIES Technology-Customers Customers wants Competition P o l i t i c o l ega l Socio economic Others WHERE AND WHAT ARE WE TODAY? Product/market mix Company resources Company s t a b i l i t y Competitive posture F l e x i b i l i t y Company p o l i c i e s Other aspects THREATS RISKS WHERE DO WE WANT TO GO? Opportunities to pursue Threats to parry Strengths to preserve Problems to resolve Weaknesses to over-come STRENGTHS PROB •EMS WEAKNESSES WHAT IS THE BEST WAY TO GET FROM WHERE WE ARE, TO WHERE WE WANT TO GO? Strategies Tac t i c s Contingencies Resources R e s p o n s i b i l i t i e s The Plan CO Figure 5 (Champion, 1970, 11) Questions to be Answered in Long-Range Planning Wtvah technical , UjV\oV cWji '^v^tS ? P O S I T I O N " 1 ; X / ^ V W > d \ T O D A Y ' S P O S I T I O N " cxv\<A f t s o v i ^ccs> 1 7 \ \ U>V\aV sV K6.souRc.es ^ L-olvaV ^ V \ / I 7 VO*Aa .V t v ^ s ^ Q . S S V « \ p ^ o J w t h , , i -F U T U R E P R O F I U E O F T H E C O M P A N Y S C O R P O R A T E S T P - A T E C ^ P L A N S Of-T K E P L A , N ' VOTO R E \ \ \\\ I ' ' *v\tr UjWeV ova: IWe: Key Direct Link V— Inf ormat ion ;Link 'Permanent' Link Figure 6 (Foster, 1971, p. 73) 40 Internal and External Appraisa l tv-K^ sVcr l ist Co * v «.v\ V p i p i <£cV \ V <ES E COv\Ow\ ( C -1,-sV Revise d I c T tfe source, mteis a>"\\i(L'»s i V >'caV>"ov\ " ^esoov-cts -C V C M U>U«. Coy\sV<cx'«v\Vi 1 ( - O V A "h> ve.s poV<£v\t f e l Iff 1 cV\o--<- c c V e v isVico >/\pa p v . C o w N p a V i V i M O . sV op Y e s sWovcW-ff keys dec i s ion point 1 Figure 7 (Ansoff, 1965, pp.123 & 134) Developing T a c t i c a l Plans from the Corporate Plan P » o cUx c V - w\e\ v We \ C c v i s t a pv-txAjucV ." P ^ O A Y C V -C O R P O R A T E . T / V R R E T S C O R P O R A T E O & J S - C T I V E S AVwve«V^—"y s p < ? e \ \iccV>t A N N U M ( . T A c T i c A L ) M A R K E T I N G P L A N S FOR E A . C H Y E A f e OF C O « P 0 R A T £ P L A N A N N U A L M A N P O W E R T / R A i W I N 6 P L A N S F O R B A C H YEAR. C O R P O R A T E pra.otsuc.Ti O N T A R G E T S U.V i V V S C T C Q * eve\opv«« ,v .V plcws.3 i c«.V i sorrow - t OP C O R P O R A T E P L A N Lobovw ulAi'^ a^ icv, W > C v * - p O W G •* W\O.V>pOl*Sld,'r C O R P O R A F I N A N C TPKR . 6E.TS > A L / \ \ AA«UvV.ov^\, ^ ^ ^ ^ b . V s \ W i \ \ > X t „ w ~ \ . ' . i \ v \ v e v \ r o « u ^ ^ ^ ^ . - ^ l o p-f OCLM.O-IOV> A N N O AV. p e o Q y c T i o N P L A N S FOR E A C H N E A R . OP COX5.PO«aATE PLA*» F I N A N O A L C O N T R O L A N N U A L F I N A N C I A L . > P L A N S , F O C E A C H Y 6 A R - o f O D E - P O I ^ A ^ 6 -P U A N T o 'a.'iv Aei?oJi- «^«AVI Direct Link Information Link C C M P A ^ N S A N N U A L T A R . & ( S T S , P O<->C(£ S ( OP£K.A.Tio(^s , C O N T R O L M E T H O D S ere , f^^- <=ACM Y E A R , OP T N £ «-o(c R A T e PI. A M Figure 8 (Foster , 1971, p. 77) 42 the i n d i v i d u a l plans i n turn "become premises and assumptions for each o ther . " (Kirby, 1962, pp. 11-12). The t a c t i c a l plan i s the bridge between the master plans and the operat ional p lan . It d i f f e r s from the s t ra teg ic plan i n , among other things , the degree of d e t a i l and the width of coverage. A comparison of the questions asked i n f igure 8 with those in f igure 6 w i l l h igh l ight the d i f ferences . The master-plan for a p a r t i c u l a r funct ion can i t s e l f be broken down into more de ta i l ed plans for the sub-functions, and so on. Reproduced below as an example are possible areas of coverage for more deta i led planning under the marketing func-t i o n p lan : The product mix p lan , which out l ines contemplated product de le t ions , modi f ica t ions , and add i t ions , and t h e i r t iming, i n the e f for t to meet the f i rm ' s customer-target and volume-profit ob ject ives . The product research and development p lan , which out l ines the general object ives which w i l l guide new research investments, the areas of concentrat ion, and ways to achieve more e f f i c i e n c y i n the management of product research and development. The sales force p lan , which out l ines measures to enhance the effect iveness of the personal s e l l i n g e f f o r t . Among the matters treated are t e r r i t o r i a l reorganiza t ion , planned increases i n the s ize of the sales force , the scale of future compensation, and future incentive programs for s t imula t ing e f f o r t . The adver t i s ing and sales promotion p lan , which out l ines future adver t i s ing strategy and t a c t i c s i n the areas of message, copy, and media, along with the planned a l l oca t ions of funds to products, t e r r i t o r i e s , and customers. It a lso out l ines a s trategy for sales promotion to prevent a hodge-podge of unrelated promotions conceived i n haste. 43 The d i s t r i b u t i o n channels p lan , which out l ines future company p o l i c i e s with respect to types and number of channels and channel management. The p r i c i n g p lan , which out l ines p r i n c i p l e s and object ives to guide p r i c i n g during the planning per iod . Included are future pr ice changes contem-plated for major company products. The marketing research p lan , which out l ines major future projects to study markets and the e f f ec t ive-ness of the company's marketing e f fo r t s . The phys ica l d i s t r i b u t i o n p lan , which out l ines programs for improving the e f f i c i e n c y of s tocking and moving the company's goods to i t s customers. Included are measures for improved inventory c o n t r o l , for r e l o c a t i n g d i s t r i b u t i o n po int s , and for choosing modes of t ransporta t ion . The marketing organizat ion plan, which out l ines des irable changes i n the organizat ion of the marketing department, i t s information and communica-t i o n system, and i t s r e l a t ions with other company departments. (Kot ler , 1967, pp. 153-4) Implementation, Control and Review Short-range or operational plans use middle-range t a c t i c a l plans as t h e i r planning premises. They serve to operat ional ize the requirements of the long-range plans . In addi t ion to the implementational aspects they a lso provide for necessary contro l s ; which h igh l ight changes i n operat ional e f f i c i e n c y or other i n t e r n a l or external changes. Di f ferent functions require d i f f e rent contro l instruments to i d e n t i f y and measure the flow of men, money, materials and ideas through t h e i r funct ional subunits . Reproduced below i s a check l i s t of basic marketing controls required by a t y p i c a l corporat ion: Marketing departments w i l l need the fo l lowing basic information for contro l purposes x Sales performance vs . budget - by area, by product group ( i f needed by salesman, customer and indus t ry ) . P r o f i t a b i l i t y vs . budget - by area (and salesman i f d i f f e r e n t ) , by product group, by customer category i f t h i s i s u se fu l . Salesman's b a l l records and c a l l report s . Logging of enquiries rece ived , quotations issued, orders received- by product group or product, by area, by customer. P r o f i t analyses of orders rece ived . Customer record cards showing - name address and various buying l o c a t i o n s , executivesmaking buying dec i s ion at the various l o c a t i o n s , quotations issued and orders rece ived , de l ivery of orders , date of salesman's c a l l and reference of further correspondence - with r e s u l t s . (Foster , 1971. p. 76) The plan should also provide for per iod ic review of the ob jec t ives , the organizat ion , the environment and the strategy. Most organizations with a long-range plan tend to update i t every year by a year. This ensures that the plan remains both relevant and v i a b l e . Unforeseen changes w i t h i n or without the company also cause the plan to be reviewed, as and when they occur. Summary In th i s chapter we have deta i led the 'how to ' of long-range planning. We have shown how the plan involves simultaneous considerat ion of company ob ject ives , company resources and environmental potent ia l and cons t ra int s . Harmonizing the requirements of these elements leads to a s t ra teg ic p lan . This i s both broken down into and b u i l t up from t a c t i c a l plans, which i n turn serve as frames of reference for operat ional plans. The l a t t e r serve to implement the long-range or master plan and have contro l requirements b u i l t into them. The long-range plan is reviewed p e r i o d i c a l l y or whenever there i s an unforeseen pert inent change i n circumstances. PART II INTRODUCTION II As mentioned i n the in t roduct ion to Part I of the thes i s , Part II contains d e t a i l s of a r e a l l i f e app l i ca-t i o n of the theory of long-range planning; developing a long-range plan for Adka. I was associated with Adka from May 1972 to August 1972. My f a m i l i a r i t y with the organizat ion and i t s environ-ment grew over these four months. During t h i s period T learned to look at the f irm i n terms of i t s object ives and i t s object ives i n terms of achievement p o s s i b i l i t i e s . At tent ion a l ternated i t e r a t i v e l y between object ives and p o s s i b i l i t i e s , both as I perceived them and my percep-t i o n of how other company managers perceived them. I t i s d i f f i c u l t to p i n down e i ther the thought process or i t s sequence. The exercise however resul ted i n improved communication with and among management, and c r y s t a l l i z a t i o n of thoughts and des i res . We examined the organizat ion and i t s environment for achievement p o t e n t i a l , both i n absolute terms and i n terms of company ob jec t ives . This re su l ted i n modi f ica t ion of ob jec t ives . Having attained a consensus on the desired and the achievable we proceeded to bridge the gap. The fo l lowing i s the r e s u l t : a long-range p lan . The planning exercise i s documented i n the fo l lowing order: 1. Objectives of the f i rm. 2. Strengths, weaknesses and general comments on the organizat ion. 3. A study of the market i n B.C. 4. Establishment of the planning hor izon. 5. The long-range p lan . 6. Product-market p o l i c y . I would l i k e to emphasize however that a l l the above were considered simultaneously, and that each i s i n t e r l i n k e d with the other. A r e l a t i o n s h i p between the various planning elements i s depicted i n f igure 9. 48 The Long-Range Plan I The present state Resources Objectives \ Exogenous Inputs to the Planning Process Mar ket / \^ Values Planning Premise / \ Ob jec t ives Possible Constraints Mar cet jT1 Resou rces Objectives II III IV The Long-Range Plan In t h i s p a r t i c u l a r exercise the f irm was constrained by resources, s p e c i f i c a l l y , money. 2 It i s conceivable however that object ives may be the operating cons t ra int , i . e . , a f irm with adequate resources operating i n a market which permits expansion, may a r b i t a r i l y choose to l i m i t i t s operations. Figure 9 CHAPTER V OBJECTIVES The company's philosophy can he summed up as fo l lows: "To produce and d i s t r i b u t e products or services i n keeping with our present s k i l l s which lead to increased produc t iv i ty for the consumer and y i e l d adequate re turn to our shareho lder s . " 1 A r i s i n g out of the above, i . e . , " i n keeping with our present s k i l l s , " the company has two major object ives which i t would l i k e to pursue simultaneously: p 1. To design and supply door systems to high volume markets, s t re s s ing the continuing development of standard door system products. 2. To fabr icate metal products for the i n d u s t r i a l / commercial market. A r i s i n g out of the requirement of y i e l d i n g "adequate" re turn to our shareholders" are the fo l lowing ob ject ives : 1. Long-range s u r v i v a l . 2. Ensuring minimum Jfo net a f ter tax p r o f i t on sa les . The long-range plan consists of an attempt to u t i l i s e present and p o t e n t i a l l y ava i l ab le resources to achieve the above object ives i n the context of environmental needs and cons t ra int s . 1 Extracted from the draft of minutes of a meeting held to decide company ob jec t ives . 2 See appendix 3 for de t a i l s of door systems. CHAPTER VI STRENGTHS, WEAKNESSES AND GENERAL COMMENTS In t h i s chapter I record re su l t s of in te rna l appra i sa l and comment on strengths and weaknesses of the organizat ion . Various organizat ional sub-units and facets are examined i n l i g h t of the object ives and the environment. Po tent i a l cons t ra int s , i f any, are h igh l ighted . I also comment b r i e f l y on areas which are relevant to the long-range plan but are not important enough to merit de ta i l ed d i scuss ion i n the subsequent chapters. The Marketing Organization" Strengths The salesmen are t e c h n i c a l l y q u a l i f i e d , experienced and const i tute an able team of more than average t o t a l a b i l i t y . Weaknesses 1. The sales team i s l i a b l e to ' r a i d s ' by competitors Adka cannot launch re turn ra ids as e x i s t i n g competitors do not have salesteams tra ined to s e l l the door systems concept 2. The marketing organizat ion. . i s current ly r e l a t i v e l y i n e f f i c i e n t . See indica tors over: 51 Sales s 1968 1969 1970 1971 1972 cost of goods so ld s e l l i n g expenses 9.5 10.2 6.9 7.8 8.3 costs of goods sold s a l a r i e s and commissions 14.0 16.5 10.7 12.1 12.3 Gob rdd-nat i o n s 1966 196? 1968 1969 1970 1971 1972 CGS/Delivery Expense 109 94 100 60 35 39.4 36.7 Suggestions: Develop a team incentive scheme for salesmen and co-ordinators (ac t ion current ly contemplated) and l i n k incentive earnings with performance on the above indica tors i n add i t ion to sales volume and gross p r o f i t . 3. Inadequate tra ined replacement potent ia l for sales and co-ordinat ion s t a f f . (Remedial ac t ion i s current ly being contemplated. ) 4. Lack of e f f i c i e n t sales a ids , v i z . , complete catalogue, door system schedules and a presentat ion package. (Remedial a c t ion i s i n hand). 