Strategic Case study

Strategic Analysis

P PlcPlumbing and Building

Suppliers

Nick Best

withwww.astranti.com

Welcome

Welcome to Nick Best’s CIMA Strategic Case Study preseen analysis

For those of you who don’t know me, I am the Managing Director of Astranti

Financial Training. I’ve tutored CIMA for over 15 years for BPP, Kaplan, First

Intuition and Reed Business School and have authored a number of official CIMA

study text’s and revision guides.

For Mock Exams on the latest case, free preseen analysis videos and course notes

visit www.astranti.com

Introduction to the case

The plumbing and building retail industry is the focus for the latest Strategic Case Study. Hardly ‘exciting’ but it’s easy to associate with – real products which are around

us all the time and which anyone with a house has probably had to buy. That’s a help!

The case company P Plc is based in the UK, but operates worldwide. It’s grown through acquisition, and is

profitable, but needs to rationalise its structure and divest unprofitable business units.

Strategic analysis – the rational model

This analysis uses the rational planning model of strategic analysis, summarised in the following diagram

FUTUREMission &Objectives

NOWBusiness Strategy

Business Environment

Internalanalysis

S W

O T

PEST 5 Forces

Product analysis-Product life cycle-BCG matrix

StakeholderMapping

Generic strategiesAnsoff’s matrix

Method of growth

Governance& Ethics

Strategic analysis – the rational model

The first stage of analysis is to ensure we fully understand where the organisation is heading, along with its approach to meeting stakeholder needs.

FUTUREMission &Objectives

StakeholderMapping

Governance& Ethics

Mission

The mission statement sets the direction and tone of the organisation, and guides strategic decision making. The case study gives us the following mission related elements:

Corporate values:1.Trading fairly and honestly2.Responsive to customer needs – continuous improvement3.Employing committed people4.Respect for cultural diversity

Strategic objectives1.Market leader2.Deleverage underperforming parts of the business3.Continuous improvement of products and service

Remember to use these in the exam to help guide the decisions you make on how to move the business forward.

Objectives and performance measurement

The objectives provide a focused target to move towards to direct planning, motivate staff and enable accurate performance measurement

We are given few specific targets in the case study. They are likely to have more specific strategic targets we are not told about. If the unseen suggests they do not,

then this is a weakness in the company’s planning approach.

They do record performance, but the analysis in the preseen does not offer much valuable insight – both divisions are very similar. More detailed analysis is needed. Benchmarking of comparable retail divisions might help to identify units to sell or

ways to improve underperforming divisions.

Balanced scorecard would be beneficial to P Plc with a focus on their key goals by measuring:

Customer service and satisfactionProduct quality

Innovation

Astranti Strategic Mock Exams

The biggest criteria for success in my opinion is practising mock exams based in this case study These are key since:

• They help you with Time Management, a critical problem for most students

• They enable you to practise a range of issues that you may see in the real exam

Our strategic mocks are tailored to this industry and give you vital exam practise

Mock marking with very detailed focused feedback is also available (don’t underestimate how important feedback on approach and technique is to you success!

“Hi Nick,

I passed! To say that I am extremely happy is a gross understatement!

I would like to thank you for helping me cross that bridge (not an easy one) and achieve another milestone in my life. Your mocks made a big difference and really helped me - this was my 3rd attempt. There is something very right in what you are doing.

Keep up the good work!

Kind Regards,Edmore Chinhakwe”Passed November 2011

Governance

• P Plc have 6 Non-executive Directors (including the Chair) bringing independence to the board

• However they have 7 executive directors – which is more than half, which is not good practise under the UK’s combined code

• There is a concern about the power of the ‘Executive committee’ – are they too powerful and so making the NEDs roles insignificant.

• Little evidence in the case of other key governance issues. They are listed so should conform to governance requirements and probably do, but look out for weaknesses in the unseen in areas such as: Committees of Non-execs – Audit, remuneration, nomination Disclosures of directors and pay Financial reporting and control Information for directors All directors involved in decision making Regular meetings with institutional shareholders Good use of the AGM

Ethics and CSR

P Plc have a clear statement of ethics. This suggests this will be an important part of the exam.

Key elements of CSR for P Plc:• Staff training, development and safety• High ethical standards• Minimise environmental damage• Safe, reliable products

Look out for ethics issues in the exam, and ensure you recommend P Plc focus on continued high ethical standards in this area.

