Strategic Case study

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Strategic Case study Strategic Analysis P
Plc Plumbing and Building Suppliers Nick
Best with www.astranti.com
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Welcome

• Welcome to Nick Bests CIMA Strategic Case Study
  preseen analysis
• For those of you who dont know me, I am the
  Managing Director of Astranti Financial Training.
  Ive tutored CIMA for over 15 years for BPP,
  Kaplan, First Intuition and Reed Business School
  and have authored a number of official CIMA study
  texts and revision guides.
• For Mock Exams on the latest case, free preseen
  analysis videos and course notes visit
  www.astranti.com

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Introduction to the case

• The plumbing and building retail industry is the
  focus for the latest Strategic Case Study. Hardly
  exciting but its easy to associate with real
  products which are around us all the time and
  which anyone with a house has probably had to
  buy. Thats a help!
• The case company P Plc is based in the UK, but
  operates worldwide. Its grown through
  acquisition, and is profitable, but needs to
  rationalise its structure and divest unprofitable
  business units.

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Strategic analysis the rational model

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

Governance Ethics
Business Environment
FUTURE Mission Objectives
PEST
5 Forces
NOW
S W
Business Strategy
O T
Generic strategies Ansoffs matrix Method of
growth
Internal analysis
Stakeholder Mapping

• Product analysis
• Product life cycle
• BCG matrix

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Strategic analysis the rational model
Governance Ethics

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

FUTURE Mission Objectives
Stakeholder Mapping
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Mission

• The mission statement sets the direction and tone
  of the organisation, and guides strategic
  decision making. The case study gives us the
  following mission related elements
• Corporate values
• Trading fairly and honestly
• Responsive to customer needs continuous
  improvement
• Employing committed people
• Respect for cultural diversity
• Strategic objectives
• Market leader
• Deleverage underperforming parts of the business
• Continuous improvement of products and service
• Remember to use these in the exam to help guide
  the decisions you make on how to move the
  business forward.

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Objectives and performance measurement
The objectives provide a focused target to move
towards to direct planning, motivate staff and
enable accurate performance measurement We are
given few specific targets in the case study.
They are likely to have more specific strategic
targets we are not told about. If the unseen
suggests they do not, then this is a weakness in
the companys planning approach. They do record
performance, but the analysis in the preseen does
not offer much valuable insight both divisions
are very similar. More detailed analysis is
needed. Benchmarking of comparable retail
divisions might help to identify units to sell or
ways to improve underperforming
divisions. Balanced scorecard would be
beneficial to P Plc with a focus on their key
goals by measuring Customer service and
satisfaction Product quality Innovation
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Astranti Strategic Mock Exams
Hi Nick, I passed! To say that I am extremely
happy is a gross understatement! I would like to
thank you for helping me cross that bridge (not
an easy one) and achieve another milestone in my
life. Your mocks made a big difference and really
helped me - this was my 3rd attempt. There is
something very right in what you are doing. Keep
up the good work! Kind Regards, Edmore
Chinhakwe Passed November 2011

• The biggest criteria for success in my opinion is
  practising mock exams based in this case study
  These are key since
• They help you with Time Management, a critical
  problem for most students
• They enable you to practise a range of issues
  that you may see in the real exam
• Our strategic mocks are tailored to this industry
  and give you vital exam practise
• Mock marking with very detailed focused feedback
  is also available (dont underestimate how
  important feedback on approach and technique is
  to you success!

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Governance

• P Plc have 6 Non-executive Directors (including
  the Chair) bringing independence to the board
• However they have 7 executive directors which
  is more than half, which is not good practise
  under the UKs combined code
• There is a concern about the power of the
  Executive committee are they too powerful and
  so making the NEDs roles insignificant.
• Little evidence in the case of other key
  governance issues. They are listed so should
  conform to governance requirements and probably
  do, but look out for weaknesses in the unseen in
  areas such as
• Committees of Non-execs Audit, remuneration,
  nomination
• Disclosures of directors and pay
• Financial reporting and control
• Information for directors
• All directors involved in decision making
• Regular meetings with institutional shareholders
• Good use of the AGM

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Ethics and CSR

• P Plc have a clear statement of ethics. This
  suggests this will be an important part of the
  exam.
• Key elements of CSR for P Plc
• Staff training, development and safety
• High ethical standards
• Minimise environmental damage
• Safe, reliable products
• Look out for ethics issues in the exam, and
  ensure you recommend P Plc focus on continued
  high ethical standards in this area.