5. The customer-education program i s not force fu l enough. Suggestion: 1. The Sales Manager and the Operations Manager can increase t h e i r range of personal contacts 2. A l i s t of people/associat ions who need to he sold on the door-systems concept i s shown i n Appendix 4. The three members of top management, and some other members of the Board of Directors can chart out a program whereby, by the end of 1973, a l l the 'customers' have been ' lunched-with ' or 'spoken-to' by at l ea s t one senior representat ive of Adka. Po tent i a l Constraints The present number of salesmen and co-ordinators can, a f ter replacement of p a r t i c u l a r ind iv idua l s and sui table t r a i n i n g , with improved supervis ion and f i n a n c i a l motivat ion handle doors-related sales up to a maximum of $3 m i l l i o n per year. They do not therefore pose a constra int over the planning hor izon. (Act ion for training/replacement i s contemplated, for improved supervis ion i s i n hand). Other Suggestions The Sales Manager can operate a small fund from which he can reward an i n d i v i d u a l for any outstanding performance; th i s reward being i n addi t ion to any other f i n a n c i a l incent ive . i Management  E .D. Boyd Strengths: A man with a v i s i o n . An ' ideas ' man. Capable of th inking about the dis tant future . Can envis ion concepts and t h e i r app l i ca t ions . In-valuable for an enterprise with adequate executive a b i l i t y . Has a broad range of useful personal contacts , both w i t h i n and outside the industry . Is looked upon as an expert i n door systems and a pro-gressive thinker . Is vocal i n the press . Enjoys a large measure of personal goodwill i n the industry . Weaknesses: D i s l i k e for and i n a b i l i t y to handle administrat ive d e t a i l . Po tent i a l Constra ints : None. J . L . Denholme Strengths: A b i l i t y to go into d e t a i l . Good under-standing of and a b i l i t y to re l a te var iables relevant to implementational planning. Weaknesses: Tendency to become involved i n rout ine . Inadequate delegat ion. Potent i a l Constra ints : None. Please see f igure 10 for pos i t ions held by various members of the management team. ADKA INDUSTRIES LTD. MONARCH STEELCRAFT LTD. ORGANIZATION CHART .SALES SUPR. D.E . BAKER ARCHITECTURAL SALES -.RESIDENTIAL SALES I •SALES MGR* S.R. SHARP SECRETARY — SALES DESK-YARD SALES-* •PRESIDENT* E .D. BOYD OP'NS MGR* J . L . DENHOLME CHIEF ACCT. B. NIEUNHUISS I ACCOUNTANT -ACCTG CLERK 1—.MACHINE OP. PROD'N MGR J . ROSE .ADMIN CLERK (d) .RECEP-TYP. (a) (a) L i s t & quote typing for sa les . Typing for production. (b) F i l i n g for a l l departments (d) Typing for executive other than Sales UTILITY (b) CLERK -BRAKE SHOP —,WELDING .PUNCH PRESS TOOL & DIE (c) ^INSTALLATION ASSISTANT (c) •PROD MGR ,J. TAYLOR I .WAREHOUSE Shop scheduling cos t ing , e tc . * INDICATES EXECUTIVE COMMITTEE AND CORPORATE DIRECTORS S.R. Sharp Strengths: Experience i n a large dynamic sales oriented corporat ion. Pragmatic. Weaknesses: Lack of f a m i l i a r i t y with the market. Po tent i a l Constra ints : None. General : The above form a reasonably balanced top manage-ment team of t o t a l a b i l i t y that i s more than adequate for requirements over the planning hor izon. Middle Management Bob Nieunhuiss (Chief Accountant): D i l i g e n t , conscientious and hard working. A pos i t ive asset . Would make a good top manager i f he became more 'pushing' and dynamic. Dennis Baker (Sales Supervisor) : Experienced and knowledgable No top management p o t e n t i a l . I am not sure that he can carry his load as Adka expands. A potent i a l cons t ra in t . Jim Taylor (Cost Control Engineer) : Careful and painstaking. Loyal to his immediate super ior . Tends to 'p lay i t s a fe . ' Top management potent i a l doubtful . However invaluable i n his present p o s i t i o n . J e f f Rose (Production Manager): Joined recent ly . Not wel l enough known to comment upon. Apparently s a t i s f ac tory Appears to have top management p o t e n t i a l . 56 General : With the exception of the Sales Supervisor the company has a good middle management team. Based on the t o t a l top and middle management ta lent now ava i l ab le with the company I f e e l that the company has a br ight future . The Package Concept "Businesses are organized around ideas, not people" (Ewing, 1958, P' 8 7 ) . Boyd has come up with a good idea s s e l l i n g a door assembly, complete and ready for e rec t ion . In a study of 51 companies reported i n Management of New Products (1965. p« 9 ) , i t was found that only 1 i n 58 good ideas was t e c h n i c a l l y feas ib le or did not cost too much to develop. In another study (Schorr, 1961), i t was reported that 89% of new products f a i l a f ter in t roduct ion into the market. Yet t o t a l door-system sales of Adka doubled from 1968 to 1971* So Boyd has a good idea. The frames, doors and hardware offered by Adka are r e l a t i v e l y ind i s t ingui shab le from those offered by t h e i r competitors, both i n terms of q u a l i t y and p r i c e . Their d i s t ingu i sh ing feature however i s that Adka s e l l s the frame, door and hardware i n one package, p re f in i shed , ready for assembly and erect ion on s i t e . • This package subsumes a l l advantages a r i s i n g out of s tandardisat ion of parts , sub-assemblies and assemblies, which include advantages/economies/ease of : 57 i ) purchase, both by the manufacturer and the erector (bulk, fewer l i n e s , inventory, c o n t r o l l i n g , coordinat ion, e t c . ) i i ) manufacture ( too l ing , inventory, t r a i n i n g , scheduling, accounting, c o n t r o l l i n g , e t c . ) i i i ) designing ( f l e x i b i l i t y , communication gap (between designer, f abr ica tor and e rec tor ) , drawing up and reading s p e c i f i c a t i o n s , e tc . ) iv ) e rec t ion ( i n t e r c h a n g a b i l i t y , ease of i n s t a l l a t i o n , fore-knowledge, e t c . ) Presently there are v i r t u a l l y no s izeable organizations s p e c i a l i z i n g i n the design, manufacture, d i s t r i b u t i o n and i n s t a l l a t i o n of door assemblies, as such. The b u i l d i n g designer has been compelled to design his own door assemblies rather than r e l y i n g on a door assembly s p e c i a l i s t . S i m i l a r l y , the b u i l d i n g contractor has had to act as the 'door assembly manufacturer' because no complete l i n e of door assemblies was a v a i l a b l e . Offer ing an almost complete l i n e of standard door assemblies i s therefore Adka's greatest s trength. The package has a l o t of market p o t e n t i a l . It has been estimated by Adka, who are acknowledged experts i n door systems, that 80% of the door assembly requirements i n the r e s i d e n t i a l market could be f i l l e d by standard door systems today i f the systems (assemblies) were current ly a v a i l a b l e . S i m i l a r l y approximately 50% of the non-res ident ia l door 58 system requirements could be f i l l e d by a r e l a t i v e l y small number of standard assemblies. While the above suggests po tent i a l i n the whole-sale market i t i s pos s ib le , I f e e l , that by 1975 or ' 7 6 , the package w i l l be developed to such an extent that various standard assemblies w i l l be offered across a r e t a i l counter, or through catalogue sales to s ingle unit home-owners who may be look ing for small numbers of d i f ferent types of doors. Weaknesses: The package requires technica l a b i l i t y and t r a i n i n g to s e l l and serv ice , and i n the pre-s tandardisat ion stages, does not lend i t s e l f to long geographical leads . L ike a l l standardised assemblies, the cost of deviat ions i s h igh . The salesmen and s p e c i f i c a t i o n wr i ter s do not f u l l y appreciate th i s and have thus f a r not f u l l y i n t e r n a l i s e d the package concept. Management i s however taking steps to t r a i n them and make them more package-oriented. I do not see th i s as a po tent i a l cons t ra int . Organizat ion The organizat ion chart i s shown on f igure 10. I t represents one weakness which cannot be overcome under the present circumstances. Mater i a l i s purchased both for shop consumption and d i r e c t sa les . Purchase orders are i n i t i a t e d by co-ordinators on the sales teams, the sales desk and the shop s t a f f . There i s thus a p o s s i b i l i t y of c o n f l i c t i n g p r i o r i t i e s , and the purchasing subunit cannot always hold back orders and plan for volume discounts . Purchasing tends to become i n e f f i c i e n t . E f f i c i e n t and speedy purchasing leads to reduced costs . Poor purchasing r e f l e c t s on the performance of the co-ordinators who are judged by t h e i r a b i l i t y to reduce the cost of s e l l i n g . When the co-ordinators go on incent ive , there w i l l be a p o s s i b i l i t y of c o n f l i c t on th i s account. The co-ordinators are responsible to the Sales Manager, while the purchasing organizat ion i s responsible to the Operations Manager. There i s therefore also a p o s s i b i l i t y of administrat ive c o n f l i c t . The cost of purchase i n e f f i c i e n c y and the potent i a l for c o n f l i c t are however not important enough for remedial ac t ion at th i s stage. Competition E x i s t i n g competition i n the door market i n B.C. i s shown below: (The various firms are ranked i n order of the competitive threat they pose to Adka, the f i rm which poses greatest threat being ranked 1.) 60 A r c h i t e c t u r a l Wood Metal Package Hardware Doors Doors  Acklands 1 1 2 1 Marshall Wells 2 Nor-Wes 3 Millwork 2 .5 B e l - A i r 2.5 Shanahans 4 2 Macotta 2 Indus t r i a l Sheet Metal 4 As can be seen from the above, competition i s fragmented, d i f fe rent firms car ry ing d i f f e rent l i n e s . Even wi th in one l i n e , e . g . , metal doors, d i f fe rent firms carry d i f f e rent products, e . g . , i n d u s t r i a l doors, overhead doors, f i r eproo f doors, e tc . As long as a rch i tec t s do not s p e c i f i y door assemblies, or contractors do not ask for packages, the various firms w i l l pose problems. Once the door package concept i s accepted however, only those firms which carry a complete l i n e remain potent i a l competitors. It may be noted that of the above, Acklands i s the only f irm which car r i e s a complete l i n e . It has already offered i t s f i r s t package. While th i s i s a s t a r t , the f irm has a long way to go before i t can become a serious competitor i n the door systems concept. There i s of course always the p o s s i b i l i t y of a deter-mined f irm with adequate f i n a n c i a l and management resources 6l to set-up operations i n the door market and 'cash i n ' on the concept developed and promoted by Adka over the years at considerable cost . Barr ing th i s however the present competition does not pose a ser ious threat . F i n a n c i a l Ratios Various f i n a n c i a l r a t i o s of the company have been 2 compared with industry f igures i n Table 1. The meanings of these r a t i o s are de ta i l ed i n Appendix 5« In th i s sect ion I analyse these r a t i o s and use them to h igh l ight strengths and weaknesses of the company. Gross Margin/Sales The f i rm obtains a higher mark-up than that enjoyed by comparable companies i n the industry . Inspite of th i s however, the a f ter tax p r o f i t s to sales r a t i o i s much lower than that of the industry . This indicates excessive operating costs and f i n a n c i a l charges. Current assets/Current debt A r a t i o lower than that of industry indicates r e l a t i v e l y poor solvency. 2 The f irm has the charac te r i s t i c s of both a metal stamping organizat ion as wel l as those of a spec ia l trade contractor i n the construct ion industry . I t i s simultaneously a manufacturing (Monarch S tee lcra f t L t d . ) and a wholesa l ing : (Adka Industr ies L t d . ) organizat ion. 62 Corporate F inanc i a l Ratios Ratios" Cost of goods sold^ sales '° Gross margin sales Current Assets Current Debt After Tax P r o f i t s sales After Tax P r o f i t s Tangible net worth Sales Tangible net worth C o l l e c t i o n period (days) Sales Inventory % Fixed assets Tangible net worth % Current debt Tangible net worth % Tota l debt Tangible worth % Manufacturing Construction Adka Indus.Ltd, Indus t ry : 1 Indus t ry : 2 & Monarch .Meta l SpecialTrade. S tee lcra f t Stamping Contractor 1970 1971 1970 1971 1970 1971 79.9 78.3 76 74.3 20.1 21.7 24 25.7 2. 05 1.88 1.35 1.40 1.28 1.30 4 .05 4.35 2.22 2.81 los s 0.49 11.66 14.18 14.57 15.8^ los s 6.3 2.88 3.25 6.55 5 .6 j 9.2 12.9 66 i 63 69 70 118 108 5-3 5.8 13.3 11.7 7.4 7.4 81.8 78.5 48.5 45.2 72.0 75.7 59.6 67.2 153.7 136.7 342 425 70.3 81.9 166.4 155.1 1 1 409 517 1,2 "Key Business Ratios i n Canada", Dun and Bradstreet , Ontario , 1970 and 1971. See Appendix 5 for the meaning of these r a t i o s . - TABLE 1 63 After tax p ro f i t s / Sa l e s Se"e comments above. Indicates poor operating e f f i c i e n c y and/or high overheads. After tax pro f i t s /Tang ib le net worth These are lower than that of industry . They are even less than the 10$ des irable for paying dividends and f nding future growth.^ Examination of the Sales/Tangible net worth r a t i o indicates a low l e v e l of equi ty . I f the present l e v e l of equity i s increased the p r o f i t / t a n g i b l e net worth r a t i o w i l l drop even more. Sales/Tangible net worth See above. I f the company were to raise, say, an add i t iona l $50,000 equity then the t o t a l equity would become $177,000 approximately and the above r a t i o would be reduced to 9«3 for 1971. This f i gure , though s t i l l considerably higher than the industry, indicates a low l e v e l of c a p i t a l i z a t i o n i n view of the r a t i o s analysed e a r l i e r . C o l l e c t i o n Period Approximately 50% more than that for comparable industry. See current year p r o f i t s (af ter tax) on tangible net worth, Appendix 5« Sales/Inventory No comment i n view of the dual c h a r a c t e r i s t i c s of the f i rm. Fixed Assets/Tangible net worth Increased equity w i l l reduce th i s to a f igure nearer that of Specia l Trade Contractors . However i f the f irm wants to grow as a manufacturing organizat ion , a c q u i s i t i o n of add i t iona l machinery and plant w i l l b r i n g the r a t i o c loser to that for Metal Stampings. Current Debt/Tangible net worth Precar ious ly h i g h . ^ Reducing debt by i s su ing equity w i l l lower t h i s f i gure . Tota l debt/Tangible net worth Precar ious ly h igh . The equity of c red i tor s i s 4-5 times the equity of the owner of the f i r m . One can draw the fo l lowing conclusions about the firm from the above ana lys i s ! 1. Low operating e f f i c i e n c y and/or high overheads. 2. Excessive debt and low l e v e l of owner's equi ty , 3. Long c o l l e c t i o n p e r i o d . " O r d i n a r i l y , a business begins to p i l e up trouble when th i s r e l a t i o n s h i p exceeds 80%." (Dun and Bradstreet , p . l . ) In add i t ion to the above the operation i s not generating s u f f i c i e n t cash to meet i t s working cap i t a l requirements. Lack of funds and operat ional i n e f f i c i e n c y pose serious cons t ra int s . Remedial a c t ion i s i n hand. 66 CHAPTER VII MARKET SIZE AND POTENTIAL In th i s chapter I would l i k e to study the markets current ly serviced by Adka i n B.C. The purpose of the study w i l l be: 1. To i d e n t i f y various relevant sectors . 2. Develop estimates of t o t a l sales i n these sectors . 3. Develop estimates of the rates of growth of the sec tor s . k. Lay down guide l i n e for developing annual pro ject ions for operat ional planning. Let us begin with i d e n t i f i c a t i o n of market sectors , based on type of product. The f i rm operates i n two d i f fe rent marketst 1. The shelter-market. Most of i t s products and services are designed for use i n b u i l d i n g construct ion and r e p a i r s . These products and services can be further sub-divided into door-related and other products. 2. Other markets. The remaining products f i n d miscellaneous a p p l i c a t i o n . Deta i l s of Adka's product l i n e are given i n appendix 6. Products and services c l a s s i f i e d under A, B, C and J are door-related products . Categories D, E , F, H and I are other products re la ted to the she l te r construct ion industry . C l a s s i f i c a t i o n G, custom work, f inds a p p l i c a t i o n outside the 67 she l te r market. Figures i n Table 2 indicate the r e l a t i v e sales volume i n the two major market sectors . It may be noted that almost 99% of i t s sales d o l l a r s are generated i n the she l te r market. The f i rm expects to purposeful ly promote the products i n the she l te r market. I t does not expect to have any surplus manufacturing capacity which can be diverted to manufacture of products which f i n d a p p l i c a t i o n outside the she l te r market. The f irm does not plan to a c t i v e l y look for customers for these products, even though i t i s prepared to enter ta in a t t r a c t i v e requests. In view of th i s and the ant ic ipa ted preoccupation with the she l ter market, and i n view of t h e i r r e l a t i v e l y i n s i g n i f i c a n t contr ibut ion to sales revenue, I w i l l ignore these products i n the study. Thus we are l e f t with the shel ter market only . Let us study t h i s . The Shelter Market The she l te r market can be divided into two r e l a t i v e l y independent major segments, which i n turn can be divided into smaller segments. These are de ta i l ed below: 1. Res ident ia l or housing market i ) Single-detached housing, i i ) Semi-detached or duplex, i i i ) Row housing, iv ) Apartments. See appendix 7 for d e f i n i t i o n of these terms. 