Stakeholder Analysis Mendelow’s Matrix

Low Interest High Interest

Low Power

Minimal interest

Employees of suppliers

Occasional customers

Keep informed

Loyal customers

Most suppliers

Most employees and minor directors

Small shareholders

High Power

Keep satisfied

Governments

Most institutional shareholders

Bank

Key Players (Keep close)

CEO and Chairman

Major branded suppliers

Strategic Preseen Video Series – Now available

With Nick BestManaging Director

Astranti Financial Training

Strategic Review - all subjects

E3 - Full Strategic Analysis(including a review of the models)

F3 - Financial Analysis

P3 - Risk Analysis

Most likely issues - all subjects

Strategic level guideExaminer’s expectations at strategic level

The reasons people failExam technique guide

How to prepare for strategic level

Preview the first video for free at www.astranti.com

Strategic analysis – the rational model

Next we need to analyse the current position of the business

This helps us ensure the strategies we decide upon are appropriate to the

business’ current position and issues they face in the industry and more

broadly

This position is summed up in a SWOT analysis

NOW

Business Environment

Internalanalysis

S W

O T

PEST 5 Forces

Product analysis-Product life cycle-BCG matrix

SWOT

Strengths Weaknesses

1. Customer service

2. Product quality

3. Well recognised brands in local markets and for specific products (e.g. kitchens/ bathrooms)

4. Large company – should be able to obtain economies of scale in purchasing

5. Listed – should help raising of new finance

6. Profitable – helps generate more finance and ensure dividends can be paid

7. Good relationships with suppliers

1. Confused and inefficient organisational structure. Too many functional departments, and a two way divisional split suggesting inefficiencies, repetition and lack of working together

2. Some underperforming divisions – to be sold off, or merged with successful brands

3. Weak purchase process – many underperforming divisions came from poor purchase decisions.

4. No warehouses in Africa/Asia

5. Lack of detailed benchmarking or good performance measurement (possibly!)

Opportunities Threats

1. Divest unprofitable parts of the business

2. Purchase of new brands

3. Expansion into Asia/Africa, including new warehouses

4. Expand online operations

5. Onsell products between different brands

1. Foreign exchange

2. Return to recession in main countries in which they operate

3. Competition – lower prices/better quality/better marketing

4. Quality of products from suppliers is poor – leading to poor customer satisfaction

Astranti T4 Courses

• Detailed video exam guides• Full video debrief of the preseen• 2 full day live masterclasses

The exam and marking criteria Prioritisation of Issues – they new key skill at T4 Preseen analysis and discussion How to pass the T4 exam Industry analysis

• 5 full mock exams Marking and personal feedback on 3 mock exams

• 60 industry examples to use on exam day• 3 mini-mock exams

Detailed feedback on 2 mini-mock exams• Detailed course notes• Calculations e-book to practise calculations questions• Ethics e-book – ethics is a guaranteed 10 marks at T4!• Private forum:

debate the case with others focused tutor support

• Ongoing e-mail support• Progress reviews

Keeping you on track for a pass

“Hi Nick,I passed with 62% - huge relief.

Thanks again for your support – I’m relieved I stumbled across you before signing up with one of the mainstream training providers.Kind Regards,Marc”

Marc ThomasPassed  September 2011

“I could not recommend this service strong enough and honestly feel this was the reason for my successful pass”

Paula RobertsPassed  November 2009

PEST analysis

Political/

Legal

• New laws on – Health and Safety of staff, Product safety

• Political uncertainty in overseas markets could threaten some markets

Economic

• Worldwide economic downturn now ending – opportunity to grow

• Exchange rate impact as overseas operations

• Interest rates likely to rise over next few years – may make borrowing more expensive

Social (inc sustainabil

ity)

• Trend towards DIY/renovations of houses – likely to increase once economies recover

• Increasing customer awareness and focus on CSR, ethics and sustainability – important P Plc operate ethically.

Technological

• New technologies in distribution and sales will be key to continued efficiencies

• Increasing trend towards online sales – important P Plc have addressed this issue in their various markets

5 Forces Analysis

• The 5 forces analysis enables the analysis of the industry according to a range of key factors affecting that industry

• Each force can be given a strength (e.g. High, Medium, Low). Where all the forces are high, the profitability of the industry is low, and divestment may be a good strategy.

• The lower the forces the more attractive the industry is.

• Companies may look at the areas where forces are high and develop strategies which may lower these.

• The 5 forces analysis for this industry is on the next page In this case the average of the forces is medium so the industry

would be deemed averagely profitable.

5 forces analysis

Factors increasing Force Factors lowering force

Buyer Power

Medium

• Customers can easily switch to competitors as products are standard (the competitor’s are likely to be very similar)

• Lots of small customers. No particular customer can negotiate price discounts as none as over-riding power.

Supplier Power

Low

• Good suppliers on long term contracts may have some power when renegotiating contract.

