Strategic Management of JZ Benny - Case Study Example

STRATEGIC MANAGEMENT AND FINANCIAL ANALYSIS OF JZ BENNY Table of Contents Table of content Introduction 2 External Analysis ... 3 a. Political .. 3 b. Economic 4 c. Social .. 4 d. Technological . 5 Internal analysis .. 6 a. Strengths 6 b. Weaknesses . 7 Expectations and Purpose ... 7 Competitive strategy ... 8 Financial analysis.... 10 Conclusion .. 10 Reference 12 Introduction JZ Benny is limited public company dealing in retail clothing. It was founded in 1926 by Jack Benny who opened a clothing shop in Muswell Hill in London. Through the years, the company has enjoyed relative growth recording increased profit earnings and enlarging its market share. This has seen it open more retail outlet shops in England which has helped it to become the second biggest fashion shop in the United Kingdom. But along the way, the company remained static in a dynamic fashion industry which shows it start to lose its market share from the initial 30% to 19% to foreign companies which started knocking the door in the UK market. The company did not respond to the changing management needs and continued to pay heavy packages to its workers and coupled with low response to fashion changes, it has lost its customers confidence. JZ Benny did not respond to the competitive edge that the new entrants like Spanish El Dorado and Scandinavian Helgar were employing. It remained static in the fashion outsourcing even when its competitors changed to fast fashion model shops. While the competitors outsourced their fashions from Eastern Europe, JZ Benny instead rushed to China and South East Asia which sold at low cost. Thinking this as a cost advantage over the rivals, it turned out to be a stock burden for the company since they had to buy in bulk and hence were left with indispensable stock at the end of the season. This was a miscalculated marketing strategy resulting from inefficient market analysis. The company failed to keep up with its competitors who resulted to e-supply chain which enabled them to connect the customers with the designers hence placed in the market what the customer preferred. This ensured that they were always ahead of other retailers since they stocked what the customers liked. JZ Benny saw a management gap and responded by fishing Bob D'Saster from competitor Helgar Fashions. As the CEO of JZ Benny, D'Saster was confident that cost cutting measures and investment in technology would turn the chain around to start making profit. Cost cut measures were implemented leading to layoff of about 20% of the staff and heavy investment in RFID (Radio Frequency Identification) tags to help in improving the Barcode Inventory Processing. However this did not help the company and the AGM dismissed D'Saster and placed John Hammond as the CEO. As expressed by Courtney et al., 1997, the case of JZ Benny is a management problem. The company has been under a management that does not recognized that the company is in a dynamic industry which is highly competitive. Fashion industry has seen a lot of revolution and even the giants in Paris and Milan have not been spared. With the rise of USA and ASIA and fashion centres of the world, the company needs to wake up to the changes taking place in the market. As part of the strategic management, the company should first embrace the e-commerce models to have more links between designers and customers. It should also look into expansion strategy to widen its operation base. This model should be in line with the following analysis of the business and its operation environment. The company should not be disposed to tycoon McQueen since it can use this proposed model to turn round its fortunes. (Michael and Jude, 1997) External Analysis (a) Political The company operates in an enabling political environment. The fusion of the political and business environment is suitable for its operation. The business commission has already barred McQueen from acquiring the company as per its rules. With the formation of the European Union the company should move on with its deal with Romania to implement the RFDI project which will help link its customers with designers to ensure that it places in the market what customers want. The European Union provides a wide customer base from where it can operate. (Brandford et al., 2000) (b) Economic The Economic fortunes of the market are changing as consumers have gained more disposable income. With this knowledge the company should move from low fashion industrial segment which has become crowded to fast fashion segment in line with its competitors. The formation of European Union provides a large customer base that can provide a huge economic base for the company. With a 30 million pounds overdraft, and thinking of expansion strategy, the company should seek external funding for its operation. A merger with another fashion industry operating in an outside market but with a sound financial base can be an option in the operation and expansion strategy. Falling economic fortune and operation capital for the company is a threat that should be addressed immediately. (c) Social The changing social trends in the market should be used to the advantage of the company. Customers have changed their loyalty to clothe stores and flock where they can find the latest fashions regardless of the price. In line with this, the company should see an opportunity of attracting the customers by providing the fast fashion designs. The strategy of holding cat walks with its designs should not be dispensed off as it has a lot of social effect to the