In December 2002, ERT plc, an established retail company located in the north east of England, merged with PLR plc, an Edinburgh based company that had been operating successfully for over 45 years and who had over the past seven years become a major competitor of ERT plc. In December 2002, the combined companies began trading as GBI plc.
Both ERT plc and PLR plc had enjoyed record profits during 2000 and 2001.
Although market reaction to the acquisition was positive with GBI’s share price rising dramatically, the overall profitability and efficiency of the new merged company fell sharply during 2003, with GBI recording an annual trading loss in January 2004.
In March 2004, the management of GBI appointed consultants to identify why such a fall in the company’s fortunes had occurred. The consultants’ report was highly critical, suggesting that the core problems being experienced by GBI had resulted from an incompatibility of the ERT and PRT accounting information systems.
In particular, the consultants identified an inability of GBI’s management to understand the nature of systemic functional cycles of operation and the implications of systems theory in the management of corporate activity.
Required
(a) Describe and diagrammatically represent the main functional cycles of operation that may exist in a retail company such a GBI plc.
(b) Explain briefly why in the context of the above scenario the ERT’s and PRT’s cycles of operations may have been incompatible.
(c) Explain how a knowledge of systems theory may have assisted the management of GBI in their attempt to reverse the decline in the new company’s financial fortune.