“B Supermarket” Enough is Enough
1
C I M A case study
2012
Application of
knowledge
management to
“B” Supermarket
Group Name: Enough is Enough.
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Description Page No.
1. Financial Analysis 01 - 10
2. Mission, Objective & Strategy 11 - 43
3. Structure 44 - 44
4. Corporate Governance 45 - 48
5. Control 49 - 63
6. CSR 64 - 65
7. IT 66 - 67
8. Supply Chain 68 - 71
9. Treasury 72 - 74
10. HRM 75 - 80
11. Change Management 81 - 89
12. Appendix 90 - 91
TABLE OF CONTENTS
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“Enough is Enough”
Group Members
1. Kavindhya
2. Osun
3. Gayan
4. Sakila
5. Shashini
6. Ruvithra
7. Ruwini
8. Chayanga
9. Niluka
10. Sajeewa
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1.Financial Analysis
1.1 Business Valuation
Concept
This provides a justifiable value to a given business
The value of a business can fluctuate at any time
Current Market Value of the company
Market Value = MPS * No. of shares = 31.37*1350 = € 42,350 million
Methods of Business Valuation
1. Asset base valuation
2. Earnings base valuation
3. Dividend base valuation
4. Cash flow base valuation
Normally the valuation could be done considering the unseen material. Following
valuations are done according to the pre-seen material.
Asset base valuation
Valuing the business based on the ownership of assets (actual value)
Types
Net asset base valuation – value of the assets based on the financial
statements
Replacement value – cost incurred for the replacement of a particular
asset
Net realizable value – value derived by selling the assets in the market
Divisible value – value of segregated assets of the business
Uses the historical value and ignores the market
Application of the method –“B” supermarket
Total Equity = € 24,019 million (net asset base value)
Earnings base valuation
Value of a business based on future earnings potential
Identifies the developments in the market
Basis is the P/E ratio
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Total Market Value = P/E*Total Earnings
Application of the method –“B” supermarket
Earnings per share (EPS) = Total Earnings/ No. of shares
= 3591/1350 = € 2.66
Market price per share (MPS) = € 31.37
P/E ratio = MPS/EPS
= 31.37/2.66
= 12
Total Market Value = 12*3591 = € 43,092 million
One of the financial objectives of B is to achieve constant growth in earnings per
share of 7% each year.
Therefore using Gordon‟s Growth Model(GGM) the earnings base value of B is
as follows,
GGM = [EPS(1+g)] / [ke-g]
= [2.66(1+0.07)] / [0.15-0.07]
= € 35.58
Earnings based value = 35.58*1350 = € 48,033 million
Dividend base valuation
Uses dividend as a base for valuation
Types
Constant dividend
MPS = Dividend now / Cost of equity
Growth dividend
MPS = [Dividend now (1+g)] / [ke-g]
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Application of the method –“B” supermarket
Current Dividend Payout ratio of B = Dividend per share/EPS
= 1.65/2.66 = 62%
MPS = [1.65(1+0.07)]/[0.15 – 0.07] = € 22.07
Market Value = 22.07*1350 = € 29,193 million
Cash flow base valuation
Value based on the Present Value of future cash flow
Intellectual Capital (IC)
Concept
Creating value through knowledge
Components
Human Capital (knowledge & expertise, training & development..etc.)
Organizational Capital (systems, culture, patents..etc.)
Customer Capital (brand name, market share…etc.)
Techniques of measurement
Market to book value
IC = Market value – Book value
Tobin Q value
Q = Market value – Replacement cost
Calculated IC value
Excess return = [ROI – IR][Average assets]
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Application of the IC –“B” supermarket
Book value per share = Book value of Equity / No. of shares
= 24,091/1350 = € 17.85
Market value per share = € 31.37
IC = MPS – BVS = € 13.52
Mergers & Acquisitions
Concept
Types of mergers
Horizontal merger (Two companies in the same industry)
Vertical merger (Merger with a distributor or a supplier)
Conglomerate merger (Two companies irrespective of the industry)
Synergy (Merger carried out to increase wealth)
Facilitates organizational growth
Expansion of customer base
Can lead to conflicts in management
Variables for successful mergers & acquisitions
Common core
Contribution
Value
Linkage
Management cover
Payments for acquisition
Cash – suited only for small scale acquisitions
Share for share offer – acquiring company issuing shares for the
acquiree‟s shareholders
Earned out agreement – payments for the acquisition will be carried out
for a period of time
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Actions against hostile takeover
Communicate directly to the shareholders regarding better prospects
White sworn – management inviting a better company for the acquisition
Poison pills – Operating with convertibles
Share repellent – Operation with a super majority requirement for an
acquisition
Revaluation of assets
Reverse takeover
Alternatives for acquisition
Sell-off (selling off a particular division or a unit)
Spin-off (internal unit or a division to become an independent company)
Management buy-put (Internal management acquiring the business
management from the shareholders)
Management buy-in(External team of specialists acquiring the company
from shareholders)
Application of Mergers & Acquisitions –“B” supermarket
The company mainly depend on Europe with 82% of the company revenue and
77% of the operating profit and with 13210 stores
B can consider a spin-off of the European region as it can create more value as
an independent company
The average revenue per store in Asia is € 9.78 million. This is a very good
revenue when compared with the group revenue per store of € 7.06 million. Even
the operating profit is highest in Asia
This clearly shows a growth potential in Asia
B can consider acquiring an already established supermarket chain in Asia
B can even look for a Vertical Merger with a distributor in Asia
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Possible Questions
1. Calculate a range of values for B
2. Discuss the appropriateness of each valuation approach used in 1
3. Evaluate the possibility of expansion in Asia
4. State with reasons whether it is favorable for the company to spin off the
European region from the main company
5. Explain the non-financial factors to be considered on the expansion decision
6. Advise the management of B whether it is beneficial to merge with or acquire an
already established company in Asia when considering the expansion
7. Explain the most suitable method that could be used by B to fund the acquisition
in Asia
8. Explain Intellectual Capital and how it could be related to B supermarkets
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1.2 WORKING CAPITAL MANAGEMENT This involves managing cash receipts & payments on a day to day basis.
WC Policy
Conservative Policy. A Company will operate with a higher amount of current assets compared with current liabilities. This will lead to under trading situation.
Moderate Policy A Company will operate with equal amount of Current Assets & Current Liabilities.
Aggressive Policy A Company will operate with higher amount of current Liabilities compared with Current Assets. This will lead to overtrading situation. STF STF STF LTF LTF LTF
Application to B Supermarkets
In the case of B, it operates with a higher amount of current liabilities than current assets which indicated by an aggressive working capital policy.
FCA
PCA
FCA
PCA
FCA
PCA
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WORKING CAPITAL CYCLE – CASH CYCLE
This explains the trend in working capital policy based on a company. This will indicate the cash flows generated & payments system.
This indicates the relationship between debtor days, stock days and creditor days Application to B Supermarket
Debtor days 5
Creditor days 109
Inventory days 27
Therefore the working capital cycle for B is 77 days
GEARING
This will indicate the borrowing level of the company.
Gearing = Debt . Debt + Equity
Dividend policy
1. Stable policy – fixed dividend 2. Constant payout – Constant percentage of profit 3. Scrip dividend – Issue of shares 4. Homemade dividend – Based on the investor‟s personal requirement 5. Residual dividend – Based on business opportunity 6. Share repurchase – Provides a return on any surplus cash
Application to B supermarkets
From 2007 to 2009 B has paid a stable dividend of € 1.54
Currently the company‟s dividend policy is blurred
B currently pays 62% dividend payout irrespective of it‟s financial objective to pay 50% constant divide
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POSSIBLE QUESTIONS
1. Evaluate to what extent B‟s Directors has achieved its financial objectives. 2. Identify the impact of non – achievement of the stated financial objectives. 3. Advice the directors on measures that can be taken to reduce its operational
cost. 4. Evaluate the current working capital policy of B & discuss the suitability of the
existing policy for B 5. Advice the directors about the benefits of proper Working Capital Management. 6. Discuss the methods of Short – Term Finance including supplier credit. 7. Advice the directors on factors that should be considered in developing a
dividend policy
1.3 Ratio Analysis Performance Indicators for B Group
Operating Profit Margin 5.7% (W1)*
Net Profit Margin 3.3% (W2)
ROCE 15.6% (W3)
Current Ratio 0.42:1(W4)
Quick Ratio 0.17:1(W5)
B‟s operating profit is 5.7% & Net profit is arrived at 3.3% after deducting groups finance cost & Tax expenditure. However there‟s 42 % drop in operating profit due to tax & finance cost. Nevertheless, it‟s unable to carry-out further analysis on this & advice B to reduce its finance cost due to the unavailability of the data on interest rates of debt of B.
The B operates with quick ration of 0.17 :1 which seems inadequate for a company like B where the sales is carried out mostly on cash basis.
Appendix (W1) Operating Profit Margin = Net Operating Profit *100 Revenue = 6,211 * 100 109,712 = 5.7%
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(W2) Net Profit Margin = Net Profit * 100 Revenue = 3,591 * 100 109,712 = 3.3% (W3) ROCE = PBIT Equity = 6,211 . 24,019 =15% (W4) Current Ratio = Current Assets: Current Liabilities =13,038: 30,777 = 0.42: 1 (W5) Quick Ratio = (Current Asset-Stock) ;Current Liability =5,368: 30,777 =0.17; 1
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2. Mission, Objectives & Strategy
2.1. Mission Statement
Concept
Mission can be defined as a statement which explains the purpose of the
organization, business philosophy & value system.
Mission provides a framework to develop strategy & indicate the target market &
key stakeholders of the business – “what business are you in?”
Limitations of Mission Statement of B Supermarket.
1. B supermarket is a stock market listed company. Therefore, mission statement
should focus mainly on profits. However, B has a main focus on CSR & Ethics.
2. The Mission is too board & the purpose of the business cannot be identified
directly from the mission statement.(e.g.;-BMW-The ultimate driving machine/
Coca Cola- We refresh the world)
3. The mission does not create any differentiation in the market to the supermarket
& does not facilitate to build any competitive advantage.
Steps in developing a mission statement of B Supermarket.
1. Identify the needs of the target market.
2. Define the target market.
3. Identify the competence of the organization.
4. Identify how to add value to stakeholders
5. Identify how to differentiate.
Objectives.
Concept
Objectives are a quantitative statement develops from the mission.
Objectives demonstrate a clear result orientation based on a particular
achievement.
Objectives should be SMART.(Specific, Measurable, Attainable, Realistic & Time
Bound)
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Limitations of objectives of B Supermarket.
1. Build shareholder value through consistent growth in the company‟s share price.
This objective is not SMART at all. Therefore cannot exactly identify the
end result.
2. Increase customer satisfaction ratings to 95% as measured by customer
feedback surveys.
Although this is a measurable objective the period for the measurement is
not specifically mentioned.