• Some suppliers with strong brands may have power (e.g. ICI with their Dulux paint brand)

• Lots of suppliers (90,000) means lots of choice for P Plc on standard products – so most of the time the power lies with P Plc

Competitors

High

• Lots of small competitors in every town worldwide

• Some large competitors

• Products are not differentiated greatly so easy for customers to switch

• Relatively few very large providers – the direct competitors of P Plc

New Entrants

Low

• Easy to enter this market as products easily sourced

• A mature market that is unlikely to attract significant new players to the market

Substitutes

Low

• Main substitute is going without where there is a choice (e.g. during a recession customer may just choose not to have a new kitchen or bathroom)

• Very few substitutes for most products (e.g. if you need a new tap there are few alternatives)

• P Plc provide all alternatives so are at little risk of not providing most substitute products

Strategic analysis – the rational model

Next we need to analyse the strategic options, and make a conclusion on the way forward for the business

FUTUREMission &Objectives

NOWBusiness StrategyS W

O T Generic strategiesAnsoff’s matrix

Method of growth

The usual approach to defining a business strategy is to begin with a definition of the generic strategies, followed by analysing options in Ansoff’s matrix, looking at how these might be implemented with the

‘Methods of Growth’ and then deciding upon a final strategy

Opportunities and ThreatsProducts/Generic Strategy

Products Generic Strategies

BCG/

Product Life

Cycle

• Most products in the maturity phase of the product life cycle. Most are likely to be cash cows generating ongoing revenues – although there may be the opportunity to review product profitability to examine the product range in more detail and divest unprofitable products.

• Products are standard so their may be few opportunities for significant product innovation

•Wide product range providing virtually all customer needs

Cost leadership

• Not followed by P Plc

Differentiate

• Quality is key for P Plc

• Customer service is their key Critical success factor

Focus

• Broad focus used to a very wide customer base of consumers and builders throughout the world.

Ansoff’s Matrix and methods of growth

• Ansoff’s matrix enables the generation of strategic options.

• Those you’ll find in my analysis over the page are just ‘options’, not my recommendations.

• You might like to add your own options

(1) Based on your own ideas to take the business forward

(2) Based on those in practise exams you undertake

• The final stage is then to decide on the methods which the organisation can use to take the options (as generated in Ansoff’s matrix) – again these are just possibilities at this stage

Existing Market New Market

Existing Product

• Divest unprofitable products and brands

• Continue to improve customer service and quality to retain new customers

• Increased marketing to attract new customers

• Brand consolidation

• Africa and Asia expansion, including new warehouses

• Other regions where they do not have a presence e.g. Russia, Brazil

New Product

Possible product expansion into:

• Gardening/Plants

• Lighting

• Furniture

• Carpets

Potential to onsell P Plc products within each brand e.g. kitchen retailer starts selling bathroom products

• Vertical integration – e.g. buying a manufacturer (unlikely as they have previously moved away from doing this)

Ansoff’s Matrix and methods of growth

Methods of Growth

Internal Development

• Store growth of current brands

• New warehouse

• Ongoing efficiencies

Acquisition

• Significant part of growth strategy over recent years. Further opportunities to expand by acquisition may present themselves, but care needs to be taken about the price paid and appropriateness of the company due to previous errors having been made.

Joint Venture

• Possible joint ventures in countries where little market knowledge e.g. China

Divest

• Unprofitable brands

• Unprofitable products

More analysis of brand and products is needed.

Defining a business strategy

• On the following page you will find my recommended strategy for the company.

• Remember that this is my view and is not a definitive answer

• Also remember that in the exam, you are NOT expected to define a way forward like this – you MUST deal with the unseen issues and only those issues

• However, dealing with those issues in light of a strong logical approach to how the business should be taken forward can help you make a strong argument in your recommendations.

Nick’s Strategies going forward

• Continue with the successful areas of the business Strong, profitable brands Existing wide product ranges Take further purchase opportunities as they arise

• Clear generic strategy Continue to develop excellent customer service and retain high product

quality to cement differentiated position

• Structural review Remove current two divisional split Fewer functional areas Regional divisions Merge brands where significant links so all part of coherent

structure Retailers report to retail manager not warehouse manager

• Ensure half board are NEDs and they have power, through a review of the role of the current executive board

Nick’s Strategies going forward

• Continued organic growth in existing markets Expand retail outlets of successful brands

• Product and brand profitability analysis Divest unprofitable products or brands or consider

merging brands within profitable groups

• Wider expansion into new markets through acquisition – particularly high growth markets such as China, Russia and Brazil Including analysis and purchasing of new warehouses.

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So that’s what I would do. I’m sure you’ll have your own views. Just remember not to hold onto these too tightly in the exam – you must primarily deal

with the unseen issues!

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