68 Adka: Breakup of Sales Between the Shelter and Non-Shelter Markets Tota l Sales In 1971 Percentage of Tota l Sales Shelter Market $1,633,076 98.8 Door-related products: 1,380,364 s t ee l doors and frames, wood doors, a r c h i t e c t -ural hardware, i n s t a l l a -t i o n . 83-5 Other products: 252,712 15.3 concrete hardware accessor ies , framing products, drainage products, miscellaneous e l e c t r i c a l products. Non-shelter market: 19,679 1.2 custom work. TOTAL $1,652,755 100.0 TABLE 2 69 2. Non-res ident ia l market i ) Commercial construct ion, i i ) Indus t r i a l construct ion , i i i ) I n s t i t u t i o n a l and Government construct ion . Adka s e l l s i t s door-related products i n the apartment market ( i n the r e s i d e n t i a l market) and i n the ent i re non-r e s i d e n t i a l market. I t s e l l s i t s other products, those not re l a ted to doors, to he c a l l e d non-door products henceforth, i n the ent i re b u i l d i n g construct ion market. Thus we have two sections to study: 1. The apartment market as a part of the residential market. 2. The non-res ident ia l market. Let us begin with the apartment market. To do th i s however we have to f i r s t study the total r e s i d e n t i a l market. Res ident ia l Market The demand for housing i s effected by: 1. Populat ion and family formation. 2. Per capi ta income. 3. Land and b u i l d i n g costs . 4. Money supply; r e f l ec ted p r i m a r i l y by a v a i l a b i l i t y of mortgage funds at low rates from major i n s t i t u t i o n a l and pr ivate lenders . The f i r s t three items have shown a r e l a t i v e l y steady increase i n the past , arid i t i s reasonable to assume that under normal circumstances they w i l l continue to do so i n the near future . An increase i n the f i r s t two items generates 70 an upward pressure on the demand for housing while the t h i r d tends to reduce i t . The net ef fect however re su l t s i n an increased demand. Based on demographic pro ject ions and ant ic ipated increase i n GNP and pr ices (and also the average a v a i l a b i l i t y of money) the F i n a n c i a l Post has developed f igures for future expected demand for households i n the provinces . See Table 3 for d e t a i l s . These f igures indicate a po tent i a l increase of 65,000 households i n B .C. from 1972 to 1975; or an approximate annual increase of 21,700 households. S i m i l a r l y the f igures indicate an increase of 115,000 households i n B .C. from 1966 to 1972; or an approximate annual increase of 19 , l 6 0 households. There i s therefore a s l i g h t expected increase i n the rate of increase of demand for households. Deta i led comparisons have been made between the rate of increase of households i n B.C. and Alber ta before 1972 and the expected rate from 1972-1975* Please see Table 4 . It may be noted that there i s an expected increase i n the rate of increase of households i n Vancouver, Edmonton and Calgary. Let us convert t h i s expected demand for households to expected r e s i d e n t i a l construct ion d o l l a r s . I t may be noted from Table 5 that the annual expenditure on construct ion has gone up by an average of approximately 13.5% per year Population and Household Project ions for B.C. and A l b e r t a . 1 2 Population Households 2 Actual Projected $age increase Approx. annual t Actual . Projected $age increase Approx. annual 1966 1972 1975 from '72 to '75 inc.bey ond '72 1966 1972 1975 from '72 to '75 inc .be-yoftd '72 B.C. 18?4 2266 2459 8.5 2.8$ 543 658 723 9.9 3.3$ Alberta 1463 1666 1758 5.5 1.8 394 456 487 6.8 2.3 Vancouver 892 1072 1163 8.5 2.8 272 331 367 10.9 3-6 V i c t o r i a 173 197 2 07 5.1 1.7 55 63 67 6.3 2.1 Edmonton 401 471 508 7-9 2.6 110 133 146 9.8 3.3 Calgary 331 413 459 11.1 3-7 95 122 137 12.3 4.1 1 "Survey of Markets", Toronto: F i n a n c i a l Post, 1971, P«36. 2 In thousands. 3 Please see Appendix 8 for Census Div i s ions de f in ing Vancouver, V i c t o r i a , Edmonton and Calgary. TABLE 3 Comparison of Rate of Increase i n Number of Households i n B.C. and Alber ta , pre-1972 and post-1972 (expected)  Increase Approx. Approx. Approx. percent Approx. percent over 6 annual percent annual increase annual increase 1966 1972 years increase annual over 1972-75 over 1966-75 increase ca lcula ted ca lculated against against 1966 against 1966 1966 base base base B.C. 543 658 1 U 5 1 19,160 3.5 4. 0 3.7 Alberta 394 456 62 10,330 2.6 2.6 2.6 Vancouver 272 331 59 9,830 3.6 4.4 3.9 V i c t o r i a 55 63 8 1,330 2.4 2.4 2.4 Edmonton 110 133 23 3,830 " 3.5 3.9 3.6 Calgary 95 122 27 4,500 4.7 5.2 4.9 Based on figures i n Table J. 1 in thousands TABLE 4 73 Tota l Expenditure on New Res ident ia l Construction i n B .C. Year Expenditure $age change over previous year 1966 1 294,900 67 1 352,700 + 19-5 ) ) annual 68 1 386,500 + 9.6 ) $age ) increase 69 2 476,187 + 23 .2 ) over ) 1966 70^ 483,131 - 2.7 ) = 13.5 566,000 ) approx. 71 2 + 22.2 ) 72 3 635,300 + 10 .9 ) 1. Table 27, "Construct ion i n Canada, 1966-68", Catalogue No. 64-2 01. 2. Table 27, "Construct ion i n Canada, 1968-71", Catalogue No. 64-2 01. 3. Table 22, "Outlook 1972", Catalogue No. 61-205. 4. Thousands of do l l a r s TABLE 5 over the l a s t s ix years. This i s greater than the 3*5$ increase i n demand for households because of the combined 2 effect of increase i n construct ion costs and b u i l d i n g replacement a c t i v i t y . Based on the expected increase i n the rate of increase of demand for households, increas ing pr ices and a sustained l e v e l of renewal and replacement a c t i v i t y , I., expect the construct ion expenditure on new housing construct ion to go up by an average of 14-15$ per year over the next 3-4 years . I t may be noted however that the actual per-centage change i n expenditure i n the past has var ied widely (see Table 6). I therefore expect actual annual expenditure i n the future to vary considerably from the l e v e l s based on the suggested annual increase . While the above gives us a general idea of the l e v e l and growth over the long-range, for a r e l a t i v e l y Construction costs have increased as below over the period 1963-71» B u i l d i n g materia ls Index of pr ice indexes Wage Rates r e s i d e n t i a l non-res ident ia l Approx. average 4$ 3.5$ 8.5$ annual increase* * From Table 20, "Pr ice Indexes", Catalogue No. 62-002. ( S t a t i s t i c s Canada) 75 Tota l Value of New Bui ld ing Construct ion - B.C. 1966 1967 1968 1969 1970 1971 dol l a r^ percent d o l l a r percent d o l l a r percent d o l l a r percent d o l l a r percent d o l l a r percent Res ident i a l $age change over previous year I n d u s t r i a l Commercial I n s t i t u t i o n a l Other B u i l d i n g Construct ion Tota l B u i l d i n g Construc-t i o n other than R e s i d e n t i a l $age change over the previous year Tota l B u i l d i n g Construct ion fo&ge change over the previous year 294,900 97,226 94,635 109,082 35,223 336,166 631,066 4 7 . 0 53-0 100. 0 352,700 +19.5 78,562 111,490 130,199 36,858 357,109 +16.0' 709*809 + 8.0 49.5 50.5 100. 0 386,580 +9.6 49,859 133,610 128,710 50,641 362,822 +1.4 749,322 +5.6 51.5 476,187 +23.2 139,209 123,437 104,902 58,856 48.5 426,404 + 17-7 100.0 902,591 + 17.0 53 .0 463,131 55.0 566,000 55.0 15-5 13-5 11.5 - 2 . 7 131,926 108,418 101,811 6.5 33,651 16.0 13.0 12.0 4. 0 +22.2 163,373 143,164 108,002 44,104 - 1 2 . 0 +22.2 16.0 14.0 10.0 5-0 4 7 . 0 375,806 45.0 458,643 45.0 100.0 838,937 100.0 1,024,643 100.0 -7 .1 + 22.2 1. Source: Table 27, "Construct ion i n Canada, 1966-68" and "1969-71", Cat. No. 64-201. 2. Thousands of d o l l a r s . TABLE 6 76 accurate estimate of the immediate future we can turn to the annual forecasts developed by the Dominion Bureau of S t a t i s t i c s published under the t i t l e "Outlook 19xx", Catalogue No. 61-205. This i s published i n March-Apri l of the forecast year and as can be seen from Table 7 tends to be accurate to wi th in 2% of the actual expenditure. The Apartment Market We have now to f ind out the expected expenditure on new apartment construct ion. No forecasts of the future or actual expenditures i n the past are however a v a i l a b l e . I have therefore developed estimates. 3 Tables 8, 9 and 10 show d e t a i l s of dwel l ing units s tar ted i n a given year i n B.C. From these i t w i l l be noted that not only do dwell ing unit s tar t s f luctuate widely from one year to the other (Table 8) but that the r a t i o of the number of apartment dwel l ing unit s tar t s to the number of other dwel l ing unit s tar t s also f luctuates considerably (Table 9). This re su l t s i n an almost unpredictably wide v a r i a t i o n i n the number of apartment dwell ing unit s tar t s each year (Table 10). It may however be noted that the r a t i o of number of apartment dwel l ing-starts to the "A dwel l ing unit i s defined as a s t r u c t u r a l l y separate set of l i v i n g quarters having i t s own entrance from outside of the b u i l d i n g , or from a common passage i n s i d e . " (New Res ident ia l Construct ion, Catalogue No. 64-002). Accuracy of Forecast : Investment i n Housing - B.C. Cap i ta l expenditure^ 1969 Intent as forecast"'" 455.7 A c t u a l 2 464.8 Deviance + 2.0 1970 Intent as 2 forecast 471.5 A c t u a l 3 463.1 Deviance % - 1.8 1971 Intent, as forecast^ 566.0 A c t u a l 4 571.1 Deviance % + 1.1 1 Table 22, "Outlook 1969", Catalogue No. 61-2 05 2 Table 22, "Outlook 1970", Catalogue No. 6l-205 3 Table 22, "Outlook 1971". Catalogue No. 61-205 4 Table 22, "Outlook 1972," Catalogue No. 61-205 5 In m i l l i o n s of d o l l a r s . TABLE 7 Dwelling S tar t s , B.C. and Alberta (Dwelling Units) Note: Dwelling Starts i s assumed to be a reasonable index ( i n the context) of t o t a l housing construction a c t i v i t y . ! A l l " B r i t i s h Columbia Centres of 10,000 Population and over 2 Van- , couver-V i c -toria-^ Alber ta A l l " Centres of 10,000 Population and over 2 Edmon-ton-^ Ca l -gary 'Percentage -change i n dwel l ing units star-ted com-pared to the prev. year - BC. Dwelling s tarts i n Vancouver and V i c t o r i a expressed as a %age of t o t a l s tarts i n BC. 1962 13,892 9,877 7,387 1,601 !14,328 11,453 5,255 5,136 1963 17,329 12,210 17,045 8,941 - 1,848 :12,316 9,554 4,883 3,672 1964 21,665 12,791 11,684 2,674 12,013 u ,575 9,188 4,479 3,887 1965 21,398 15,820 1,610 9,234 4,581 4,178 1966 17,753 12,851 9,138 1,613 9,380 7,353 3,746 3,304 63.5 1967 24,100 16,988 13,896 1,464 12,674 10,451 6,111 3,833 +35-7 1968 26,195 19,443 15,690 2,516 ' 1 9 , 6 l l 17,317 9,003 7,403 + 8.7 66.5 1969 31,820 27,316 22,936 17,690 3,744 22,662 20,521 9,807 9,737 +21.5 67.5 1970 17,242 13,437 2,559 - 16,251 14,093 6,330 6,740 -14 .2 58.5 1971 3^,765 20,748 15,553 3,102 25,602 21,706 11,286 8,801 +27.3 53.5 1. Table 4 Canadian Housing S t a t i s t i c s 1971 2. Table 5 Canadian Housing S t a t i s t i c s 1971 3. Table 6 Canadian Housing S t a t i s t i c s 1971 OO TABLE 8 Dwelling Starts ; B.C. 1967 1968 1969 1970 1971 Area Dwelling Units Dwelling % Units Dwell ing % Units Dwelling Units Dwell ing Units 1. S ingle-detach. 13,201 12,487 13,035 13,691 17,707 2. Semi-detach. -L and duplex 826 1,126 1,376 1,169 1,220 B.C. 3. Row 689 562 1,325 1,566 1,803 Tota l 14,716 61 14,175 54 15,731 49 16,426 60 2 0, 72 0 60 4. Apartment and others 9,384 39 12,02 0 46 16,084 51 10,880 40 14,035 40 Tota l 24,090 100 26,195 100 31,815 100 27,316 100 34,755 100 1. 5,980 5,146 4,763 4,482 5,283 2. 348 512 402 350 391 Van- 3. 2 08 311 580 839 1,057 couver Tota l 6,536 47 5,969 38 5,745 23.5 5,671 42 6,731 43 4. 7,360 53 9,721 62 11,945 67.5 7,766 58 8,822 57 Tota l 13,896 100 15,690 100 17,690 100 13,437 100 15,533 100 1. 831 1,024 1,009 743 998 2. 58 126 278 68 36 V i c - 2 3. - - 226 89 113 torisc Tota l 889 61 1,150 1,366 46 1,513 4i 900 35 1,147 37 4. 575 39 54 2,231 3,744 5'9 1,659 65 1,955 63 Tota l 1,464 100 2,516 100 100 2,559 100 3,102 100 1. Table 12 Canadian Housing S t a t i s t i c s 1971. 2. Tables 10 & 11 Canadian Housing S t a t i s t i c s 1971 N O TABLE 9 80 Starts ; Apartments - B.C. 1967 1968 1969 1970 1971 B.C. 1. Dwell ing Units 2. Percent change over previous year 9,384 12,02 0 +28.0 16,084 +33.8 10,890 -32.3 14,035 +28.9 Van-couver 1. 2. 7,360 9,721 +32.1 11,945 +22.8 7,766 -35.0 8,822 +13.6 V i c -t o r i a 1. 2. 575 1,366 +137.6 2,231 +63-3" 1,659 -35.6 1,955 +17.8 Vancouver plus V i c t o r i a Ratio of Vancouver plus ) V i c t o r i a to t o t a l B . C . , ) expressed as a percentage ) 7,935 84.5 11,087 92 14,176 88 9,425 95 10,771 76.5 Figures obtained from Table 7 TABLE 10 81 number of non-apartment dwel l ing s tar t s tends to remain w i t h i n 40:60 to 50:50 (Table 9) . From Table 11 i t may be noted that the average number of bedrooms i n a l l non-apartment dwellings tends to be the same. Based on t h i s , . I have made the fo l lowing assumptions: 1. A l l non-apartment dwel l ing units cost approximately the same. 2. Cost of construct ion of one non-apartment dwell ing unit bears a c e r t a i n r a t i o to the cost of construct ion of one apartment dwel l ing unit which tends to be constant over the years. Based on the above a s s u m p t i o n s , ! have empi r i ca l ly derived a r a t io between the cost of construct ion of a non-apartment dwel l ing unit and the cost of construct ion of an apartment dwel l ing u n i t . This r a t i o works out to be 1.6:1 and i s assumed constant over the period 1967-1972. Using the actual t o t a l cost of construct ion and the above r a t i o I have estimated cost per unit of apartment and non-apartment dwellings i n the various years . Based on estimated unit costs I then estimated the s ize of the apartment and non-apartment market. Please see Table 12 for d e t a i l s . The estimated cost of construct ion per dwel l ing unit corresponds to the expected annual increase i n construc-t i o n costs due to increase i n wages and pr ice of mater ia l for a l l the; years , except 1970. In 1970 the estimated cost Average Number of Bedrooms oer Dwelling Unit - B . C . 1 Number of Expected Bedrooms Average Single dwel l ing units Single Detached 3.0 Bungalow J.O S p l i t - l e v e l 3.2 2-storey 3.6 Two dwell ing units semi-detached " 2.9 bungalow 2.9 2-storey 3-2 duplex 2.8 M u l t i p l e dwel l ing units Row Housing 2.8 Apartments 1.4 0-3i storeys 1.7 4-6 storeys 1.6 7 plus storeys 1.1 Housing other than apartments 2.9 apartments 1.4 1 Sources Table 16, "Canadian Housing S t a t i s t i c s , 1971. TABLE 11 Ratio Between the Cost of Construction of a Non-Apartment Dwell ing Unit to an Apartment Dwell ing Unit  1967 1968 1969 1970 1971 1. No. of non-apart- 1^.716 WTWS 157731 16,426 20,720 ment dwel l ing unit S " f c e l T * " f c S 2. No. of apartment 9 ,384 12,020 16,084 10,890 14,035 dwel l ing unit s t a r t s 3. Estimated cost 17.1 17.84 18.47 20.92 19.2 of one non-apart-ment dwel l ing unit 4. Estimated cost of 10.7 11.15 11.54 12.45 12.0 one apartment dwel l ing unit 5. Estimated cost of 251,643 253,023 29P , 5 5 l 327,206 397,824 construct ion of non-apartment d w e l l i n g s . ( l ) x ( 3 ) 6. Estimated cost of 100,408 134,023 185,609 135,581 168,420 constr . of apartment dwel l ings . (2 )x (4) 7. Estimated t o t a l .. 352,051 387,046 476,160 46 '2,78? 566,244 cost of r e s i d e n t i a l construetion(5)x(6) 8. Actual t o t a l 352,700 386,580 476,187 463,131 566,000 cost of res iden-t i a l construc-t i o n .9. $age change i n 19-5 9-7 23.2 - 2 . 