The tenth case study for CMA (Final) Group 3 students-

Paper 15 - Business Strategy and Strategic Cost Management

CASE STUDY ON STRATEGIC CHOICE

From its origin as an animated film producer, Walt Disney Company has moved into licensing characters for merchandised goods and developed theme parks and vacation and resort properties. What should be the best strategy for growth of Walt Disney Company?

Answer:

The Walt Disney Company, is an American diversified multinational mass media corporation headquartered in Walt Disney Studios, Burbank, California, United States. It is the largest media conglomerate in the world in terms of revenue. Walt Disney Productions established itself as a leader in the American animation industry before diversifying into live-action film production, television, and travel. The Walt Disney Company expanded its existing operations and also started divisions focused upon theatre, radio, music, publishing, and online media. In addition, it has created new divisions of the company in order to market more mature content than it typically associates with its flagship family-oriented brands.

The company is best known for the products of its film studio, the Walt Disney Studios, and today one of the largest and best-known studios in Hollywood.

The company finds profitable growth by targeting emerging businesses new to Disney’s existing portfolio, managing cross-divisional issues and opportunities, and evaluating new technology and business models. The group also resorted to mergers, acquisitions, and divestiture transactions as well.

                                                                                             Source: Suggested Answers - December 2012 by ICAI

The ninth case study for CMA (Final) Group 3 students-

Paper 15 - Business Strategy and Strategic Cost Management

CASE STUDY ON STRATEGIC POSITION

Critics of Nike often complain that it’s shoes cost almost nothing to make, yet cost the consumer so much. Identity the strategic marketing planning steps which provide value that add to Nike’s offering and result in the high price of Nike’s shoes.

Answer :

Critics of Nike often complain that its shoes cost almost nothing to make yet cost the consumer so much.

TRUE. The raw materials and manufacturing costs involved in the marketing of a sneaker are relatively cheap, but the process of selling the product to the consumer is expensive. Materials, labour, shipping, equipment, import duties and suppliers cost generally total fewer than for a pair of shoes. Nike must compensate its sales team, its distributors, its administrators and its endorsers, as well as pay for advertising & R&D. Finally Nike sells its products to retailers to make a profit. The retailer therefore pays some amount in order to put a pair of Nikes on the shelf.

Only a handful of companies like Nike stand out as master marketers. These companies focus on the customer and are:

(1)    Organized to respond effectively to changing customer needs.

(2)    Have well-staffed marketing departments, and

(3) All their other departments- manufacturing, finance, research and development, personnel, purchasing; also accept the concept that the customer is king.

Strategic planning covers the entire activities of the organization, including all of the strategic business unit (SBUs) and each functional area. Developing functional strategies and plans is the fourth step in the strategic planning process. One technique for identifying opportunities is to seek strategic windows. A strategic window is the identification of an opportunity for a limited period in the future and managing the organization & opposes resources so that there is a fit between the key market needs and the ability of the organization to meet those needs at an optimum level. A marketing plan is the central instrument for directing and coordinating the marketing effort. It operates at a strategic and tactical level.

Steps in planning process

To carry out their responsibilities, marketing managers- whether at the corporate, division, business or product level follow a marketing process. Working within the plans set by the levels above them, product managers come up with a marketing plan for individual products lines, brands, channels, or customer groups.

Tactical marketing - strategic marketing

The 1^st phase choosing the value represents the homework that marketing must do before any product exists. The marketing staff must segment the market and develop the offerings value positioning.

The 2^nd phase is providing the value. Marketing must determine specific product features, prices and distribution as part of tactical marketing. The task in the 3^rd phase is communicating the value. Further tactical marketing occur in utilizing the sales force, sales promotion, advertising, and other promotional tools to inform and promote the product.

