Strategic Management in Bally Total Fitness

Table of Contents Summary of the Facts The Problem the Case Presents Causes of the Problems Alternative Solutions Recommendation Justification Reference List Summary of the Facts Bally Total Fitness had emerged as the leading operator of fitness centers. By 2004, the company was the largest, most efficient and the highest grossing fitness operator and more to that its operations had changed from fixed single location based, to becoming a nationwide operator.Advertising We will write a custom report sample on Strategic Management in Bally Total Fitness specifically for you for only $16.05 $11/page Learn More Bally had been established in 1962, and although throughout the years it had had challenges like any other business venture, 2004 was probably the most difficult time since its establishment. Fierce competition had emerged, legal cases had been filed against the company as it was under investigation for its accounting management and procedures and worse still its stock price had drastically fallen to a level of being termed as collapsed. The top-level management at Bally Total Fitness had not overseen these hard times. This is so as experts had the presumption that the fitness industry was headed for a boom, as most Americans became more sensitized and concerned about their health status and well-being. The survey research had already released a report which showed that about two thirds of the American population was either obese or overweight. The research further stated that a third was actually obese. Since medical practitioners were emphasizing the need for people to engage in fitness practices, it was assumed the fitness industry would record major enrollment. However, although diseases caused by weight, problems were on the increase and people were concerned about their weight; many did not take the initiative of visiting the fitness centers. Bally which had emphasized and undertaken the initiative of expansion in read iness to tapping the projected new enrollments found itself in huge deficits and debts as the presumption never materialized and thus the strategic management had failed. The core reasons for enrollment into health clubs had significantly changed in 2004. In the past, enrollment was purely driven by the desire to attaining fitness, and thus people were not very sensitive to other externally induced factors. In 2004 contrary to the past practices, people had come to value other external factors immensely.Advertising Looking for report on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More These were like friends’ opinions and recommendation, the nature of the place regarding the cleanliness standards, nature and friendliness of the staff, the consistent persuasiveness of marketers and sales pitches, and the convenience and location of the fitness center as well as the brand name. The rapid and drastic diversification pr oved to pose management challenges to Bally. Health clubs had also rapidly changed to incorporate many activities. Equipment purchase was also done from established household names like Nautilus. However even Nautilus was hit by market competition and in 2003 it registered its first loss in the history of the company. By 2004, thousand of companies had emerged and competed against each other in the health club industry. In the past, the health club industry was not competitive and the majority of the clubs that existed then were mainly established by non-profit organizations. Young Men’s Christian Association (YMCA) being a non-profit organization had one of the most solid histories of fitness activities. YMCA had offered fitness activities in the US for over fifteen decades. In the health club business, there emerged different type of ownerships further diversifying the industry. These are owner-operated clubs: these are run and supervised by the owners; they are the majorit y and mainly operate from one location. Bally Total Fitness fell under this category of owner operated fitness clubs. Franchised clubs: under this, multiple investors joined efforts and a club franchised under them. This avails a club professional personnel and more purchasing power. The largest franchised club being Curves for women. Managerial and design companies: these are kind of a caretaker run clubs. Experts on behalf of the owners, of which most fall under corporate ownership like universities, hotel chains; hospitals and so on, run them. The last type ownership club is the Health spas. Health spas are relatively small and in most cases, they are in residential hotels and are in form of an extension. The emergence of various ownership-based clubs has further diluted the health club industry, rendering Bally’s management to undertake overambitious investment projects in an effort to outmaneuver competitors. Pricing and sales in a health almost follows the same procedur e (Wells Raabe, 2008). In a typical version, customers are charged once for enrollment and then each month there is charges as the subscription fees. Operation of a health is not a simple and enjoyable task as generally thought.Advertising We will write a custom report sample on Strategic Management in Bally Total Fitness specifically for you for only $16.05 $11/page Learn More One is forced to work for long hours, always be precise and alert, picking the various items dropped by customers, returning the weights to their respective positions as some customers neglect to do so. The working out is a tedious venture and this makes people have mood swing and thus the staff have a hard time dealing with such people. It was also assumed that the fitness industry would diverse further in an effort to cater for the varied demography. Experts were also projecting that some would go public and others would consolidate. It had also emerged that older people were embracing the health clubs contrary to the former years. Children were also seen to enroll in large numbers. Given the dissatisfaction of people with their diets, Bally had started manufacturing food supplements, which instantly became popular. In 2004 Bally had a mixed situation. There was improved enrollment of members as Bally’s membership drafted significantly surged. The pricing was also increased which meant more revenues to the company. However, poor management strategies and external pressure on the company were immense and hard to cope with. Capital market pressures were overwhelming the company. Competition from rival