7 22.2 above compared to previous year . Note: a l l costs are i n thousands of d o l l a r s . TABLE 12 84 of construct ion was higher than the expected cost . This I f e e l i s because of the reduced volume of construct ion i n that year; with the re su l t that f ixed costs of construct ion were spread over l e s s e r number of dwel l ing un i t s , l ead ing to a higher unit cost . Row 6, Table 12 represents the s ize of the apartment market i n B .C. These f igures represent an approximate annual growth of 14$. Thus we can expect the new apartment construct ion market to grow at an o v e r a l l rate of approximately 14-15$, over the next few years , even though the actual f igures would vary from the l e v e l s suggested by the above. Using the above r a t i o and estimating a unit cost of apartment dwel l ing i n 1972 to be $12,400; the to ta l cost of apartment construct ion i n B.C. in 1972, based on a forecast of t o t a l new r e s i d e n t i a l construct ion expenditure of $635.3 m i l l i o n (see Table 13), i s expected to be about $244.3 m i l l i o n . Thus i n a manner s i m i l a r to the above the expected expenditure for apartment construct ion can be estimated for any year from the forecast of new r e s i d e n t i a l construct ion 4 for that year . Before applying th i s to the 1973 forecast however management should confirm that the estimated cost of construc-t i o n of apartments obtained by m u l t i p l y i n g actual apartment dwel l ing unit s tarts by $12,400, plus the estimated cost of construct ion of non-apartment dwellings obtained by m u l t i p l y i n g actual non-apartment dwel l ing s tar t s by 1.6 x 12,400, adds up close to the actual t o t a l expenditure on new residences i n 1972. I f there i s a wide v a r i a t i o n , the r a t i o may have to be rev i sed . 85 Construct ion Dol lar s Expected to be Spent i n B .C. and Alber ta ; 1972  Capi ta l Expend. Repair :Expend. 1 Tota l Primary Industries and Construct ion (other than B . C . 1 1970 1971 1972 294.4 2 353.9 19.9 21.1 22.1 314.3 457.7 376.0 Housing) Industry 3 Alberta^ 1970 1971 1972 462.6 481.0 455.6 86.5 85.2 90.3 549.1 566.2 545.9 Housing B.C. 1970 1971 1972 473.7 571.1 635.3 101.5 106.1 110.7 575.2 677.2 746.0 Alber ta 1970 ' 1971 1972 279.6 380.5 392.5 70.4 73-4 78.1 350.0 453.9 470.6 Tota l i n c l u d i n g a l l other indus-t r i e s (eg. manu-B.C. 1970 1971 1972 1 ,569.0 2 , 0 8 4 . 0 2 ,040 .6 272.8 289.1 309.2 1 ,841 .8 2,373-1 2 , 3 4 9 . 8 f ac tur ing , U t i l i -t i e s , Services , & Govt. e tc . Alber ta 1970 1971 1972 1,431.2 1,481.7 1 ,529.8 277.9 282.4 298.2 1,709.1 1,764.1 1 ,828 .0 1. Table 22, Outlook 1972, Catalogue No. 61-2 05. 2. M i l l i o n s of d o l l a r s 3. Table 21, Outlook 1972, Catalogue No. 61-205. TABLE 13 86 Having obtained the s ize of the r e s i d e n t i a l construc-t i o n market serviced by Adka i n B.C. l e t us t ry and determine the s ize of the non-res ident ia l she l ter construct ion market. Non-Residential Construction Demand for non-res ident ia l construct ion i s affected by the same general var iables as those a f f ec t ing r e s i d e n t i a l construct ioni except that the var iables can, i n th i s case, be expressed i n terms of: 1. Indus t r i a l a c t i v i t y . 2. Government pro jec t s . 3- Money supply. 4. Per capi ta income. 5« Bank ra te , e tc . I have however been unable to f ind e i ther a s a t i s -factory r e l a t i o n s h i p between the various var iables and investment in non-res ident ia l construct ion , or r e l i a b l e fore-casts for the same. It may be noted however from Table 6 that construct ion expenses i n the non-res ident ia l market i n the past 5 years have remained wi th in 45-50$ of the t o t a l new b u i l d i n g construct ion expenditure. From Table 6 i t may also be noted that the non-res i -dent ia l b u i l d i n g construct ion market has grown over the period 1967-71 at an annual rate of approximately 6$. Thus one can expect th i s sector to continue to grow at an o v e r a l l annual rate 87 approximately 6$ over the next few years. i expect however that the actual annual growth w i l l d i f f e r from the l e v e l s suggest-ed by the above o v e r a l l growth f i gure . Based on an expected annual growth of 6$, a r a t i o of non-res ident ia l construct ion expenditure to t o t a l new b u i l d i n g construct ion expenditure of 45$, and a forecast of expected r e s i d e n t i a l construct ion expenses of $6350 m i l l i o n i n 1972, I expect non-res ident ia l construct ion expenditure i n 1972 to be approximately $500 m i l l i o n . I can now estimate the expected value of new b u i l d i n g construct ion i n the apartment and non-res ident ia l markets i n a given year i n B.C. For example, the market for 1972 i s expected to be approximately $744 m i l l i o n . Having done t h i s I have now to estimate the door-product market i n B .C. The Door-Product Market Based on the experience of the company i t has been noticed that the cost of doors, door frames and a r c h i t e c t -ura l hardware add up to , on the average, about 3«5$ of the t o t a l cost of construct ion of an apartment. S imi lar costs for non-res ident ia l construct ion average to about 2$ of t o t a l construct ion expenditure. Thus the t o t a l door-product market i n B.C. i n 1972 i s expected to bes A p a r t m e n t s » $244.3m x .035 - = 8.55 Non-Residential B u i l d i n g s : - $ 5 0 6m x .02 -= 10.00 $18755 88 Sale of door products in B.C. by Adka i s however general ly confined to Vancouver and V i c t o r i a d i v i s i o n s only . (Please see demarcation of these d i v i s i o n s at Appendix 8) . I t i s necessary therefore to estimate the door-product market i n these two areas. I propose to do th i s by est imating the door-product market for these areas for the period 1967-71 and extra-po la t ing i t into the future. Appendix 9 contains de ta i l s of the est imation. Percentage changes i n the estimated market are then compared against percentage changes i n various indices" ' i n Table 14. This comparison does not however uncover any obvious c o r r e l a t i o n between the estimated door-product market i n Vancouver and V i c t o r i a and any of the other ind ice s . I can only conclude that i t follows the same general d i r e c t i o n of change and i s general ly more v o l a t i l e than the other indiees . I t may be noted however that the estimated market i n Vancouver and V i c t o r i a has grown at an annual o v e r a l l rate of approximately 6% over the period 1967-71. I can therefore con-clude that i t w i l l continue to grow at an annual o v e r a l l rate of at l ea s t 6% over the next few years. The actual l e v e l s are how-ever expected to vary from those suggested by the above growth ra te . A l l these indices are based on actual f igures obtained from the various reports of the Dominion Bureau of S t a t i s t i c s . I have not used any of my 'est imated' r a t i o s . 89 Percentage Change i n Various Indices When Compared to the Previous Year 1968 1969 1970 1971 Door-product market 1 16.5 30.2 - 2 5 . 2 10.1 i n Vancouver and V i c t o r i a 2 To ta l expenditure on 9.6 2J.2 - 2.7 22.2 new r e s i d e n t i a l con-s t r u c t i o n i n B.C. Tota l dwel l ing 3 8.7 21.5 -14.2 27.3 s ta r t s i n B.C. Tota l value of new^ 5«6 17-0 - 7.1 22.2 b u i l d i n g construct ion i n B.C. To ta l value of non-5 lmi± 1 7 . 7 -12.0 22.2 r e s i d e n t i a l b u i l d i n g construct ion i n B.C. 1. Appendix 9a and 9b. 2. Table 5 . 3. Table 8. 4. Table 6. TABLE 14 90 The expected expenditure on new r e s i d e n t i a l construct ion i n B.C. i n 1972 i s $635.3 m i l l i o n (Table 5). an increase of 10.9$ over the previous year. Based on th i s as we l l as the o v e r a l l rate of growth of 6$ I estimate that the door-product market i n V i c t o r i a and Vancouver w i l l be between $9-8 to $10 m i l l i o n approximately. It may be noted that the apartment market i n B.C. showed an annual growth of 14$ and the non-res ident ia l market showed an annual growth of 6$ over the period 1967-71• In contrast to th i s the apartment market i n Vancouver and V i c t o r i a showed an increase of 10$ and the non-res ident ia l market an annual increase of only 2$ over the corresponding per iod . These f igures indicate r e l a t i v e sa turat ion and low percentage increases i n construct ion a c t i v i t y i n Vancouver and V i c t o r i a . The absolute value of the f igures however indicate a high l e v e l of a c t i v i t y when compared to the res t of the province. ' Products not Related to Doors We have so far covered the door-related product market. Let us now consider the 'non-door' products which const i tute approximately 14-15$ of the t o t a l sa le s . These products are so ld i n the ent i re b u i l d i n g construct ion industry i n a l l B.C. From Table 6 i t may be noted that the t o t a l expenditure on new b u i l d i n g construct ion has i n -creased at an annual rate of approximately 10$ over the period 1966-1971• I would therefore expect i t to grow at about the same rate i n the near future. I do not however know the port ion of the t o t a l b u i l d i n g expenses represented by concrete accessor ies , framing products, e tc . There i s no data on the d o l l a r volume, past h i s tory or potent ia l of the por t ion of the market represented by non-door products. A l l that can be sa id i s that the market i s also expected to grow at an annual rate of approximately 10$. As w i l l be discussed i n the chapter on Product-Market P o l i c y , because of the posture to be adopted towards sale of these products, the s ize of t h i s market i s not c r i t i c a l for long-range planning. I . w i l l therefore not pursue th i s any fur ther . The Market i n Alber ta and Washington (U.S .A . ) The company does not foresee the p o s s i b i l i t y of moving into Washington i n a b i g way by 1976. As w i l l be discussed i n the chapter on Product-Market P o l i c y , i t expects to s e l l only s tee l door frames through a d i s t r i b u t o r during t h i s per iod . Thus an analys i s of the Washington market i s not necessary. The company does however expect to be able to set up a branch o f f i ce i n Alber ta by ear ly 1975, a few months a f ter the expected construct ion workers' s t r i k e i s l i k e l y to end. Table 15 shows the value of new b u i l d i n g construct ion i n Alber ta i n the period 1969 to 1971. When compared with 92 Tota l Value of New Bui ld ing Construction - Alberta 1969 1970 1971 2 do l l a r s percent d o l l a r s percent. do l l a r s percent Res ident ia l 333,000 51.5 271,267 46 .5 325,600 54.0 Indus t r i a l 30,236 4 .5 22,777 4. 0 25,664 4.5 Commercial 112,504 17.5 124,109 21.5 76,908 13.0 I n s t i t u t i o n a l 110,841 17 .0 112,059 19.5 105,584 17.5 Other b u i l d i n g construct ion 62,687 9.5 50,349 8.5 6k,575 11.0 Tota l b u i l d i n g construct ion other than r e s i d e n t i a l 316,268 48 .5 309,294 53.5 272,731 46. 0 Tota l b u i l d i n g construct ion 649,268 100. 0 580,561 100. 0 598,331 100. 0 1. Source: Table 26 , "Construct ion i n Canada 1969-71", Cat. No. 64-201. 2. Thousands of d o l l a r s . TABLE 15 f igures i n Table 6, we note that the t o t a l value of new b u i l d i n g construct ion i n Alberta i s between 60$ to 70$ of that in B .C. During the years 1975 and 1976 the company expects to be able to develop sales of $100,000 to $200,000 per year of door-related products and $100,000 to $150,000 per year of non-door products. Expected sales of th i s l e v e l , given the s ize of the market i n A lber t a , do not require de ta i l ed market analys i s at th i s s taged When necessary however the market i n Alberta can be analysed i n a manner s i m i l a r to that used for B.C. Deta i led forecasts made now for the Alber ta market would become outdated by the time they are required . 94 CHAPTER VIII PLANNING REQUIREMENTS AND THE TIME HORIZON The she l te r construct ion industry has a reac t ion time which can general ly be measured i n months, the time i t takes to b u i l d a good s ized s t ructure . While there are de f in i t e trends i n d i c a t i n g an expanding i n d u s t r y , 1 construct ion a c t i v i t y var ies s i g n i f i -2 cant ly over time. Figures from Table 16 are reproduced below as evidence of v o l a t i l i t y . Dwell ing Unit Starts i n B.C. 1969 1970 1971 Quarter Quarter Quarter 1 2 3 4 1 2 : 3 : 4 1 2 3 4 $age change over previous quarter 57 -16-2? -3-19 46 23 -29 24 31 -2 As was discussed i n the chapter on the Market, i t i s extremely d i f f i c u l t to make or obta in r e l i a b l e forecasts of proposed expenditure on new b u i l d i n g construct ion for more than a year i n advance. Estimates beyond that period can, at best, be vague; useful for ind i ca t ive planning, but not See Table 3, i n d i c a t i n g increas ing demand for house-holds i n B.C. and A l b e r t a . See Table 8 i n d i c a t i n g increase i n dwel l ing s tar t s i n B .C . and A l b e r t a . See Table 6 i n d i c a t i n g increase i n new b u i l d i n g construct ion expenses i n B.C. See Table 5 i n d i c a t i n g annual f luctuat ions i n new r e s i -dent i a l construct ion expenditure i n B.C. See Table 8 i n d i c a t i n g annual f l u c t u a t i o n i n dwel l ing s tar t s i n B .C . and A l b e r t a . Dwell ing Units Started i n B . C . : Break-up by Quarter of the Year Year Quarter 1 Number of s t a r t s Change over previous quarter foage change 1969 1 2 3 4 6 , 548 10,284 8,656 6,332 "3,736 -1 ,628 - 2 , 3 2 4 57 -16 -27 1970 1 2 3 6,110 4,971 7,273 8,962 - 222 -1 ,139 2,302 1 ,689 - 3 -19 46 23 1971 1 2 3 . 4 6 , 3 4 l 7,889 10,363 10,172 -2 ,621 1 ,548 2,474 - 191 -29 24 31 - 2 1 Source: Table 8, "Monthly S t a t i s t i c a l Review", Catalogue No. 11-003. TABLE 16 96 s p e c i f i c enough for de ta i l ed planning. Capi ta l equipment of the type used by Monarch S tee lcra f t L t d . does not require large out lays . New machines would he expected to have pay-back periods of much l e s s than three years . Management does not expect to go i n for other l i n e s of production which may require equipment with large outlays i n the foreseeable future . In view of the above, I ' f ee l that a manufacturing cum-wholesale f irm s i m i l a r to Adka should l i m i t i t s long-range planning to 3 years . There are however two q u a l i f i c a t i o n s to the above statement i n the present case s Shortage of Working Cap i ta l Adka i s f i n a n c i a l l y r e l a t i v e l y unstable.-^ I t has been short of working c a p i t a l for almost two years and has d i f f i c u l t y meeting rout ine cash payout commitments. It has a low equity l e v e l and i s not current ly a 'hea l thy ' organiza-t i o n . The present period i s therefore not representative of the h i s to ry of the company. Thus i n i t s present predica-ment Adka i s not an average representat ive manufacturing-cum-wholesale organizat ion . See ' F i n a n c i a l Ra t io s ' page - 6 l . 97 Construct ion Workers' S tr ike Adka, as wel l as other companies connected with the construct ion industry , have recent ly passed through a period of r e l a t i v e i n a c t i v i t y due to the construct ion workers' s t r ike i n B . C . , l a s t i n g from May 1 to August 7. On-site construct ion was at a stand s t i l l for over 3 months. Most of the construct ion planned for th i s period had to be post-poned.^ Thus phys ica l t ransfer of good to construct ion s i t e s and subsequent b i l l i n g ^ dropped considerably. However orders continue to p i l e up, so much so that Adka expects to enter 1 9 7 3 with an order back-log of approximately $600,000 (against backlog of $389,000 i n 1971. the past maximum). In a n t i c i p a t i o n of the heavy outflow of goods required , the company has had to develop a s t o c k - p i l e , i . e . , increase i t s inventory of both raw mater ia l and f in i shed goods to a l e v e l higher than normal. Cash outflow for purchase of materia l has reduced somewhat, both because of reduct ion i n purchase of materia l While I:. have no evidence for or against I f ee l that only a small f r a c t i o n , i f any, of the jobs planned would have been cancel led ou t r i gh t . ^Orders can be negotiated and jobs b id and booked even when there i s no on-s i te construct ion. However customers can be b i l l e d only when mater ia l has been despatched to the construct ion s i t e . 