Dick Smith's Collapse: A Report on Business Failure and Strategies

This report provides an in-depth analysis of the Dick Smith company's collapse, examining the various factors that contributed to its downfall. The report begins with an executive summary and an introduction, providing a brief overview of the company and the context surrounding its failure. The core of the report focuses on the unsuccessful strategies and responses implemented by Dick Smith, including excessive discounts, an inefficient accounts department, ignorance of market trends, and poor inventory management. The report highlights the company's inability to adapt to the changing needs of the consumer electronics market. The analysis delves into specific issues such as the company's cost leadership strategy, the failure to recognize and respond to economic downturns, and the impact of poor management decisions. The report concludes with recommendations, such as efficient inventory management and the use of accountancy as an efficient tool, offering insights into how the company could have avoided its ultimate collapse. The report uses practical examples and theoretical concepts to support its arguments.

Running head: DICK SMITH
DICK SMITH
Name of the Student
Name of the University
Author Note

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Executive Summary
The given report throws light on the reasons behind the collapse of Dick Smith. The company
was a leading company in the domain of consumer electronics however due to its lack of
capability the company collapsed in 2016. The report has followed a systematic structure
whereby a brief overview of the case has been provided along with a detailed analysis of the
response by the company which led to its downfall. Certain recommendations based on what
could have been done have also been provided. The report uses practical examples along with
theoretical concepts.

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Table of Contents
Introduction......................................................................................................................................3
The response by the business which was unsuccessful...................................................................3
Conclusion.......................................................................................................................................8
Recommendations..........................................................................................................................10
References......................................................................................................................................12

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Introduction
The business environment is extremely dynamic. It is very important for any business to
consciously assess the business environment in order to figure out the changes that will take
place in the business environment in order to ensure that the firm is performing well and is able
to face all the barriers which the dynamic environment throws at it. In the given report, the case
of Dick Smith will be discussed and the causes of its downfall will be analyzed critically.
Dick Smith Holdings Limited was an Australian retail store dealing in consumer
electronics, electronic hobbyist components and the electronic project kits. The chain had a
successful expansion into New Zealand; however expansion into the other countries was not as
successful (Rothaermel, 2015). The company was found by Dick Smith in 1968 in Sydney and
later on it sold 60% of its ownership to Woolworths Limited in 1980 and sold the remaining part
of the company in 1982. However, due to mismanagement of the company, it closed down in
2016. The report will be analyzing the reasons why the company was unsuccessful due to its
response and provide recommendations on the same.
The response by the business which was unsuccessful
The primary reason behind the company`s failure was its incapability to adapt to the
changing needs of the external environment of the business. With the advancement in the
technological domain, the electronic industry changed and the business processes also took a turn
which the Dick Smith Company was unable to abide by. For this reason, the company collapsed

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and could not abide by the need of the external market. The responses which the business gave
are which lead to its downfall has been discussed below:
1. More discounts-
The company, in order to attract the customer segment and indulge in high end sales,
invested in a scheme whereby the company offered huge discounts to the customers. This
strategy was fairly acceptable as the customers actually purchased a large number of products
and availed the different deals, however, this was not good for the long term benefit of the
company as the clearance sales were not a viable solution for the lowered sales which the
company was facing (Hill, Jones & Schilling, 2014). The company management thought that in
order to attract a larger crowd, the company should successfully be able to offer a product which
is unique and quality is optimum as well. However, instead of following a differentiation
strategy, the company planned to adopt a cost leadership startup which was not beneficial for it
because the costs of the firm were quite large in general (What killed Dick Smith? Inside the
Dick Smith collapse. , 2018). They were trying to be a low cost retailer in the market, without
actually operating in a low cost manner. Instead, they operated on high costs and offered more
discounts than the liquidity state of the firm would allow. Due to this reason, the company was
unable to achieve success and lead to its downfall (Harrison & John, 2013).
The company had aimed to provide higher sales as a source of funds which would help to
pay the creditors of the firm, but this was not the case and the funds raised from the sales was not
enough to be able to pay off all its debts.
2. Accounts department issue

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The accounts department of the firm was not an efficient one. According to Hayes
(2014), the accounts department is a strategic unit of a business enterprise which further assists
the business and guides the different decision makers of the business in successfully being able
to decide which factors of the business have been performing well and which factors need to be
changed. The company had not being doing well since a very long time; however the accounts
department was inefficient in being able to accurately forecast this downfall. Had they been more
careful during their analysis and scrutinized the different assets and liabilities carefully along
with the sales which are being made for the business (Doppelt, 2017). It is not easy for a
business to collapse so easily. The signs are visible at an early stage. However, the only
difference is that the business was unable to abide by the rules and unable to verify the signs of
the downturn.
3. Ignorance
When an external environment, reflects signs of downfall and betrayal it is the duty of the
business to make strategies that will assist the business in combating against the factors which
are present in the external environment of business. A business cannot stay ignorant towards
these factors. The various factors present in the external environment of the business are factors
like political, economical, socio-cultural, technological, environmental and legal (Morschett,
Schramm-Klein & Zentes, 2015). Although these factors lie outside the domain of the business,
these factors have a high capability of affecting the given business and it is not a good business
practice to ignore such factors. However, taking the case of Dick Smith, the company completely
ignored these factors and played innocent. Ignoring such factors proved to be a dangerous
outcome for the company, whereby it was unable to achieve success. If Dick Smith had not been

