BAC4674 INTEGRATED CASE STUDY

Trimester 3, 2017/2018

CASE: KRS : Survival of a small scale cleaning company

Submission date: 03.05.2018
Facilitator: Madam Saleha Binti Abdullah
Prepared by:

Name Student ID Contribution % Signature

DIVYA CHRISTY CHITHAMBARAM 1142701432 20%
TAN SIN YEE 1132701471 20%
CALVIN YAP KAI WEN 1132702345 20%
LIM XIN EE 1132701484 20%
FAN RUI CHING 1132701786 20%
TOTAL 100%

Declaration by group leader

(This section is to be filled in the student’s own handwriting.)

I hereby declare that all group members’ names are correctly included in the above
section. I hold a copy of this assignment which I can produce if the original is lost or
damaged. I certify that no part of this assignment has been copied from any other
student’s work or from any other source except where due acknowledgement is made
in the assignment.

Group leader’s signature : _____________________________

Group leader’s name : _____________________________

Group leader’s student ID : _____________________________

Date : _____________________________
1.0 Introduction

Key Rank Services (KRS) categorised as one of Malaysian small and medium
scale businesses. The founder of KRS is Ali and he established company in 1994. After
fifteen year of establishment, Nassir who is additional investor to contribute in the
company and holding 35% of owning of KRS.

Company provides building cleaning services, such as hospitals, offices,

students’ hostels, cafeterias, libraries and other parts of building. Other than cleaning
job, KRS also offers lawn care such as grass mowing and plants trimmings. Besides,
KRS also did some maintenance job for fire fighting and safety system.

Currently, KRS engaging cleaning project include cleaning of residential

colleges in Universiti Teknologi MARA, Shah Alam; cleaning of administrative office
in Kolej Professional MARA, Banting; grass mowing at old Defence Airport in Sungei
Besi; and cleaning job in Youth Hostel in Cheras, Kuala Lumpur.

Unfortunately, company currently having the problem of financial and

sustainability issue. As the director, Ali decides to introduce residential cleaning
services rather than to bid government cleaning service for extending the sustainability
of business and improve the company’s profitability.

2.0 Issues that KRS is facing

The main issue found in the case is the company faced financial struggle. The
company has problems in allocating the operating expenses like personnel cost with
revenue generated efficiently. The next issue is difficulties in hiring cleaning crews
who are free from legal issues and visa. The other issue KRS is facing is
sustainability and survival issue.

2.1 Ranking of the issues

Local and non-local employee cost

Personnel cost

Storage facilities

Material cost

Competition

Sustaintability
 i. Local and non-local employee cost
Due to the local cleaning crews are difficult to be found, the company has no choice
but to hire foreign cleaning crews. However, KRS will need to go through the necessary
legal procedures and expenditure around RM10,000 to hire a cleaning crew. The
company therefore has to prepare the documentations on behalf and also to provide the
necessities like accommodation and transportation. It is considered the most important
issue in this case as it comprise of a big part of the cost of KRS.

ii. Personnel cost

Personnel planning is crucial to avoid any unnecessary recruitment of cleaning crew
and maintain sufficient resources capacity. KRS cleaning crew wages comprise almost
two third of the entire operating expenses. The number of cleaning crews recruited
would depend on the project capacity.

iii. Storage facilities

KRS has a central office in Kajang with two storage facilities which is located in
Segamat and Seremban. Ali has to maintain both the stores as there are some machines
kept inside it. However, assuming there is a rental for the storage facilities, that would
mean that they have an extra cost incurred such as maintenance cost, utilities cost are
also incurred too. The company does not make enough profit to be able to afford both
the storage facilities

iv. Material Cost

The material that KRS incurred is considered quite expensive. The cleaning chemical
and direct expenses incurred each project are RM 678.00 and RM 1050.50. After
reviewing all the product as well as their description, Super Mosaic Cleaner and
Multipurpose Cleaner have the similar function. It is considered unnecessary to incur
such cost.

v. Competition
The cleaning contractors who have registered with Ministry of Finance (MOF) has
increased over the years. This requires KRS to be competitive in terms of their costing
to enable them to get the bid for government cleaning project. Also, they have to
provide high quality of services in order to compete in the future.
 vi. Sustainability
In order to sustain their business in the competitive market, KRS would need to start
up a new type of business in order to give more profit to the business. Although KRS
is already currently engaging include cleaning of residential colleges in Shah Alam,
cleaning of administrative office, grass mowing at old Defence Airport and cleaning
job in Youth Hostel. This existing 4 projects were not sufficient for KRS as they facing
financial distress.

