The Organization is Structured in a Traditional Hierarchical Manner

The Organization is Structured in a Traditional Hierarchical Manner
1.0. Introduction
After four years of successful operations and growth, LorPel has come to a crossroads where all three partners are forced to brainstorm a viable road to the future. My role as a consultant is to assess the strategic proposal pushed ahead by each of the three partners and examine their suggestions in the light of the findings of my audit of the external environment and internal view of the firm.
LorPel was founded by Victor Kruglov and Aleksey, two brothers, in 2003 in Belarus, later joined by Igor Zhuk, taking charge as Chief Operating Officer of the company. It deals in wood pellets, a form of biofuel. It is important to note that the company successfully waded through its start-up phase and established a European market. By 2007, the company’s growth was on track when the government official began to pressure the company to engage in city projects (Ivanova & Winn, 2010). It put the company in a critical dilemma since conceding to the government’s requests could instigate an endless string of similar requests, eroding its profitability and independence. At the same time, a refusal can set up the authorities to backlash and raise obstacles for its business. This paper aims to help the company navigate this dilemma while maintaining its ownership status.
2.0. Organization’s Structure
The organization is structured in a traditional hierarchical manner where each functional department is responsible for carrying out its responsibilities (Amason, 2011). It is visually exhibited as under:
Figure 1: LorPel's Structure
The structure characterizes a considerable amount of informality where none of the partners has sole decision-making authority, and the decisions need to be based on the consensus arrived among all three partners. This structure aligns with the company’s current needs as it is still in its early growth phases. However, this centralized view may not remain relevant after it expands exponentially, as hoped and envisioned by Victor, since the leadership would require to be more distributed, and the current partners will have to delegate the responsibility to departmental or divisional managers depending on the direction of expansion (Cassar, 2018). Hence, despite being a fit in the current context, the structure requires significant shifts in the future to ensure adaptation.
3.0. Evaluation of Performance
As mentioned earlier, LorPel has gone through a steady phase of growth. Considerable success in four years considerably expedited navigation through the start-up process thanks to Aleksey’s knowledge about dealing with concerned authorities and avoiding the red-tape. Similarly, Victor has significantly contributed by solving the puzzle of technical misalignment between production equipment and peculiarities within the properties of local lumber. Similarly, Igor’s part has been highly appraised by the remaining two partners (Ivanova & Winn, 2010). Hence, the team effort helped the company gain its foothold in its brief lifespan.
While seen from a resource-based perspective, the company has the potential to maintain its growth rate in upcoming years. However, the government has created a problematic situation for the company with its requests and ability to use restrictive measures as bargaining chips.
4.0. External Environment Analysis
4.1. Pestle Analysis
4.1.1. Political Factors
From a political point of view, the company is exposed to potential opportunities and critical threats. For instance, Victor’s role as a foreign partner and investment makes it eligible for the government’s concessions and perks granted to the entities that instigate the inflow of foreign investment (Ivanova & Winn, 2010). Similarly, the government of Belarus is interested in insulating the foreign players from the competition and reducing the barriers for such companies by lowering the cost of doing business (Ivanova & Winn, 2010). Thanks to the government’s positive attitude towards foreign direct investment, the company remains exempt from certain taxes and enjoys low tariffs (Ivanova & Winn, 2010).
However, an inconsistent policy framework remains a potential hurdle for the company and engenders a sense of uncertainty (Leitner, 2016). The partners were concerned about frequent government policy changes and accepted this risk considering the same unavoidable while starting the business (Ivanova & Winn, 2010). This threat is active in the current scenario where the requests from the government to partake in city projects have sent all three partners to brainstorm.
4.1.2. Economic Factors
A potential economic factor aligned to LorPel’s business in 2007 is the rising prices of fossil fuels. As a potential substitute, biofuel remains a significant beneficiary of this uptrend as the demand for biofuel is rising (Ivanova & Winn, 2010). Even though the increase in the prices of inputs has partially counteracted, the growing demand for biofuel has spawned valuable prospects for the growth and attainment of economies of scale (Jackson, 2020).
4.1.3. Social Factors