groups was also very high. Although Toback the CEO and his team were trying their best to remain competitive, internal wrangles were tearing Bally apart. It was reported that a major shareholder was advocating for the sale of the company. Rival groups were said to be interested in buying the firm. The Problem the Case Presents The major problem encount ered by Bally Total Fitness emanate from its management strategy. The company in 2004 was hit by the resignation of its auditors consequently; the company’s management changed accounting procedures. Instead of expensing the cost of enrolling new members within twenty two months, Bally turned to immediate cost expensing, consequently the company’s fiscal results in 2003 included over a half a billion dollar charge in cumulative adjustments.Advertising Looking for report on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More This move by the management resulted to various court battles, as shareholders, who accused the company’s management of misrepresentation, unlawful and unprofessional practices of fraudulent accounting practices, filed lawsuits. The company announced that it was in the process of restating results of the past several years. This was because of a claim that the company was finding, irregularities and numerous problems in past accounting methods and practices. The current financial control system was also put under scrutiny. The company also announced it was considering filing lawsuits against past officials including the past CEO Lee Hillman. Hillman was the immediate former CEO who had resigned in a bizarre unexpected fashion as he cited concentrating on personal matters. His resignation had raised eyebrows and left many dissatisfied with his reason of resignation. Because of the scandals, huge deficits and debts incurred, Bally’s stock prices drastically fell further affecting the troubled company. Various legal investigations were started against the company. Causes of the Problems The fierce competition that emerged and the desire to make more profits made Bally’s management to look for new way or outwitting its competitors. However, these methods resulted to its downfall. The company was also riding on the assumptions that since there were spontaneous campaigns on how to combat obesity, then the company would register massive enrollment. The company embarked on widespread expansion campaign, consequently ending up incurring huge debts, yet enrollment remained constant. In an effort to make more revenues and retain more customers, the management of Bally changed the policy of committing members to few months to that of committing new members to a period of over three years. This move backfired, as customers did not want long time commitments. Long-term commitment also required more money on the side of the customer. This proved very exp ensive thus, customers backed off. In another effort to attract more customers, the management reduced the enrollment fees. This meant that revenues reduced immediately. Working in fitness clubs is taxing and tedious occupation. It is therefore hard to retain a skilled, friendly and motivated staff in the industry. Emergence of competition meant that Bally was automatically going to have a rough time containing and keeping its top cream staff. During this period of the new millennium, personal trainers became very popular and fancied. Fitness centers, including Bally, were thus faced with the expensive venture of recruiting more personnel to cater for surging popularity of personal trainers. The hiring of new personnel means drastic fall in profits. The management was also faced with the enormous task of staff motivation. Since working in fitness clubs is a demanding task as earlier noted. It is hard to find competent personnel as many opt for other careers. To motivate the few that take the path of working in fitness centers is even a greater task. Communication between the staff and management seems to be strained, as there is no clear channel of representation and communication. By 2004, Bally Total Fitness had outlets in twenty-nine states making it the broadest and widest geographic distribution in its category of owner operated fitness health chain club all over the United States. This plunged the company into debt of more than three hundred million dollars. There remained a wide gap between people’s recognition, awareness and sensitivity of the crucial and important role played by working out, and their actual willingness and participation to do it. This difference was responsible for the company not being able to register as many enrollments as it had been earlier anticipated. The resignation of Lee Hillman suddenly hurt the company’s public image. Much of Bally’s development and expansion had been during Hillman’s tenure. H e was the person behind the success of Bally. He resigned abruptly to pursue new challenges and be with his family. Any sudden change of management for any cooperation brings negative repercussions especially when the manager or the CEO was a successful one like Hillman (Hill Jones, 2010). People start to wonder what could make a manager at the peak of his career resign. This in turn is a suggestion that not all was going well. In a bid to outdo the outgoing manager as proof to be even better, the incoming manager has to take radical decisions that in turn could jeopardize the operations of the organization. As accompany Bally was hit hard by losing its main pioneer, Lee Hillman. To make the matter worse, Bally’s auditors resigned in 2004. Like Lee Hillman, they resigned suddenly without notice. This was the major reason for delay of the release of 2004 financial results. The efforts by the company to commit members for three years became a cause of disagreement. Patrons had long complained that cancellation requests were not honored. Cases of harassment and unprofessional deceptive means of collecting fees were also reported. The company was also accused of unauthorized charging of members’ credit cards or dubious acts of debiting from members’ bank accounts. In 1994, Bally Total Fitness Company had to pay over 120000 dollars in penalties and authorized to refund members membership fees. The trend of unprofessional, unethical acts continued, in 2004 the consumer Web sited highlight the rights of consumers violated by Bally. These malpractices led to the company being fined and at times refunding membership fees. This tarnished the public image of the company in a