3.0 Introduction – small and medium enterprises (SMEs)

Small and medium enterprises (SMEs) are widely viewed as important to the
growth and stability of economy. Mulhern (1995) reported that the SMEs have been a
major engine in economic growth, innovation and technological progress. The
importance of the SMEs come from the vital role in the private sector and because it
considered as a labour-intensive firm. There are some factors that could be the reason
behind the success of these firms such as top management commitment and support,
customers focus, employee focus, technology, financial management, and flexibility in
adapting to changing business environment.

3.1 Critical success factors

i. Top management commitment and support

The concept “top management support” has been studied by many scholars and
unarguably it is known as one of the most important critical success factors underlying
the success of companies. It refers to the commitments by the highest ranking
executives for projects as well as strategies implementation. Top management
commitment has large impact towards the overall strategic direction of the organization.
Their support demonstrates visibly how strong the commitment to the project is. Top
management support and commitment have a fundamental and strategic role to play in
providing both resources and capabilities for effective project execution.

Top management support must be verified and demonstrated by actively

communicating the mission and vision throughout the organization as to ensure that all
level of employees know the organization’s purpose and how it intends to add value.
An effective communication strategy is a dominant factor in leading and incorporating
people and taking decision to establish a successful project. Many other aspects should
be focused by managers to align the quality objectives with the vision, to commence
quality and a corporate culture, and to create a culture with continuous improvements,
minimizing the reluctance towards change.

Next, top management is empowered with the most influential decision making
role in the organization. They play a key role in creating conditions in the work
environments that are favourable for an integration of learning and work. The
responsibility of the top management includes communicating the company strategy to
all members of the organization, providing financial support for training programs, and
motivating employees to innovate and solve problems.

Besides, top management support is important in ensuring project success by

facilitating the provision of timely resources. The leadership attitude and support can
promote the organizational innovation. Leadership inside the organization must
demonstrate good attitude towards problems and to encourage in uncover any potential
risks of the business. It also trains employees in their problem-solving skills. They must
also coordinate the communication within the organization to make sure that resources
are better shared and utilized between different parts of its organization.

ii. Customer focus

Another critical success factor of SMEs is the customer focus where the
customer focus is similar to market orientation, both looking for innovative solutions
that can create superior customer value. However, customer focus and market
orientation are different to those businesses that actively attempt to understand their
market. Customer focus places the customer as the top of the organizational chart,
whereas market orientation give equal weight to customer needs, competitive context,
and inter-functional coordination.

Having a customer focus is essential as it is known as a strong contributor to

business profitability, competitive advantage and a hallmark of successful business.
Also, the construct of customer focus is important for the organizational relationship as
it refers the process of identifying and establishing, maintaining, enhancing and when
necessary terminating relationships with customers and other stakeholders. Today’s
business entrepreneurs must always make sure that they have strong customer focus so
that they are able to respond to rapid changing customer preferences and needs. For
instance, company in the cleaning industry have to understand their customers’ cleaning
needs. They have to have the knowledges on what skills and tools are needed for
different kinds of cleaning service engagement.

In general, the firm’s profits result from how well the customer needs and wants
are satisfied. It requires efforts on identifying customer current as well as future needs
in order to offer products and services adapted to the evolution of market requirements.
In determining the quality, customer is regarded as the king in the organization.
Customer focus provide a basis of obtaining customer information, which can be used
to develop supply chain relationship capabilities, referring to the stock of knowledge-
based competencies for effective managing a firm. However, customers’ privacy and
assets’ safety have become an emerging issue for residential cleaning services. Theft of
customer’s belongings by the janitorial staffs while conducting their cleaning tasks has
been a popular issue. It is a serious issue which might even cause the customers not to
acquire cleaning services. Hence, customers are concerning about the integrity of the
cleaning staffs. Employees’ integrity should be an essential criterion included in the
cleaning service package. Companies have to provide appropriate education for their
staffs on the issue.