3. Increase commitment to local suppliers by working towards achieving 40% of our
supplies from sources which are local to where B stores trade.
This is not a realistic or attainable objective since, B operates over 36
countries. Therefore increasing the commitment of local suppliers is not
practical & if B tries to achieve this objective it will matters for cost
increase & quality of the products.
4. Reduce carbon emissions calculated by internationally agreed measures by at
least 1% per year until B becomes totally carbon neutral.
This is also not a realistic task due to the nature of the business. However, this is measurable, attainable and specific with a time bound.
5. Maximize returns to shareholders by employing different generic competitive strategies depending on the market segment in which B stores trade.
This objective is not a SMART objective. However, at the end focus should be providing to maximize shareholder wealth.
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Identifying the Key Stakeholders involved in the business.
Mendelow Matrix. Mendelow Matrix can be used to manage stakeholders by prioritizing their needs based on the situation. Power & Interest of stakeholders are used as variables to categorize stakeholders.
Power
Low High
High
Interest Low
1. Employees - 5% 2. General Public – 75% 3. Pressure Groups
1. Two Investment trusts - 4%
each. 2. Hedge Fund – 5% 3. Founding Family Trust – 7% 4. Regulatory Bodies – Ex-Inland
Revenue/Board of Investments of each country
5. Government.
1. General Public – 75%
1. Hedge Fund – 5% 2. Government
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Possible Questions.
1. Appropriateness of the B‟s mission statement to the supermarket industry &
B‟s business sector.
2. Evaluate the basis for the mission statement.
3. Identify the steps in developing a mission statement.
4. Identify the positives & negatives of each objective.
5. Evaluate each objective against the mission & the value statement of the
company.
6. Identify new objectives relevant to B Supermarket.
7. Identify how objectives can change in a situation like change of ownership or
change of strategy.
8. Importance of critical success factors.
9. Develop critical success factors relevant to the objectives
10. Develop Key Performance Indicators to the Critical Success Factors
Identified.
11. Identify the Key Stakeholders involved in the business using the Mendelow
Matrix.
12. Identify the areas that stakeholder conflict could arise
13. Management of stakeholder conflict of B Supermarket.
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2.2 Internal Appraisal
Concept
The concept mainly evaluates internal capability of the Organization to achieve
their objective.
According to inter appraisal concept -organization can review whether they can
reach to their maximum potential using internal resources
Models of Internal Appraisal
1. SWOT Analysis
2. M Model
3. Value Chain
4. Benchmarking
5. GAP Analysis
6. Scenario Planning
7. BPR (Business process re-engineering)
SWOT Analysis
This can consider as a position audit carried out by the organization to evaluate
present position of the market
Model mainly appraised internal environment based on four variables which are
Strengths/Weaknesses/ opportunities/threats
Strengths are an activity which enables organization to create competitive
advantage. Weaknesses are particular activities which indicate limitation or
competitive disadvantage.
Opportunities are any developments in the market which enables to create
competitive advantage. Threats are any development in the market which
creates negative influence on organization success.
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Application of the model –“B” supermarket
Strengths of “B” supermarket- 49 year history, reputation as a Global entity, over
15000 stores operates in worldwide, recognized as world largest chain of stores
Weaknesses- poor it system which provide misleading information for staff, in-
accurate training for employees, poor control of inventory management,
Threats- degree of stock loses detect as theft from staff which leads to create
criminal culture, regulatory barriers, lack of segregation duties between audit
committee and board of directors
Threats-Mission statement not integrate with companies core values, reduction
share price between 2007-11, higher amount of trade and payables ,current
pricing policy against competitor
Opportunities‟- growth potential in Asian regions, CSR policy differentiate
company from competitors, new franchise options available in the market, strong
integration with local suppliers (40% local supplier policy)
“M” Model
This a type of model which evaluates the performance of internal environment
based on a particular frame work. Objective of this model is to identify any
weaknesses within organization in order to ensure consistent performance
Variables of the model-men, money, method, machinery , management ,
markets, muck- up
Application of the model –“B” supermarket
Men- existing policy of HRM (0.5 employees, training program provided for
employee, competence of workforce
Machinery – existing IT system (problems detect in IT system), latest machinery
used in supermarket industry should be reviewed
Markets – the existing regions “b” operates (Europe, Asia, and North America)
different characteristics identified in different markets, level of competition
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Management – top down decision making , structured planning for 5years,
management control system operates through regional head office, corporate
governance issues in main board
Methods – franchising policy , EPOS system to control stocks, CSR policy of
carbon emission
Benchmarking
The model can defines as comparing the organization performance against the
best practice in the market. Benchmarking can undertake both internally and
externally
Internal benchmarking- functional and activity benchmarking/ External
benchmarking-competitor and strategic benchmarking
Application of the model – “B” supermarket
Currently “B” recognized as one of the leading supermarket chain in world
Identify the market leaders in Europe, North America and Asian regions
Benchmark existing EPOS system (IT system ) against another stock controlling
system and identify the areas to be improve in existing system
Develop performance appraisal system after the training program for employees
and benchmark their performance against industry statistics ex: number
complains about staff service , productivity of employee against industry
averages
According to external benchmarking appraise performance against market leader
in Europe because currently “b” reach to 20% of market share in Europe
There is growth potential in Asian region (current mkt share 1%) and compare
performance against market leader in Asia
Benchmark existing CSR policy with competitor and evaluate possibility to
become carbon neutral in real environment
Benchmark existing profitability levels of “b” against market leaders
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GAP Analysis
This is a technique developed to identify any deviation in performance against
expected standard. The objective is to identify the rationale behind any deviation
in order to make corrective actions in advance
Gap analysis should be practice based on clear objective and result orientation.
The model can be practice through using rational planning model and cannot be
apply in uncertain environment
Demand gap- different between potential and actual demand, Sales gap-
different between actual sales in the market and organization
Application of the Model “B”
Analyze the fluctuation in potential market share of “B” compare with past
years (currently Europe: 20%, Asia: 1% and North America 1.5%)
Compare revenue levels of each region against forecast budgets (turnover
targets).-(Europe 82%, Asia 9%, North America 9%)
The potential demand for supermarket, hyper market, convince and discount
stores against industry averages can evaluate and identify the actual demand
against forecast targets
Scenario Planning
The technique recognizes the importance of future developments for the
organization success. This mainly evaluates market variables in present and
future context.
This enables the organization to recognize different possible options that can be
happened and preparation for future developments. This enables to recognize
impact on environment variables and influence on achieving objective
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Application of Model – “B” supermarket
Variables Future impact
Detection of loses occurred due to theft
of staff
Negative impact on “B” reputation, create
criminal culture between staff , staff
avoid responsibility and de-motivation
Change regulatory barriers Change policy of future franchise
agreement, CSR issues related carbon
emission, approval from government for
future expansion in new countries
Change of ownership Impact on share prices, possibility of
takeover, joint venture with local
supermarket chain instead of franchise
Competition Losing market share of 20% in Europe,
reduction of repeat orders made by
clients, lose growth potential in Asia
Change customer preference Customers become more price
conscious, easy access and more car –
parking facility
Recommendations
Undertake a competitor analysis
Maintain positive relationship with each regional government
Forecast more reliable KPI to evaluate customer satisfaction and compare
against 95%
Improve the existing EPOS system (Access control. Automatic monitoring
stock levels ) and reduce possibility of fraud
Undertake market survey and analyze the level of competition in supermarket
industry, change in consumer behavior, development in technology
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Management need to review to what extend CSR can apply in future based
their core business activity and check whether its practice become carbon
neutral .
Currently “b” paying inducement to government officials – if this case
published impact on companies brand name, negative publicity from media
and whether it‟s acceptable according to companies ethical framework
There is a possibility of reduction in share price in future which make negative
signaling effect for the share holders
It‟s important to evaluate expectation of different stakeholder groups such as
management of “b”, suppliers, consumers, employees, government bodies,
and etc.
According to competitor overview different markets have different
characteristics so company need to analyze the possible threats from new
competitor.
In long run employees can be demotivate with existing training programs
BPR (Business Process re-engineering)
This model can easily define as fundamental re thinking, radical redesign of a
business process to achieve dramatically improvement in cost ,quality and
performance
Their two main concepts in BPR model which are Michael hammers model and
Devon ports model
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Application of Model – “B” supermarket
“B” need to identify the possibility of undertaking a BPR process for the
existing EPOS (IT related stock management system ) because existing IT
system failed to generate expected results- ex: misleading information for
staff, not detecting stock outs
Re-design the Existing system – provide accurate information for the staff,
monitoring and updating the stock levels automatically , review the physical
stock levels against records
Company can introduce BPR process for existing procurement chain and
stock controlling system to –currently certain stocks been detected as
outdated items (ex: TQM system of managing stock levels)
Re design the existing Training policy for employees
Value chain
Porter develops this concept based on manufacturing organization. This concept
emphasis on identify any activities which add value for business process and
eliminate non value adding activities
There are primary and secondary activities , the concept determine based on
customer satisfaction
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Application of model – “B” supermarket
Primary Activities Secondary Activities
Firm Infrastructure : top down decision making,
structured planning process, strategic plan been
designed by main board, management control
operates through head office, strategies been
revived in three years, Franchising policy,
maintain 40% local suppliers
Inbound logistics: need to purchase more from
local suppliers, disposal policy for out dated
stocks, check the quality of perishable goods
when supplies by suppliers, identify the
cheapest suppliers for supermarket chain
Procurement : existing policy of 40% local
suppliers, suppliers from wider geographical
area, long distance covered from road or
air,20% perishable goods purchase from local
suppliers, Long term contract with suppliers
Out bound logistics : review the packaging
system FMG products, secures packaging
system, introduce a logo for each store and
printed in package, labeling of electric items
HRM : 0.5 million employees, inaccurate training
policy for staff, no performance appraisal system
for employee, certain stock loses detected as
theft from staff and this create a criminal culture
in future, employees have 5% share ownership
Sales and Marketing : reliable sources to
advertise FMG products, market survey to
review the satisfaction of customer, introduce
loyalty cards for existing clients , discounts
provided for bulk purchasing, undertake
marketing campaign in Asia to reach mass
customers
IT : problems of existing IT system which
provide misleading information for employees,
existing EPOS system need to change in line
with stock outs, need to develop proper it policy,
no it manager and should appoint one for main
board
After sales service : warranty claims for electric
items in discount stores, customer complaints
regarding staff service and quality of products
Process : quality control system , monitoring
and supervision, company can follow
international quality standards in operation
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Possible Questions
1. Identify the two models that the management could use to analyze internal
environment.(Briefly explains the model)
2. Explain how these models could assist the management to analyze internal
environment of “B” supermarket
3. Explains the characteristics of BPR concept
4. If company expect to carried-out BPR process for EPOS system then explains
how model could assist IT team in formulating new IT system
5. Discuss the benefits of SWOT analysis and explains how organization can use
this model to analyze its internal competence
6. Explains the characteristics of Benchmarking process
7. Evaluate how benchmarking concept can used to analyze regional performance
of “B”
8. Advice the board of directors how Benchmark is important to improve regional
performance
9. Construct a Benchmarking process for change existing EPOS system of “B”
10. Discuss how internal appraisal can be useful for company “b” to evaluate
performance and recommend three models could use to analyze internal
environment of “b”
11. According to companies competitive overview explains how scenario planning
can used analyze competition of the environment.
