Case Study: Shotover Jet Limited
Introduction
Shotover Jet is one of New Zealand's most well known tourism companies. Through its various subsidiaries the company specialises in providing a range of tailored experiences, from thrilling jet boat rides to tranquil walks through New Zealand's unique South Island wilderness. Over 1.75 million people have enjoyed Shotover's exciting jet boat rides since 1970.
Rakihia Tau is Shotover's Commercial Manager. Rakihia began with the company in March 2003. Prior to this he worked with Ngai Tahu Holdings Corporation Ltd. Rakihia explained that he enjoys the energy and vibrancy of the Shotover group and praises the staff who all possess "a can do attitude". He believes it is a fun organisation to be a part of with the added bonus of operating in New Zealand's adventure capital, Queenstown.
Structure
Shotover Jet is a publicly listed company with 88% being owned by Ngai Tahu Tourism. As a public company it must be run pursuant to the Companies Act, New Zealand Stock Exchange regulations rules and all other legislation governing the conduct of companies.
The Shotover group involves a number of subsidiary companies including Dart River Safari, Shotover Queenstown, Hollyford Valley Walks, Franz Joseph Glacier Guiding (50/50 joint venture), Huka Jet, Jet Fiji and Rainbow Springs. Rakihia explained that the Shotover philosophy is to treat each as a stand-alone strategic business unit and has adopted this approach as a result of its strategic analysis of the tourism industry.
Subsidiaries in the Shotover group are structured so that entrepreneurial flair and talent is rewarded and able to flourish. It appoints General Managers to each subsidiary company and gives them the freedom to be entrepreneurial. This strategy is based on a thorough understanding of the dynamics of the tourism industry. Shotover has therefore structured itself to suit its industry.
Core Purpose
Rakihia explained that the focus of Shotover is a thorough understanding of its target markets and customers. It is a customer driven organisation. Shotover undertakes regular market research to gain an understanding of customers wants and likes. From this information Shotover can then develop strategies and "value-added" proposals to meet its customers' needs. It also involves understanding which segments of the tourism market it operates within. That means Shotover Jet knows where its strengths lie and also its weaknesses.
There are always compliance issues. Shotover's general business requires an understanding of the Resource Management Act, and Department of Conservation applications. According to Rakihia, there is a whole melee of rules to abide by.
Externally Shotover identifies its relationship with its shareholders including Ngai Tahu as being very important. Rakihia believes this relationship enables Shotover to add strategic value to the company.
From a marketing perspective Shotover has formed marketing alliances with tourist operations throughout New Zealand. These business relationships enable Shotover to offer combination package deals and the ability to leverage its brand.
Government departments such as Department of Conservation and Maritime Safety Authority are key relationships as are the various territorial local authorities. In addition to these, Shotover is part of various associations within the tourism industry.
Internally Shotover values its staff relationships. Rakihia noted that maintaining good relationships with General Managers and staff is essential to running the Shotover network of businesses.
Governance Board
There are four directors on the Shotover Board. Rakihia describes the directors as "very capable people".
Two of the directors are Ngai Tahu appointments. All directors are appointed for their professional background, capability, and the value they can add to the company.
The current board has legal skills, financial expertise, tourism expertise, strategic and investment skills, and merchant banking experience.
The company has a well developed system of succession planning through every level of the organisation. Rakihia explained this is built up over a 3 to 4 month period every year, and is discussed by senior managers over the year. The purpose of succession planning is to identify future company leaders, and to support the internal development of Shotover's skill base.
Shotover engages with its stakeholders at multiple levels. At the tribal level it participates in the Ngai Tahu hui-a-tau with representation from senior managers. Shotover sees this as a natural part of maintaining effective relationships with its shareholders. Despite this relationship Ngai Tahu has no direct input into the running of the company. Its only input is through the board of directors which is ultimately responsible for direction of the company.
The Board's performance is ultimately measured by the company's share price.
Business Environment
Shotover's operating environment has various levels of competition. Some areas are intensely competitive. In the past, this has resulted in the organisation deciding to withdraw from particular areas due to an oversupply in the market, or an acknowledgement that the company's core strengths might not be in that area. Rakihia explains that "the business is all about being customer focused and ensuring that niche markets have been identified and catered for - for example the adventure tourism market."
At the corporate strategic level Shotover devotes up to four weeks analysing and understanding its competition. Once this has been completed, each business unit carries out its own analysis specific to its market.
This strategic planning process has an extremely important impact on the organisation as the products and services are designed to suit the customers' needs. The process is designed to reveal information on how Shotover can provide the experiences that tourists want.
In terms of regulatory environment, Rakihia believes the "safety side of the business is well regulated. It sets a minimum standard which we must exceed."