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Stakeholder Analysis Mendelows Matrix
Low Interest High Interest
Low Power Minimal interest Employees of suppliers Occasional customers Keep informed Loyal customers Most suppliers Most employees and minor directors Small shareholders
High Power Keep satisfied Governments Most institutional shareholders Bank Key Players (Keep close) CEO and Chairman Major branded suppliers
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• The reasons people fail
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Strategic analysis the rational model

• Next we need to analyse the current position of
  the business
• This helps us ensure the strategies we decide
  upon are appropriate to the business current
  position and issues they face in the industry
  and more broadly
• This position is summed up in a SWOT analysis

Business Environment
PEST
5 Forces
NOW
S W
O T
Internal analysis

• Product analysis
• Product life cycle
• BCG matrix

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SWOT
Strengths Weaknesses
Customer service Product quality Well recognised brands in local markets and for specific products (e.g. kitchens/ bathrooms) Large company should be able to obtain economies of scale in purchasing Listed should help raising of new finance Profitable helps generate more finance and ensure dividends can be paid Good relationships with suppliers Confused and inefficient organisational structure. Too many functional departments, and a two way divisional split suggesting inefficiencies, repetition and lack of working together Some underperforming divisions to be sold off, or merged with successful brands Weak purchase process many underperforming divisions came from poor purchase decisions. No warehouses in Africa/Asia Lack of detailed benchmarking or good performance measurement (possibly!)
Opportunities Threats
Divest unprofitable parts of the business Purchase of new brands Expansion into Asia/Africa, including new warehouses Expand online operations Onsell products between different brands Foreign exchange Return to recession in main countries in which they operate Competition lower prices/better quality/better marketing Quality of products from suppliers is poor leading to poor customer satisfaction
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Astranti T4 Courses

• Detailed video exam guides
• Full video debrief of the preseen
• 2 full day live masterclasses
• The exam and marking criteria
• Prioritisation of Issues they new key skill at
  T4
• Preseen analysis and discussion
• How to pass the T4 exam
• Industry analysis
• 5 full mock exams
• Marking and personal feedback on 3 mock exams
• 60 industry examples to use on exam day
• 3 mini-mock exams
• Detailed feedback on 2 mini-mock exams
• Detailed course notes
• Calculations e-book to practise calculations
  questions
• Ethics e-book ethics is a guaranteed 10 marks
  at T4!
• Private forum
• debate the case with others
• focused tutor support

Hi Nick, I passed with 62 - huge
relief. Thanks again for your support Im
relieved I stumbled across you before signing up
with one of the mainstream training
providers. Kind Regards, Marc Marc
Thomas Passed  September 2011
I could not recommend this service strong enough
and honestly feel this was the reason for my
successful pass Paula Roberts Passed  November
2009
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PEST analysis
Political/ Legal New laws on Health and Safety of staff, Product safety Political uncertainty in overseas markets could threaten some markets
Economic Worldwide economic downturn now ending opportunity to grow Exchange rate impact as overseas operations Interest rates likely to rise over next few years may make borrowing more expensive
Social (inc sustainability) Trend towards DIY/renovations of houses likely to increase once economies recover Increasing customer awareness and focus on CSR, ethics and sustainability important P Plc operate ethically.
Technological New technologies in distribution and sales will be key to continued efficiencies Increasing trend towards online sales important P Plc have addressed this issue in their various markets
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5 Forces Analysis

• The 5 forces analysis enables the analysis of the
  industry according to a range of key factors
  affecting that industry
• Each force can be given a strength (e.g. High,
  Medium, Low). Where all the forces are high, the
  profitability of the industry is low, and
  divestment may be a good strategy.
• The lower the forces the more attractive the
  industry is.
• Companies may look at the areas where forces are
  high and develop strategies which may lower
  these.
• The 5 forces analysis for this industry is on the
  next page
• In this case the average of the forces is medium
  so the industry would be deemed averagely
  profitable.

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5 forces analysis
Factors increasing Force Factors lowering force
Buyer Power Medium Customers can easily switch to competitors as products are standard (the competitors are likely to be very similar) Lots of small customers. No particular customer can negotiate price discounts as none as over-riding power.
Supplier Power Low Good suppliers on long term contracts may have some power when renegotiating contract. Some suppliers with strong brands may have power (e.g. ICI with their Dulux paint brand) Lots of suppliers (90,000) means lots of choice for P Plc on standard products so most of the time the power lies with P Plc
Competitors High Lots of small competitors in every town worldwide Some large competitors Products are not differentiated greatly so easy for customers to switch Relatively few very large providers the direct competitors of P Plc
New Entrants Low Easy to enter this market as products easily sourced A mature market that is unlikely to attract significant new players to the market
Substitutes Low Main substitute is going without where there is a choice (e.g. during a recession customer may just choose not to have a new kitchen or bathroom) Very few substitutes for most products (e.g. if you need a new tap there are few alternatives) P Plc provide all alternatives so are at little risk of not providing most substitute products
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Strategic analysis the rational model

