Castle Nursing Home PLC is a chain of homes for old age pensioners. Over the years, it has expanded to 200 nursing homes making it one of the largest nursing home companies in the UK. Due to its growth and expansion, the organization has restructured immensely in the last five years. As a result, it has become very difficult to maintain uniformity in operations across the organization. The media has recently brought the operations of the nursing home to close scrutiny of the public stating that the organization has become 'disorganized, mismanaged and have lost focus around the level of care provided to residents'. The management of the organization is aware that with a clear strategic direction and focus, Castle Nursing Home PLC may lose its reputation thereby undoing all of their hard work to bring the company to where it is now.
This report aims to highlight a clear strategic focus for Castle Nursing Home PLC so as to improve operations within the nursing homes and to improve its reputation with the press and most importantly, its residents. The report will be divided into three purposeful subjects: Operations, Information & Finance.
Operations
External environments in today's business world are influenced by many challenges such as technological innovations, fast-paced globalization and management of information. This requires that businesses change their practices to manage the challenges in the external environment. Slack et al (2010) explains that the role of the operations function assesses the fundamental reasons for the existence of a process in an organization. Therefore, it is the role of the operations function within Castle Nursing Home PLC to review the current practices and policies in the organization in order to better respond to its fast-paced expansion in light of other external challenges (Denvir, 2011).
The analysis of operations can be a daunting task and as a result many scholars have devised various techniques such as value chain analysis and systems approach to assist the analysis (Rowbotham et al, 2001). One technique of analysing operations is the Framework for Operational Decisions described by Schroeder (2005). If Castle Nursing Home were to use this framework, its operations have to be analysed in terms of:
Capacity - The capacity of an organization refers to its ability to offer its products or services to its customers at the quantity demanded and time requested. In the case of Castle Nursing Home PLC, the rapid expansion seems to be affecting the quality of its services which means that the organization is currently, functioning in an under-capacity mode. The management of the organization needs to invest in a capacity planning process to determine whether or not the company meets its customers' expectations in terms of its product offering, quantity and quality.
Quality - Castle Nursing Home is currently having problems with its quality management and is why the company is being battered in the press. Quality management is essential to gain long-term profits and continuous sales growth. The management at Castle Nursing Home needs to match its product/services quality to the expectations of its customers. Management scholars have come with various quality measurement and management techniques such as Total Quality Management (TQM) processes whereby all activities of the business are measured to meet high quality standards.
Workforce - Improvement in operational efficiency and effectives always comes down to the staff carrying out day-to-day activities and responsibilities. In the case of Castle Nursing Home, the management should motivate employees to become customer-focussed. Encouraging customer awareness to the workforce of an organization improves the quality of the service provided to customers and will thereby; improve the operational efficiency and reputation of the business.
Inventory - Inventory management is important to maintain efficiency of operations. Holding too much stock or too less stock directly affects the cash flow of the business. The management of Castle Nursing Home should try to limit the accumulation of stock levels so that it can free up some cash to send its employees for customer-focused training programs.
Processes - The management at Castle Nursing Home should evaluate it processes to see if there are any opportunities to improve efficiency levels. Delegation of work and responsibility to subordinates is one way of improving operational efficiency.
The tarnished reputation of Care Nursing Home PLC with the press requires that the management team focuses all its attention on establishing customer focussed strategic goal and objectives. Once these goals have been laid on the table, the measurement of the operational performance of these strategic goals is important to determine whether its efforts are on the right track. Slack et al (2010) describes fives operational objectives using criteria such as dependability, flexibility, quality, speed and cost. The criteria for measuring these objectives also need to be drawn out when implementing the strategic goals.
Evaluating performance of strategy is an important element of implementing strategic goals and objectives. If not for performance evaluation objectives and techniques, the management of an organization cannot evaluate the progress of the change implemented. At Castle Nursing Home, the strategic goal of improving quality and reputation of the business requires a change in the way the operations of a business are carried out. Performance evaluation objectives and techniques will help identify the effects of the change on the productivity and efficiency of operations at Care Nursing Home PLC. Examples of performance evaluation techniques that can be used at Care Nursing Home are benchmarking, balance scorecard approach and critical success factors. The methods can determine if the performance objectives of dependability, flexibility, quality, speed and cost (mentioned before) have been met by the organization (Slack et al, 2010).