At the social level, sustainable consumption trends are rising (Michaelis, 2003). As noted by Victor and Eleksey, a company’s ability to remain ethical and environmentally friendly considerably impacts customer behaviour (Ivanova & Winn, 2010). These considerations formed the basis for LorPel to appeal to the environmental watchdogs in Europe for their efforts to promote an environmentally friendly alternative to fuels.
4.1.4. Technological Factors
The technological advancements taking place serve as a dual-edged sword for the company. On the positive side, new tech-driven innovations can pave the path to more efficient ways of producing pallets to contribute to the company’s margins. At the same time, there is always a chance of a disruptive innovation that can question the viability of pallet production (Charitou & Markides, 2003). For example, a more efficient and environmentally better-aligned way of producing fuel can emerge and garner the attention of the company’s loyal customer base.
4.1.5. Legal Factors
The legal landscape has positive indications for the company. As discussed in the case, Sweden’s law of tax exemptions on engaging in renewables is prevailing (Ivanova & Winn, 2010). It is a significant development for the company for it marks a significant contribution to the circular economy by using lumber waste as its production input (Ivanova & Winn, 2010). Therefore, not only that the company can easily pass the sustainability tests, but it is also positioned to be rewarded for its contributions while seen from a legal perspective.
4.1.6. Environmental Factors
As also discussed in the previous section, a firm's environmental performance is seen as a potential determinant of its value at the legal and social levels. The company’s eco-friendly business model is a potential source of addressing the needs at both these levels.
4.2. Industry Analysis using Porter’s Five Forces
4.2.1. Buyers’ Bargaining Power
Buyers’ bargaining power remains ‘moderate’ in the industry. LorPel enjoys a monopoly in its production of wooden pallets. Therefore, the customers have limited options. At the same time, the purchase by a single customer is negligible compared to the company's total sales volume, which implies that no single customer has the potential to disrupt the revenues. However, the switching costs remain zero, which means a customer can quickly shift to a new substitute despite LorPel being the only provider of wooden pallets.
4.2.2. Suppliers’ Bargaining Power
Suppliers’ bargaining power is ‘low’ considering the immense competition in the suppliers’ market. Sawmills are abundant, and the production of sawmills results in 50% waste which is of no use to them if LorPel decides to terminate the cooperation (Wells, 2013). Therefore, despite selling the waste considerably cheaply, suppliers value their relationship with the company.
4.2.3. Threats of Substitutes
Threats of Substitute are ‘moderate.’ The substitutes are readily available in the form of fossil fuels. However, the prices of fossil fuels are undergoing a long-term uptrend and tend to fluctuate considerably (Ivanova & Winn, 2010). Therefore, wooden pallets have a justified place in the market, drawing their demand from fossil fuels at odds with the buying power of an average European consumer. However, future advancements in the form of tech-driven disruptive innovations can bring more efficient substitutes to the market.
4.2.4. Threats of New Entrants
Threats to new entrants remain ‘high,’ partially attributable to the extensive knowledge and expertise required to set up the business in LorPel’s niche. Even LorPel is the product of Aleksey’s vast experience in the wooden industry combined with Victor’s skills in procurement and finance management (Ivanova & Winn, 2010). Secondly, the upfront cost of setting up a business is high, even at a trim level, since the entrant will have to import industrial equipment from Canada or Denmark and bear other overhead expenditures. Thirdly, the legal barriers to doing business in Belarus are considerably high, with red-tape being the major deterrent and inconsistent government policy being another (Ivanova & Winn, 2010).
4.2.5. Intensity of Competitive Rivalry
Competitive rivalry is ‘low’ in the industry. Currently, LorPel is the sole producer of wooden pallets. At the same time, competition remains irrelevant to the industry since every prospective start-up will have to locate its production facility close to the lumber producer (Ivanova & Winn, 2010). Based on this fact, Aleksey was not concerned about intensifying competition when he thought of providing consultancy services to entrepreneurs aiming to replicate LorPel’s business model (Ivanova & Winn, 2010).
5.0. Internal Environment Analysis. ‘
The internal environment of the company is analysed using the VRIO model, which is used to identify and compare the resources and capabilities based on the contribution of each resource/capability to the competitive advantage and to determine the degree to which the competitive advantage sourced from a capability is sustainable (Zanoni, 2011):
Resource/Capability

Valuable

Rare

Hard to Imitate

Organized to Create Value for Business

Type of the Competitive Advantage

Trendsetters in the Industry

Yes

Yes

Yes

Yes

Sustainable

Sole Market Player (enjoying monopoly)

Yes

Yes

Yes

Yes

Sustainable

Blend of extensive knowledge of diverse business dimensions

Yes

Yes

No

Yes

Temporary

Access to cheap material (waste of sawmills)

Yes

Yes

No

Yes

Temporary