Shotover maintains strong relationships with government agencies to understand future developments and pre-empt any negative impacts. According to Rakihia, "If you want to succeed in business you must understand your customer, and Government and their agencies is another customer. We have a good relationship with our customers."
Last year Shotover comprehensively reviewed its three-year forward strategy. This involved a six month process reviewing the marketing strategy and corporate strategy for the entire Shotover group, as well as the individual business units.
The corporate strategy involved examining the tourism industry and asking the question of what we wanted to be. The tourism industry can be broken down into various sectors and Shotover examined each of these in its own context. This process identified the most profitable sectors and took into account the company's existing core competencies.
This formula identified a particular sector that Shotover now focuses on - Natural Heritage. The company identified all the competition and risk issues within that sector. Rakihia describes this as a "very sound approach to corporate strategy" which "involves extensive situation analysis". Shotover's corporate strategy falls out of this work.
Board and management have clearly defined roles within the company, and management performance is monitored through a system of key accountabilities based on individualised incentive packages. All senior managers and marketing people have key performance indicators and incentive based packages. Senior managers also participate in a monthly reporting and review process.
Possible Changes
Shotover is interested in the foreign exchange rate as their businesses are dependent upon international travellers coming to New Zealand.
Internally Shotover is constantly aware of the need to be responsive, innovative and quick on its feet. As Rakihia notes "We must be able to act fast in order to seize opportunities as they occur. We need to be good at thinking outside the square. The key is staying abreast of the dynamics of the industry."
Shotover needs quick decision-making processes and notes that this is not always the case in the tourism industry.
In terms of Government input, Shotover is reasonably happy with the way Tourism New Zealand conducts its role in promoting New Zealand internationally, and is reasonably happy with their recent ten-year strategy. Despite this, Rakihia believes Government needs to assist communities with infrastructure as some tourist destinations cannot cope.
He also believed New Zealand needs competitive pricing between airlines as well as an increase in the carrying capacity to get the tourists here. While this is viewed as important, Shotover is also mindful of the need to maintain the environmental laws. It is essentially selling access to, and experience of, New Zealand's natural heritage. The company is adamant that this must be preserved.
Rakihia believes New Zealand tourism will become more focused on yield rather than numbers, but in this New Zealand is competing with Australia. To him, the key is knowing what the tourist wants and making the most of them. To do this the company must get to understand their customer. "How do you convince someone on the other side of the world to travel to New Zealand and purchase your services?" This is the challenge that Shotover constantly seeks to overcome.
Māori Organisational Characteristics
Rakihia notes, "From a Ngai Tahu perspective - good financial results are obviously important. However, it goes a lot deeper than that. At the end of the day I believe our Ngai Tahu shareholders want to also have a sense of pride in their companies. That pride might be reflected in obvious things such as financial results, good press, excellent employers and the like. However, it could also be measured in more simple things, such as, having a recognised brand incorporating something that is recognisable to Ngai Tahu people. Good performance in areas like this will give shareholders a personal and emotional stake in the company."
Rakihia has no doubt that Māori operators can succeed in this industry. There are several examples of successful Māori operators at the moment. However, you can't look at this industry through rose tinted glasses. "It looks sexy from the outside but like any sector you have to get everything right from the market/customers, to operations, to finance to make it work. You also need to be commercially savvy and astute to pick the opportunities, but then to also make them work.
Financial Summary - Shotover Jet Limited
| Actual 1998 | Actual 2002 | |
|---|---|---|
| Group | Group | |
| Revenue | 21,593,000 | 24,544,000 |
| Operating surplus before tax | -5,004,000 | 3,638,000 |
| Net Surplus (NPAT) | -5,004,000 | 4,052,000 |
| Average Total Assets | 25,297,500 | 29,190,000 |
| Average Shareholders’ funds | 4,620,000 | 19,630,000 |
| Actual 1998 | Actual 2002 | |
|---|---|---|
| Group | Group | |
| Operating Surplus (%) | -23.17% | 14.82% |
| Return on average equity after tax (%) | -108.31% | 20.64% |
| Return on assets (EBIT)/average total assets) (%) | -19.78% | 12.46% |
| Actual 1998 | Actual 2002 | |
|---|---|---|
| Group | Group | |
| Current Ratio | 0.69 | 1.95 |
| Quick Ratio (equity ratio) | 0.43 | 1.60 |
| Actual 1998 | Actual 2002 | |
|---|---|---|
| Group | Group | |
| Debt to average equity (%) | 415.76% | 47.09% |
| Gearing (%) | 80.61% | 29.89% |
| Proprietorship (%) | 19.39% | 70.11% |
Page last updated: Wed, 06 Dec 2006