98 and spec ia l c red i t terms. However outflows associated with personnel , r e n t a l , f i n a n c i a l and other f ixed charges, e tc . continued at t h e i r p re- s t r ike l e v e l s . Because of suspension of construct ion a c t i v i t y the general construct ion contractors are short of cash. T h i s , coupled with reduced phys ica l d e l i v e r i e s by Adka, has resul ted i n reduct ion i n cash in-f low to Adka. A r e l a t i v e l y high l e v e l of pay-out commitments i n conjunction with reduced cash rece ipts has overstrained the already otherwise unsat i s factory cash s i t u a t i o n . A s i m i l a r s i t u a t i o n was experienced i n 1970 during the l a s t construct ion workers' s t r i k e . A s i m i l a r s i t u a t i o n i s expected beginning May 1974, when the present contract runs out. Management at Adka would l i k e to ant ic ipa te a graver c r i s i s i n 1974 when the s t r ike i s expected to l a s t even longer than the 1972 s t r i k e . The Proximate Period In view of the above, i . e . , the unusual s i t u a t i o n of the company, the prime necess i ty of r e s t o r i n g f i n a n c i a l normalcy, and the p o s s i b i l i t y of s t r ike s every two years , I would l i k e the f i r s t long-range plan to cover a longer per iod . S p e c i f i c a l l y , I would l i k e to see the end of 1976 as the planning hor izon. The proximate period w i l l be s p l i t up into two port ions , Aug. 72, to A p r i l '74, i . e . , the pre- l9?4-s t r ike per iod , and May 74 to Nov. 76, the post-1974-strike per iod . Planning Requirements Planning requirements for the two periods w i l l be d i f f e r e n t . During the f i r s t period emphasis w i l l be on s t a b i l i t y , and during the second period on expansion. Pre-Str ike Period Before the expected 1974 s t r i k e , the company w i l l attempt to increase l i q u i d i t y . It w i l l attempt to ra i se equity and improve i t s working c a p i t a l p o s i t i o n . Sales w i l l be increased as f a r as poss ible without any major investment i n p lant , equipment or personnel. The company wants to avoid any investment which may require an increase i n pay-out commitments during the '74 s t r i k e when cash i n -flows are expected to go down for at l e a s t 3-4 months. S t r i c t l y speaking, the proximate period should be divided into three periods : 1. the pre - s t r ike per iod , 2. the durat ion of the s t r i k e , and 3. the pos t - s t r ike period The durat ion of the s t r i k e w i l l not be treated as a separate planning period however because of the extreme uncertainty associated with i t and the consequent d i f f i -cu l ty of developing deta i led plans for i t two years i n advance. 100 This i s not to say that the company w i l l merely • i d l e ' u n t i l May 1974. I t w i l l develop and promote i t s p r o d u c t - l i n e , ^ and explore markets i n Canada and the g States. I t expects to make incurs ions into Alber ta and Washington during th i s per iod . I f a l l goes w e l l , the company would be ready to e s t ab l i sh a branch o f f i ce i n Alberta by ear ly 1975. Thus the pre- s t r ike period would be one of s t a b i l i s i n g , proving products, f e e l i n g out markets, t e s t ing and t r a i n i n g personnel and planning a b i g pos t - s t r ike expansion. The major (sel f- imposed)constraint during t h i s per iod , w i l l be the unwill ingness to take on major pay-out commitments which might impose f i n a n c i a l s t r a i n or force the company to d ives t i f the 1974 s t r i k e i s of unduly long durat ion. The pre- s t r ike sales expansion and other a c t i v i t i e s w i l l be l i m i t e d to and by the capacity of the e x i s t i n g organizat ion , both i n terms of s i t e , machinery and p lant , and personnel . Post-Str ike Period After the s t r i k e ends however, the company w i l l expand, as fast as the market and i t s own a b i l i t y to fund expansion Discussed i n d e t a i l i n the chapter X r P r o d u c t -Market P o l i c y . 101 w i l l permit, for another 2/3 years i . e . before the next s t r i k e . The product and market p o s s i b i l i t i e s during th i s per iod are discussed i n d e t a i l i n the chapter X: Product-Market P o l i c y . The major constra int i n th i s period w i l l be a v a i l a b i l i t y of funds. I f the company has been able, as i t expects, to prove i t s e l f by the end of th i s per iod , i t may be worth i t s while to s e l l out to a bigger company which can fund expansion at an accelerated pace. Management w i l l however, have to keep i n mind the p o s s i b i l i t y of another serious s t r i k e i n 1976 which may leave i t 'out on a l i m b ' i f i t i s unable to f ind a buyer or ensure adequate funding to t ide over the s t r i k e . The President The above time and achievement schedule w i l l , I f e e l , a lso s a t i s fy Boyd's personal ob ject ives , namely: 1. Proving the door-systems concept. 2. Proving Adka. 3. R e t i r i n g i n good time with a reasonable amount of money. Construct ion Workers' S t r ike i n Washington and Alberta Construction workers' s t r ike s i n Washington and Alberta have not had an appreciable ef fect on the construct ion industry i n the past and .are not expected to have any over the planning per iod . No considerat ion has therefore been given to s t r ikes i n Washington and Alberta i n the p lan . 102 CHAPTER IX THE PLAN In th i s chapter I have out l ined a long-range plan for the period 1972-1976. The overa l l performance of the company envisaged under the plan i s depicted i n the form of year ending f i n a n c i a l reports i n Table 17. The performance i s based on product-market p o s s i b i l i t i e s and other cons t ra int s . The former are d i s -cussed i n the chapter on Product-Market P o l i c y . While the o v e r a l l p lan and the product-market p o l i c y are treated separately, the separation i s for expository purposes only . The plan and the p o l i c y have to be viewed simultaneously for complete understanding. In th i s chapter I consider planning constra ints other than the product-market cons t ra int s . These are then trans lated into year-ending f i n a n c i a l reports supported by a year to year commentary. The commentary and the reports const i tute the p lan . Constraints As discussed i n the chapter on Time Horizon, the proximate period can be d iv ided into two, the pre-1974 s t r ike period and the post-1974 s t r ike per iod . Di f ferent constra ints are appl icable during the two periods . Year-Ending F inanc ia l Reports Equity i(does not include possible • c a p i t a l gains due to i n -- creased goodwill) $age Increase over Year-Ending Previous year (000)  T I T 230 Market Value 252.8 + 70 =322.8 381.7 +20 =401.7 JzT 40 •Machinery & Plant of Monarch •Steelcraft L t d . Increase over Year-Ending Previous Year Year-Ending (000) Sales $age Increase over Previous Year CD mr 50,000 Market Value 60,000 20 Welding p lant , and space (10,000) 75,000 25 Press-brake and pa int-i n g ^ , 0 0 0 ) 1972 1973 1974 1975 1976 4 3 1 . 1 +10 =441.1 470.1 . (514.2) 24 10 (16.5) T 3 T 1,900 2.185 T 6 T 15 2 , 4 4 7 12 'Expected reduction due to s t r ike 90,000 6.7 2,936 Miscellaneous (5000) Branch of f ice i n Alber ta (10,000) 140,000 55.5 3,523 Custom Steel Door and wood m/c systems ($50,000) 20 20-"Figures i n brackets represent amounts and r a t io s i n 1976 i f no dividends are paid out i n 1975* TABLE 17 o TABLE 17 (Cont'd) Changes i n Return on Net P r o f i t a f ter Tax, before Equity Other Equity c a p i t a l investment and dividend than those After In-$age $age Due to Re- vestment D i v i -tained earn- '. and dend Sales Absolute of of ings Before Pay- Pay- to Value Sales .Equi ty (000) ment of out Equity (000) dividend % % (7) (8) (9) (10) ( I f ) (12) (13) 1972 22.8 1 . 2 3 9-9 50 9.9 0 8.3 3poor performance at or before due to the con- the end of ' ' 7 2 . s t ruc t ion workers' s t r ike 20 and other reasons : during 72-73 1973 69-9 3.2 21.6 20 18.5 0 6.8 during 73- 74 1974 68.5 2 . 8 2 17.0 10 during 74- 75 13-3 6 6.1 1975 1976 88.1 98.6 'expected reduction due to s t r ike 20) 3 .0 2 0 . 0 16.6 2.8 21.0 . ( 1 9 - 2 ) 1 -20) during 75-76 Retirement of Boyd's c a p i t a l . 10.3 10 6.65 expected reduction due to increased expenses due to s h i f t i n g of s i te and also because of a s t r i k e . LPigures i n brackets represent amounts and r a t io s in 1976 i f no dividends are paid out i n 1975. o 104 Pre-Str ike Period The primary constraints during th i s period are low equity and i n s u f f i c i e n t working c a p i t a l . The object ive therefore w i l l be to improve f i n a n c i a l s t a b i l i t y . This leads to the fo l lowing p r i o r i t i e s / p l a n n i n g cons t ra int s . 1. Minimal c a p i t a l investment. 2. Minimal h i r i n g of personnel. 3. Promotion of products with quick returns (ear ly or cash-on-del ivery payment). 4. Giv ing p r i o r i t y to improving margins over improving sa les . (Sales to be kept above a ce r t a in minimum l e v e l however.) 5. Streamlining operations to improve e f f i c i e n c y i n a l l areas. Since the company expects to expand r a p i d l y a f ter the 1974 s t r i k e , i t has to f i n a l i s e i t s plans before then. This w i l l r e s u l t i n the fo l lowing requirements i n the pre- s t r ike per iod . 1. T r a i n i n g and t e s t ing of personnel , s p e c i a l l y t h e i r a b i l i t y to handle workloads greater than those experienced i n the pre - s t r ike per iod . 2. T r a i n i n g and development of second-line manage-ment who may be required to supervise operations i n A l b e r t a . 3. Development and per fec t ion of the door package preparatory to entry into the r e t a i l market. 105 4. Developing contacts l ead ing into the r e t a i l market i n B . C . , Alber ta and Washington. 5. Se lec t ion and negot ia t ion for an a l ternate ' s i t e for Adka. 6. Tes t ing selected products for pr ice s e n s i t i v i t y i n order to maximize p r o f i t s i n the pos t - s t r ike per iod . 7. Locat ion (not acqu i s i t ion) of funds for both expansion and retirement of Boyd's equity i n the pos t - s t r ike per iod . 8. Developing contacts and goodwill l ead ing to entry into the wholesale market i n Alber ta i n the pos t - s t r ike per iod . 9« Developing an organizat ion which has low i n e r t i a and reac t ion time. 10. Developing a cash-flow buffer for the durat ion of the s t r i k e . The Post-Str ike Period The f irm expects to expand during th i s per iod . There-fore funds are expected to be i t s primary cons t ra in t . Its object ive therefore w i l l be to ra i se funds. Before i t can do so however i t would have to prove i t s a b i l i t y to secure adequate re turn on these funds. I am assuming that i t s h i s tory of performance i n the 1973-1974 period would have 106 establ i shed th i s a b i l i t y . Assuming that funds are forthcoming, a t t ent ion has to be d i rec ted to t h e i r a p p l i c a t i o n . This would, general ly speaking, mean inves t ing i n machinery, plant and personnel to manufacture and s e l l . higher volumes of se lected products i n the various markets according. to plans developed i n the pre- s t r ike period. I w i l l discuss these l a t e r i n d e t a i l . The company has i n th i s period however to plan for the post-1976 period a l so . The post 1976 a c t i v i t i e s are expected to involves 1. Further penetrat ion i n the r e t a i l market i n B . C . , Alber ta and Washington. 2. Further penetrat ion i n the wholesale market i n A l b e r t a . 3. Penetrat ion i n the r e t a i l market i n Washington, Saskatchewan and Manitoba. The fo l lowing elements are e s sent ia l for longterm surv iva l of a firms 1. A v iab le product. 2. A market for the product,. 3. Production-marketing c a p a b i l i t y . k. A p lan . As shown i n the chapter on Strengths and Weaknesses, Adka f u l f i l s the f i r s t three condi t ions . This planning exercise takes care of the fourth . Barr ing unforeseen circumstances therefore , (and a l l relevant p o s s i b i l i t i e s have been considered) I f e e l , that there i s a very high p r o b a b i l i t y of success; as measured by return on c a p i t a l . Carrying th i s l i n e of argument a step fur ther , i f the f irm i s able to generate high returns and shows a po tent i a l for expansion, i t should be able to a t t r ac t add i t iona l c a p i t a l . 107 4. Occasional forays into the wholesale market i n Saskatchewan and Manitoba. Planning for these would require developing necessary personnel, market contacts , goodwill and funds. I fee l that Adka has the necessary managerial capacity for planning and development. Funds are again expected to be the primary cons t ra int . While i t i s too ear ly to think of the actual means to be adopted to ra i se funds i n 1976 and subsequent years , there i s always the p o s s i b i l i t y of s e l l i n g out to a l a rger organizat ion , based i n one of the eastern provinces . This w i l l also provide, i n addi t ion to money, contacts and f a c i l i t i e s for expansion beyond Manitoba. As mentioned e a r l i e r Boyd who i s now 57 years o l d , may wish to withdraw his c a p i t a l and act ive operational involvement by th i s time. S e l l i n g out therefore would also t i e i n with his personal ob ject ives . F i n a n c i a l Reports The above constra ints are depicted i n Table 17 i n the form of year-end f i n a n c i a l report s . Let us analyse these for each year. 1972 Figures i n column .1 represent the t o t a l expected net worth of the company by the end of 1972. This does not 108 include any add i t iona l equity which the company expects to he able to ra i se before the end of the year. Expected sales of $1,900,000 with a net p r o f i t of only 1.2$ would r e s u l t i n expected sales to equity and p r o f i t to equity r a t i o s of 8.3 and 9.9$ r e spec t ive ly . S imi l a r r a t i o s for comparable industry groups are reproduced below: Manufacturing Industry: Construction Metal Stamping Industry: Special Trade Contractors Sales Tangible net worth Net P r o f i t Af ter Tax % Tangible net worth 1970 2.88 1971 3.25 14.18 1970 6.55 14.57 11.66 These indicate that Adka has a r e l a t i v e l y low equity base and expects to obtain a low re turn on i t s equity . 1913. The company expects to ra i se $50,000 equity , by, or soon a f te r , the end of 1972. A l l p r o f i t s are expected to be re ta ined . An add i t iona l $20,000 i s expected to be ra i sed during 1973• Most of th i s money w i l l be required for working c a p i t a l and debt ret irement. Approximately $10,000 i s expected to be set aside for purchase of a new welding plant and add i t iona l space for the machine shop. I t i s expected that addi t ion to the machine shop f l o o r space and subsequent r e l o c a t i o n of machine-tools w i l l 1971 5.63 15.84 109 r e s u l t i n a synerg i s t i c increase i n machine shop e f f i c i e n c y . This i s to be given p r i o r i t y as the product-promotion p o l i c y i s based on add i t iona l manufacturing capacity and improved manufacturing e f f i c i e n c y . While the warehouse and inventory are r a t i o n a l i s e d to reduce storage requirements, increased emphasis on manufactured products (which w i l l give r i s e to both raw material and f in i shed goods inventory) over purchase and re sa l e ; w i l l r e su l t i n add i t iona l space being required before the end of 1973• This i s expected to be leased and w i l l not represent c a p i t a l investment. In 1972, which was a poor year, sales were expected to r i s e by 15$ over 1971» which was a good year for the construc-t i o n industry . 