Issues Related to Jengo Ltd - Case Study Example

Introduction This paper examines several issues related to Jengo Ltd, a small ladies fashion retailing business in the UK. Palisade PLC seeks to buy50% of Jengo Ltd. However, there are some problems relating to internal structures at Jengo that makes it necessary for Palisade PLC to reconsider its decision. This paper tries to look at some of these structural matters by utilising various business models to analyse the company and its systems. (a) The nature of SWOT, PESTEL & Porters Five Forces in Forecasting SWOT analysis is an integrated approach to measure and examine key company and environmental variables (Bohm, 2008). SWOT assesses the strengths and weaknesses of a business internal structures. These internal components are examined quite closely and the opportunities and threats that come with them in an external effort are identified (Bohm, 2008). This can guard a business in its efforts to operate in a given environment through the forecasting of possible outcomes and situations that may come its way. SWOT uses various tools to examine the internal structures of an organisation and matches it with the prevailing or potential environmental factors (Ferrell & Hartline, 2008). Dimensions for internal structures include financial performance and resources, human resources, production facilities and capacity, market share, customer perception, product quality, product availability and organisational communication. External factors that can convert these to opportunities and threats include markets (customers and competition), economic conditions, social trends, technology and government policies. PESTEL Analysis helps to capture an understanding about aspects of the context by using prompters like Political, Economic, Sociological, Technological, Legal and Environmental factors (The Stationery Office, 2010). PESTEL Analysis involves the scan of the context and actual of potential factors that will affect the objectives and strategy of an organisation if left unmanaged (The Stationery Office, 2010). This therefore means that PESTEL is a forecasting tool that involves the analysis of the external environment of an organisation to identify the potential and actual factors that affect the strategy of an organisation. PESTEL helps to analyse the opportunities and threats in an external business environment (Gorgenlander, 2011). This therefore implies that as a business seeks to operate in a given environment, PESTLE helps it to forecast matters that will affect its strategic position in the future. Porters Five Forces is an important tool for the analysis and forecasting of trends in a given business industry. When the boundaries of an industry is defined, Porters Five Forces are used to analyse the competitive forces operating in the industry (Hill & Jones, 2009). Porter states that five forces determine competition in a given industry and they include: 1. Risk of entry by potential competitors. 2. Intensity of rivalry among established companies within the industry. 3. Bargaining power of buyers 4. Bargaining powers of suppliers 5. Closeness of substitutes to an industrys product (Hill & Jones, 2009). Porters Five Forces helps to understand the forces that determine the profits of an industry (Ahlstrom & Bruton, 2010). This therefore means that Porters Five Forces is a tool for the measuring of the factors that determine competition in the industry a business is operating in. In other words, a business can use the five forces to analyse trends and activities in the industry and predict how things will become like in the future and make appropriate changes where necessary. In the context of the fashion retailing industry, there are elements of SWOT, PESTEL and Porters Five Forces that Jengo Ltd can use to analyse the sector and forecast for the coming years. SWOT Analysis In its internal analysis, Jengo Limited needs to identify its major strengths and weaknesses in order to make the necessary forecasts for the opportunities and threats that it will want to take up in the future. Strengths 1. Prime location of outlets 2. Experienced owners 3. Good reputation with customers 4. Well qualified staff 5. Low cost of supplies 6. Good financial performance Weaknesses 1. Small size of company. 2. High retail prices 3. No structured forecasting and budgeting system 4. International suppliers Opportunities 1. Good customer reach 2. Superior strategic techniques 3. Large market share 4. Good customer care and customer satisfaction 5. Higher profit margins 6. Good profitability position Threats 1. Larger entities can capture markets 2. Lower market share due to high prices 3. Inability to identify environmental issues and take appropriate strategic decisions over the long-term. 4. Prone to volatility of international trade From the SWOT analysis above, Jengo Ltd will have to examine the following matters closely in order to get the best results in its future operations. 1. Reputation with customers: It will need to investigate the current reputation it enjoys with clients and how it came about and then try to find out the key indicators. When this is done, Jengo Ltd can strengthen the causes of a positive repute and reduce inhibitors. 2. The cost of supplies: Jengo will need to identify the various options that exist on the market for the same raw materials. It is possible that cheaper alternatives may exist. Also, there is a chance that it can negotiate for better prices by ordering various quantities and/or using certain techniques of shipping and receiving goods. 3. Financial performance: Jengo Ltd will have to analyse its financial performance by having a good look at the cost drivers and cost inhibitors as well as the revenue generators. When this is done, they can find ways of reducing costs in the future and also identify ways of increasing returns from the high earning units. 4. Retail Prices: Jengo Ltd will have to find ways of varying its retail prices in relation to changes in the external environment. This can be done by studying the external environment and running programmes that will vary demand and prices in favour of the company. 5. Use of structured budgeting and forecasting techniques: There is the need for Jengo Ltd to identify good budgeting systems that they will use. They will therefore need to find the various options that are available and how best these options can help them improve their operations and services. 6. International supplies: Jengo Ltd will need to investigate the various challenges and opportunities in international trade like other purchasing sources as well as supply routes that they can use to cut down costs and also improve quality. These six factors should be analysed carefully using PESTEL. This can be done through the collection of information about 1. Political: Matters, mainly policies relevant to the fashion industries like trade tariffs for foreign goods, as well as other relevant national and local government statutes that will affect its operations and its shops. 