91801865 Strategic Level Case Study 1

“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.


2

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


3

“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


4

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


5

Total Market Value = P/E*Total Earnings


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]


6


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]


7

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


8

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


9

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


10

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


11

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


12

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%


13

(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


14

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)


15

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.


16

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


17

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.


18

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.


19

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


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


20

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


21

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


22

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


23

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


24

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


25

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


26

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


27

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.


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.


28

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.


29

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.


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


30

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


31

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.


32

- 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.


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.


33

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


34

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.


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.


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.


35

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.


36

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.


37


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.


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.


38

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.


39

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


40

Competitive advantage- Firm must adopt a strategy that can combat five forces better

than their rivals.

Competitive scope – This decides about the market segment.


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.


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.


41


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


42

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.


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


43

o Problem of protecting intellectual capital


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.


44


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.


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%.


45

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.


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.


46

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


47

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.


48

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


49

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


50

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


51

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.


52

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.


53

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.


54

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


55


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


56

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


57

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.


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.


58

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.


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.


59

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


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.


60

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.


61


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.


62

Decentralized- This demonstrates allowing each department or unit to operate

with its own treasury function.


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?


63

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?


64

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


65

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


66

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.


67

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.


68

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


69

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.


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.


70

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.


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


71

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


72

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.


73

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.


74

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.


75

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


76

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


77

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.


78

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


79

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


80

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


81

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


82

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


83

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


84

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


85

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


86

“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


87

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


88

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.


89

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.


90

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)


91

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


92

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.

http://www.fool.co.uk/caps/quote/tsco.aspx

http://fool.uk-wire.com/Article.aspx?id=201201120700254213V


93

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."


94

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.

91801865 Strategic Level Case Study 1

Documents