1973 i s expected to be a 'bumper* year. One would expect therefore that sales i n 1973 would increase by more than 15$ over the 1972 l e v e l , i . e . they would increase to beyond $2.2 m i l l i o n . Sales beyond $2.2 m i l l i o n i n 1973 are poss ib le , even with the e x i s t i n g numerical strength of the sales and co-ordinat ing s t a f f . (Staf f would of course have to be tra ined and poor performance replaced. ) Management emphasis on sales would however r e su l t i n reduced a t tent ion to stream-l i n i n g and improving in te rna l e f f i c i e n c y . Thus sales would increase at the expense of p r o f i t margins and would not 110 r e s u l t i n proportionate increase i n net p r o f i t . The company i s now preparing i t s e l f for i t s 'great leap forward' . It has therefore to take time out to set i t s house i n order. Emphasis has to he l a i d on reducing costs and improving margins. The company i s i n the process of e s t ab l i sh ing a cost contro l system. After costs are ascertained then pr ices have to be re-es tab l i shed . The company has already uncovered items which were being sold below cost and at low margins. Cer ta in items are not s e l l i n g enough because they are overpr iced. For instance, s t ee l door frames are pr iced to earn a 65-70$ p r o f i t . I f pr ices were reduced the resu l tant increase i n sales volume would probably more than offset the reduced margin. Steel door frames and the door assembly package are key products on which expansion i n 197^, 1975 and 1976 i s expected to be based. (Towards the end of 1976 the company i s expected to be able to s t a r t manufacturing wood doors, metal b i - f o l d s and custom s tee l doors. Expansion beyond 1976 w i l l therefore also be based on these products.) I t i s important therefore that these products are perfected i n terms of q u a l i t y and are opt imal ly p r i c e d . Thus we see 1973 as a year i n which stress i s l a i d on preparat ion for expansion - even at the expense of foregoing poss ible short term gains. I f on the other hand, management does not attempt to consolidate the organizat ion , but goes I l l on to increase sales i n the short run, th i s w i l l , I f ee l reduce the rate of poss ible growth due to reduct ion i n net p r o f i t s . Lowered operational e f f i c i e n c y w i l l a lso make i t more d i f f i c u l t for management to obtain funds. It may be noted that a 15$ increase i n sales at 3.2$ re turn i s expected to return 18.5$ on equity (after cap i t a l investment.), even though equity i s expected to have r i s e n to 140$ of the 1972 l e v e l . This we fee l i s , under the circumstances, an adequate re turn . 1974 Most of the s t reamlining i s expected to have been completed or nearing completion by ear ly 1974. Management would by then be concentrating upon a n t i c i p a t i n g and then b a t t l i n g the forthcoming s t r i k e . It may take a couple of months to restore normalcy a f te r the s t r i k e ends. By th i s time the year w i l l be drawing to an end. Sales during th i s year are expected to r i s e by 12$ over 1973 at a s l i g h t l y reduced p r o f i t margin of 2 .8$, l ead ing to a 17$ r e turn on equity before investment. The company expects to expand as r ap id ly as possible i n 1975» I t i s therefore expected to invest i n a press-brake and pa int ing equipment i n l a t e 1974. The plans do not envisage paying out any dividends i n 1973. At the end of 1974 however I expect that shareholders 112 would want some re turn on t h e i r equity . I have chosen an a r b i t r a r y return of 6$. The net p r o f i t a f ter taxes, a f ter investment, before dividends , i s expected to show a re turn of, l3«3$on equity . The above plans are based on the expectation of a serious construct ion workers' s t r i k e beginning May 1, 19?4 and expected to l a s t at l ea s t 4 months. I f the s t r i k e does not mater ia l i ze or i s of shorter durat ion, then both sales and p r o f i t margins are expected to r i s e . This w i l l r e su l t i n an improved f i n a n c i a l s i tua t ion and w i l l a lso enable expansion to begin e a r l i e r . 1211 The company i s expected to go a l l out to expand sales 2 during 1975» without permitt ing p r o f i t margins to drop. This would be expected to net about $88,000. During th i s year the company i s expected to be faced with the fo l lowing cash a l l o c a t i o n problem: 1. The need to r e t i r e part of Boyd's equi ty . P r o f i t s are expected to drop from an expected 3*5$ to J.Qffo due to expenses associated with s h i f t i n g from i t s present l o c a t i o n . See Table 1? for ra t iona le of 3.5$ p r o f i t margin. Please see Table 17 for d e t a i l s . 113 2. Capital expenses to be incurred i n s e t t i n g up a branch o f f i c e i n Alberta. 3. Capital expenses to be incurred i n moving to a new s i t e . 4. The need to pay out dividends. I f e e l that the company's f i n a n c i a l s i t u a t i o n would permit retirement of a maximum of $20,000 of Boyd's equity. By mid-1975 the company would be ready to move into the wholesale door-product and non-door market i n Alberta. It would also have saturated i t s manufacturing capacity^ and be ready to move to a new s i t e . I expect that the company w i l l begin moving towards the end of 1975' The move w i l l be a long drawn out a f f a i r , involving simultaneous operation at and from two si t e s for some time. The company would be expected to complete i t s move, and purchase and i n s t a l additional equipment (wood-door and custom steel-door manufacturing equipment) by early 1976. The move to Alberta w i l l take l e s s time and i s expected to be completed In 1971 35$ of t o t a l sales (amounting to $579,000) were comprised of products manufactured i n Monarch St e e l c r a f t Ltd. The plant was then r e l a t i v e l y i n e f f i c i e n t and running single s h i f t . By 1975 I expect 50% of sales (amounting to $1,568,000) to comprise of manufactured products. This represents an increase of $889,000. The plant even i f i t i s running double s h i f t a f t e r retooling, re-organising and proper scheduling, cannot meet th i s increase. So I expect part of the manufacturing load to be sub-contracted during 1975. 114 before the end of 1975' The f i n a n c i a l report for 1975 shows c a p i t a l expenditure incurred i n e s t ab l i sh ing a branch o f f i ce at A lber t a . Cap i t a l expenditure associated with s h i f t i n g from the present s i t e i s shown i n the 1976 report . Other cash out-flows ( inc lud ing lease-hold expenses for land and bui ld ings ) have been expensed before c a l c u l t i n g net p r o f i t . This has resul ted in an expected drop i n p r o f i t from 3.5$^ to 3.0$, a drop of approximately $18,000. Since the move i s expected to take place towards the end of 1975, only part of the expenditure w i l l be expensed i n 1975• I f however i t i s poss ible to move sooner, then the above report w i l l have to be revised accordingly . While we do not expect the company to be able to set aside any money for payment of dividends at the end of 1975, f i n a n c i a l r a t i o s for 1976 have been ca lculated on two equity bases, one without any payment, and the other a f ter payment of 10$ dividends at the end of 1975-1976 This i s expected to be a c r u c i a l year for the company. Metal stamping industr ies operate at a p r o f i t to sales r a t io of 4$ p lus . (See chapter on Strengths and Weak-nesses, page 50.) As Adka becomes more manufacturing oriented I expect i t s p r o f i t margin to reach 3.5$. 115 The company has to complete i t s move, become f u l l y operational and develop a s tock-p i l e before May 1976, when another s t r i k e i s expected. I f the company expects a long shut-down then i t can delay purchase of wood-door and custom steel-door manufactur-ing equipment. I f the s t r i k e i s expected to be b r i e f , then the equipment can be purchased i n the e a r l i e r part of the year . By 1976 I expect the company to have developed i t s markets, contacts and goodwil l . I f th i s were a normal year I would expect a 25$ increase i n sales over the previous year . Because of the temporary d i s l o c a t i o n caused by s h i f t i n g however I expect sales to go up by only 20$. I a lso expect p r o f i t margins to drop due to expenses associated with moving and the s t r i k e . Beyond 1976 I am not sure at th i s stage how the company w i l l ra i se equity i n 1976-77* Assuming however that adequate financ/ies are forthcoming, I expect sales to grow by about 20$ at 3.5$ margin. 116 CHAPTER X PRODUCT-MARKET POLICY In th i s chapter I discuss the product-market policy-expected to be followed by the company over the period 1972-1976. The time schedule and volume of expected sale of various products i n the various markets has been influenced by, i n add i t ion to product and market c h a r a c t e r i s t i c s , the fol lowing* 1. F i n a n c i a l cons t ra int s . 2. Plant capaci ty . 3. Capacity of the sales team. 4. Expected co-ordinat ion and management problems. A l l the above have been considered while developing the long-range p lan . Thus the product-market p o l i c y and the plan are integrated . They are being dealt with i n d i f fe rent chapters merely for ease of expos i t ion . In the Chapter on The Plan I developed expected l e v e l s of t o t a l sales for the various years. In th i s chapter I propose to examine the constituent segments, sale of various products i n various markets, which go to make up the to ta l s a l e s 1 As seen i n the chapter on The Market, Adka's product l i n e can be divided in to : 1. Door-related products. 2. Other products designed for the she l ter market, 1 Please see Table 18 for d e t a i l s . Product - Market Posture Expected Sales - Thousands of d o l l a r s Expec. Sale Sale of Non- door Door Products I n s t a l l a t i o n Door- prod. Tota l A sa les of products through dealers by own Door- as Custom salesmen prod. a Prods. B.C. A l t a . Wash. B.C. A l t a . Wash. B.C. A l t a . B .C. A l t a . non- %age frames r e t a i l of B and frames mkt . in package only A B.C. B 1972 1,900 20 300 - - - - 40 - 1,530 10 10,000 15.30 Tota l 300 1973 2,185 20 400 20 - 25 25 60 - 1,605 30 10,600 15.15 Tota l 420 1974 2,44? - 400 30 20 25 50 50 80 - 1,742 50 11,250 15.50 Tota l 450 1975 2,936 - 450 100 40 50 100 150 90 - 1,856 100 11,920 15,58 Tota l 590 1976 3,523 - 450 1501 '50 200 200 1 2 00 ' 100 - 1,973 200 12,630 15.60 Tota l 650 1. includes expected sales i n Sask. and Manitoba. p-» TABLE 18 (-* -0 118 or 'non-door' products. 3. Products for other than the she l ter market. I w i l l discuss sale of products under the l a s t category f i r s t . Products for other than the Shelter Market Sale of these products amounted to $20,000 approx-imately i n 1971• I t i s expected that th i s l e v e l w i l l be maintained i n 1972 and 1973• These products represent custom orders which are e i ther u n s o l i c i t e d or obtained by top management. These generate a s l i g h t l y higher than average l e v e l of p r o f i t s . As long as there i s spare manufacturing capacity therefore , and production is not r a t i o n a l i s e d , these orders are welcome. Once production i s streamlined however costs are expected to dec l ine , increas ing p r o f i t margins on standard items. Custom order products w i l l then not be expected to r e t a i n a p r o f i t advantage over standard products. Because of t h e i r very nature, these orders cannot be an t i c ipa ted , planned or scheduled. When the plant begins to reach capaci ty , these products w i l l represent in te r rupt ion and rescheduling expenses. We expect therefore that such orders , unless unusually a t t r a c t i v e , w i l l not be accepted a f ter 1973. Expected sales a f ter 1973 do not therefore include revenue which may be earned from manufacture and sale 1 1 9 of such products. Non-door Products These products have the fo l lowing characters t ic s t 1. Quick re turn . Payment terms are net 3° and buyers tend to be prompt with payment. 2. Larger market. While we do not know the t o t a l d o l l a r value of the market for these products i n B . C . , the market i n a l l B .C. i s expected to be l a rge r than the door-product market i n Vancouver and V i c t o r i a . I do not therefore ant i c ipa te any d i f f i c u l t y i n achieving annual sales of $450,000. 3. Easy to s e l l . These products do not require any technica l expert i se . They are e a s i l y sold through d i s t r i b u t o r s . One salesman has been able to achieve sales of $250,000 per year approximately ( i n 1971). Sales can be increased further by h i r i n g another salesman (to cover more t e r r i t o r y ) and o f f e r ing volume discounts to dealers . 5. They are manufactured in-house and a f ter r a t i o n -a l i s a t i o n of manufacture are expected to re turn higher margins than products purchased for r e sa l e . These products do not however represent the bread and butter of Adka. No attempt has therefore been made to develop a de ta i l ed study of the product-market po tent i a l of non-door 1 2 0 products. For reasons of t r a d i t i o n , expertise and p o t e n t i a l , and ind ica t ions that door-related products are expected to give adequate f i n a n c i a l re turns , Adka prefers to concentrate on promoting door-products i n preference to non-door products. The l a t t e r are ca r r i ed p r i m a r i l y because they are easy to s e l l and generate cash for f inancing development and sale of door-related products. The sale schedule for these products i s expected to be as fo l lows! 1972s Tota l sales $300,000. 1973* Hire an extra salesman. Increase sales i n B .C. to $400,000. Contact a dealer/dealers i n Alberta ear ly i n the year and s e l l a few l i n e s . Expected sales $20,000. 1974s Maintain sales i n BC. S l i g h t l y increase sales i n A l b e r t a . Introduce the product i n Washington, s e l l through dealers . 1975$ Line expected to be wel l establ ished i n BC and known i n Alberta by then. Increase sales i n BC, using the same number of salesmen. A branch of f ice expected to be establ i shed i n A lber t a . S e l l through t h i s branch o f f i c e . Sales expected to go up. Increase sales i n Washington. 1976s Maintain sales i n B .C. Increase sales i n A lber t a . 121 Begin to s e l l into Saskatchewan and Manitoba. S l i ght increase i n sales i n Washington. Door-related Products; R e t a i l Market It i s expected that a new welding plant w i l l be i n s t a l l e d i n l a t e 1972 or ear ly 1973 and manufacture of SUA (set-up-and-welded) type s tee l door frames r a t i o n a l i s e d soon a f t e r . These frames are current ly sold i n the wholesale apartment market at 65-70$ p r o f i t (a f ter payment of 11$ sales tax) . Thus they are an a t t r a c t i v e propos i t ion . They are not however sold d i rec t into the s ingle or double unit housing market s ince r e t a i l sales are not worth Adka's e f f o r t . An a l t e rna t ive to d i r e c t sale i n the r e t a i l market i s sale- through d i s t r i b u t o r s . D i s t r i b u t o r s i n B.C. are not however prepared to carry th i s l i n e because they perceive Adka, the manufacturers, as competitors. They do not d i s t i n g u i s h between the apartment market on the one hand and the non-apartment market on the other. Since Adka can manufacture more frames than can be sold i n the apartment=market i n B.C. and since they fetch high margins attempts have to be made to s e l l them outside B.C. Labour rates are higher i n Washington than i n B.C. 122 There i s an import duty of only 2 $ , but the frames are exempt from 11$ Federal Sales Tax. Thus they are h ighly competitive in Washington. It i s expected that there w i l l be no d i f f i c u l t y s e l l i n g them across the border. Expected sales of s t ee l door frames i n Washington are as below: 1973: $ 2 5 , 0 0 0 . Sold through a dea ler / d i s t r i b u t o r s . Product introduced. 