competitive field leading to loss of members to rival groups. This also shows that the company had a long history on engaging in unprofessional acts. Because of too much involvement in financial affairs and poor methods of enrolling members, the company found itself in a comprom ising situation. It had a dualism form of business, as there was a finance company and operating company further draining the resources of the company. The two operational adjustments also affected the company negatively. Club-level managers were required to act as general managers with the enormous task of club profitability falling under them. For any given company, specialization and division of labor is very important. This multitasking of managers and taking of roles that is not under their jurisdiction hampered productivity and efficiency The company encountered major accounting and control problems. The management changed the enrollment retention fees procedures. Instead of the revenues being registered for the period of the stipulated twenty-two months, they changed it to be immediately. Costs were also supposed to be expensed as soon as they were incurred. The management ended colliding with the shareholders. The management was accused and sued for fraudulent accounting pra ctices and misrepresentation. The past staff was also to be investigated. Public collision of management and shareholders is enough problems to scare away patrons. The change of established policies by management without engaging shareholders also illustrates lack of professionalism by the management. Such problems arising because of lack of a clear line of communication put the company at a compromising situation. The lack of communication was one of the major causes of the problem. Lee Hillman’s abrupt resignation and later the sudden resignation of auditors at the crucial moment of preparing the company’s returns clearly demonstrates that there was no elaborate mode of communication and there were no panels of looking into the grievances of the personnel. If top-level officials were resigning unannounced without warnings, then it shows even junior staffs were forced to take the same route. Patrons had also long complained of deduction from their bank without their a uthorization. This shows there was the problem of communication in the entire operations of the company. Paul Toback, the new CEO lacked the credentials and capacity to learn such a huge organization. He had no management formal education and his administrative experience had been gotten from a political office, which is a very different scenario when it comes to learning a fitness organization. Competitors have also created major problems for Bally; these competitors are YMCA, Gold’s Gym, 24 Hour Fitness and Curves International. YMCA has been in operational in the US since 1851. It is the largest health club operator in the US. Since it is a non-profit organization, its revenues are not taxed unlike those of Bally. YMCA’s maintenance cost is very low for the fact that it is a community owned organization. Unlike Bally that has to employ its entire staff, YMCA has a large workforce of volunteers. Yet still, its long outstanding history of tradition in sports make many opt for it. Famous games like basketball, volleyball and racquetball were invented in this organization. The young and sports loving population opt for it due to its outstanding commitment to developing sports. Gold’s Gym initially focusing on bodybuilding has solid history of effectives. The club has received much publicity unlike Bally. It received international recognition as early as 1977 when it was featured in Arnold Schwarzenegger’s movie. Relying on franchising, the company expanded tremendously. The company has grown to incorporate other activities like yoga, group exercising, cardiovascular equipments among other activities. This has made it multidimensional and very competitive allover United States. It has claimed to help shed twenty tons of body fat every day making it very popular with those aiming to shedding weight rapidly. 24 Hour Fitness has also been a force to reckon with in the fitness industry. When Bally was having trouble in 2004, 24 Hour Fitne ss recorded more revenues than any other for- profit health club. Its enrollment fees varied from place to place, and offered members the option of paying every time they visited, monthly or longer terms subscriptions, which were all prepaid, of which Bally Total Fitness had not endorsed. The health club also had a 24 hour electronically deduced subscription employing information and technology infrastructure something the Bally Company had not managed to do. The company had also taken advantage of the proprietary software to develop and commercialize individualized training routine and nutrition programs for its millions of customers. The company’s diversification, flexibility and endorsement of IT services made it to be far much ahead of its competitors. It was rumored to be interested in purchasing Bally. Curves International was also a major competitor to Bally. The company was exclusively for women. The company had expanded in many countries traversing even in Europe. Th e company catered for older women and those uncomfortable with male dominated health clubs. The company had no small outlets helping cut on maintenance costs. These competitors made the Bally Company’s management to become overambitious in a bid to remain competitive Alternative Solutions Bally’s main problems were because of poor management strategies, and the nature of the competitive markets. To save the company from collapse, communication must be improved. IT facilities and services must also be embraced. Diverse methods of membership enrollment must also be devised, before making change in any of the company’s polices, stakeholders must be consulted. Presumptions should not be used to influence the decisions in the company. Other ventures undertaken by the company like the manufacturing of supplements must be designated to different management. Workers union should be formed to air the plights of the over twenty thousand employees. The staff employment mus t be on merit. Specialization and division of labor must be observed (Jeff, 2008). The world is rapidly being interconnected by the information and technology advancement. For Bally or any other organization to achieve progressive development, adoption of IT facilities should be prioritized. IT services will enable the company