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

FUTURE Mission Objectives
NOW
S W
Business Strategy
O T
Generic strategies Ansoffs matrix Method of
growth
The usual approach to defining a business
strategy is to begin with a definition of the
generic strategies, followed by analysing options
in Ansoffs matrix, looking at how these might be
implemented with the Methods of Growth and then
deciding upon a final strategy
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Opportunities and ThreatsProducts/Generic
Strategy
Products Generic Strategies
BCG/ Product Life Cycle Most products in the maturity phase of the product life cycle. Most are likely to be cash cows generating ongoing revenues although there may be the opportunity to review product profitability to examine the product range in more detail and divest unprofitable products. Products are standard so their may be few opportunities for significant product innovation Wide product range providing virtually all customer needs Cost leadership Not followed by P Plc
BCG/ Product Life Cycle Most products in the maturity phase of the product life cycle. Most are likely to be cash cows generating ongoing revenues although there may be the opportunity to review product profitability to examine the product range in more detail and divest unprofitable products. Products are standard so their may be few opportunities for significant product innovation Wide product range providing virtually all customer needs Differentiate Quality is key for P Plc Customer service is their key Critical success factor
BCG/ Product Life Cycle Most products in the maturity phase of the product life cycle. Most are likely to be cash cows generating ongoing revenues although there may be the opportunity to review product profitability to examine the product range in more detail and divest unprofitable products. Products are standard so their may be few opportunities for significant product innovation Wide product range providing virtually all customer needs Focus Broad focus used to a very wide customer base of consumers and builders throughout the world.
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Ansoffs Matrix and methods of growth

• Ansoffs matrix enables the generation of
  strategic options.
• Those youll find in my analysis over the page
  are just options, not my recommendations.
• You might like to add your own options
• (1) Based on your own ideas to take the business
  forward
• (2) Based on those in practise exams you
  undertake
• The final stage is then to decide on the methods
  which the organisation can use to take the
  options (as generated in Ansoffs matrix) again
  these are just possibilities at this stage

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Ansoffs Matrix and methods of growth
Existing Market New Market
Existing Product Divest unprofitable products and brands Continue to improve customer service and quality to retain new customers Increased marketing to attract new customers Brand consolidation Africa and Asia expansion, including new warehouses Other regions where they do not have a presence e.g. Russia, Brazil
New Product Possible product expansion into Gardening/Plants Lighting Furniture Carpets Potential to onsell P Plc products within each brand e.g. kitchen retailer starts selling bathroom products Vertical integration e.g. buying a manufacturer (unlikely as they have previously moved away from doing this)
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Methods of Growth
Internal Development Store growth of current brands New warehouse Ongoing efficiencies
Acquisition Significant part of growth strategy over recent years. Further opportunities to expand by acquisition may present themselves, but care needs to be taken about the price paid and appropriateness of the company due to previous errors having been made.
Joint Venture Possible joint ventures in countries where little market knowledge e.g. China
Divest Unprofitable brands Unprofitable products More analysis of brand and products is needed.
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Defining a business strategy

• On the following page you will find my
  recommended strategy for the company.
• Remember that this is my view and is not a
  definitive answer
• Also remember that in the exam, you are NOT
  expected to define a way forward like this you
  MUST deal with the unseen issues and only those
  issues
• However, dealing with those issues in light of a
  strong logical approach to how the business
  should be taken forward can help you make a
  strong argument in your recommendations.

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Nicks Strategies going forward

• Continue with the successful areas of the
  business
• Strong, profitable brands
• Existing wide product ranges
• Take further purchase opportunities as they
  arise
• Clear generic strategy
• Continue to develop excellent customer service
  and retain high product quality to cement
  differentiated position
• Structural review
• Remove current two divisional split
• Fewer functional areas
• Regional divisions
• Merge brands where significant links so all part
  of coherent structure
• Retailers report to retail manager not warehouse
  manager
• Ensure half board are NEDs and they have power,
  through a review of the role of the current
  executive board

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Nicks Strategies going forward

• Continued organic growth in existing markets
• Expand retail outlets of successful brands
• Product and brand profitability analysis
• Divest unprofitable products or brands or
  consider merging brands within profitable groups
• Wider expansion into new markets through
  acquisition particularly high growth markets
  such as China, Russia and Brazil
• Including analysis and purchasing of new
  warehouses.

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Please Like the site

• So thats what I would do. Im sure youll have
  your own views. Just remember not to hold onto
  these too tightly in the exam you must
  primarily deal with the unseen issues!
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