1974: $ 5 0 , 0 0 0 . Product accepted by the market. 1975? $150,000. Exp lo i t market acceptance. 1976s $200,000. Raise sales s t i l l more. Frames can s i m i l a r l y be sold through d i s t r i b u t o r s i n A lber t a . There they are expected to f ind t h e i r way into the r e t a i l housing market. The f irm has already contacted a d i s t r i b u t o r who does not object to Adka b idding d i r e c t l y into the wholesale apartment market while the d i s t r i b u t o r s e l l s to the r e t a i l market. Thus there are..the beginnings of'complete coverage i n A lber t a . There are some d i s t r i b u t o r s i n B.C. who s e l l in the r e t a i l market i n Alber ta . When they are faced with competition from Adka frames and note the co-existence of Adka and the dealer i n the same geographical market they w i l l be prepared to carry t h i s l i n e i n B.C. Thus entry i n the r e t a i l market i n Alber ta i s expected to serve a double purpose. The expected sales schedule of door frames i n Alberta i s as belows 123 1973* $25,000. 1974: $50,000. 1975' $100,000. Branch o f f i c e i n Alberta i s expected to help increase sales, p a r t l y by developing contacts i n Saskatchewan and Manitoba. 1976: $200,000. Includes possible sales i n Saskatchewan and Manitoba. Acceptance of frames by l o c a l dealers i s expected to lead to sales i n the r e t a i l market i n B.C. by 1974. These are expected to increase i n 1975• By 1975 the company would have perfected the door package and have i t available for sale over the counter. It i s expected that t h i s w i l l find ready acceptance and lead to combined sales of frames and the door package of $200,000 i n 1976. I n s t a l l a t i o n This i s the key to promotion of the door-assembly concept. Emphasis on i n s t a l l a t i o n has the following advantages: 1. Makes Adka's offe r more a t t r a c t i v e and convenient. 2. Does not require any capi t a l investment. Requires a skeleton core of permanent crew. Additional s t a f f can be hired and f i r e d as required. 3. There i s no competition, except by the general contractors themselves. No d i f f i c u l t y i s anticipated i n working to the following gross sales schedule: 124 1 9 7 3 : $ 5 0 , 0 0 0 . 1974s $ 8 0 , 0 0 0 . 1 9 7 5 : $ 9 0 , 0 0 0 . 1976s $ 1 0 0 , 0 0 0 . Door-Related Products; Wholesale Market In 1 9 7 3 and 1 9 7 4 the company i s expected to make occassional forays into the apartment market i n A l b e r t a . By 1 9 7 5 i t expects to be able to e s t ab l i sh a branch of f ice and s tar t b idding i n earnest. The fo l lowing i s the expected schedule s 1 9 7 3 : $ 3 0 , 0 0 0 . 1 9 7 4 : $ 5 0 , 0 0 0 . 1 9 7 5 : $ 1 0 0 , 0 0 0 . 1 9 7 6 : $ 2 0 0 , 0 0 0 . The expected door-related sales i n B.C. are scheduled below: 1 9 7 3 : $ 1 , 6 0 5 , 0 0 0 . 1 9 7 4 : $ 1 , 7 4 2 , 0 0 0 . 1 9 7 5 : $ 1 , 8 5 6 , 0 0 0 . 1 9 7 6 : $ 1 , 9 7 3 , 0 0 0 . I f the to t a l door-product market i n Vancouver and V i c t o r i a i n 1972 i s expected to be $ 1 0 m i l l i o n , and i s expected to grow at only 6% per year thereaf ter , then the above sales represent only 15«5 to 15«6$ of the t o t a l market. We f ee l that the to ta l market w i l l r i s e at higher than 6$ per year and that with product improvement and new product development-^ Adka can e a s i l y capture up to 2 0$ of the market. Thus according to the above, market estimates for B.C. contain a l o t of s l ack . The t o t a l sales capacity of the company, i t may therefore be noted, i s l i m i t e d by i t s own c a p a b i l i t i e s , and not by the market. Given the above slack the company can, i f necessary, reduce sales i n other areas and make up the balance by increased sales in ;the door-related product market i n Vancouver and V i c t o r i a . The company enjoyed 15.1$ of the market i n 1971. 3 For example, metal b i - f o l d s , i n d u s t r i a l and over-head doors. Expected slack at various l e v e l s of market share are shown i n Table 19. 126 Expected Slack at Di f ferent Levels of Market Share of the Door-Related Product Market i n Vancouver and V i c t o r i a , based on the Assumption that the Market Grows at 6$ per Year from a $10 m i l l i o n base i n 1972  s lack ca lcula ted at ( i n d i f fe rent thousands l e v e l s of of do l l a r s ) market share 165 % 17% 18% 19$ 2 0% 1973 $ 91 1 197 303 410 516 1974 58 170 283 395 508 1975 51 170 290 409 529 1976 48 174 300 426 552 1 e.g . $91,000 = (16$ of t o t a l door-product market i n Vancouver and V i c t o r i a ) - (planned sales of door-products by Adka in Vancouver and V i c t o r i a ) . TABLE 19 12? CHAPTER XI SUGGESTIONS FOR REVIEW The foregoing i s a 4-year plan to a t t a i n the combined object ives of Adka Industries L t d . and Monarch S tee lcra f t L t d . The plan i s based on c e r t a i n assumptions about ob jec t ives , the product, and the market. The object ives deta i led i n Chapter V are s p e c i f i c enough to provide guidance and d i r e c t i o n and yet broad enough to permit f l e x i b i l i t y . They are not ' o b j e c t i v e ' however, but are based on the product-market po tent i a l and the personal values of manage-ment, s p e c i f i c a l l y Boyd. I f there i s a change i n management, i t may be necessary to r e v i s e , or at l ea s t review, the object ives to ensure that they continue to represent the desires of management. The d e t a i l s of the plan are based on cer ta in assumptions about the behavior of the market. These are mentioned i n t h e i r context i n Chapter VII on market s ize and p o t e n t i a l . I t w i l l be necessary for management to analyse rates of change i n population growth, construct ion , e tc . These changes w i l l have to be analysed for both short-term f luctuat ions and long-term trends, and compensatory changes made i n the de ta i l s of the p lan . 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" z 131 Pugh, D.S. et a l . , "Dimensions of Organization Structure" , Adminis trat ion Science Quarterly, V o l . 13, No.1 (June 1 9 6 8 ) , 65 -105. S t a t i s t i c s Canada, Construction i n Canada; 1966-68, Ottawa; M i n i s t r y of Trade and Commerce, Catalogue No.64-2 01. , Construction i n Canada; 1969-71, Ottawa; Min i s t ry of Trade and Commerce, Catalogue No. 64-2 01. , Outlook 1969, Ottawa? M i n i s t r y of Trade and Commerce, Catalogue No. 61-2 05. , Outlook 1970, Ottawa: Min i s t ry of Trade and Commerce, Catalogue No. 61-205. , Outlook 1971, Ottawa: Min i s t ry of Trade and Commerce, Catalogue No. 61-2 05. , Outlook ,1972 ; , Ottawa? M i n i s t r y of Trade and Commerce, Catalogue No. 6 l - 2 05« , Monthly S t a t i s t i c a l Review, Ottawa: Min i s t ry of. Trade and Commerce, Catalogue No. 11-003, May 1972. Schorr, B . , "Many New Products F i z z l e Despite Careful Planning, P u b l i c i t y " , Wall Street Journal , A p r i l 5 , 1961. Scott , Br ian W., Long-Range Planning i n American Industry, New York": American Management Assoc ia t ion , 1965' S t e i g l i t z , Harold, The Chief Executive - And His Job, New York: National Indus t r i a l Conference Board, 1969. Ste iner , G . A . , "Making Long Range Planning Pay O f f " , i n Management: A Book of Readings, H. Koontz and C. 0 'Donnel , eds . , New York; McGraw-Hil l , 1964. , Top Management Planning, New York; Macmillan, 1969. , "Rise of the Corporate Planner" , Harvard Business Review, V o l . 4 8 , No.5 (Sept-Oct, 1970), 133-139. S t i g l e r , George, The Theory of P r i c e , rev . e d . , New York; Macmillan, 1952. Survey of Markets, Toronto: F i n a n c i a l Post, 1971. Tay lor , B. and I r v i n g , P . , "Organised Planning i n Major U.S. Corporat ions , " Long Range Planning, V o l . 3 , No.4 (June 1971), 10-26. 132 Thompson, J . D . , Organisations In Ac t ion , New York: McGraw-Hil l , 1967. V a n c i l , Richard F . , "The Accuracy of Long Range Planning" , Harvard Business Review, V o l . 48, No.5 (Sept-6'ct. 1970), 98-101. Warner, E . K i r h y , "Where Long-Range Planning Goes Wrong", Management Review, 51. No.5 (May'1962), 4-15. , Long Range Planning; The Executive Viewpoint, Englewood C l i f f s , N . J . : P r e n t i c e - H a l l , 1966. Worcester, Robert M.,"Managing Change", Long Range Planning, V o l . 3, N o . l (Sept. ~\970), 31-35. APPENDICES 133 APPENDIX 1 At one extreme on a (planning) spectrum is s t ra teg ic planning, as previous ly def ined. At the other end i s t a c t i c a l planning or the deta i led deployment of resources to achieve s t ra teg ic plans. The fo l lowing i s a l i n e of demarcation between the two extremes to h igh l ight the conceptual d i s t i n c -tions . 1. Level of conduct. Strategic planning i s conducted at the highest l e v e l s of management (at headquarters and i n major d i v i s i o n s ) and re lates exc lus ive ly to decis ions i n the province of these l e v e l s . T a c t i c a l planning i s done at and re la tes to lower management l e v e l s . 2. Regular i ty . S trategic planning i s both continuous and i r r e g u l a r . The process i s continuous but the t iming of dec i s ion i s i r r e g u l a r for i t depends upon and i s tr iggered by the appearance of opportuni t ies , new ideas, management i n i t i a t i v e , c r i s e s , and other nonroutine s t i m u l i . T a c t i c a l planning i s done for the most part on a per iod ic cycle that i s on a f ixed time schedule. 3. Subjective values. Strategic planning i s more heavi ly weighted with subject ive values of managers than i s t a c t i c a l planning. 4. Range of a l t e r a t i v e s . The t o t a l poss ible range of a l te rnat ives from which a management must choose i s far greater 134 by d e f i n i t i o n , i n s t ra teg ic than i n t a c t i c a l planning. 5. Uncerta inty . Again, uncertainty i s usual ly much greater i n strategic planning than i n t a c t i c a l p lanning. Not only i s the time dimension much shorter i n t a c t i c a l than i n s t ra teg ic planning, but r i s k s are much more d i f f i c u l t to assess and are considerably greater i n s t ra teg ic planning. 6. Nature of problems. Strategic planning problems are unstructured and tend to be one of a k ind . T a c t i c a l planning problems are more structured and often r e p e t i t i v e i n nature. ?. Information needs. Strategic planning requires large amounts of information derived from, and r e l a t i n g to , areas of knowledge outside the corporat ion. Most of the more relevant data needed re la tes to the future, i s d i f f i c u l t to get with accuracy, and i s t a i l o r e d to each problem. In mind, for example, i s information about competi t iors , future technology, s o c i a l and p o l i t i c a l changes a f f e c t i n g corporate dec i s ions , and economic development a l t e r i n g markets. T a c t i c a l i n -formational needs, i n contrast , r e l y more heavi ly on i n t e r n a l l y generated data, p a r t i c u l a r l y from accounting systems, and involve a higher proportionate use of h i s t o r i c a l information. For example, t a c t i c a l plans to contro l production res t heavi ly upon in te rna l h i s t o r i c a l records of past experience. 8. Time horizons. Strategic planning usual ly covers a long time spectrum but sometimes i s very short , and varies 135 from subject to subject . T a c t i c a l planning, i n contrast , i s of shorter durat ion and more uniform for a l l parts of the planning program. 9. Completeness. S trategic planning conceptually covers the ent i re scope of an organizat ion. While at any one time only selected areas of business a c t i v i t y may be the subject of s t r a teg ic planning, no corner of corporate a c t i v i t y i s excluded from a t tent ion . T a c t i c a l planning covers the whole of a suborganizational unit responsible for executing parts of s t ra teg ic plans . For example, t a c t i c a l planning may include new product plans , construct ion, machine replacement, production, and so on, and coordinates these for the whole a c t i v i t y of a subunit. 10. Reference. Strategic planning i s o r i g i n a l i n the sense that i t i s the source or o r i g i n for a l l other planning i n an enterpr i se . In contrast , t a c t i c a l planning i s done w i t h i n , and in pursuit of , s t ra teg ic plans. 11. D e t a i l . S t ra teg ic plans are usual ly broad and have many fewer d e t a i l s than t a c t i c a l plans. The further out i n time the s t ra teg ic plans s t r e t ch , the fewer s t i l l are d e t a i l s . As Anthony (1964,p.20) notess "the concept of a master planner who constantly keeps a l l parts of the organizat ion at some coordinated optimum i s a nice concept but an u n r e a l i s t i c one. L i f e i s too complicated for any human, or computer, to do t h i s . " 136 12. Type of personnel mostly involved . Strategic planning for the most part i s done only by top management and i t s s t a f f . Included i n the concept of s t a f f here would be l i n e managers when ac t ing as s t a f f to top management. The numbers of people involved are comparatively few as contrasted with t a c t i c a l planning where large numbers of managers and employees usual ly par t i c ipa te i n the process. 13. Ease of eva luat ion. It i s usual ly considerably eas ier to measure the effect iveness and e f f i c i e n c y of t a c t i c a l plans than of s t ra teg ic plans . Results of s t ra teg ic planning may become evident only a f ter a number of years . Very frequently i t i s d i f f i c u l t to disentangle the forces which l e d to the r e s u l t s . In sharp contrast , t a c t i c a l planning re su l t s are qu ick ly evident and much more e a s i l y i d e n t i f i e d with s p e c i f i c ac t ions . 14. Development of ob jec t ives , p o l i c i e s , and s t ra teg ie s . The ob jec t ives , p o l i c i e s , and s trategies developed i n s t ra teg ic planning are new and general ly debatable. Experience may be minimal i n judging t h e i r correctness . At the other extreme, there usual ly i s much experience to guide the development of t a c t i c a l plans. 15. Point of view. Strategic planning i s done from a corporate point of view, whereas t a c t i c a l planning i s done p r i n c i p a l l y from a funct ional point of view. (Ste iner , 1970, p.37-39) 13? APPENDIX 2 Book reviews t r ac ing maturing, of the concept of long-range planning. Theory Planning Theory, by Le Breton and Henning (1961): Outlines and discusses the theories underlying business planning and the planning process; covers such topics as the importance of planning, the dimensions of p lanning, and the planning r o l e . Corporate Planning Process, by Branch (1962): S imi la r to the above. - Goes i n d e t a i l into problems involved i n e f f e c t i v e l y s e t t i n g object ives and goals and administer ing the planning program. Long Range Planning i n American Industry, by Scott (1965)« Explores i n s t i l l greater depth and p r e c i s i o n the mental processes involved i n planning. Examines i n d e t a i l the effect of company strengths and weaknesses and shows the effect of market and industry factors on corporate s trategy. Pract ice Long-Range Planning P o l i c i e s and Prac t i ce s : Selected Companies Operating i n Texas, by Newell (1963): Contains long-range planning h i s to r i e s of four companies; The Aluminium Company of America, Texas Power and L i g h t Company, Continental 138 O i l Company, and the Texas Instrument Company. Reports organizat ion of the planning department, how a long-range plan i s constructed, what i t contains and who develops i t . Long-Range Planning Pract ices i n 45 Indus t r i a l Companies, by Henry (1967): Survey of formal long-range planning organizat ion and administrat ive procedures employed i n 4-5 i n d u s t r i a l companies. The study indicates that during the I 9 6 0 ' s large companies were growing more interested i n developing stronger planning organizat ions . Synthesis of Theory and Pract ice E f f e c t i v e Long-Range Business Planning, by C o l l i e r (1968)! A comprehensive d i scuss ion of planning. Dist inguishes between the s t ra teg ic and implementational phases of p lanning, shows how they are integrated and car r i ed out. Top Management Planning, by Steiner (1969): Probably the most complete study of corporate planning published to date. Covers both concepts and appl ica t ions i n good d e t a i l . Discusses s p e c i f i c planning tools and spec ia l i s ed funct ional planning. 