12. Analyze advantages and disadvantages of scenario planning based on “B”
existing competitive overview.
13. Advice top management how GAP analysis can be used to evaluate it potential
demand for each region.
14. Evaluate how value chain analyses can used by “B” supermarket chain
15. Explains the components in porters value chain model and advise how model
can apply for supermarket, convince stores, hyper market and discount stores
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2.3. Environmental Analysis
Concepts
Evaluation of the possible or probable effects of external forces and conditions on an
organization‟s survival and growth strategies
Models of Environment Analysis
PEST Analysis
Diamond Theory
Five Force Theory
Competitor Analysis
Uncertainty
Game Theory
Concept
PEST Analysis
PEST analysis stands for „‟Political, Economic, Social and Technology analysis‟‟ and
describes a framework of macro- environmental factors used in the environmental
scanning components of strategic management.
Application of the model –“B” supermarket
Political Factors
B supermarket operates in a globalized environment with stores around 36
countries
It operates in the regions of Europe, North America and also Asia.
Therefore B supermarket performance is highly influenced by the political and
legislative conditions of these countries, including the European Union (EU).
Employment legislation can be considered as another critical factor that affects B
supermarket in terms of political factors.
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Economic Factors
Economic factors concern on the B supermarkets impacts towards demand, cost,
prices and profits.
Even though B supermarket has been expanded to Asian and North American
regions still European region contributes greater amounts to its overall profits
since it comprise a 20% market share.
Therefore all the up and downs in European market will directly affects the B
supermarket performance.
Social Factors
Demographic changes in each region will directly affects the demand for retail
FMCG in B supermarkets.
Aging population, an increase in female workers and a decline in home meal
preparation can be assumed as few examples for demographic changes in B‟s
operating regions.
B own brand also can contribute towards the social factors since it can drive cost
out of the business.
Technological Factors
Technology can be regarded as a major macro-environmental variable which
directly contributes for B supermarkets future survival.
Moreover, technology directly influences the customer satisfaction which is an
ultimate B supermarket objective.
This can be approach via readily available information, more personalize and
convenience customer service with the support of modern technology.
Not only the customers but also B supermarket itself will be benefited through
this since, it create a smooth inventory flow with availability of correct information
on time and accurate information regarding stocks will be useful in decision
making as well.
The B supermarket‟s prevailing EPOS system will be used in achieving the
above objective.
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Five Force Theory by Potter
This theory emphasis on developing strategy based on specific industry and
environment. This identifies possible entry points to the market and concentrate on
survival.
Application of the model –“B” supermarket
Threat of new entrants
B supermarket is one of the largest retailing companies in the world and it faces
different levels of competition in each region.
It possesses a market share of 20% in Europe and 1%, 1.5% in Asia and North
America respectively.
The practical scenario according to Ritz is over last 30 years the grocery markets
has been transformed into the supermarket dominated business.
Therefore dominant supermarkets such as B have become a powerful force and
it has made a great impact on small traditional business.
Hence the prevailing market leaders must be possessing as barriers for new
entrants.
Moreover huge initial capital and highly developed supply chain will reduce the
attraction to new entrants.
But in Asia and North America comparatively they can expect more fresher‟s
since they are yet expanding economies.
Bargaining power of customers
As per the standardize nature in B supermarket customers can experience a high
bargaining power.
As an example consumer durables products in its supermarkets and
hypermarkets force to sell them at a competitive prices since there is a strong
competition for sale of such goods.
But food products and clothing in its supermarkets and hypermarkets gain a
comparatively less bargaining power since the better quality of them.
Successful customer retention strategy can be achieved via introducing loyalty
cards and club cards.
In addition to these customizing services, better choices, constant floor of in-
store promotions and ultimately satisfying the customers with an ultimate
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shopping experience will enable the B supermarket brand to retain and control
their customer base.
Bargaining power of suppliers
Along with the B supermarkets‟ policy of 40% local purchase they will experience
a high bargaining power based on the availability of local supply chain.
Moreover its carbon emission strategies will cause to reduce their bargaining
power since they can‟t switch or barging with small no. of suppliers who do have
the same policies.
And naturally there is a tendency of charging premier prices by suppliers who
supply organic foods and environmental health products.
But in other aspect of it along with the economics of scale benefits B
supermarket is in a position to exercise less bargaining power.
Even though the policy declares 40% yet B supermarket sourced of its 80% of
goods from large international manufactures and distributors.
Rivalry
In B supermarket rivalry will differ from one type to other type super markets.
In the case of supermarket, a hypermarket again the rivalry varies based on the
type of products.
Consumer durables seem having considerable higher rivalry compared to food
products and clothing.
In discount stores selling electrical products usually B exercise a higher rivalry
especially because of the informed customer base. Therefore B discount stores
used to charge a lower price to compete with other players and satisfy and retain
the customer base.
Convenience stores seems facing to the rivalry better since they are in position to
charge a higher price in terms of the convenience they provide.
Therefore even the standardization keep the rivalry high, very small
differentiations matters in B supermarkets regardless of what type it is.
Ex: Customer loyalty cards
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Threat of substitutes
General substitution is able to reduce demand for product, especially in FMCGs,
as there is a threat of consumers switching to other alternatives.
There can be a situation where B supermarket‟s two different types of stores
recognized by the customers as substitutes.
As an example, except the fact that, convenience and less choices, convenience
stores can be serve the urban customers as a substitute to supermarkets, since it
fulfills the basic needs such as food items and etc.
Competitor Analysis
The following areas are identified in conducting a competitor analysis.
Identifying past, present and future competition.
- B supermarket should clearly recognize the nature of the competition over a
period of time.
Identifying the competitive advantage and the disadvantage of the organization.
- B supermarket should clearly recognize the advantages and disadvantages
compared with other players who are in the industry in developing strategy.
- Benchmarking can be used in identifying the competitive advantage
compared with best players in the industry.
- And also benchmarking will guide to figure out the position of the company in
the industry.
Develop a competitive advantage.
- B supermarket should focus on the competence based on the advantage and
&create a competitive advantage in the market.
- If Business successful in reducing carbon emission that can be used as a
core competence, since customer awareness on green policies seems
attractive in current context.
Development of sustainable advantage.
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- The recognized core competence of B supermarket should develop for the
betterment of sustainable future.
Game Theory
The Game theory identifies the competition strategy formulation and survival in the
market as a game. Therefore the organizations are the players of the game. The Game
theory emphasize on identifying the position of the key players and the strategy of each
player in the market.
Application of the model –“B” supermarket
Simultaneous game theory can be applied for B supermarket since the industry
support for all individuals equally with opportunities. This provides opportunity for
any players including B supermarket to become successful.
The comparative highest market share that B supermarket enjoys is European
market which is 20%. But B supermarket should take strategies initiatives in
order to maintain the 20% market share.
B supermarket need to grow its market share in Asian market as well as North
American market. Respectively 1% and 1.5% market share has been gain by B
supermarket currently.
The imaging markets in Asian Region will provide opportunities for B
supermarket along with its rapid economic expansions.
Not only that but also B supermarket will be able to grow with the sustainable
investments opportunities and expansions in North America.
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Possible Questions
1. Identify and Explain possible theories that can be used to evaluate the
environment of B supermarkets.
2. Explain the steps of carrying a competitor analysis by B supermarket in Europe,
Asia and North America.
3. Apply Porte‟s 5 force theory with B supermarket scenario and explain the
limitations of it.
4. Evaluate how to analyze the competitors in Asian markets with use of its
expansion policies.
5. Using game theory analyze the competition in all 3 regions where B operates
2.4. Corporate Appraisal
Definition.
This concept mainly evaluates the ability of the organization in achieving its
objectivities based on the environment.
This will provide a realistic measure regarding possible achievement.
Concepts.
1. Marketing – Relationship Marketing
Product Profitability Analysis
Branding
Six Market Model
Customer Profitability Analysis
2. Information Systems
Organizational Knowledge Management
Networks
Relationship Marketing
This involves in developing a long term relationship with the customer. The
organization will clearly recognize the requirement of the customer in determining the
products & services. Therefore every decision will carried out based on customer
requirement. This will provide a competitive advantage for the organization based on
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developing partnership with the customer. This will demonstrate mutual respect &
understanding.
Following models can be identified under relationship marketing.
Product Profitability Analysis (PPA)
This concept recognizes total purchases of a customer.
Therefore a bundle of products are recognized.
This will consider the profit based on the customer visit or the total
purchase irrespective of a product.
This provides a long-term view since the needs of the customer is
recognized.
Application of the model –“B” supermarket
PPA will enable B Super market to identify the nature of consumption of
products.
This will enable B supermarket to identify products which has co-relation in
consumption.
This model enables to understand the suitable way of displaying products as per
the consumption.
E.g.:- Shampoo & Conditioner, Bread, Butter & Jam.
Branding
A Brand can be identified as a concept which enables the company to
differentiate in the market.
A brand will enable the organization to create competitive advantage.
A brand can be used to differentiate in the market than a product.
Application of the model –“B” supermarket
B supermarket has created a reputation through its name over 49 years.
However, B can use different brand names for its stores to create differentiation
in each store.
E.g. - Carrefour supermarket in France has used different brand names for its
stores.
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Hypermarket – Carrefour
Supermarket – Carrefour Market – Champion
Convenience stores – City Express
Discount Stores – Dia
Six Market Model
This identifies different options in developing relationship marketing.
Following variables can be identified.
Customer markets.
This emphasis on developing a relationship through existing customer
While satisfying their needs.
E.g.:- Discount stores can be applied this concept by providing high
Quality electrical items & warranties for the products sold.
Recruitment markets.
This is developing a relationship with a customer based on staff & the
service.
E.g.:- B supermarket can use this strategy by providing a suitable training
For or the Staff to ensure that they treat well to the customer & maintain a long
term relationship.
Supplier Markets.
This is developing a relationship based on the ability & the quality of
Suppliers.
E.g.:- B Supermarket - 20% of goods are purchased locally (Europe) &
80% from International manufactures & distributors. Therefore it is essential for
them to have a good relationship with their suppliers.
Reference Market.
This is building a relationship through the reference of other stakeholders.
E.g.:- B Supermarket has already created a reference market from its
Reputation over 49 years.
Influential Market.
This is developing a relationship based on the influence of other people or
institute.
E.g.:- Social Background, Religious Background.
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Internal Market.
This is developing a relationship based on the internal capability & the
competence of the organization.
Customer profitability analysis.
This emphasis on building a long term relationship with the customer.