2. Economic: An analysis of the tax regimes that will come up in the coming year as well as interest rates and other factors that will increase cost of raw materials in the foreign countries that they purchase their products from. 3. Sociological: This entails changes in the taste of fashion in ladies clothes. 4. Technological: This involves the use of more sophisticated technology to order cloths and accessories, sell them and communicate amongst the various units of the company. 5. Legal: This involves the relevant matters relating to sales and return, terms and conditions of sale, compliance and other international trade matters. 6. Environmental: For the fashion industry, the main environmental concerns include ordering from a manufacturer that is environmentally responsible and taking proper care to ensure that the products they sell support the environment positively and safeguards the health of the customers who buy them. In forecasting, there is also the need to investigate the various competitors to find out the possible threats and trends that will come their way. First of all, there is a risk that numerous local and international investors can begin importing fashionable cloths from the developing world and selling them in outlets around the UK. Due to the ease of entry and the ease of setting up a company of this nature, new entrants can easily come in. Also, are several retail outlets like Jengo that are competing with them for the same customers. These small up and coming markets are located on prime streets in London, Birmingham and other cities in the UK and they keep growing. There are also larger brands that are known worldwide like Louis Vuitton, Victorias Secret and Primark that is known for selling good products to ladies. There is no real threats from retail buyers becoming competitors. However, there is a good chance that suppliers can easily come and set up outlets for their brands in the UK. All these competitor matters must be put into consideration when forecasting for the year ending June 2012. (b) The Benefits of Budgeting to Jengo Ltd A budget is a plan of action which represents a business blueprint for the future, expressed in monetary terms (Slavin, 1985). This therefore means that a budget is the giving of monetary value to the costs and benefits that a business expects in a stated time in the future. In order to create a budget, a business needs to know its goals. It will have to define its goals and objectives as this will be the basis of the budget. The process for budgeting includes the listing of objectives of the organisation. The next step is the estimation of the costs involved in each objective. This is followed by the estimation of the expected income for the period. This is followed by the netting off of income and costs. After the relevant authorities accept it, it becomes the accepted budget. Budgeting have three general advantages (Slavin, 1985). First of all, it enables an organisation to get a structured plan and system for the distribution of financial resources for a given period into the future. Secondly, it enables the people charged with the control of the organisation to get a firm grip of affairs in the organisation. Thirdly, budgeting enables the monitoring of activities within an organisation and this contributes to the attainment of organisational objectives. If Jengo Ltd draws a budget, it will stand to gain several advantages. These advantages will benefit several areas and aspects of the organisation including the inventory, human resources and treasury of the retail company. Planning & Control of Inventory In this drive, the volume of inventory to be purchased in a given period will be estimated. Internally, this gives an option for planning the volume of sales and revenue in order to meet targets. This is because the management can vary the quantity of stocks they will want to use their capital to buy in order to reach certain levels of profitability. This monitoring and control technique will ensure that optimum quantity of stocks are held at each point in time to prevent the lock up of capital in stocks and the possibility of theft and damage of excess stocks held. Externally, when the volume of inventory to be purchased is known, the management of Jengo Ltd can evaluate other options available that can enable them to acquire more cost effective inventory. This is because they can take costs from different suppliers, compare them and select cheaper options. Also, with the estimation of the volume and costs of inventory, they can find other methods and means of managing the supply and delivery of the stocks. Once the budget for inventory is finalised, the management of Jengo Ltd can monitor the flow of stocks into the company and use that as a yardstick to measure productivity and the strategic position of the business at different point in time. This monitoring system can enable Jengo Ltd to make changes as and when necessary to the production process to ensure that the strategic objectives of the company are met. Recruitment Staff costs are significant costs for a small fashion outlet like Jengo Ltd. So it is necessary for the company to identify its staff needs at every point in time. This will enable the management to identify where they need extra hands and where they have sufficient staff members. Where they need extra staff, they can use budgeting to identify how much they are capable of spending to pay staff members to work in those units. When this is done, they can determine the job requirements and person specification. Based on that, they can advertise their vacancies and inform prospective applicants how much they can pay them (and this will be based on the budget). In cases where the company earns more than what is budgeted, they can decide pay clients more in the form of bonuses. However, this can be done efficiently if the actual revenue is matched with the budgeted revenue and variances are analysed. Cash Management Cash management involves the management of working capital. Budgeting in this area is very crucial. This is because management of Jengo will have to draw a balance between capital they will use to trade and capital they will use to fund their expansion drive. This is because trading ensures the survival of the company and expansion ensures the growth of the company. It is therefore important for Jengo Ltd to draw the balance between these two extremes and make appropriate distribution of its capital for future periods through budgeting. The cash budget will determine the amount of cash or near cash that should be put into working capital. It will also