The success of a business depends on its ability to meet and exceed customer expectations in terms of quality of service/products. Paying attention to the quality of service provided by Castle Nursing Home PLC can help enhance delivery times of services, identify opportunities of reducing cost of operations and improving quality of services which will lead to increased sales and profits which will thereby, regain its reputation and stand-out amongst its competitors. This gives the organization a competitive advantage. Many techniques have been devised by management scholars and organization directives. Some of these include (Slack et al, 2010):
Total Quality Management (TQM) - ensures focus on every activity of the business to maintain high quality.
Statistical Process Control (SPC) - ensures quality control on the operations of the business
Value Chain Model Framework
Information
The past decade has witnessed the increased flow of information and the advantages of using technological advancements to ascertain benefits of improved quality, cost and well-timed supply of products and services which has contributed to strategic decision making. Ward and Peppard (2002) propose that information systems need to follow a cycle of activity to help businesses in making strategic decisions. Data stored into information systems from daily transactions and activities are processed to make it information suitable for analytical purposes which in turn contribute as knowledge need for decision-making. This knowledge is then converted into actions proposed by management after careful consideration. When actions deliver results, this data is inputted into the system for further analysis. Simon (1995) suggests that 'awareness' of a problem as the first stage towards decision-making. Information systems help with making management aware of the problem by converting raw data into knowledge. In the case of Castle Nursing Home, the management can use information systems to analyse the efficiency of operations and determine ways to improve so that it can win back its reputation amongst its residents (Turner, 2011).
As discussed, there is an important link between information systems and strategic decision-making. Therefore, Castle Nursing Home needs to create an information systems strategy that is linked to its strategic goals. Management scholars have devised many models that may benefit information strategy planning. These include (Turner, 2011):
Financial Models - These models help determine an outcome of a financial position.
Optimisation Models - These models will help ensure the best solution from the many alternatives.
Simulation Models - These models draw out the outcome of a decision.
Sensitivity Analysis - These models help determine the result of changing important variables in a decision.
In light of improving operations at Castle Nursing Home PLC, the management needs to choose the best model for linking its information systems and strategic decision-making. Furthermore, to determine the strategies to align information systems with business plans is to determine the 'strategic fit'. It refers to linking the information systems amongst an organization's' capabilities and its aspirations. Strategic fit can be in the form of organizations' goals, resources or synergy and is usually identified by a complex testing process (Slack et al, 2010).
Quantitative techniques aid strategic decision-making by introducing numbers to the problem which makes it easier to analyse and track progress. These techniques are facilitated by the use of the internet and intranet that allow information share, transfer and management. Some quantitative techniques that can be used for strategic decision-making includes Lean Synchronisation, Economic Order Quantity (EOQ), Gantt Charts, Materials Requirements Planning, Critical Path Method (CPM) and Queuing Theory. These techniques help with quality control, inventory control, decision analysis and project management (Slack et al, 2010).
Since information systems aid strategic decision making, Castle Nursing Home could attempt a systems approach to solve its problems of efficiency and quality management. This could be achieved by either comparing decision-making theories or evaluating decision-making models. The latter is a more realistic approach by taking into account nature of humans and organizational circumstances. Further, a systems approach will ensure that Castle Nursing Home systematically solves problems and makes decisions taking into account environment factors that may disrupt strategic decisions. It allows employees to adopt systems- thinking that ensures that all employees focus on one strategic goal (Slack et al, 2010).