139 APPENDIX 3 Door Systems The door systems concept involves the fo l lowing : 1. Manufacture/supply of complete door-systems for bui ld ings on a customised basis from standard and custom door assembly designs and from standard and custom door assembly parts as appropriate . 2. Supply of standard door assemblies from stock; order lead time depending on the s ize and complexity of the order. 3« Ins ta l door assemblies i n selected market segments and areas. 4. Supply simple standard door assemblies to be i n s t a l l e d i n housing renovations as d o - i t - y o u r s e l f pro jec t s . 5« Offer a f ter-sa les service contracts to selected market segments. Service to include locksmithing and other r epa i r s . 6. Offer a f ter-sa les service on a time and mater ia l bas i s . 7. Offer advisory/consultancy services i n areas of design, s p e c i f i c a t i o n , manufacture, i n s t a l l a t i o n and repa i r s of door-systems. 140 APPENDIX 4 L i s t of customers (people/associat ions/organizat ions) who need to he contacted i n order to promote the door-systems concept. Associat ions/Organizat ions 1. Amalgamated Construct ion Assn. of B.C. 2. B .C. Construction Assoc ia t ion . 3. B .C. Drywell Contractors As soc i a t ion . 4. Vancouver Chamber of Commerce. 5. Junior Chamber of Commerce. 6. Metal Industries As soc ia t ion . 7. The Vancouver o f f i ce of the Industry, Trade and Commerce Dept. of the Federal Govt. 8. Municipal H a l l , Burnaby. 9' C i t y H a l l , Vancouver. 10. Off ices of the B .C. Govt. V i c t o r i a . Individuals ( l i s t e d i n the Yellow Pages of the telephone d i rec tory for Greater Vancouver). 1. Arch i tec t s 137 nos. 2. B u i l d i n g Contractors 170 tl 3. S t ructura l Engineers 36 II 141 APPENDIX 5 HOW THE RATIOS ARE FIGURED - WHAT THEY MEAN1 These r a t io s are based on an analys i s of a composite sample of corporat ion income tax returns for the taxat ion year 1968 as compiled by the Canadian Department of National Revenue. These r a t i o s are averages and include both p r o f i t -able and unprof i table concerns. COST OF GOODS SOLD This includes the cost of inventory which has been so ld or used, f re ight or t ransporta t ion , customs dut ies , d i r e c t l abor and factory overhead. Discounts on purchases are deducted. The r a t i o i s a percentage of sa les . GROSS MARGIN This r a t i o i s derived by deducting the cost of goods sold from the sales f i gure . It answers the question "Is the mark-up on cost to s e l l i n g pr ice s u f f i c i e n t to show a p r o f i t ? " CURRENT ASSETS TO CURRENT DEBT Current Assets are d iv ided by t o t a l Current Debt. Current Assets are the sum of cash, accounts rece ivab le , inventories 1 From "Key Business Ratios i n Canada", Dun and Bradstreet , Ontar io . 1970 and 1971. 142 inc lud ing suppl ies , and Government s e c u r i t i e s . Current Debt i s the t o t a l of bank loans , accounts payable, tax l i a b i l i t i e s and amounts due to shareholders. This r a t i o i s one test of solvency. CURRENT YEAR PROFITS ON SALES (after tax) Obtained by d i v i d i n g the p r o f i t declared by the companies, by t o t a l sa les . This important yardst ick i n measuring p r o f i t a b i l i t y should be re la ted to the r a t i o which fo l lows . P r o f i t s are shown af ter taxes. CURRENT YEAR PROFITS ON TANGIBLE NET WORTH (after tax) Tangible Net Worth i s the equity of stockholders i n the business, as obtained by adding preferred and common stock plus surplus ( less d e f i c i t s ) and then deducting intang ib les . The r a t i o i s obtained by d i v i d i n g P r o f i t s by Tangible Net Worth. The tendency i s to look increas ing ly to th i s r a t i o as a f i n a l c r i t e r i o n of p r o f i t a b i l i t y . General ly , a r e l a t i o n -ship of at l ea s t 10$ i s regarded as a des irable object ive for provid ing dividends plus funds for future growth. SALES TO TANGIBLE NET WORTH Sales are divided by Tangible Net Worth. This gives a measure of the r e l a t i v e turnover of invested c a p i t a l . 143 COLLECTION PERIOD Annual sales are d iv ided "by 3^5 days to obtain average d a i l y c red i t sales and then the average d a i l y c red i t sales are d iv ided into accounts rece ivab le . This r a t i o i s he lpful i n analyzing the c o l l e c t a b i l i t y of rece ivables . Many fee l the c o l l e c t i o n period should not exceed the net maturity indicated by s e l l i n g terms by more than 10 to 15 days. When comparing the c o l l e c t i o n period of one concern with that of another, allowances should be made for poss ible v a r i a t i o n i n s e l l i n g terms. SALES TO INVENTORY D i v i d i n g annual Sales by Inventories . This quotient does not y i e l d an actual phys ica l turnover. I t provides a yard-s t i c k for comparing s tock-to-sa les r a t io s of one concern with another or with those for the industry . FIXED ASSETS TO TANGIBLE NET WORTH Fixed Assets are d iv ided by Tangible Net Worth. Fixed Assets represent depreciated book values of bu i ld ing s , leasehold improvements, machinery, f u r n i t u r e , f i x t u r e s , t oo l s , and other phys ica l equipment, plus l and . O r d i n a r i l y , t h i s r e l a t i o n -ship should not exceed 100$ fo r a manufacturer, 75$ for a wholesaler or r e t a i l e r . CURRENT DEBT TO TANGIBLE NET WORTH Derived by d i v i d i n g Current Debt by Tangible Net Worth. O r d i n a r i l y , a business begins to p i l e up trouble when th i s r e l a t i o n s h i p exceeds 80$. TOTAL DEBT TO TANGIBLE NET WORTH Obtained by d i v i d i n g to t a l current debt plus mortgage and other dunded debt by Tangible Net Worth. When th i s r e l a t i o n s h i p exceeds 100$, the equity of c red i tor s i n the assets of the corporat ion exceeds that of owners. 145 APPENDIX 6 PRODUCT CLASSIFICATION Alphabet ica l General C l a s s i f i c a t i o n Category Numerical C l a s s i f i c a t i o n Product Descr ip t ion Steel door frames and doors B Wood doors A r c h i t e c t u r a l Hardware D Concrete Accessories E Framing Products 52R* 53M 54M 58R 55R 59R 5 OR 6 OR 62R 64R 66R 01M 10R 11M 13M l4M 15A l6M 3 OR 35M 3 6M 40R 4lR Door frames Door frames and welded Door frames (KD) Metal doors set up dry wal l E l e c t r i c a l Products 82M Products 84M B i f o l d i n d u s t r i a l doors Wood doors Door hardware Window hardware Kitchen hardware Closet hardware Bathroom hardware Concrete accessories Concrete accessories 15F Ezy s t r i p t i e s - f l a t l6R Esy s t r i p t i e s -round #300 snap t i e s Snap t i e wedges Anchor bol t s Rib t i e s Framing Framing J o i s t Hangers Hardboard n a i l s and screws Decknai l s , spikes and sp l ines Staples Pipe straps 146 G Custom Work H Drainage Products I Miscellaneous J I n s t a l l a t i o n Charges 80M Indus t r i a l sales 2 OR Drainage 25M Drainage 45M P la s te r and drywall 70R Chemical - unc la s s i -f i ed 90 I n s t a l l a t i o n labour *M - Manufacture A - Assembly R - Resale 147 APPENDIX 7 DEFINITIONS1 Res ident ia ls Includes only se l f -conta ined housing units and, therefore , excludes such structures as barracks and dormitor ies . Number of units shown under Res ident ia l housing indicates the number of se l f -conta ined dwel l ing units added. For example, i f an apartment b u i l d i n g i s constructed and contains 6 apartments, i t w i l l be shown as 6 dwel l ing un i t s . When an e x i s t i n g s tructure i s converted into add i t iona l housing uni t s , the number of units added i s inc luded. The values of the permits issued for such conversions are included with new r e s i d e n t i a l cons t ruct ion . Apartments include a l l mul t ip le housing with 3 or more units such as t r i p l e x e s , rows and terraces , as we l l as apartments. F l a t s , regardless of number, that are part of a non-res ident ia l s tructure are also included. Single r e s i d e n t i a l units includes only one unit dwel l ing . Double r e s i d e n t i a l units includes a l l two unit dwellings such as doubles and duplexes. Conversions include number of dwell ing units added by conversions of e x i s t i n g s t ructures . From B u i l d i n g Permits , 1969. Catalogue No. 64-2 03. 148 New Res ident ia l Construct ion includes the value of b u i l d i n g permits issued for e n t i r e l y new r e s i d e n t i a l work inc lud ing detached and attached garages. The values of conversion and add i t ion permits are also included i n th i s group. Repair Res ident ia l Construct ion includes permits issued for major a l t e r a t i o n s , improvements, and smaller types of r e p a i r . The c l a s s i f i c a t i o n for non-res ident ia l bui ld ings or s tructures i s d iv ided into three major groups per ta in ing to the use of the structures for i n d u s t r i a l , commerical and government and i n s t i t u t i o n a l purposes. These major groups are further sub-divided into p r i n c i p a l categories of each major group. 1. Indus t r i a l - Includes bui ld ings used for : manufacturing and processing; t ransportat ion, communication and'other u t i l i t i e s and a g r i c u l t u r e , fo re s t ry , mine and mine m i l l bu i ld ings . 2. Commercial - Includes s tores , warehouses, garages, o f f i ce bu i ld ing s , theatres , hote l s , funeral par lours , beauty salons and miscellaneous commercial - s igns , posters , heating and plumbing i n s t a l l a t i o n s , e tc . 3. I n s t i t u t i o n a l and Government - Includes expenditures made by the community, publ ic and government for bui ld ings and structures - schools , u n i v e r s i t i e s , hosp i t a l s , c l i n i c s , churches, homes for the aged, b l i n d , deaf and dumb, government o f f i ce and adminis trat ion bu i ld ings , law enforcement, publ ic pro tec t ion , nat ional defence, and a n c i l l a r y bui ld ings such as dormitor ies , res idences , church r e c t o r i e s , gymnasiums, heating p lant s , laundries and cafeter ias for hosp i t a l s , schools or u n i v e r s i t i e s . J 10 12 14 15 16 18 DIV. NO. 10 M A C K E N Z I E APPENDIX 8 A oFor! H'.'ur B R I T I S H C O L U M B I A 0 Scale of Miles SO 100 COPYRIGHT A M E R I C A N M A P C O M P A N Y , INC. - Fort Grortar-e 1 1 '•iJa'vlQ.lme-., o p r i n c e Rupert \ Port Ectwsrd [ e Kftirpat Burns l a l ! ° • N • \ ' .--\ \ W A V r 0Q<:-cn Chorion £ QUECN ' ' 1> S CHARiOnF V * laVs , S U N D S 10 Miles Gibson's ancouver p D e e p C o v e o fo<o OFitt Meadcvs f Mow M L / McwWethninslei - « t * w h W K ' « Mission C't.i ; B W h i ! . Bed 3i: r~ y Atdcig'z VtffOWp - o © c> ! C!eatbrook ? w d i W A S H . . j Fort St. W " i 0 Hudsci Hccvs o 1 ^ f'mh'oiiio rjawson Creek c l (-« P o u c . C o u p e , c f l , Wonion C r « t CMt*Y»» D Fort St. l i - i i Ft. frows oY3ndert-.0:i South Fcr tG?" '4 Oc'ean >; Falls J u l i o lella DIV. N O . 7 I 0 Riven fnlel DW. N O - 6 2*4 Pet Hardy v A/erf Bay G \ L E G E N D . ^ Province Capital DIV. NO. _ Census Di'.'Yor, P O P U L A T I O N KEY Over 100.000 ^J? iO.000 to 100.000 ® 25,000 lo 50,000 © 20,000 lo 25,000 e 10,000 ro20.C0C e 5,00010 10,0C0 o 1,000 lo 5,000 o Under 1.000 * r.hsse / h  "Port Alice " . ^ \ . DIV no. 5 „ \ . X lil ' .i.R ft \ r j R u t W 1 Albsmio o f i •', ' .\~3 „ C " * ! • » , " A S " ' " t, wm&m^.-•  1 1 Port A l b c m i O . ; „ o c W ; - i r - - c » « ; ' © ? « ! • « ' • » _ « « • • • • - * " " ' • 4 0 « i - V - - J - . i — r,f B R « . UchertT Youtit-jo c*i-» l3ttr: Corricrisno WASH. UngtoriS'ation^ 0*:Victoria X 1 J o 1 ' 13 II 15 If . IS 10 OtV. N O . 15 Corco iou . 0 Fl. Vermilion DIV, N O . 12 Fort OupmoiM / . L E G E N D . Province Capital DIV. N O . _ C e n j u > D.V.sion P O P U L A T I O N K E Y ^ ) O / e r 100 .000 <f.'/ 5 0 . 0 0 0 io 100 ,000 ® 2 5 . 0 0 0 lo 5 0 , 0 0 0 © 2 0 , 0 0 0 l o 2 5 , 0 0 0 o 1 0 , 0 0 0 ( 0 2 0 , 0 0 0 a 5 , 0 0 0 lo 10 ,000 o 1,000 lo 5 , 0 0 0 o U n d e r 1,000 Manning Ft McMurray c Fairview 0 oPc^ce River o Grimsriaw Spirt! River ^Grande Prairie ° o McLennan High Prairie Q o Valleyvicr* Whitecourt o Westlock O ,— t , F * o Q ] V Rcdwulcr Cold l a k i ' 0 " Grand Centra o j Oonnyville o jour ' N O . 10 Onowoy A'"""r - *o 0 Nb: i l . Andrew Two Hills oH« jn ' *»" l / /3—i-L^V 0 Fort Saskatchewan " o " 1 " " 1 " " I t n AonyPln ino S | f 5 ) * j ' " ' " ' ' 0 o V c £ ' ™ » = „ .,. nWamwrigllt t S K.llom ° | [T] 0 Hordllly Chouvln" , ^ o 0 Lacombo V Provost 0 J 55 Rocky Mountain House£ S y l , a n L a k e 0 „ / " ^ ' " L t o r J 1 ! ^ R e d D e e r 1 Valley V D I V . N O . 8 Rimbcy 0 Wetasktwln-'. J Ponoka 0 D o y i l o n d 0 ' D I V . N O . 7 Big Coronoilono ! ( . „ , „ , S o d e , , , , j DIV. N O . 5 ~*t L . OldS 0 oTroc/ru ° I V . N U - * r' „ i Tt i ree° „ Dei«c „Hanna HlidsouryO j Hills Morrin° 0 '. I DIV N O . 6 -1 r Jocm.nco -Drumhe l le r N e w c a s t l e 0 o n , , flonekorty " « o i c d o l « C o w l t e O j ^ C a l g a r y ' © o Wort Difirtiond r Turnn, Q 1 j VoHoy HUI.RivOf A L B E R T A „ Brooks t--„ i DIV. N O , 1 n Vulcan \ ' * » I S t i n . M 0 Rcdcl i l l : Medicine Hat® COPYRIGHT A M E R I C A N M A P C O M P A N Y , INC. S ° N o n | o n 0 C h o m p . o . ' 'SrnvcVo ] o -— ' Cormnfigny I CUrcsholm,, ; r\iy u r i ? ° S oprctur.BuU. < „ ° B o » Island DIV, N O . 3 oCrtinum 0Tal)Cr Burd.M » Fort Macloodn \ o Coleman 0 Blairmorc Lkkr l r ln? C M Hiiirr,-.x> (jPinchcr r1 "Raymond Creek M a t r a t « ° | f. . , —' W o r n « / ° oCardslon o A * * * K * ' .oCarwar lm c°"'"^  . , . . M O N T . 0 Foremotl 10 l 152 APPENDIX 9a Est imat ion of the door-product market i n Vancouver and V i c t o r i a i n 1971. Apartments: 1. Number of dwel l ing s tar t s = 10,777-2. Cost of construct ion, at the rate of $12,000 per unit = $129 ,324 ,000. 3. Door-product market, at 3 .5$ of the to t a l cost = $4,526 ,340. Non-Residential Constructions 4. Tota l dwel l ing s tarts i n Vancouver and V i c t o r i a = 18,655« 5. To ta l non-apartment dwel l ing s tar t s = 7 ,878. 6. Cost of construct ion of non-apartment dwell ings , at the rate of $19,200 per unit = $151,257,600. 7. Tota l cost of r e s i d e n t i a l construct ion = $280 ,581,600. 8. Cost of non-res ident ia l construct ion at 45$ of r e s i d e n t i a l construct ion = $229>5 m i l l i o n . 9. Door product market, at 2$ of the t o t a l cost = $4,590 m i l l i o n . 10. Total door-product market = $9«l l6 m i l l i o n . 153 APPENDIX 9b Est imation of the door-product market i n Vancouver and V i c t o r i a , 1967 to 1970 1967 1968 1969 1970 Apartments No. of dwel l ing s tarts 7 .935 Cost per unit $10,700 Tota l cost $84.9m Door-products at 3 .5$ $2.975m Non-res ident ia l Constr. To ta l dwel l ing s tarts 15.360 Tota l non-apt. s tar t s 7 .325 Cost per unit $17,100 Cost of non-apt .units $125-2m Tota l cost of r e s i d e n t i a l construct ion $210. lm $age of non-res ident ia l to r e s i d e n t i a l construct ion 50.5 Non-res ident ia l construct ion expenditure $214.2m Door-products at 2% Tota l door-product market $4.284m $7.259m 11,087 $11,150 $112.2m $3.940m 18,2 06 7,119 $17,840 $127.0m 48.5 $226 • Om $4.52 0m 14,176 $11,540 $163.9m $5.740m 21,434 7,258 $18,470 $134.0m 47.0 9,425 $12,450 $117.3m $4.110m 15,996 . 6 » 5 7 1 $2 0,92 0 $137-3m $239.2m $297.9m $254.6m 4 5 . 0 $264.0m $2 08.5 $5.280m $4.170m $8.460m $11,020 $8.280m 

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