                                                                                                   Source: Suggested Answers - June 2013 by ICAI

The eighth case study for CMA (Final) Group 3 students-

Paper 15 - Business Strategy and Strategic Cost Management

CASE STUDY ON TURNAROUND STRATEGY, ENVIRONMENTAL THREAT AND OPPORTUNITY PROFILE

A reputed public limited company, M/s XYZ & Co. with a strong brand image and goodwill in the market, manufactures Refrigerators. Last year it decided to take over an ailing public sector enterprise, located at Hyderabad named M/s ABC & Co. which is also manufacturing branded Refrigerators. The ailing unit had accumulated losses to the tune of Rs.90 crores and was having a huge work force of 5000, with production virtually coming to a grinding halt/stand-still statue at the time of takeover.

The management of M/s XYZ & Co. prepared a turnaround strategy and adopted a multi-pronged strategy for its taken over company viz., ABC & Co. As a result, over a period of one year:

-          Wasteful expenditure got curtailed considerably

-          Production increased

-          Production range got augmented

-          Investment in HRD had been stepped up

-          Costumer and dealer interaction had improved

Each of the above steps were taken up on a ‘war-footing’.

Ø  An analysis of job and personality profiles of all personnel from ‘workmen’ to ‘managers’ was undertaken by an outside consultant. This study revealed a lot of startling things including the fact that about 400 workers with union influence, were mostly on outdoor duty, where they could not be supervised all the time.

Ø  A voluntary retirement scheme (VRS) was introduce, which helped to reduce the workforce of 4000. Those workers, not willing to be a part of the ‘new work culture’, where targets had to be met, left under VRS.

Questions:

(i)                  Do you consider the Turnaround Strategy adopted by M/s XYZ & Co. satisfactory? Give reasons.

(ii)                Discuss the nature of synergistic effects, if any, resulting from M/s XYZ’s take over of M/s ABC & Co.

(iii)               Prepare an Environmental Treat and Opportunity Profile (ETOP) and a strategic advantage profile (SAP) for evaluation of the present strategy.

(iv)              What were the key factors underlying successful implementation of the strategy? Explain

You may take suitable assumption, as may be required, in this case study.

Analysis

(i)                  Adopted multi-pronged strategy yielded different desired results like-

·         Revenue generation of the company has increased due to the increase in production.

·         Wasteful expenditure got curtailed considerably. The essence of any good ‘turnaround strategy’ is cost reduction and cutting down of redundant discretionary cost in manufacturing and man power cost.

·         Helped to boost up declining trend in performance and paved way for improved long-run efficiency of operations.

·         Augmentation of product range has helped to shot up of company’s market share.

·         The study by the consultant has yielded stupendous results to eliminate a lot of unproductive work practices.

·         The VRS introduction has helped to reduce the work force by 20%. As XYZ &Co. has been able to proclaim their seriousness about the change. Those workers of erstwhile ABC & Co. not willing to be a part of the new work culture, where targets had to be met, left under VRS.

·         By stepping up investment in HRD to train the remaining workforce has ushered in a new working system and philosophy.

·         For the purpose of developing their market, the company is now drawing program to enter into the growing export market.

(ii)                Due to the all-round multi-pronged strategy of the company-

·         Operation synergy is evident through the introduction of new product, leading to increased use of its facilities with the reduction in unit fixed cost.

·         Sales synergy through the sale of additional product range with the existing marketing infrastructure and improved customer, dealer introduction.

·         Management synergy by way of showing managerial competence to solve different problems of the erstwhile ABC & Co.

·         The combined impact of all the above has jointly contributed to positive synergy for the company.

(iii)               Environmental Threat and Opportunity Profile

Business                              (+) New forms of competition

                                            (-) New entry of Global leader and MNC

Government                          (+) Globalization

                                            (-)  Liberalization

Socioeconomic                      (-) Resource constraints

     (+) All round infrastructure development in the country including more power supply for the industry

Technological                     (+) High growth envisaged in industrial production and technological upgradation.

(iv)              Strategic Advantage Profile (SAP)

Manufacturing              (-) Ageing plant facilities, requiring gradual replacement and upgradation.

(+) Machinery with robust design and proper maintenance are available to withstand the increased production.

                                Marketing                           (+) Capable sales force

                                R&D                                 (+) Backup from XYZ & Co.