Following variables can be identified.
Customer Account Profitability.
This recognizes the contribution of the customer for a
specific period.
Identify the key customers from the contribution generated
by each customer.
Identify a separate process to reward the key customers.
Application of the model –“B” supermarket.
Offer loyalty cards for key customers.
Offer gift vouchers or allocate to raffle draws.
Offer discounts for the good purchased.
Customer Life Cycle Value Analysis.
Identify the contribution of the customer over the economic
life of the customer.
This includes comparison of potential revenue & potential
cost over the life of the customer over the economic life.
This technique will enable the organization to satisfy & retain
customers in the long term.
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Application of the model –“B” supermarket.
This model involves determining the net present value of B‟s customer over the life
cycle
Age 0-5 5-18 18-30 30-55 Above 55
Revenue
generated
products
Food items,
Toys
Food Items,
Stationery,
Books &
Periodicals
Food Items,
Clothes,
Electrical
Items
Food Items,
House hold
Items, Baby
Items,
Medicines
Medicines,
Books &
periodicals,
Wheel
Chairs
% of NPV 20% 30% 50% 80% 40%
Information Systems.
Organizational Knowledge Management.
Knowledge can be defined as any information that can be used to
generate a competitive advantage.
Knowledge provides the basis for business decision making.
Explicit Knowledge – Knowledge already available & used within the
organization.
Tacit Knowledge – Knowledge which is available within the organization &
with people, but not been exploited or used.
Data Warehousing – A Systematic process of developing & maintaining
information for strategic decision making. This involves arraigning data in
a logical order to ensure efficiency in obtaining information.
Date Mart – Data Mart represent the information relating to
particular SBU or a department.
Data Mining – Data mining emphasis on obtaining information
effectively & efficiently for strategic decision making.
Application of the model –“B” supermarket.
B supermarket can use their human assets in order to provide knowledge.
OKM will enable B to identify the knowledge available within the organization
& its usage.
This will enable the company to obtain knowledge from outside if it is not
available within the organization.
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Data warehousing will enable B to store information in a prominent manner
which can be easily obtained when it‟s needed.
Networks
Internet, e-commerce, intranet, extranet & value added networks can
identified
As examples for networks. Internet & intranet will enable to develop positive
relationship with key stakeholders over the world at any given time. Value added
networks can be used to add value to the customers.
Possible Questions.
1. Explain the importance of relationship marketing for B Supermarket.
2. Identify the model of Product Profitability Analysis & its relevance for B.
3. Explain the importance of Branding for a supermarket.
4. Explain how branding could be useful for B to create a competitive advantage.
5. Identify the six market model & its importance for B supermarket.
6. Explain the concept of customer profitability analysis.
7. Explain how the customer account profitability could be useful for B in
providing value additions to its customers.
8. Identify the concept of customer life cycle value analysis & determine its
importance for B supermarket.
9. Determine the percentage of NPV generated by customer over his/her life
cycle.
10. Determine the concept of Organizational knowledge management & its
importance to B Supermarket.
11. Determine the concept of data warehousing & evaluate the relevance for B
supermarket.
12. Identify the importance of networks to the marketing activities of B
supermarkets.
13. Identify the advantages & disadvantages of internet for B Supermarket.
14. Determine the features of an intranet & evaluate the usefulness of an intranet
to an organization like B.
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2.5. Strategic Options Generation
1. Introduction
After completing position audit the next step is to decide how to develop the business in
the future. This involves deciding on development strategies. Following phases taken
place when selecting appropriate strategy.
1.1 Basis of choice
This deals with choice of competitive strategy to win customers and beat rivals.
1.2 Alternative direction
This involves in future of the product and customer portfolio of the business.
1.3 Alternative methods
This considers how the firm will gain access to the products and markets it wishes to
develop into.
2. Porter’s generic competitive strategy model
Generic strategies were used initially in the early 1980s, and seem to be even more
popular today. They outline the three main strategic options open to organization that
wish to achieve a sustainable competitive advantage. Each of the three options is
considered within the context of two aspects of the competitive environment:
Development strategies
Basis of choice
Alternative direction
Alternative methods
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Competitive advantage- Firm must adopt a strategy that can combat five forces better
than their rivals.
Competitive scope – This decides about the market segment.
Application of the model –“B” supermarket.
The company has failed to indicate whether each store is a cost leader or a
differentiator, though their intention is to practice generic strategies depending on
the market segment. B is practicing both strategies and they are stuck in the
middle.
2.1 Cost Leadership
The low cost leader in any market gains competitive advantage from being able
to many to produce at the lowest cost.
Increasing profits by reducing costs, while charging industry-average prices.
Increasing market share through charging lower prices, while still making a reasonable profit on each sale because you've reduced costs.
Application of the model –“B” supermarket.
According to present context discount stores are focusing on cost leadership,
because their strategies producing high volumes at low price levels.
Currently, the price levels of discount stores are lower than prices charged in
supermarkets & hypermarkets.
There‟s a possibility that the discount stores can reach to the cost leadership
through analyzing the price levels of other competitors.
2.2 Differentiation
Premium perceived value in the eyes of the buyer.
Give better margin in short run
Barrier to new entrant.
Bargaining power of supplier.
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Application of the model –“B” supermarket.
Regarding to the differentiation strategy super-market and hyper-market has differentiated themselves based on their high quality consumer durables.
This enables them to provide unique products based on their quality.
In long run this facilitates both supermarkets & hyper markets to differentiate themselves from other competitors.
2.3 Focus
Concentrates on narrow segment and within that segment attempt to achieve cost leadership or differentiation.
High degree of customer loyalty
3. Alternative growth strategies.
Expansion Policy matrix.
These are the methods by which the firm will gain access to the product and market it
has selected.
3.1 Internal development
Involves firm is growing using its own resources.
The firm will need to be adapt the management of innovation
Advantages are
Internal Development Merger Acquisition Joint venture Alliance Franchise
Exporting Overseas office Overseas manufacturer Multinational operation Global operation
Merger Acquisition Joint venture Alliance Franchise Turnkey
Internal development External development
Home
country
International
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o Firm does not need to understand different cultures and operating
systems
o Investment can be controlled
o Provides learning and development opportunities for staff
Disadvantages are
o Slow response to dynamic market
o Increasing number of firms
o Firm may lack access to key resources.
Internal international market.
This involves continuing the current strategy based on the international market.
This demonstrates a lower risk & market development.
External development involves developing strategy with another organization.
This can be practiced locally & internationally.
Application of the model –“B” supermarket.
B supermarket operates supermarkets, hypermarkets, discount stores & convenience stores in Europe.
B supermarkets are expanding to Asia and North America within the existing business.
3.2 Joint development strategies
Franchise
Firm expands its business by granting other firms the right to use its business
system
The franchiser will provide a variety of supports to the franchiser.
Advantages
o Quicker business expansion
o Reduced risk due to capital having been provided the franchisee
o Retains the dynamism of local management
o Control over the activities of the franchisees
o Reduced cost of control
Disadvantages
o Reduced profits
o Poor franchisee performance will harm the parents brand
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o Problem of protecting intellectual capital
Application of the model –“B” supermarket.
The expansion of B supermarkets is already done through franchises &
continuing on that strategy.
To overcome regulatory issues existing in some countries.
4. BCG Matrix
This demonstrates four categories which a company‟s business units can be
classified. It considers two parameters.
1. Market growth rate of the business unit (Cash Usage)
2. Relative Market Share of the business unit (Cash Generation)
This is also called as Growth-Share Matrix.
This model uses two assumptions.
1. Increase in relative market share will result in an increase in the generation of
cash
(In accordance with the experience curve increase in relative market share will
result in an increase of generation of cash.)
2. Growing market requires investment in assets to increase capacity and therefore
results in the consumption of cash.
Four Categories
1. Dog
Low market share and low growth rate. Therefore it does not generate more cash
and does not consume more cash.
2. Problem Child.
Relative market share is low. Growth rate is high. This means it consumes large
amount cash and generates a small amount.
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Application of the model –“B” supermarket.
Asian region can be classified as the problem child since; there is a potential
economic growth & potential market share to be covered.
The revenue of B Asia is Euro 10,105/- and market share of 1%.
3. Stars
Growth rate and relative market share is high. Therefore it consumes a large
amount of cash and also generates a larger amount of cash.
4. Cash cow
This has low market growth rate and high market share which implies it
generates more cash than it consumes cash cows provide cash to cover the
administrative and R&D cost of the company and cash to turn question marks
into market leaders.
Application of the model –“B” supermarket.
According to B Supermarket European region is the cash cow because, it
generates the highest revenue & market share.
The revenue of B Europe is Euro 89,899/- and market share of 20%.
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2.6. Strategic Evaluation
Johnsons and Scholes outline three tests for assessing whether a strategic option
should be undertaken.
1. Suitability test – Whether the option is the right one given the circumstances of the
firm.
2. Acceptability test – Consider whether the strategic option will gain crucial support
from the people it needs to or whether it will lead to opposition and criticism.
3. Feasibility test – This consider whether the firm will be able to carry out the strategy
successfully.
Application of the model –“B” supermarket.
This model can be used to evaluate expansion decision in several markets.
This is relevant for organizational growth to evaluate the potential options in
developing counties.
E.g.:- Asian franchise.
The suitability & acceptability of this option to the overall company mission is
high since this expands the current supermarket chain. Feasibility can be
measured on the intended return.
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Possible questions
Generic strategies
1. Advise the Board how B Supermarket could achieve sustainable competitive
advantage as defined by Professor M Porter.
Your advice should include discussion under the following headings:
(i) Overall cost leadership;
(ii) Differentiation; and
(iii) Either: Cost focus or Differentiation focus.
2. Explain how an understanding of Porter's three generic competitive strategies
could help the team to satisfy customer according to segment.
BCG Matrix
1. Discuss position of each region using BCG matrix
2. Discuss position of each type of store using BCG matrix
Growth matrix
1. Discuss the strategic and operational issues which the directors of B should consider
before making a decision on whether to implement an overseas expansion strategy.
2. Discuss the advantages and disadvantages of franchising B‟s operations
3. Discuss benefits of internal growth over external growth (franchising) of B
supermarket.
Evaluation tests
1. Explain how B supermarket could conduct strategy evaluation using three tests.
2. Evaluate each generic strategy using three tests
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3. Structure
B is an international grocery retail chain which operates in Europe, Asia and
North America. The three subsidiary companies referred to as Regions within B,
B-Europe, B-Asia and B-North America respectively. Considering this the nature
of decision making, control& effectiveness of overall company can be evaluate as
follows considering the impact to each regions as well.
Decision Making
Problems:
Board structure seems too complicated including regional board structures. The
decision making power has been delegated to head office with less power
attributed to regions in decision making.
Moreover this caused to ignore regional decisions. Therefore even though
committees are available, decision making process seems less effective.