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ignorant with respect to the given outcome, it would have achieved success and not collapsed in
this manner (Businessinsider.in. ,2018).
4. No money in electronics market
The electronic market had not been performing that well from quite some time,
According to Johnson (2016), with the economic downturn and the ongoing recession phase
bought about immense impact on the electronic markets with special reference to the consumer
market. The customers had suffered a huge blow and because of this, they were unwilling to
invest in the consumer goods. This downturn in the given market had bought about huge changes
and many businesses had diverted their plans and attentions due to this (Martinsuo, 2013). The
company failed to do so and instead start investing regularly into the electronics market. Dick
Smith failed to analyze the technological as well as the economical factor carefully so that they
were being able to invest soundly and retrench their activities ( Williams ,2013).
In the given scenario, a retrenchment strategy should have been followed by the given
organization. A retrenchment strategy would have gone a long way in helping the firm to be able
to achieve success (Hubbard, Rice & Galvin ,2014). Had the company successfully retrenched its
operations and limited its business spheres, it would have been successfully able to achieve
success and not suffered the huge collapse that it had already undergone.
5. Inventory
According to Ashkenas (2013), the company had a wide source network which was more
than all its competitors combined. Hence, this wide source of network and inventory
management, proved to be a high cost segment for the given company. As the company wanted
to achieve economy of scales, it invested in a large inventory which notched up the expenses of

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the firm. Furthermore, as the company was unable to make considerate sales, the inventory
became stale. In the consumer goods market, the new products are launched into the market on a
regular basis and if a company stocks up the products for a long time then it will not be able to
become successful in its chosen domain (Kalkan &Bozkurt, 2013). This is where Dick Smith,
went wrong, the company was unable to keep up with the rapid changes in the consumer
demands and due to this reason, the company failed. Maintaining a large inventory base should
not have been an option for the firm. The company should have maintained its goods in the
Inventory on a FIFO basis. In this basis, the company generally is successful in maintaining a
sound inventory (Jarzabkowski & Kaplan, 2015). Hence, the failure of the firm to maintain an
acute inventory level even during the phase when the crisis began to strike induced the company
to collapse completely.
6. Management
The management of the company under the reign of Nick Abboud was one of the major
reasons why the company collapses. The management was unable to analyze and read the series
of activities which took place in the current environment of the business and it was because of
this reason that the company was unable to survive and sail through the turbulent times.
According to Doppelt (2017), the leader of a company should be someone who is successfully
able to assist the business and sail it through their turbulent times, but the business was unable to
pass through because under the management of Nick Abboud, the firm did not achieve any
success. Had the management been a sounder one, they would have been quite successful and
would have possessed the ability to come back with a good response and not let the firm
collapse.

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7. Expansion Plan
Despite analyzing the happenings taking place in the current environment of the business,
the firm continued with its expansion plans (Slack, 2015). The expansion plans of the business
were not capable enough to help the company in getting them back to the track. Instead it further
soaked up the resources of the firm which then led to a further blow on the company`s well
being.
Conclusion
Therefore, from the given analysis it could be observed that the primary reason why the
company. Dick Smith; failed was not due to the external factors which lied in the external
environment of the firm, but due to the inconsistent efforts of the business organization. The
given report outlined some of the reasons and the actions of the company in response to the
external factors which lead to its downfall. The report begins with a brief introduction of the
given scenario and the reason why the company failed. The following section describes the
reason why the firm failed and also analysis the different responses by the firm that actually
leads to its failure.
These response actions comprise of providing excessive discounts to the firm. Although
the firm was not being able to afford providing these discounts, the company offered it more than
the cost which then led to the downfall of the company. The second inactive response of the firm
which contributed to the downfall was the inefficient accounts department. The accounts

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department of the firm was highly inefficient and this is the main reason why the firm was
unable to foresee the anger it was falling in. Other reasons for its downfall included reasons like
ignorance, unable to analyze the downfall in the electronic market. Inefficient management and
the unnecessary expansion plan. Had the company followed the given recommendations, it
would have been successful in facing the danger.

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Recommendations
1. Stock in a limited manner
The consumer demands in the consumer electronics market are highly volatile. As new products
are introduced very often the consumer demands, tend to change quite rapidly. The given rapid
change then causes turmoil and the firm selling such goods needs to re-stock continuously
(Lasserre, 2017). Had Dick Smith been able to re-stock efficiently and maintained an optimum
stock of inventory, it could have turned the tables and not been collapsed so rapidly.
2. Use accountancy as an efficient tool
The role of accountancy in the business domain cannot be undermined. Accountancy
goes a long way in assisting the business and helping it to forecast the future. It lays the duty of
the finance and accounts department to analyze the financial statements and foresee any dangers
that might take place in the business environment. Had Dick Smith`s accounting department
been successful in analyzing the future of the firm, it could have saved from suffering a loss to
this extent.
3. Offer discounts in a limited manner, stress more on quality
The company followed a cost leadership strategy which was a wrong approach. This is
because; the firm should have instead followed a differentiation strategy to become popular
among the consumer market. The strategy of offering discounts to such a large extent went
wrong for the company (Merat & Bo, 2013). The cost of maintaining such a high inventory
affected the profitability of the firm and furthermore, as the company was unable to increase the
revenue of the company, as the margin of the sales was quite low, it suffered a further loss.

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Hence it has been recommended that any organization should actually aim to increase the quality
and service of the product provided instead of investing in a large inventory which ultimately
leads to a loss.