Corporate resources                 (+) Result oriented management team with positive attitude and abundant talents with initiative and zeal.

(v)                Key factors constitute the important significant factors in the success of particular business. In the instant case, some of the key factors are:

Ø  New management team of XYZ & Co. with dedication

Ø  Implementation of multi-pronged strategies in its real earnest.

                                     Ø Augmented product range.

                                                                                                       Source: Suggested Answers - December 2002 by ICAI

The seventh case study for CMA (Final) Group 3 students-

Paper 15 - Business Strategy and Strategic Cost Management

CASE STUDY 7

Types of Strategic Integration

Identify the types of strategic integration in each of the following independent situations and state any two conditions when such an integration is not beneficial to a company.

(i) A soft drink manufacturing company "A" is facing stiff competition from another manufacturer. "A" buys bottle from a supplier. "A" wants to manufacture its own bottles and avoid a price mark-up on the bottles and thereby compete with lower cost of packaged drinks.

(ii) Company Comp makes laptops and it wants to acquire its competitor's laptop division "D" and sell under the one brand name "Comp".

 (iii) Agricult Company, which is currently engaged in efficient crop production with modern techniques, is planning to set up its own outlets to sell raw farm processed agricultural products.

Answer:

(i) Vertical backward integration:

 It is not beneficial when:  

a)   There are capacity building issues - for example, the firm may need to build excess upstream capacity to ensure that its downstream operations have sufficient supply under all demand conditions.

b)   Low efficiency lead to potentially higher costs resulting from lack of supplier competition.

c)        When previous upstream or downstream investment lead to decrease flexibility.

d)       Due to in-house development there is decreased ability for enhanced product variety.

e)      Development of new core competencies may compromise existing competencies.

(ii) Horizontal integration:

 It is not beneficial when:  

a)      The investment involved is huge.

b)      When the industry is saturated.

c)     There is inefficiency in the bought-out entity.

d) There is significant increase in overhead cost without corresponding revenue generation or increase in productivity.

(iii) Vertical forward integration:

 It is not beneficial when:
 a)      The company has to incur very high distribution costs.

 b)      There is likelihood of decrease in concentration of existing products.

 c)       The company will tend to become inefficient with regard to its existing strong operations.

 d)     There is considerable investment required.

                                                                                                Source: Suggested Answers - June 2014 by ICAI

The sixth case study for CMA (Final) Group 3 students-

Paper 15 - Business Strategy and Strategic Cost Management

CASE STUDY 6

Opportunities, Strengths, Threats and Business Strategies of a Central Government (Government of India (GOI)) Department

The postal department of GOI is trying to develop competitive strategies to make better profits. The chief of the postal department presents the following facts:

 (i) There are many couriers who operate in major cities and offer guaranteed delivery at very marginally higher prices than the postal department and yet manage to make a lot of profits.

(ii) Couriers offer tracking facilities on the e-computer so that a customer knows when his consignment is getting delivered or where it is located at any point of time.

(iii) Many pick up points are available for customers. Even retail customers find it convenient to book their requirements without having to travel much. For bulk booking, the couriers provided pick up facility at no further cost.

 (iv) Couriers are not available in rural and sub-urban areas whereas postal network is very good in these places.

 (v) Couriers in the cities operate until 7 p.m. whereas the corresponding speed posts or registered posts close at 2-30 p.m. / 4 p.m. in most areas and 6 p.m. / 8 p.m. in big Post Offices in Metro Cities/GPO respectively. There are one or at most two centers which operate speed post counters for 24 hours, but there are no 24×7 courier facilities.

 (vi) Postal services for parcels are much cheaper than the courier services. (vii) International courier charges very highly priced for documents and parcels, whereas postal charges are up to 70% cheaper, but delivery is at least 50% slower. Retail customers prefer postal services while corporate houses prefer couriers.

(viii) International courier is mainly parcel services. Documents are not prominent revenue makers due to electronic mode of communication.

 (ix) Staff in courier services is more customer-friendly than the Postal Dept. staff, whereas the Postal Dept. staff are paid much more.