Suggestions:
It should be flexible with less complicated features in its overall aspects where
regional managers are given authority and power to take the decision in their
regions which differ from region to region in nature.
This will give the opportunity to understand and respond to the environment in
which it operates considering society, culture and life styles.
In practice the leading supermarkets has given enough power and authority to
serve their customers based on the values, attitudes and cultures. As an
example Wal-Mart is operating in UK as Asda since customer prefer it than the
group name Wal-Mart. Therefore from the name to service its all about satisfying
customers‟ needs. Thus decision making process should be in line with it.
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4.Corporate Governance
The concept of corporate governance is developed to ensure, accountability of
management towards shareholders especially considering the listed companies.
In practice there is a clear gap between decision making and ownership of the
company and the purpose of this concept is to minimize those gap.
The main objective of the corporate governance is to provide accurate
information to the share holders
1. Cadbury code- Directors
2. Green bury code- Directors remuneration
3. Hampel code-Disclosure Combine code
4. Smith code- Audit committee
5. Higgs code- Share holders
6. Turnbull code- Reporting system
Application of corporate governance – “B” supermarket chain
Directors
The existing board comprises with Non-executive directors , the chief
executive director and nine executive directors
Apart from chairman (Non-executive directors) there are nine other non-
executive directors
Currently “B” operates with adequate number of directors but the role of
chairman and other nine non-executive directors are not clear
IT‟s important that segregation of duties should be allocate to ten non-
executive directors including chairman and their roles and responsibilities
required to be highlighted
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It‟s important that non-executive directors should contribute on corporate
decision making and need to develop positive relationship with executive
board
No nonexecutive directors appointed for regional board which creates
problems related to transparency in regional work. To overcome situation
regional non-executive board need to be appointed.
The appointment of executive and non-executive required to reviewed and
evaluate whether appointments are transparent or not
Lack of information provided about service period but directors need to be
changed after a reasonable service period
It‟s important to appoint a nomination committee for appoint executive and
non-executive directors.
Clear roles and responsibilities required to allocate for the regional store
directors because currently there is a conflict of interest between regional
directors and main board.
The existing non-executive directors need to be capable on ensuring that
they have significant input ,although the proportion of non-executive
directors is strictly less than the 50%
Audit Committee
Currently lack of segregation of duties allocate for audit committee
because they have to involve on risk assessment and control apart from
their main duties. it‟s important to reduce the workload of the audit
committee.
Clear roles and responsibilities need to be highlight for the audit
committee explaining their audit roles
Main board need to appoint separate team for undertake risk
management
Clear roles and responsibilities need to allocated for new risk committee
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Company need to check whether sufficient number of directors in the audit
committee and if not adequate number of non-executive directors need to
be appoint for the audit committee
“B” need to check that whether audit committee meets regularly to practice
internal control and reported to the top management
Related to role of audit committee mainly they need involve with
companies internal audits and need to carry out their operations
transparently
Due to expansion policy “B” has failed to undertake internal audit in certain
countries so it‟s important to carry out internal audit in every country.
Share holders
Currently majority of decisions made by head office (top management )
and board need to ensure that decisions required to be disclosed to share
holders
Currently shareholders of “B” not involve in decision making so board
members need to ensure that shareholders participation in critical decision
related to business ex: moving to new region, new franchise agreement,
reinvestment of capital and etc.
Board of directors of “B” should consider that decisions based on the best
interest of shareholders and critical information required to be disclosed to
shareholders
Currently “B” faced fluctuation on their share prices between 2007-11 so,
rational behind share price changes need to be communicating to the
shareholders. Further changes in dividend policy required to disclosed
Board of directors should undertake annual general meetings and financial
statement required to be distributed for every share-holders
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Director‟s remuneration
Currently there is lack of information provided about policy of determining
directors remuneration
Currently regional board does not have a separate committee to decide on
director‟s remuneration so remuneration committee should be appointed
A separate Remuneration committee is not available in the regional board, but
the main board‟s committee can determine the remuneration of all directors
Adequacy of the remuneration provided not stated so proper policy need to be
design to determine remuneration for directors
If the remuneration of regional directors is decided by the remuneration
committee at head office, then it‟s required to identify the basis are they going to
measure the performance of directors through performance appraisal system
The performance appraisal method going to use to evaluate directors
performance should be monitored by independent group.
Disclosure
Related to disclosure “B” needs to review whether following criteria‟s have been
met under disclosure
Names and details of the existing executive and non-executive board
Business interest of directors need to be disclosed
Possible Questions
1. Explains the need of audit and risk committee for “B” supermarket
2. Comment the involvement of Non-executive directors involvement at regional level
given the size and diversity of business
3. Identify the limitations of the current Structure and explain how it will lead to poor
management decisions.
4. Identify & evaluate the risk associated with the current allocation of duties to
different committees.
5. Recommend the actions to be carried out in order to minimize the identified risks.
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5. Control
5.1. Risk Management
Risk- Risk demonstrates the possibility of failure. Risk recognizes the possible
outcomes however the exact outcome is unknown.
Classification of risks
Business risk- risk associated with a particular business.
Strategic risk- risk associated with strategic decision making.
Operational risk- risk associated with business process of the
organization.
Market risk- risk associated with the customer.
Application to “B” supermarket
Business risk
- Regulation risk restricts operations or nationalizes the industry due to
exposure of unethical practice involving bribery of government officials to
overcome regulation barriers.
- Reputational risk if the products sold in supermarkets are outdated since
the inventory system is misleading.
-Risk of fraud where the supermarket products available in the black
market for cheap prices.
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Strategic risk
- The risk on focusing more on carbon emissions without focusing on the
customer would result in a competitive disadvantage
- Risk of losing of key suppliers due to dragging payments over long
periods and loss of bargaining power due loss of supplier confidence
- Risk of wrong strategic decisions made based on the incorrect
information from the EPOS system.
-Reputational arising from deviation in total carbon neutrality further the
practical aspect of total carbon neutrality to a supermarket would be
impossible
-Risk of franchisees deviating from the strategic objectives of B
supermarket as a result of no internal controls
Operational risk
-Risk of stock outs during peaks seasons as a result of false inventory
balances in the EPOS system
-Risk of supplier quality in the selection of local suppliers and the
commitment made by them towards minimizing carbon emission
- Risk of a criminal culture developed as theft within the supermarket
becomes a practice and no security systems towards prevention of theft.
- Risk of financing working capital since the cash & cash equivalents are
insufficient to pay the creditors.
-Risk of business continuity if no sources of long term finance obtained to
resolve the liabilities.
-Risk of supply chain integration with the malfunction of the EPOS system.
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Market risk
- Risk of customers switching to competitors based on price differentiation
between competitors and B supermarket
-Reputational risk in the long term if B supermarket is unable to sustain
increased dividend payout ratio during reduction in share price to avoid
negative signals to the market
-Risk on competition in B-Asia & B- North America is high since the
market shares of bother the countries are low.
Management of Risk- The risk management process of the Institute of risk
management is used as a standard for managing risk.
Risk Management Process- Standard process for managing risk
Business Objective – expected results of any organization
Risk Assessment – comprehensive guideline regarding risk based
on the nature of the business.
Risk Evaluation
Risk Reporting
Decision
Risk Treatment
Residual Risk Reporting
Monitoring
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Application to “B” supermarket
Risk management responsibility is allocated to Risk Assessment & Control
Committee dispersed from the Audit Committee in 2009.
Roles and responsibilities are unclear.
Appointment of risk committee has not done therefore this affects the risk
management process of B supermarket.
Concepts on Risk Management
Risk management Cycle by CIMA
Drivers of Value @ Risk by the Institute of Risk Management
Risk & Shareholder Value by Ernest & Young
Reduction in share price 2008 but the company increased the
dividend payment.
However in the long run there is a risk of sustaining the dividend
further this creates risk of hostile takeover by competitors.
Enterprise Risk Management
Risk & Society by J. Adams
Risk Thermostat by J. Adams
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5.2. Management Control
Management Control
To identify the nature of the business environment and to ensure adoptability of
organizational staff to the given environment.
Concepts of Control
Levels of Control by Anthony- This demonstrates development of control based
on the nature of decision making therefore the control systems based on the
nature of decisions.
Strategic Control Systems- These controls are developed based on
the top management decisions.
Tactical Control Systems- These controls are developed based on
the middle management decisions.
Operational Control Systems- These controls are developed based
on managing the lower level staff based on routine decisions.
Nature of Control System
Controls
Strategic Control Systems Strategic objectives, Financial objectives,
Tactical Control Systems 5 year strategic plan, budgets
Operational Control Systems Minimum training hours, strict financial
targets
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Systems Theory-This is a collection of sub units which a relationship
through integration.
Neither closed System- This is an isolated system that obtains no
input from the environment nor provide any output to environment.
Open System- This is a system that integrates effectively with the
environment by obtaining input and providing output to the
environment.
Application to “B” supermarket
B supermarket is an open system that integrates with environment
effectively. It obtains input from suppliers worldwide and provides output
in the form service to customers by storage of products for purchasing
Control through learning by Simon-this demonstrates management control
as a process of learning. Management control developed based on the
strategic uncertainty of the organization.
Organizational Structure – This demonstrates the nature of decision
making .This demonstrates clear responsibility & authority.
Types of Systems
Entrepreneurial structure – This structure is based on individualistic decision .The
decision making is personal & judgmental.
Functional structure- This structure is based on specialized
decision making based on technical expertise.
Divisional structure- This structure is based on different
divisions of the organization.
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Matrix structure- This structure is based on the combination of
two different structures with the objective of focusing on the
target market & maintaining adequate control.
Network structure- This structure is based on integrating with
another organization with objective of developing a competitive
advantage through the specialization of & competence of
another organization.
Application to “B” supermarket
B supermarket demonstrates a complex divisionalised structure by area.
Regional MD in charge over 9 regional divisions specializing in Finance,
HRM , Corporate Affairs, Planning , Marketing , Procurement everywhere
a director is in charge and directors for each type of store in the region.
The responsibility of stores is however varying between regions, as in
North America there is director responsible supermarkets & hypermarkets,
Discount stores but in Asia there are director‟s responsible supermarkets
& hypermarkets, Discount & Convenience stores and Europe three
directors responsible for supermarkets & hypermarkets, Discount &
Convenience stores.
The level of autonomy to regional board is restricted through financial
targets which both the regional and operational employees are dissatisfied
since it‟s imposed from the head office.
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5.3. Internal Control
Internal Control
This is a set of controls financial and otherwise established by the management for a
particular organization to maintain the expected level of behavior & standard throughout
the decision making process.
Elements of Internal Control
Segregation of duties
Organizing
Accounting
Physical
Supervision
Personnel
Authority
Management
Application to “B” supermarket
Segregation of duties- Allocation of more than one staff member to
carry out a function. The responsibility of Finance, HR, Corporate
Affairs, Planning, Marketing and Procurement is segregated to
regional functional directors further segregated to their own staff.
