Factors That Have Helped Nypro to Achieve Its Growth Strategy - Case Study Example

1. During the last several years Nypro implemented an aggressive growth strategy that enabled the company’s revenues to double every five years. Once the company reached the one billion dollar revenue mark the firm changed its strategy. The new CEO changed the emphasis to focus on the quality of its revenue instead of quantity. Raising the profitability of the company became more important than to seek a further increase in revenues. Ted Lapres implemented a series of change management initiatives that helped improve the effectiveness of the enterprise. 2. There are several factors that help the company achieved its growth strategy. A primary strategy that helped the company achieve high levels of growth in short periods of time was the use of optimal manufacturing location selection. Nypro would build its injection molding manufacturing plants near the facilities of its major customer. The advantages of this strategy included the fact that it allowed the company to provide better customer service and improved the supply chain logistics. One of the negative aspects of this strategy was that the company placed too much emphasis on its existing customers. Normally the expansion of added location is done in order to penetrate new existing markets. The strategic approach of Nypro was limiting the company’s ability to expand into other foreign marketplaces. Other key success factors at Nypro were reorganizing business segments, company focus on profitability, and diversity. Nypro benefited from the reorganization of its business segments because the firm was able to perform a better evaluation of its operations in order to eliminate wasteful processes and increase the overall efficiency at Nypro. The emphasis the company placed on profitability allowed the enterprise to pay close attention to details. The negative aspect of the strategic approach was that it raised the cost structure of the company. The use of diversity at Nypro was advantageous because diversity provides corporations with a workforce that has more ideas and different perspectives on how to deal with problems. The problems or risk associated with diversity are that if is not properly managed it can may lead to interpersonal conflicts among the employee staff. 3. Nypro utilizes a matrix organizational structure that is divided into three dimensions: regional, functional, and mega customers. The reason Nypro choose to change to a matrix organizational structure in 2002 was to optimize its business globally and maximize its performance in every country (Carr, 2008). The matrix organizational structure provides greater flexibility. It also provides a structure that is better aligned with the corporate objective of closely monitoring profitability on a daily basis. The employees are part of teams in matrix organization, thus they are accountable individually and collectively for the performance of the team. Due to the higher levels of responsibility placed on the employee practices such as Daily P&L were accepted as guiding benchmarks in this corporate culture. Under such a corporate structure maintaining high quality standards is very important. Quality control teams can be used to monitor the work of the various projects a matrix organizational structure manages (IMA, p.8). 4. The purpose of the Daily P &L was to incorporate a mentality in the employees that their daily actions affected the profitability of the company. Despite the theoretical advantages of implementing such a managerial tactic the actual utility of the Daily P &L is limited. In theory making having a report that provides employee with daily feedback on their work performance is good. There were certain advantages associated with the Daily P&L practice. The fact that direct labor employees utilized the Daily P&L report as part of their everyday routine created a corporate culture that valued the importance of achieving productivity on a daily basis. In most companies floor employees have no idea what is actually occurring as far as the financial status of the company. Normally floor employees received financial information just as other stakeholders who rely on the trimester and annual report to know the financial status a public corporation. The use of this tool motivated employees to achieve higher levels of performance. I would discontinue its used based on the materiality accounting principles. The materiality principle stipulates that an item is material when is likely to influence the decision of a reasonable prudent investor (Weygandt & Kimmel & Osborn, 2003, p.500). The daily P & L are not bringing any substantial information of material content for the managerial staff. Its use is counterproductive because valuable time is being wasted generating these reports. a) The report can be viewed as using sound cost and accounting principles because the formulas that determine the profitability of the daily production are based on generally accepted accounting principles. The problem with the report is that its scope is not appropriate based the current application of time. Profitability metrics are relevant when sufficient time is given to create a pattern. A day is not sufficient time, typically accounting metrics are report on a trimester or annualized basis. The monthly report the company uses provides data that is much more useful than the Daily P& L. The report attempts to micro analyze accounting data which is not a sound business practice. The use of the Daily P&L loss reports had its advantage and its disadvantages. The disadvantages of the use of this strategy was that employees who had little knowledge about what factors were actually affecting their overall productivity due to their lack of business knowledge were exposed to a tool that for them had no real relevance on their actual job performance. The profitability of a company does not depend so much on the actual daily productivity fluctuations within the P&L report. The report created confusion because the variance in the daily performance measured by the report nothing to do with the employee performance. One of the few advantages of the Daily P&L report is that helped create corporate culture in which the employees cared about the performance of the enterprise. 5. I recommend the company replace the Daily P&L with a daily report that emphasizes on quality assurance. Quality is a variable that is extremely important because it helps keep customers satisfied, improves the corporate image and customer retention rates. The employee should make reports of any daily anomaly that may hurt the quality of the production run. The managers must keep track of the amount of defective units produced daily. The quality daily report would have other audit aspects to help managers determine operating weaknesses that are affecting the quality of the firm’s output. Another technique that can be used by management accountants is benchmarking. Accounting managers can use benchmarking to analyze competitive gaps, establish standards, and make recommendations and improvements (IMA, 1995, p.3) 6. Nypro could benefit from the implementation of an activity based costing system (ABC). An ABC would be useful at Nypro due to the fact that the company is concentrating its efforts in small quantity of valuable customers. These customers are categorized by the company as green labels which are accounts between $20 and 100 million dollars. Implementing an ABC would enable the company to obtain better measurement of the costing associated with each green label customer. Obtaining more specific costing information of the activities individual customer can help the managers negotiate better contracts. One of the advantages of an ABC system is that it traces indirect costs to products, services, and customers (IMA, 2006, p.3). Activity based costing could be utilized in different Nypro plants depending on the type of production the business unit produces. 7. The daily and monthly reports are not sufficient to management the growing complexity in the global business arena. The company needs to measure its performance on a wide variety of business dimensions. Other qualitative information about the firm’s performance such as customer satisfaction must be included. The performance of the company should be measured on different metrics that do have to be solely financial ones. For example the amount of patents awarded to the company during a business cycle provides relevant data about the future ability of the company to generate revenues. Nypro needs a more balanced reporting system. The executive staff should have a meeting with all the key plant managers in order to brainstorm ideas on organizational metrics that provide more relevant information than daily and monthly reports. Some potential recommendations include employee turnover, return on investment, customer retention rates, return on equity, and market share. 8. The reporting practices at Nypro are not consistent with the new entrepreneurship culture Ted Lapres has promoted since becoming the CEO of the company. In order for the company to able to better serve its customers it must implement new systems to obtain feedback from them. The data about the customer’s preference can be used to improve the product design process to create new products and services that have the features the customer desires. The utilization of online tools can help the company achieve better interaction between the corporation and its clientele. Nypro could create interactive forums in its corporate website to discuss relevant business issues. The internet could be used to administer online questionnaire to customers. References Carr, L. (2008). Case Study: Nypro, Inc. Babson College. IMA Educational Journal, 1(4). IMA (1995). Effective Benchmarking. Institute of Management Accountants. IMA (2006). Implementing Activity Based Costing. Institute of Management Accountants. IMA. Managing Quality Improvements. Institute of Management Accountants. Weygandt, J., Kieso, D., Kimmel, P. (2002). Accounting Principles (6th ed.). New York: John Wiley & Sons. Read More