to be more efficient, cost reduction will be witnessed, enrollment of members online, to clearly stipulate and state the terms of membership so as no members will claim that he/she was duped. This will drastically reduce lawsuits, as there will be elaborate information to refer. Members enrolling must be making informed consent decisions to avoid ambiguity and vagueness as they later result to disgruntled members. IT facilities will make management easier as the connectivity of the various branches will enable the CEO to have first hand information on the events taking place. The marketing and advertising of the products manufactured by the company will have b een made easier. Software programs will also attract more members. A company’s website, which is easy to access, should be availed for access by all staffs, the diverse member groups, ands non-members. However, an IT revolution would be very expensive especially at such trying times. Communication seems to be the major problem in the management strategies. Customers are not elaborately explained to, on the terms and conditions of various contracts. Top managerial officials are resigning without prior notice. The management is also making important administrative decisions without notifying the shareholders consequently emerging a rift between the shareholders and the management. To solve the problem of communication, meetings involving all stakeholders should be held regularly to solve the arising issue and familiarize with one another. Active participation in debates should also be encouraged and opinions of all stakeholders should be noted and taken into account. Journals a nd articles should be regularly published to keep all members informed on the progress of the company. Openness and transparency must be emphasized to ensure all matters and issues are clearly understood. Being too open might nevertheless bring negative effects. Rivals might use this chance to dig information on the company’s future steps hence sabotaging the activities of the company. Professionalism on the side of the staff seems to be lacking. For a long time, the company has been violating the rights of the customers. Customers are said to have complained about the harassment and deception they have received from those collecting fees. The customer is the most important asset to any company. Therefore any staffs who mistreat a customer acts unprofessionally as his/her mandate and role is to serve the customer. The company officials had been reported and accused of unauthorized charging of members’ credit cards or dubious acts of debiting from members’ bank a ccount. To solve the problem, staffs must be employed on merit and their past conducted be verified. Public opinion and suggestions must be encouraged to enhance collective participation in the running of the company. The staffs must be made to sign binding contracts that prohibit resigning without notice. However, being too strict and placing much scrutiny on the employees would hurt their production capability. This might also discourage potential workers from seeking work in the company hence creating a deficit. The company must be cautious while making any expansion initiatives or any decisions that drains the resources of the company. Competition with rival groups should focus on quality service, products and satisfaction of the existing members. Ambitions for rapid expansion must be discouraged as this makes the company to enter into debts. Most of the rivals do not have as many patrons as Ball Total Fitness does yet they are recording more revenues than Bally. Concentration a nd resources should be directed towards the satisfaction of the existing customers. Diversification of products, services and membership enrollment should be boosted to offer the varying population different choices to choose from and in the process taking care of the needs of the majority. The company’s management should not panic because of the level of competition. Panicking would result to making hasty and over ambitious decisions that might turn against the company. However, being over cautions might make the company conservative and opposed to change hence lag behind (Hussey, 1998). Recommendation The management of Bally Total fitness must undergo an immediate managerial overhaul if the company wishes to remain competitive in the market. The shareholders who literally own the company must place the company under transition leadership as the posts of new managers are advertised. The policies and rules governing the company must be reconstructed to include the shareholder s in the management endeavors. Bally Total Fitness is an owner-operated company. Although the shareholders should not get over involved in the day-to-day running of the company as this would jeopardize the smooth execution of the affairs in the health club, no major decision should be undertaken without unanimous consent of the shareholders. Justification The company is under investigation on various allegations and the consumer Website has highlighted the way the company has violated consumer rights. The company is unable to announce its annual results after the auditors had resigned ands the management is clashing with the shareholders. To restore and cultivate new public relations, the company must redeem its image in the eyes of the public and be seen to be making changes so as to rectify past malpractices. Since the management bears the greatest responsibility in the scandal, new management would show the public that their well-being is being addressed. An overhaul of the leade rship pattern would give the organization a fresh look (Sadler Craig, 2003). Since the company has one of the largest membership bases, it would not be difficult to make progress with the new management. Reference List Hill, C., and Jones, G. (2010). Cases in Strategic Management: An Integrated Approach 9th ed. New York: Cengage Learning Hussey, D. (1998). Strategic Management: From Theory to Implementation. Oxford: Butterworth Heinemann. Jeff, C. (2008). Strategic Management. Thousand Oaks: Sage Publication Inc Sadler, P., and Craig, J. (2003). Strategic management. New York: Kogan Page Limited. Wells, J., and Raabe, E. (2008). Strategic Management: an integrated approach 9th edition. Boston: Harvard Business School Publishing. This report on Strategic Management in Bally Total Fitness was written and submitted by user Marianna Cline to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.