customers but only if the company retails the current fashions. The social environment in enabling for the company to diversify its fashion base and place in the rack a variety of fashions from all over the world. It should recognize the strength of American, Chinese and Japanese fashions and move in line with it while at the same time retaining a share of the official Parisian and Milanian fashions. (d) Technological Responding to technology would the turning point of the company. The initiative by D'Saster to install RFDI tags should be advanced. This should be in line with the current marketing strategy which tends to link the customers directly with manufactures in order to manufacture to customers specification. It competitors have gained an edge by using the e-commerce strategy. This is what the market dictates and the company should respond to it immediately. This is an opportunity that the business should exploit to be in line with its competitors. Installing communication gadgets to managers of the retail outlets will help then to have direct communication with the designers in order to produce what the customers want instead of bulk buying which ends up as disposable stock at the end. The technological environment is enabling for the company to wake up and reclaim its position again. Internal Analysis (a) Strengths The company still has a large operation base which it can use to reach more customers. With a chain of about 30 stores in the South of England, the company is in a position to reach more and more customer for its merchandise. This is a strength that the company has and which can assist in the turnaround strategy. The large market base provide by the European Union should be seen as an opportunity to be exploited easily. The distribution network forms one of the strength that the company have and which can help in the turn round strategy. The company also pegs its strength on the loyal work force that it still holds. Workers are the most important asset that helps in the turnaround strategy of any worker. The company should work to retain its working force that are well aware of the operations of the company and can read instruction very fast. They are like a family that is housed under one roof by the business. (Stone et al., 1999) The company has a business experience spanning for about half a decade. This means it is still a household name which has lost its face. This can easily be reclaimed. The knowledge of the fashion environment is strength to the business since it had a faithful middle class customer base which can be tapped easily with provision of their likings in its shelves. It is still a brand name in the market. It needs to change its reputation in the face of its customers. (Lynch, 2006) (b) Weaknesses Management is one of the weaknesses that the company has faced since the entrance of competitors and the dynamism of the fashion industry took root. It doesn't have focused management team that recognises the need to move with the industry in terms of fashions and technology. Management weakness is the biggest threat that the company is facing and which has crippled its operation. The tradition of running the company as a family business bearing Benny's in the management board does not embrace the spirit of professionalism in business management. This is a tradition that the business should de-link with. (Kaplan and Norton, 1996). Another weakness that has dodged the company for a long time is crowded work force. With D'Saster taking over, there was a need for cost cutting and which helped the company post some improvement. This has created a high cost operation structure for the company which keeps on shrinking its profit margin. Keeping a loyal working force has been a weakness since most of them are not exposed to the changes taking place in the market and maintains the status quo. A mix up of the working force can go someway into bringing in new minds especially in the management calibre. Expectations & Purpose The new turnaround strategy was aimed at creating competitive advantage for the company in the industry which defines its vision. It was aimed at reclaiming the earlier position as second best fashion retailer in the United Kingdom. The new strategy should be based on the need to cut down the operation costs of the company and improve sales to raise the profit margin of the company. According to Hay (1990), having a vision is the most important step in recovery. There have been efforts to implement the strategy through injecting new management blood in the company. With the hiring of D'Saster, there were new operation strategies that were implemented. The cost cut measures were implemented which saw a large lay off. This was expected to cut the operation cost. Going with the weakness analysis, large operation structure has been hampering the growth of the company. The layoff strategy was expected to keep the operation cost low and at the same time make it more manageable. The need to respond to the changing industrial operation requires new management styles which call for a focused management. The change in management was expected to give new operation ideas to the company and to serve the purpose of analyzing the competitive atmosphere of the industry to position the company as leading competitor. However this hiring may have failed to work since business management styles varies from one business to the other depending on the internal organization of the business. While his management style worked in the Helgar, it failed to take off in JZ Benny because of the business atmosphere