Accounting- Financial control. The formulation of plans and strict
financial controls to managerial and operational staff to operate. This
would involve the allocation of targets and performance would be
benchmarked to evaluate personnel.
Supervision - Overall supervision of performance. The supervision of
regional functions is done by the Regional MD further the Audit
committee also provides supervision on governance & control.
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Personnel - demonstrates a control mechanism based on employees.
The selection of employees from the local community, training &
development of staff based on international guidelines.
Authority -
Management – evaluates decisions based on the ability to achieve
organizational objectives. The establishment of the internal audit
function and the functioning of the audit committee to ensure goal
congruence of management decisions.
Internal Audit
This is an independent appraisal carried out based on the management policies of an
organization .This ensure the safeguarding of assets and smooth functioning of
operations in the organization.
Establishment of Internal Audit
Internal audit is audit is carried out by internal employees.
Chief Internal Auditor should operate at a higher level ensure smooth
functioning.
Chief Internal Auditor should operate with a dotted line relationship
with the Finance Director.
Chief Internal Auditor should report to the Audit Committee
comprising of Non-Executive Directors
Issues on internal audit will be communicated to the shareholders by
the audit committee.
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Application to “B” supermarket
Audit committee comprising of ten Non-executive directors
The Audit committee is pressurized with the work load of the Risk
Assessment committee.
The audit committee is monitoring the internal audit and control within B
supermarkets.
Treasury
Treasury- Treasury demonstrates how the finance function is established based on the
expectation of various stakeholders.
Functions of Treasury
1. Financial Management
2. Parceling
3. Liquidity Management
4. Determining Dividend Policy
5. Project Appraisal
6. Manage sources of finance
Profit or Cost Centre
Cost Centre- This demonstrates operating treasury as another function with
objective to provide support service other functions & SBU's.
Profit Centre- This demonstrates operating treasury as an investment centre
therefore the treasury will allocate funds only if the investment demonstrates
the expected return
Centralized or Decentralized
Centralized - This demonstrates operating treasury as a single unit based on
the central decision making process.
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Decentralized- This demonstrates allowing each department or unit to operate
with its own treasury function.
Application to “B” supermarket
B supermarket treasury demonstrates a cost centre focus and its
centralized since operated as another function to support the regional
boards.
The group treasurer is under the Finance Director with no special function
established for treasury.
The independence of the treasury department is however questionable
The current working capital problems are directly associated the treasury
mismanagement.
Prediction Questions
Risk
1. Advise B supermarket on developing a framework to manage risk using the Risk
Management Process by the Institute of Risk Management?
2. Recommend the changes required in B supermarkets to implement a Risk
Management Culture?
3. Evaluate the roles & Responsibilities of Risk Assessment & Control Committee?
4. Evaluate the importance of segregation of Risk Assessment & Control
Committee & Audit Committee?
5. Develop a Risk Management strategy using the concepts of Risk Management?
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Management control
1. Evaluate the existing structure of B supermarket and recommend changes
required to minimize bureaucracy?
2. Advice the board on the importance of administrative & Network controls in
information systems?
3. Discuss the appropriateness of imposing strict financial controls to manage B
supermarket?
4. Discuss the decentralization of planning function to individual regions?
5. Advice the main board on controls for selection of franchisees?
6. Recommend changes to the structure of B supermarket to enhance
organizational performance?
7. Develop a reporting system to facilitate control?
Systems & Control
1. Recommend changes to general controls in the IT system?
2. Recommend network controls to the IT system?
3. Discuss the relevance of financial performance indicators to non-financial
indicators as methods of control?
4. Recommend system changes to rectify IT risks?
Internal Control
1. Discuss the existing internal controls and provide recommendations to overcome
problems?
2. Explain the characteristics of internal control?
3. Evaluate the importance of reviewing internal controls by the audit committee?
4. Advice the board of directors on internal controls to monitor franchisors?
5. Evaluate development of security systems to minimize fraud?
6. Discus the impact on no internal controls established to review periodic internal
audit?
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Internal Audit
1. Evaluate the role of the Audit Committee in internal control?
2. Discus the impact no review periodic internal audit?
3. Recommend B supermarket changes required in structure to facilitate internal
audit?
4. Explain the role of the chief internal auditor?
5. Discuss the importance internal audit function in the regional board?
Foreign exchange risk
Concept
The risk that an investor will have to close out a long or short position in a foreign
currency at a loss due to an adverse movement in exchange rates.
Mainly four categories.
Transaction risk – The risk originate due to timing difference considering the
acceptance of the transaction and the actual payment
Translation risk – Originates due to translation of assets and liabilities based
on different currency
Economic risk – The risk originates due to the economic developments in the
market
Political risk - The risk developed due to the political system in a particular
country
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Application of the foreign exchange risk – B supermarkets
Mainly translation risk, political risk and economic risk are related to B
Supermarkets due to their existence in several parts of the world
Translation risk arises at the end of the financial year when consolidating the
assets and liabilities throughout the supermarket chain
The effect of risk will be high due the proposed expansion in to Asia
Since 80% of the goods are sourced from large international manufacturers and
distributors the effect on transaction risk will be high.
ex: trade and other payables.-€ 30,777million.
B-Asia and North America are facing a political risk due to the high regulations
regarding information systems. In some occasions they have to pay high
inducements to government officials to overcome the problem.
Management of B will face a difficulty in negotiating with the officials of other
countries regarding the reduction in carbon emission. The socialistic thinking of
the customers of other countries will be different.
5.4 Management of foreign exchange risk
Concept
The technique of managing foreign exchange risk is referred to as
hedging.
Mainly two types.
Hedge
No hedge
Hedging techniques
Internal Hedging
Invoicing in home currency
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Netting
Matching
Leading and lagging
Restructuring‟
External Hedging
Forward rate agreement
Futures contract
Options
Money market hedge
Swap
Swaption
Application to B
We can consider that B reconciles the potential receipts and payments between the
units of the organizations using a common currency.
Possible questions
1. Explain the internal hedging techniques that could be used by B
2. Identify the risks associated with the scenario. .
3. State and briefly explain the possible factors that B should consider in order to
minimize the foreign exchange risks.
4. Advice the management of B whether they should consider hedge or no hedge
policy.
5. Explain the non-financial factors B should consider during the expansion policy
in to Asian countries.
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6.COPARATE SOCIAL RESPONSIBILITY
CONCEPT
CSR is key element in the management of the organizations relationships with
governments and regulatory agencies, NGOs and civil society. CSR however, refers to
firm‟s obligation to maximize its positive impact upon stakeholders whilst minimizing the
negative effects.
Application to B Supermarket
B supermarket carries following four main areas considering its corporate social
policies.
1. Sourcing of 40% Local suppliers
2. Reduction of Carbon Emission by 1% annually- To minimize damage to natural environment by organizational activities.
3. Reduction of Disposable Plastic bags to customers per Square Meter 4. Providing funds for the development of local amenity projects.
CSR Factor
Expected level
Actual Level
Variance
- 40% local suppliers policy
40%
20%
-20%
- Reduction of carbon emission by 1%
5%
9%
4%
- Reduction of Disposable
Plastic bags to customers per Square Meter
60%
51%
-9%
Expected 40% sourcing local suppliers has been achieved to a 50%. Since this
has been highlighted in strategic objectives as well as financial objectives there is
a high consideration along with its benefits to both B supermarket and local
communities.
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Following benefits can be identified from local supplier‟s point of view.
- Support for the local community and economy of the country of operation.
- Upgrade the individual living standard of each country.
- Minimizing the carbon emission through reduction in travelling miles.
Reduction in the consumption of Kilowatt Hours per square meter has been
reduced by 9%. It records a 4% additional achievement since B supermarket has
targeted 5% initially.
Benefits of this approach will be enjoyed by everyone since it has lead to
minimize the damage to natural environment by organizational activities.
Reduction of plastic bag usage has been achieved up to 51% and yet to achieve
9% since the target has been 6%
Possible Questions
1. Identify the concepts of Corporate Social responsibility
2. Discuss how the CSR factors support in achieving each
3. Compare and contrast the CSR factors with mission and objectives
4. Explain how concept of CSR can operationalize for “B” supermarket‟s existing
objectives
5. Construct a CSR analysis for existing business practice of “B” supermarket
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7.Information Systems & Control
General Control- these controls are developed based on the use of
information systems in a management perspective.
Administrative Control- Control developed based on people &
management.
Access Control- Controls developed to prevent unauthorized
access to the system
Facility Control- Controls are based on establishing the information
system
Business Continuity Control- Control developed to ensure long term
strategy in information systems.
Application to “B” supermarket
Access Control-These are controls developed to prevent unauthorized
access to the information system.
-Physical access controls
-Passwords- users in B- Asia, B-North America, B-Europe to access the
EPOS
-Electronic identification devices- specialized terminals with barcode
readers to capture the sale & adjust inventory levels.
Business Continuity Control- These are controls developed to ensure
continuation of information based business strategy
-Identification of system risk- risk theft by employees, misleading inventory
-Anticipate future business strategy- expansion into Asian markets
therefore the developments in the system to facilitate this strategy.
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Practice of Control- this demonstrates how control is developed within
an organization.
- Financial Control- These controls are developed based on a financial
perspective considering a financial measurement.
- Non-financial Control-- These controls are developed based on the
modern management techniques to overcome flaws of financial
measurement.
Application to “B” supermarket
Financial Controls Non-financial Controls
Constant growth in EPS of 7% Customer satisfaction of 95%
Dividend payout ratio of 50% Local supplier sourcing of 40%
Gearing 40% Reduce carbon emissions by 1%
Value chain
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8. Supply Chain Management.
The supply chain is the network of organizations that are involved, through upstream
and downstream linkages, in the different process and activities that produce value in
the form of products and services in the hands of the ultimate consumer.
Importance of supply Chain Management for B
1. Supply chain management is directly attached with B‟s strategic objectives.
a. Customer satisfaction- availability of goods
b. Local suppliers – Sourcing
2. Global organization
3. Supply chain management is significant in retail organization because continuous
supply according to demand is compulsory in retail industry.
Supply chain of B can be analyzed under following criteria
1. Procurement
2. Sourcing
3. Transportation
4. Inventory management
5. Distribution
Procurement
1. Process of purchasing of goods
2. Screening suppliers – B should be careful when selecting suppliers because
reputation of B can be damaged due to slipups of suppliers.
3. Quality checking – A process of quality control must be carried out before goods
are displaying on racks.
4. Group procurement director
Role of procurement director
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Issue – Some contracts are agreed between procurement director and supplier.
Consequences- Frauds
Low quality products
Sourcing
1. There are two types of sourcing
a. Local suppliers in host country- 20%
b. International manufacturers and distributers- 80%
2. Issues
a. Only perishable goods are purchased from local suppliers and
b. The percentage is below as stated in objectives. (Less than 40%)
c. Physical quantity is not an appropriate measure
3. Solution
a. B can expand its sourcing beyond perishable goods
Ex:- FMCGs from local suppliers
b. Increase commitment to suppliers to achieve 40% target
c. Use appropriate measures like percentage of cost of sales.