The focus of customers may be stronger in SMEs due to the proximity to and
close relationship with the customers as the size and number of customers would
normally be smaller. The SMEs’ organization should not view customers only as a
source of firm’s revenues and profits, but also as resources for gaining and sustaining
competitive advantages. Since SMEs have smaller size and smaller number of
customers, they should take this advantage and to invest their resources to build a good
interpersonal relationship with their customers.

iii. Flexibility in adapting to changing business environment

As the business environment is changing rapidly nowadays, business includes

small and medium enterprises (SME) should react to the changes by implementing
some strategies so that they will not be eliminated from the market.

The business should not stay in the comfort zone but to seek innovation in the
services offered. In order to stay competitive in the market especially the cleaning
service industry, the SME can expand their business to the other areas of services line.
For example, the business may only provide cleaning services at the beginning, but the
business can now have another business line for pest control. The changing weather
and the diseases that we are facing currently have provide a better business opportunity
for the pest control industry. When they are providing the cleaning services and they
found any harmful insects, they can offer the pest control services to the customer as
well. By expanding the business, it can increase the profitability and maintain the
position of it in the market.

The cleaning services are not only provided to the big scaled company but also
can be done to those residential houses. For example, if there are needs in cleaning
houses in residential area which their owners are busy or their daily routine, the
company can offer the services to them. Then, their target customers have increased
and also for the income source. The company can offer to customize their services for
different customers as well. So that, if the customer prefers to have cleaning in certain
time or for certain venues, the company can arrange for them and the price can be
discussed also.

Outsourcing can be done to adapt to the increment of the complexity of the

market and business structure. The company can outsource their activities such as
accounting, human resource, marketing and more. Before this, seldom companies
outsource their activities to outsiders and they perform their work themselves. The
outsourcing can actually helps to reduce the unnecessary cost and use those money
saved to invest in future plan. By using outsourcing, the company can have expert to
provide opinions and perform the job at lower operational cost. The company can also
focus more on their services offered.

iv. Technology

Technology can be perceived as one of the most important critical success

factors for SMEs. According to several researches, it shows that technology acquisition
is important for SME in five areas which are high technology of equipments, use of
planning and engineering of the production operation, research and development
system, operating methods and new technology and automation. These factors reflect
the quality of cleaning services that make it acceptable from the customers’ point of
view as well as to lower company’s costs. In other words, it is the ways of conducting
cleaning services and the advancement of the cleaning tools used. It also includes the
use of technology for the potential growth of the business such as the use of user-
friendly website, secure website and other related systems and personalising services.
It helps increase customers satisfactions if the cleaning services can easily be acquired
through online. It also helps improving company’s credibility and reputation as any bad
services by the company will be spread out by the word of mouth through social media.
Company thus will make sure that the services provided meet customers’ expectation
to protect their reputation. Also, technology acquisition improves company’s operating
efficiency in terms of communication, coordination and services. In cleaning services
industry for instance, technology can contribute to improved communication between
management and workers, cleaning operation and clients, equipment and
supervisors/workers and between different operation within the company. It also better
captures customers’ needs by gathering feedbacks through website.

Furthermore, suitable technologies should be harnessed by SMEs to make sure

that their products and services that satisfy customers’ needs. For instance, cleaning
company can use the automatic sweeping robot while conducting cleaning services in
the residential areas. It can helps shorten the time required to complete their job and
increase their productivity. It can also help decreasing the need of labour force which
significantly drive down company’s costs. In this era of globalization, automation has
coming their way to replace manual labour. Cleaning SMEs will be able to decrease the
labour cost which contributed to the biggest portion of their total costs. With the ability
to decrease costs is the fundamental to the sustainable competitive advantage of SMEs.
The examples of some advanced tools used by cleaning services industry are microfiber,
flat mops, and autoscrubbers.

Moreover, researches stated that consumers prefer products and services that
maintain technological superiority. Therefore, technology-oriented firms which have
ability to accumulate rich technological information through R&D intensity as well as
to quickly adapt to new technologies have an increased chance of achieving superior
performance. Furthermore, invention and creativity in adopting technology may
provide the guidelines to the firms on what strategic implementation to be executed.
SMEs that focus on technology leadership offers advanced products difficult to be
imitated by their competitors, thus increasing the switching costs. Therefore,
technology orientation is linked to enhance new product success and profitability.
 v. Employee Focus
As the main resource of a cleaning service company, labour force plays an
important role which can affects company’s costs, profitability and customers’
satisfaction. Hence, one of the critical success factor will be a low level of turnover rate.
Employees must be treated as an important asset to SMEs as most values and
competitive advantages are as a result of motivated and competitive employees.
Workforces should be motivated from time to time to ensure their productivity. For
instance, involving employees in the decision-making process or empowerment is that
the employees nearest a potential opportunity or a problem are in the best position of
making necessary decisions, if they have control over the process. Ensuring an efficient
flow of feedback is thus essential to remove barriers to performance improvements.
Sharing internal and external information across functional groups is also important as
it can encourage employees to feel more responsible for quality decision and
improvements. SMEs often have flattened organizational structure and a shorter
decision-making process, enabling a faster information flow and information flow and
improved communication is critical for employees to make quality decisions.

