Laurel and Parsley (LP) is an architectural consultancy firm, specialising in the design of large commercial buildings.

Due to an economic recession, which began in late 2017, demand for LP’s services fell dramatically, and there was insufficient work for all of the firm’s consultants. LP’s chief executive officer (CEO) believes that the recession will be short and that LP should do all it can to retain its highly skilled and experienced workforce ready for when demand increases after the end of the recession. The rest of the board believe that the firm should cut the size of the workforce until that time, as LP already has an operational gearing ratio 50% higher than its main rival.

Despite the board’s objections, the CEO asked for LP to prepare bids for work on non-commercial building projects, which have so far been unaffected by the recession. Though LP had little track record in designing non-commercial residential buildings, it successfully tendered a fixed fee for the design work on a large housing development. As the finance director had been absent due to illness for a year, the CEO prepared and submitted the bid himself. To meet the tight deadlines for submission of the bid, this was done at a time when most of the board were taking their annual
holidays.

It quickly became apparent that the staff resources required for the housing development project were much greater than the CEO had anticipated in the bid. In the rush to submit the bid and start work, staff were not given clear milestones for completion of the project, or individual performance targets. This has led to staff working long hours, morale has fallen, and several experienced employees have since left the firm. The project is well behind schedule, and LP’s client has said it will take legal action against the firm to recover any financial losses caused by the delay.

It has been suggested to the board that LP may be at risk of corporate failure, as it has score of 47 using the Argenti A Score model, which is shown in Appendix 1.

Required:
(c) Evaluate the usefulness of using qualitative models such as the Argenti A Score in predicting corporate failure.
(6 marks)

Appendix 1
Argenti A-Score model

Defects > Mistakes > Symptoms