and management needs of the company. (Haberberg and Rieple, 2001) The appointment of John Hammond is expected to make sure that the company regains its original name. This is a good strategy considering that the new CEO is reputed as having a lot of experience in retail chain management. This may help in doing away with the earlier dominance of the Benny's and inject new thinking in the management team. But the expectation may not be realized if the company will not resolve the capital problem and the need to hire new workers to mix with the loyal ones to try and bring change in the whole process. (Ramanathon and Hegstad, 1992) Competitive Strategy Since its establishment the company has been able to create a cost advantage since it provided fashion that the existing fashion shops could not deliver. But this strategy worked against it with the entry of competitors who created a differentiation advantage over the company. The low cost fashion became more and more competitive and it became crowded with supermarkets chains providing the same fashion clothes as the company. Cost advantage also changed with the change in social trends when customers became more and more indulged in fashions and spent more money on fashion. Customers have not remained loyal to one shop based on price but have moved from shop to shop with the aim of getting the best fashions in the industry which has compromised the firms position as leading low cost fashion shop. The customer desire to move with the movement in the fashion industry created differentiation advantage for competing companies since they provided new designs in the industry. (Polyack, 1999) The company should create a competitive strategy in various ways to be above its competitors. The option of implanting the e-trade has been explore and implemented in some way. The RFID tools are important if the company is to keep in line with its competitors. The company must use its points of strength to create a competitive strategy. Banking on its supply chain, the company should first strengthen its operation within its operation area before thinking of expanding to other areas. The mere fact that the company has established outlet chains gives it an assurance of reaching more and more customers. (Mintzberg and Ghoshal, 2003) This explains the need for the company to use the resource-based view for it to create the competitive advantage. The company should embark of revitalising its operations in the already established outlets to create not only cost advantage but also differentiation advantage. The move by D'Saster if well implemented could help the company achieve this. According to Zuckerman (2002), cutting the cost of operation could help the company move an inch in shifting the profit margin which would translate to reduced cost of its fashion clothes. This would be the first edge in creating a competitive advantage over the competitors. Implanting the installation of RFDI tags would link the consumers and the manufacturers to make sure what is in the racks is what the customers want. This would move further in making sure that the company provides superior products than the competitors hence creating differentiation advantage. Making sure that the company disposes off old fashions for new one is perhaps one way of making sure that it maintains its face since this is the same strategy that made it lose its market niche. (Balkcom et al., 1997) Financial Analysis Since 2003, the company has posted good progress in sales although this slowed in 2006. Sales from furnishing have been on the increase whole sales form clothing has not been impressive. In the same line, the net assets have not changed significantly for the four years which indicates that the business has not recorded growth. The company has recorded declining profit before tax and posted loss in 2005 and 2006. Operating cost has almost tripled since 2003. The business is facing a cash crunch and has a bank overdraft of 30 million pounds and a low share price. There is not doubt that as earlier proposed, the company needs to seek the option of external funding or a merger with a financially stable fashion company. Nether the less, there is need for the company to look into ways of reducing its operation cost further which seems to rise year after year. (Duhaime and Howard, 1993) Conclusion JZ Benny can reclaim its position as a market leader in the fashion industry again. According to Dewit and Meyer (2004), the ball rests with implementation of a sound recovery strategy and through strategic planning for the company. Years of mismanagement and lack of invention to respond to the changing market has seen the company lose its market share by a large margin. The way forward is for the company to device new management strategy by injecting professional management staff with previous exposure to trends in fashion industry to bring in new ideas in management. According to Hannon (2006), it should embrace the e-trade concept in order to have more links with between customers and designers as is the case for prosperous fashion shops like Zahra. This will ensure that customers get what they want. The company is faced by financial crunch which logically defines the need to seek external funding to finance the changes and turn around. A possible merger with another fashion shop can be a viable option. The strategy to grow starts with the change in management and restructuring of the work force to move from "loyal" workers to "competent" workers in order to restore consumer confidence. 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