Apart from that, it seems that the development of the managers and employees
of these SMEs are highly correlated to the firm’s development. Continuous education
and training are essential for the sustainability of their personal and organizational
growth. Having a high number of headcount seems critical but if the headcount does
not possess the skills critical for the business, this impacts negatively on the success of
the business. For instance, a poorly trained janitorial staff will use improper techniques
to perform cleaning tasks. Therefore, adequate training should be provided for cleaning
personnel, and this will not only protect human and the environment against chemical
hazard’s exposure but will also to a large extent saves costs due to inappropriate training
through the inadequate use of chemicals, injuries.

In short, employee focus is important for a better organizational performance as

it can create higher level of job satisfaction and employee retention while deceasing
employee turnover rate.
 vi. Financial management

A company can survive without any profit for a period of time but it can fail
once it not able to pay certain critical payment. Thus, there is no business can sustain
without a proper financial management especially for the small and medium enterprises
(SME).

Just like any other companies, SME will require an amount of fund to start up
their business. In order to raise such a big amount of money, most of the company will
choose to borrow the loan from bank. With that amount of money, it usually requires
the pledging of any personal asset from the borrower. However, for small and medium
size company, they may not do so as they may afraid of the huge interest amount and
their personal assets to be pledged for collateral. So, the start up capital of them usually
contributed by the business owners themselves, friends or family members. It is not
advisable to do so because the amount raised using this method may not be sufficient
to ensure the sustainability of business in long- term. If there is any problems
encountered which need extra fund immediately, they may not be able to cope with it.
The method may constitute to the other problems like argument in the ownership of
business for the amount of capital contributed. Therefore, in order to cope with the
funding issues and to not cause any worry, it is suggested to raise fund using both bank
loan and personal funding. The method can obtain sufficient amount of start-up capital
to ensure the business can run smoothly meanwhile not wholly rely on the bank. There
is also bank started to offer bank loan without collateral for SME like Maybank. The
business owner needs not to worry on large amount of interest payment again as only
part of the fund is provided by bank. The interest amount payable to the bank can be
used for tax deduction also. By using this funding method, the business can be run
smoothly and perform the business activities as planned.

Besides, cash flow and liquidity of the fund are vital in the business. The
problems in cash flow and liquidity may affect the business development, the lost of
opportunities and interruption of daily business. The issues may be caused by late
payment or long payment term of the invoices. At first, it may seem nothing to prolong
the payment period, but when the money is needed to finance on certain project or
problem faced, it will affect the business. Thus, it is better to make payment on time. It
may be caused by the excess stocking which tied up the cash available in the company.
The management has to update the inventory level frequently and only stock up when
it is needed, this can help to avoid any excess stock which increase the storage cost and
reduce the cash available. The amount receivable from the customers may causing cash
flow problem in the company. The solution that can be applied is to provide discount
on the invoices amount if the customers make the full payment on time or in advance.
In order to know whether the liquidity of the company, budgeting and ratio analysis
should be applied. The budgeting like cash budget can project the cash needed in the
future and also address to different possible future scenarios using assumptions. The
ratio analysis like current ratio and quick ratio can used to determine the ability of firm
to meet with short-term obligations. Also, contingency plan should be prepared in case
of any out of expectation circumstances to happen.

4.0 Conclusion
As a conclusion, it is very important for SMEs to understand the critical success
factor of their business as they have a limited resource and they will need to make a
decision on which part of the operation deserves higher commitment. To survive from
the intensive competition and other external factors, SMEs should be able to harness its
strength to exploit external opportunity and to mitigate the threats. Amongst the general
success factors for every type of enterprise, SMEs should pay attention on customers’
focus, top management support, technology, employees focus, financial management,
and flexibility in adapting to changing business environment. Appropriately identify
and implement the critical success factors can ensure a better competitive position in
the industry such as cleaning services industry.