4. Advantages of sourcing from local suppliers
a. Better relationship with government
b. Reputation among local community
c. Low transportation cost
d. Reduce the wastage
e. Reduction in carbon emission because of low distance transportation
5. Disadvantages
a. Local suppliers might not feel as their own organization because B is
European based company.
b. Quality issues
c. Products might not meet the required standards of B
6. Evaluation of having B‟s own brand name on products.
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Transportation
1. Transportation is indirectly attached with B‟s objective regarding carbon
emission.
2. Perishable goods must be transport carefully otherwise it will lead to wastage.
3. Alternatives to reduce carbon emission in transportation
a. More sourcing from local suppliers
4. Efficient fleet management- It is preferred to have a own fleet for transportation
Inventory Management
There is no proper inventory management exists within B.
1. Issues
a. Stock outs do occur from time to time
b. Inaccurate management information regarding inventory
2. As a result of above issues B is losing sales revenue and the worst case is B will
lose its customers. Continuous supply according to the demand is the key
success factor in retail organizations.
Sales and Distribution
1. There are four types of distribution
2. Issues
a. Different pricing for same product in different stores
b. Competition among stores
c. Discount stores only sells consumer durable products
d. Limited brands in convenience stores
3. Solution
a. Same pricing for same products otherwise customer could switching to
another supplier because bargaining power of buyer is high in retail
organizations.
b. Expand the product range in discount stores.
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How to gain competitive advantage through enhancing supply chain
1. Backward integration
2. Continuous supply
3. Seasonally changes
4. Information technology – Information technology plays vital role in supply chain
management. B and its upstream and downstream partners should be linked by
information.
B can utilize its EPOS and Inventory management system in order to efficiently
run the business. This has analyzed in details in Information Technology chapter.
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9. Treasury
Concept
This is considered as the key in firm‟s financial strategy & financial policy.
Further, this focus on what business to invest in ,
Organizing appropriate funding.
Controlling risk in the organization.
Most importantly, treasury in an organization will create an appropriate capital
structure of debt & equity to fund the business, getting the optimum balance
between cost & risk.
In this case it is imperative to evaluate the role of the treasury function since its
confusing in B supermarket chain.
Role of the treasury function
Capital markets & funding.
This considers on different sources & techniques for raising funds. In B‟s
case they are hoping to expand B supermarkets to Asian countries where
especially North Asia regional treasury should evaluate the finance
options/sources to fund the expansion.
Cash & Liquidity management.
This involves in forecasting the company‟s cash needs to run the business
& then managing group wide CF.
It is clear that company currently facing an OVERTRADING situation
where company is operationally managed through credit. Company has
adopted an AGGRESSIVE POLICY of working capital where it need to be
changed as soon as possible.
Corporate financial management.
This looks at the company‟s business strategy and financial strategy and
seeks to determine the optimum solution to mesh the 2 together.
It answers the fundamental questions as to what assets the business
should invest in-including major projects, acquisitions, mergers and
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divestment – and what capital structure should be put in place to raise the
money to make the investments.
Risk management
This is simply the process of understanding the exposed risk. For instance
currency risk, interest rate risk, liquidity risk.
In this case B supermarket is highly exposed to foreign exchange risk
where company should focus on hedging techniques in order to minimize
the exchange rate risk.
Finance function in an organization is a combination of TREASURY &
FINANCIAL CONTROL.
Treasury is responsible for obtaining finance & managing effectively where
financial control is concerned with the allocation & effective use of resources.
Hence, financial control is responsible for investment decision.
Treasury
Financial Control
Finance Function
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Advantages of a specialized treasury function
Control of cash will be recognized as a separate & significant activity,
concentrating on the more efficient use of this resource.
Central funding arrangement provides greater control to ensure that adequate
funding is in place & that debt covenants are monitored & standardized as far as
possible. It also allows for economies of scale.
Corporate planning staff will be aided by expert advice & quick feedback from
specialists in such matters as interest rates & currency movements.
Marketing management will be given a competitive edge by specialist expertise
and speed of response in making important cash based decisions.
Possible questions
1. Discuss the importance of having an appropriate treasury role.
2. Evaluate the roles of the treasury function in each region.
3. Discuss the conflicts that might occur due to inappropriate treasury structure in B
supermarket chain.
4. Advice the BOD on how the treasury functions should be structured in order to be
more efficient & effective in decision making.
5. Explain the impact of overtrading to the treasury function.
6. Discuss the factors that the treasury department should consider when
determining financing or re-financing strategies in the context of the economic
environment in emerging Asian countries.
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10. Human Resource Management (HRM) in B-supermarket
1. Number of Employees
Total number of employee =0.5 million (500000)
0.5 Million employees =
Employees = Local staff – (The existing policy in B supermarket provide priority on
recruiting local staff)
Foreign staff
2. Recruitment policy of Local staff
1. Roles and regulation in each region –ex: Labor law / minimum wage rates /
Trade unions
2. Individuals knowledge / thinking / behavior and cultural issues
3. The existing policy of recruiting local staff- roles and responsibility of regional
human resource director
4. Economic development and income level of people to determine wage rates
5. New job opportunities create to economy
Problems
Regulatory barriers
Cultural barriers- ex: Language problems
Conflict of interest between local and foreign staff
Health and safety issues in working environment
B-Europe
B-Asia
B-North America
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3. Human resource Director
A. Member of a main board of B
B. Roles and responsibly of Regional Human resource director
C. Involvement of HR director in staff training program
D. No clear integration between HR director and Regional HR director
4. Training program for store staff
A. Compulsory training program
B. Specialist team carried out training program
C. Every store participate in training program
D. Some countries the training considered to be at sufficiently high level to be
recognized by national training bodies
4.1 Training Hours
2011
2010
Training hours per year
17 hours
13 hours
Monthly training hours
1 hour 41 min
1 hour 8 min
Increase in training hours
+ 30%
4.2 Analysis of Training program
A. Integration between specialist (training group) and store staff
B. Success of past training program
C. Feed-back of employees towards training group
D. Performance appraisal of staff after training program
E. National regulation towards training program ex: minimum training hours
F. Monitoring process of training program
G. Involvement of regional HR director
H. Financial feasibility –cost allocate on training program
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I. Roles and responsibility of specialist team (to whom they accountable
regarding to training program
J. Healthy and safety issues during training program
K. Loss in daily operations by undertaking training program
L. Operationalizing CSR issues in training program ex : reduction of carbon
emission
4.3 45%- additional staff Declared as Disability
A. Resistance from existing staff ex: pressure from trade unions, media B. Regulatory framework in staff redundancy ex : regional employment
law/government influence C. Impact on “B” brand image/reputation D. Job security of remain staff members E. CSR issues in Human resource management F. Involvement of specialist team in selecting disability staff G. Staff redundancy policy – redundancy scheme, voluntary disclosure H. Process of selecting disable staff- performance appraisal I. Involvement of group and regional HR director
4.3 Problems
Conflict of interest between specialist (training group) and staff
members
Negative experience staff make resistance from staff
No clear monitoring system to check progress in training program
Only 1hour and 41 min per moth –not sufficient time real working
environment
Cultural issues
National regulatory issues for training
No clear roles and responsibilities for specialist team
Financial feasibility can be a problem- high cost related to training
program
Resistance for 45% additional staff redundancy/ regulatory problems
No monitoring system to review the progress of training
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5. Human resource management (HRM) in Franchise stores
Analysis –Franchise stores staff
Problems
Involvement of regional HR director towards franchise stores staff management
Regulatory issues on franchise agreement
No clear policy for management of staff in franchise stores
Control issues for regional HR director of management franchise store staff
Recruitment policy- foreign or local store
Language and cultural barriers of communicating franchise store staff
The training program undertake for franchise staff members
Conflict of interest between store management and HR group of “B”
Performance appraisal of staff members and reward structure ex : fixed salary or hourly rate payments
Problems of maintaining and monitoring staff service in franchise store
Monitoring process of “B” head office towards franchise store staff
Issues of undertaking training programs in franchise stores-lack of knowledge, experience or in adequate technology
6. Theft of staff in chain store groups and Misleading information
provided to head office staff
6.1 Misleading information provided to head office staff through IT system
A. Existing information system provided misleading information
A.1.1.1.1.1. Information can be overloaded
A.1.1.1.1.2. Poor integration between IT staff and head office staff
A.1.1.1.1.3. Staff can be confused with misleading information
A.1.1.1.1.4. No action has taken against IT system
B. Fail in operation due to misleading information provided to staff
C. Demotivate employee to deal with IT system
D. No involvement of HR director
6.2 Analysis of current situation
A. No investigation carried out to review the loss of theft by staff
B. No action taken against for theft of staff in chain store groups
C. Disciplinary procedure for frauds
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D. Independent and transparent investigation required
E. Review recruitment policy- background check of staff/ involvement in
criminal activities
6.3 Problems
The loss of theft in stores will continue for future
No involvement from group and regional HR director
Encourage employees to involve in criminal activities due to poor control
Negative impact on companies brand image
7. Employees 5% share ownership
A. Total number of shares = 1.350 million (1350000)-(employees have 5% share
ownership
5% employee ownership = 1.350 million * 5% = 0.675 million shares
Total number of employees = 0.5 million
Currently company operates with 0.5 million employees and individual
ownership is smaller percentage.
Dividend policy for employees needs to be review because company
might use different dividend policy for employees.
Employee‟s involvement in decision making- participation for annual
general meeting, voting rights.
Additional benefits for employees- share option scheme.
7.2 Problems
Conflict of interest between employees and remain 95% share holders
Employees influence in corporate decision making
Other HR related issues of the “B” supermarket
Currently company have no clear performance appraisal technique to measure
employees performance
According to present context majority of decisions taken by head office (strategic
planning style) and employees not take part in decisions
Bureaucracy culture for employees due to top down decision making
No clear policy has developed to monitor employees motivation
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11. Change Management
Change
In a Competitive environment markets are change in rapid scale and every
organization has come across the concept of change in day to day life.
An organization change can arrived in different forms such as rules, procedures,
goals, values, rituals and etc. It‟s important for an organization to identify the
internal and external and external variables which can influence for an
organizational change
There can be five types of changes in an organization: Plan, emergent,
incremental, step and transformational change.
Areas to change in “B” supermarket
The existing structure required to be change because it complicated and
inconsistent practices used in different region. Lack of segregation in different
units.
Existing EPOS system need to be change because systems are not perfect in
stock outs and existing system provide misleading information for employees.