 (x) While wondering how different the scale of profits could be between similar services, the Chief of Postal Department considers that for a Post Office to operate, in addition to document/parcel bookings, banking services like MIS/PF/Savings Account, etc. telephone bill payment services, stamp sale services and other services are being rendered, requiring the necessary hierarchy of approving authority to be present. He is considering opening of more centers exclusively for the equivalent of courier services.

Required:

(a) Identify threats to the Postal Department, GOI.

(b) What would you consider as important strengths of the Postal Department, GOI?

(c) Mention the opportunities that the Postal Department, GOI can profitably consider.

(d) Apart from (x) suggest appropriate business strategies that the Postal Department, GOI may practically apply to successfully run a long-term profitable document/parcel service on the lines of the courier service.

Answer:

(a) Threats:

(i) Couriers are almost replacing document delivery by postal department.

(ii) Couriers could cut price to increase the market share in parcel delivery segment.

(iii) Couriers may fast expand to capture some of the more viable rural areas and satellite towns also. Loss of such customers is a big threat.

(iv) More courier operators could get together to achieve better coverage and lower cost and offer stiff competition as bundled operators.

 (v) International couriers may reset their prices and offer stiffer competition, since already in terms of delivery schedules they have a higher preference. The only prohibited aspect is the price, which may soon be reset.

(b) Strengths:

(i) There is a huge network in rural and sub-urban areas which is no easily affordable by couriers.

(ii) Cheaper pricing tactics with the help of government support and infrastructure usage and inter governmental rates.

(iii) International parcel/document services have a lot of retail customers who prefer this system.

(iv) 24×7 service in select centers which is yet to be copied by competitor effectively.

(c) Opportunities:

(i) Pick up facilities could lure more users.

(ii) Established 24×7 round the clock services in more centers to service more customers in different areas of the country.

(iii) Lower the rates for documents and offer stiffer competition like stay out pricing.

(iv) Parcel packing and pick up services at the customers' door step.

(v) Faster international delivery for embracing corporate clients from competing services, together with mobile phone updates on tracking.

 (vi) Extended working timings for collection centers, especially those that are near railway stations or airports.

(d) Business Strategy:

(i) Tie up with couriers for subcontracting delivery of bundled bulk bags to rural areas by train.

(ii) Set up shift system at strategic centers. Get data on volume of services at different times and enhance availability of services.

(iii) Establish tracking facility on the mobile phones at a price - for example, with BSNL at cheaper rates.

(iv)  Create better pick up facilities at more number of intervals, extend the last cut-off time.

 (v) Cut overhead costs by using skeletal staff at non-pick hours.

(vi)  Award incentives for timely service of staff at critical points. Extra reward for better customer satisfaction.

(vii)Establish a monitoring system and fix responsibility among staff - by customer analysis, repeat customers, customer feedback on why some bulk customers have shifted, etc.

(viii) Additional transport can be outsourced under proper supervision. Fixed costs can be reduced by removing staff without much work or by redistributing and aggregating work so that there no idle time.

(ix) Establish mobile counters in vans for many areas so that more comfort is given for nearby pick up facility and more customers are attracted.

                                                                                                    Source: Suggested Answers - June 2014 by ICAI

The fifth case study for CMA (Final) Group 3 students-

Paper 15 - Business Strategy and Strategic Cost Management

CASE STUDY 5

Reasons for fall in market share and suggestions for improvement

Mr. Abraham has recently joined as the Production Manager of Super Food Products Ltd. an Indian subsidiary of a multinational food manufacturer and having an annual turnover of Rs. 500 crores. His first major assignment in the company was to give a new marketing thrust to the several leading known brands of the company whose market share was continuously eroding in the face of growing competition. To start with, he decided to concentrate on two major brands, Power-pack Instant Milk Powder for family and Tomato ketchup with an annual turnover of Rs. 80 crores and Rs. 100 crores respectively. These accounted for a market share of 47% and 28% respectively for the financial year 2011-12 as compared to 68% and 45% for the financial year 2008-09. In spite these slide in the market shares, these brands could retain higher consumer preference and loyalty vis-à-vis other competitive brands.