Finance
The cash flow of a business determines its liquidity position. An organization with less cash flow faces the risk running out of cash to make supplier payments and other expenses of the business. This may lead to purchase of unnecessary short-term loans with high interest rates which affect profits. On the other, an organization with a strong cash flow can not only meet its expenses but can also take advantage of sudden opportunities such as acquiring stock of an unsuccessful competitor. The problem with forecasting cash flow is that customers expect delivery of goods and services before making any payments. This requires that businesses have adequate cash to meet supplier payments, salaries, loan payments, taxes and so on. Changes in the external environment such as changes in interest rates, trading situations, supplier agreements also need to be considered when forecasting cash flows. Although cash flow forecasting is beneficial to the business in terms of maintaining the liquidity position of the business, it is very difficult to estimate sales (and thereby cash inflows) and is very time consuming (Denvir, 2011).
The term marginal costing refers to a method of costing that takes into account the change in overall cost with the production of one extra unit of the product. This means that a change in the volume of production is shown in the profit levels gained. Marginal costing is helpful in making short-run strategic decisions because it helps understand variations in volume to the subsequent variation in costs. Likewise, break-even analysis is a technique that aids short-run business decisions as it takes into account the amount of sales necessary to cover the cost of producing a product. The break-even point is the point where the product makes no profit or loss - the point at which the cost of the product is covered by the units sold. The Cost -Volume-Profit (CVP) also aids short-run decision making as it considers the relationship between cost, volume and profit (Drury, 2009).
.Capital investment requires plunging a large amount of cash/capital to gain an asset. Since the investment decision cannot be altered once the cash/capital is invested, investors prefer to appraise the investment before making any decision. There are many investment appraisal techniques that can be used to determine whether the rate of return achieved from the investment is acceptable by the standard rate of return of the company. This includes (Pike & Neale 2009) :
Payback Period - This technique is used for initial screening of the investment. It is quite easy to ascertain the time taken to recover the value of the investment. However, it does not take into account the time value of money.
Accounting Rate of Return (ARR) - This technique averages the annual cash flow from the investment. It is stated as a percentage of the outflow.
Discounted Cash Flow Techniques - There are two commonly techniques of the discounted cash flow methods - Net Present Value (NPV) and Internal Rate of Return (IRR). These take into account the time value of money which is a very important aspect when making capital investment decisions because money received now is more valuable than money received in the future. It also considers the effect of interest rate changes on the present value of future revenues. The NPV is more commonly used for appraising investments than the Internal Rate of Return (IRR) method.
Capital investments should only be made in the case that the company is running in a surplus cash flow. In the case of a weak cash position, it is best to avoid capital investments for the benefit of the future of the business (Drury, 2009).
Castle Nursing Home - Analysis of Financial Condition
The financial condition of Castle Nursing Home has diminished in the year 2011 compared to 2011. The turnover in 2011 has decreased by £30,000. The cost of sales has increased by £10,000. The gross profit margin has decreased by 5.6%. The expenses of the company have decreased by £17,000 which show that efforts are being made to cut down unnecessary expenses. However, this has had no positive effect on the net profit margin which shows a decreased of 3.5%. Fixed assets on the balance sheet have decreased by £70,000 but this will have no influence on the cash flow of the business. However, it does affect the profits of the business since profits of a company are determined by the efficiency of its equipment and plants. Castle Nursing Home is holding significantly less stock in the year 2011 which is good for the cash flow of the business. The year 2010 inventory levels seem to be too high which has negatively affected the cash position of the business. The current ratio of the business was 3.35 times in the year 2010 but as dropped to 1.64 times in the year 2011 which shows great improvement in liquidity. The acid test ratio in 2010 was 2.29 times but in 2011, it is 1.14 times which is great for the liquidity position of the business. Although stock levels have improved in the year 2011, the decrease in current assets by £127,000 and the increase in current liabilities by £20,000 negatively impact the cash flow position. The working capital of the business has also decreased by £146,500 and is only £22,500 in the year 2011.Castle Nursing Home PLC should work towards improving its cash flow position as it may affect the operations of the business if it cannot meet supplier payments, wages, loan payments and other expenses. It may help if the organization benchmarks itself with other nursing homes to identify the best liquidity position and aim to achieve this in the coming year. Although the cash position of the business has become weaker in the year 2011, it still has sufficient cash for meeting operational expenses of the business.