Further this made negative impact on sales revenue during peak seasons
The existing training program required to be change because time allocate for
employer is insufficient, no performance appraisal system carried out after
training program, no monitoring system to evaluate training
CSR policy required to be change mainly because “B” need to check whether it‟s
realistic to become carbon neutral , application of CSR policy to supermarket
industry, carbon emission related to railway transportation
Mission statement should change because it too broad , not defines what
business are you in ,not in line with core objective of company , mission not
explains characteristics of business
The existing value system required to be redesign because using generic
strategy in value statement has create complication situation
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Change required for existing culture of employees because certain stock loses
detected as theft from staff, autocratic decision making of top management
,conflict of interest between regional staff and main board
Treasury function need to be change because role of treasury is not clear,
regional treasury operates with dual responsibilities
Changes related to corporate governance- lack of segregation of audit
committee, in-adequate focus on risk management, lack of audit governance
related to expansion
Decision making process required to change because rigid control, very high
financial control, central planning creates bureaucratic environment and poor
management of regions
Dividend policy need to be change because it might provide negative signaling
effect for shareholders (reduction in share price between 2007-11)
Barriers to change
According to present context many organizations failed to introduce successful
changes for their existing working practice due to resistance created through
from internal and external environment.
It‟s a difficult task to identify the exact reasons for the resistance to change in an
organization and understanding the shape of resistance enables to develop a
strategy to overcome it.
General barriers to implement change- culture, poor leadership skills,
uncertainty, fear of new development, fear to change and etc.
Barriers in “B” supermarket to introduce change
Mainly the existing top down decision making has created bureaucratic and
authoritarian culture within the company. This reduces the flexibility to introduce
changes for the “B”.
Strict finance control and possible conflict between regional managers and Head
office
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External barriers – changes in regulation of each regions, entrance of new
competitor, change in customer preference towards FMG goods.
In-sufficient training provided to employees and staff can be demotivate in future
Ability to control every franchise store operates in each region.
Ability to implement change for over 15000 stores operates in nearly 36
countries
Application of CSR policy in to companies operations is complicated
Poor internal IT system – insufficient technology to control inventory
Change management
Management of change is a very challengeable task for any organization
because due to high level uncertainty arisen from the environment and many
organizations are not very keen on responding towards the change.
Management of change is about capitalizing today‟s strength and create platform
to develop future niches.
Management of change in “B” supermarket
New IT system need to be introduced for control stock outs and monitoring
physical stocks against records- redesign EPOS system
Appoint an IT team to investigate existing problems of providing misleading
information to staff.
Segregation of duties should allocate to the audit committee
Mission statement need to be change and new mission statement need to
design in line with core-business activity of “B” supermarket
Appoint Non-executive director for each region and separate committee for risk
management
Change the existing training program and allocate more time for individual
employee, develop monitoring and performance appraisal system for workforce
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“B” supermarket can used following models to introduce change for the organization
Force field analysis (Kurt lewin)
Change through Entrepreneurship
Theory E and theory O
Change through Learning(Peter senge)
Constant change – Chaos theory (Tom peters)
Example:
Force-field Analysis (Kurt Lewin)
Unfreeze Change Refreeze
Conflict of interest between
regional board and main board –
regional board dissatisfied with
existing bureaucratic procedure
Change the structure of decision
making
Develop a proper reporting system
and arrange meeting between
main board and regional board
Problems can be arise among IT
staff related to poor information
system
and redesign EPOS system of
managing inventory
Develop monitoring and control for
review the IT system
Insufficient training for employees
which leads to staff dissatisfaction
Change training policy for work
force
Performance appraisal after
training program
Possible Questions
1. Advice board of directors of “B” to what extend change management is required
for the existing IT system
2. Explain how change management is important for improving performance of
employees and culture
3. Discuss the barriers that company “B” going to face introducing change for
current training program
4. Explain the barriers that “B” need to face engaging with new franchise agreement
with local player
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5. Identify the two models that the management could use to introduce change for it
existing IT system
6. Explain how these models could assist the management to overcome the
barriers of IT system and training program
7. Discuss how force field analysis could be used introduce changes for existing
culture of the organization
Change Management
Change
In a Competitive environment markets are change in rapid scale and every
organization has come across the concept of change in day to day life.
An organization change can arrived in different forms such as rules, procedures,
goals, values, rituals and etc. It‟s important for an organization to identify the
internal and external and external variables which can influence for an
organizational change
There can be five types of changes in an organization: Plan, emergent,
incremental, step and transformational change.
Areas to change in “B” supermarket
The existing structure required to be change because it complicated and
inconsistent practices used in different region. Lack of segregation in different
units.
Existing EPOS system need to be change because systems are not perfect in
stock outs and existing system provide misleading information for employees.
Further this made negative impact on sales revenue during peak seasons
The existing training program required to be change because time allocate for
employer is insufficient, no performance appraisal system carried out after
training program, no monitoring system to evaluate training
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CSR policy required to be change mainly because “B” need to check whether it‟s
realistic to become carbon neutral , application of CSR policy to supermarket
industry, carbon emission related to railway transportation
Mission statement should change because it too broad , not defines what
business are you in ,not in line with core objective of company , mission not
explains characteristics of business
The existing value system required to be redesign because using generic
strategy in value statement has create complication situation
Change required for existing culture of employees because certain stock loses
detected as theft from staff, autocratic decision making of top management
,conflict of interest between regional staff and main board
Treasury function need to be change because role of treasury is not clear,
regional treasury operates with dual responsibilities
Changes related to corporate governance- lack of segregation of audit
committee, in-adequate focus on risk management, lack of audit governance
related to expansion
Decision making process required to change because rigid control, very high
financial control, central planning creates bureaucratic environment and poor
management of regions
Dividend policy need to be change because it might provide negative signaling
effect for shareholders (reduction in share price between 2007-11)
Barriers to change
According to present context many organizations failed to introduce successful
changes for their existing working practice due to resistance created through
from internal and external environment.
It‟s a difficult task to identify the exact reasons for the resistance to change in an
organization and understanding the shape of resistance enables to develop a
strategy to overcome it.
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General barriers to implement change- culture, poor leadership skills,
uncertainty, fear of new development, fear to change and etc.
Barriers in “B” supermarket to introduce change
Mainly the existing top down decision making has created bureaucratic and
authoritarian culture within the company. This reduces the flexibility to introduce
changes for the “B”.
Strict finance control and possible conflict between regional managers and Head
office
External barriers – changes in regulation of each regions, entrance of new
competitor, change in customer preference towards FMG goods.
In-sufficient training provided to employees and staff can be demotivate in future
Ability to control every franchise store operates in each region.
Ability to implement change for over 15000 stores operates in nearly 36
countries
Application of CSR policy in to companies operations is complicated
Poor internal IT system – insufficient technology to control inventory
Change management
Management of change is a very challengeable task for any organization
because due to high level uncertainty arisen from the environment and many
organizations are not very keen on responding towards the change.
Management of change is about capitalizing today‟s strength and create platform
to develop future niches.
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Management of change in “B” supermarket
New IT system need to be introduced for control stock outs and monitoring
physical stocks against records- redesign EPOS system
Appoint an IT team to investigate existing problems of providing misleading
information to staff.
Segregation of duties should allocate to the audit committee
Mission statement need to be change and new mission statement need to
design in line with core-business activity of “B” supermarket
Appoint Non-executive director for each region and separate committee for risk
management
Change the existing training program and allocate more time for individual
employee, develop monitoring and performance appraisal system for workforce
“B” supermarket can used following models to introduce change for the organization
Force field analysis (Kurt lewin)
Change through Entrepreneurship
Theory E and theory O
Change through Learning(Peter senge)
Constant change – Chaos theory (Tom peters)
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Example:
Force-field Analysis (Kurt Lewin)
Unfreeze Change Refreeze
Conflict of interest between
regional board and main board –
regional board dissatisfied with
existing bureaucratic procedure
Change the structure of decision
making
Develop a proper reporting system
and arrange meeting between
main board and regional board
Problems can be arise among IT
staff related to poor information
system
and redesign EPOS system of
managing inventory
Develop monitoring and control for
review the IT system
Insufficient training for employees
which leads to staff dissatisfaction
Change training policy for work
force
Performance appraisal after
training program
Possible Questions
8. Advice board of directors of “B” to what extend change management is required
for the existing IT system
9. Explain how change management is important for improving performance of
employees and culture
10. Discuss the barriers that company “B” going to face introducing change for
current training program
11. Explain the barriers that “B” need to face engaging with new franchise agreement
with local player
12. Identify the two models that the management could use to introduce change for it
existing IT system
13. Explain how these models could assist the management to overcome the
barriers of IT system and training program
14. Discuss how force field analysis could be used introduce changes for existing
culture of the organization
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12. Appendixes
12.1 Issues of carefour supermarket.
The two supermarket stalwarts trail Wal-Mart globally, but the French
group is faring worse. Shares in Britain's biggest supermarket chain Tesco (LSE: TSCO) are down by 21% this year, thanks to last
Thursday's Christmas trading statement where the company said that profits growth in the current year would
be "minimal".
However, shareholders in the French supermarket group Carrefour, with whom Tesco fights for second place
in the global market, would love to see "minimal" profits growth. That's because profits have fallen in the last
few years and Carrefour issued five separate profit warnings in 2011, losing some €249 million in the first six
months.
Fast food giant McDonalds and French supermarket chain Carrefour have apologized to Chinese
consumers following the exposure of food safety scandals on Thursday. The two companies said
they are willing to cooperate with government inspections to ensure the highest standard of food
safety.
Fast food giant McDonalds and French supermarket chain Carrefour
have apologized to Chinese consumers following the exposure of food
safety scandals on Thursday.
Quick apologies are announced after a report exposed food safety problems at a Mcdonalds branch
in Beijing.
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Sophia Luan, Vice President of McDonalds in China, said, "As a member of the managerial staff, Im
very sorry for the loopholes in our system. I apologize to our customers. From today, we will rectify
operations of more than 1,400 outlets in China, not only this one."
The food safety scandal was exposed on Thursday, showing that a McDonalds branch in Beijing
was selling fried chicken wings beyond the preset time limit, and worse still, dropped cutlets were
directly picked up for use again.
Investigators started probing the problems immediately.
Fast food giant McDonalds and French supermarket
chain Carrefour have apologized to Chinese
consumers following the exposure of food safety
scandals on Thursday.
Yan Chuanyan, Food Safety Supervisor, said, "Trash cans in the operation room were not covered
in time. The bread bases stored in normal the atmospheric temperature were mixed with groceries,
which violates our rule; moreover, there were some damage to plastic bags of some bread bases,
which led to food contamination."
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The branch has been closed until the investigation is complete.
Meanwhile, Carrefour also made a apology after reports exposed the practice of labeling some
poultry products with incorrect production dates. Standard chicken was also as the more expensive
free-range variety.
Xavier Bodenes, Head of Food Safety and Quality of Carrefour China, said, "Carrefour China knew
about the case that happened yesterday. Carrefour apologizes, apologizes for the case that has
happened, and apologizes to our customers about this incident."
Carrefour China said it will enforce out serious punishments to people involved in this food quality
case.
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