With a view to having a better appreciation of promotional themes, Mr.Abraham convened a meeting with the advertising agency, Progressive Advertising Ltd. The meeting generated several new ideas on how to push brands up in the consumer recall and preference.

In the light of the above, answer the following questions:

(i) List out the possible reasons why the company has suffered a fall in its market share?

(ii) If you were the Product Manager, what would be your marketing strategy for arresting the trend of slackening sales in the light of the meeting with the advertising agency?

Answers:

(i)  Possible reasons for fall in the market share are:

- Increased domestic and foreign competition

- Shifts in consumer tastes

- Increased price cutting and better dealer margins by rivals

- Complacency on the part of the top management, taking leadership position in the market for granted

- Technological advances through better R&D by competitors

(ii) As a Product Manager, I would focus on the following marketing strategy:

- Find new users- convince people who do not consume milk powder and tomato ketchup to start using the same under market penetration strategy

- New users- discover and promote new users for the products

- Continuous innovation through better R&D

- Increased distribution effectiveness

- Maintain price level or reduce the same through cost cutting 

Source: Suggested Answers - June 2012 by ICAI

The fourth case study for CMA (Final) Group 3 students-

Paper 15 - Business Strategy and Strategic Cost Management

CASE STUDY 4

Advantages of Global Strategic Alliance

HP and Microsoft global strategic alliance is one of the longest standing alliances of its kind in the industry, with more than 25 years of combined market place leadership focused on helping customers and channel patterns around the world to improve productivity through the use of innovative technologies. Branded the HP and Microsoft Frontline Partnership, the companies share technology, engineering and marketing resources to create and promote solutions based on industry-standard computing platforms that help solve some of the most challenging IT problems. HP and Microsoft have jointly engineered solutions that deploy smoothly, seamlessly and delivered competitive advantage. Over the time, the alliance has expanded from its earliest roots focused on the desktop PC to include innovations in the data center and emerging technologies for businesses of all sizes. The alliance also has expanded to provide opportunities for our more than 32,000 joint resellers and ecosystem partners.

(i) Define strategic alliance. Identify three basic types of strategic alliances.

(ii) What are the advantages of the HP and Microsoft global strategic alliance?

Answer:

(i) A Strategic Alliance is a relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. This form of cooperation lies between M&A and organic growth. Strategic alliances are cooperative strategies between firms whereby resources and capabilities are combined to create a competitive advantage. All strategic alliances require firms to exchange and share resources and capabilities to co-developed or distribute goods or services. The three basic types of strategic alliances are:

(a) Joint ventures, where a legally independent company is created by at least two other firms, with each firm usually owning an equal percentage of the new company.

Benefits of Joint Venture:

(i) Pooling of resources, (ii) Full utilization of underutilized resources, (iii) Higher rates of profits, (iv) Low risk factors, (v) Massive leverage

(b) Equity strategic alliances, whereby partners own different percentages of equity in the new company they have formed.

Example of Equity Strategic Alliances Ford Motor Company and Mazda Motor Corporation formed a long – standing equity strategic alliance.

(c) Non-equity strategic alliance, which are contractual relationships between firms to share some of their resources and capabilities. Typical forms are like Licensing agreements, distribution agreements and supply contracts.

Example of Non-Equity Strategic Alliances Example of a successful non- equity strategic alliances is the du and Vodafone alliances formed in 2009.

 (ii) The following are specific advantages in the global strategic alliance:

(a) Get instant market access;

(b) Exploit new opportunities to strengthen the position in a market where a firm already have a foothold;

(c) Increase sales;

(d) Gain new skills and technology;

(e) Develop new products at a profit;

(f) Share fixed costs and resources;

(g) Enlarge the distribution channels;

(h) Broaden the businesses and political contact base;

(i) Gain greater knowledge on international customs and culture:

(j) Enhance your image in the world market place.

Source: Suggested Answers - December 2013 by ICAI