determine the rate at which working capital should be converted to cash for operations. If there is a good budget, it is only the optimum amount of cash that will be held by the company. This way, there will not be misuse of the companys fund since there will be some kind of control and monitoring system by Jengo Ltd. (c) The role of the Balanced Scorecard. The Balanced Scorecard is a tool for aligning activities of a business with its strategy. It is a communication tool, measurement tool and strategic management tool that seeks to examine the relationship between actual operations and the objectives of the business (Niven, 2006). The Balanced Scorecard translates the strategic objectives of a business into four different categories: customer satisfaction, employee satisfaction, cost/productivity goals and organisational maturity. Under each of the headings, the balanced scorecard identify key performance indicators (KPI) and they are put in a format that can be measured and measured. Jengo Ltd can use the balanced scorecard to identify how well its policies and objectives are being translated to realities in the various outlets of the company around the UK. This can be done by identifying key performance indicators relevant to its customers, employees, efficiency and organisational growth measures. These indicators will then be transferred to clearly measurable standards. These standards will be measured and the results will be collated. When the results are obtained, the can be analysed against previous performance and against competitors. This will give management an idea of how things are going and how well their strategy is working. If it is good, they can maintain it, however, if there are lapses in the strategy in any of these quadrants, changes can be made to the strategy. Thus the Balanced Scorecard approach can be used for the monitoring and re-implementation of strategy at Jengo Limited. In practical terms, several indicators can be identified for Jengo Ltd in each of the quadrants. Customer Satisfaction Customer satisfaction in Jengo Ltd can be measured by the Return of Goods for Refunds and Referrals of Customers. Return of Goods in the fashion industry refers to the fact that customers often feel dissatisfied about the products they purchase at Jengos outlets. If in a period too many goods are returned as defective or outmoded, then it should send a signal to the management of Jengo that the current set of cloths have issues. They will therefore have to investigate and identify the cause of the issues and then try to make an effort to change and meet customer satisfaction standards. On the other hand, if customers buy goods and return to buy more, then it should be a sign that the objectives for sourcing and selling goods are making the customers happy with Jengo Ltd. Customer referral is a powerful tool for measuring customer satisfaction. Normally, it is only when you are satisfied with something that you wish other people get the same thing. So when existing customers of Jengo Ltd are referring others to come and buy from Jengo, then it is an indication that Jengo is doing the right thing and its strategy is yielding the right results. On the other hand, if Jengos customers are referring other customers to other retail outlets, then it is apparent that customer satisfaction is moving in a downward spiral. They should therefore find ways of improving their system. Employee Satisfaction Employee satisfaction in Jengo Ltd can be monitored through the employee turnover rate and employee performance/contribution to the company. Where employees of Jengo Ltd are leaving the job at a high rate, it should be an indicator that conditions of service and the work environment is not suitable enough. This is because most employees see Jengo as a less preferred place to work. Management of Jengo will therefore have to investigate the matters and try to make changes that will encourage workers to stay and rise through the ranks. On the other hand, if employees stay on and are eager to rise through the rank it might suggest strongly that they are satisfied with the work environment at Jengo Ltd. In a situation where employees give off their best performance and contribute to the success of the company, there is a clear indication that there is employee satisfaction. On the other hand, when employees are always reluctant to work and there is lateness and a general lack of commitment, it might suggest that Jengo would have to review its employment systems and/or strategy. Cost/Productivity This can be measured in Jengo by the volume of sales and the profit margins. This seeks to measure the profitability from the investment working capital. Volume of sales reflects the amount of revenue that the retail fashion company is making. It will justify or refute the various strategic routes taken by the company. This is because the amount of sales reflects the control of the market share and if it rises, then the targets set by the strategic objectives are met. Another tool of measuring productivity in Jengo will be through the examination of profitability trends in the organisation. Organisational Maturity This will be measured through the acquisition of new outlets and the improvement of the asset base of the business. The changes in the rate at which the company acquires new outlets will be a major factor in measuring the objectives and strategy of the company. This is because the number of outlets reflects the growth in the sales capacity of the company in the long run. Thus if it is able to get three more outlets in a year, the growth can be said to have increased threefold. Secondly, if the company acquires more assets, it will show that the financial position of the company has increased. Thus for instance if the company is able to buy instead of lease shops, it will be seen as having a stronger balance sheet position and this will go to confirm that the company is growing and maturing. On the other hand, if it loses assets, it will show that the company is declining. Conclusion SWOT, PESTEL and Porters Five Forces are important tools for forecasting. The main concerns for Jengo in terms of forecasting include reputation, profitability, market share expansion as well as its relations with international partners. Also, budgeting is an important and vital element for Jengo Ltd and it will be in a much better position to budget. Additionally, the use of balance scorecard will enable Jengo Ltd to measure whether it is meeting its objectives or not. References Ahlstrom, David & Bruton, Garry, D. (2010) International Management Strategy & Culture in the Emerging World Mason, OH: Cengage Bohm Anja (2008) The SWOT Analysis Norderstedt, Germany: GRIN Verlag Ferrell, O. C. & Hartline, Michael (2008) Market Strategy Mason, OH: Cengage Gorgenlander, Viktor (2011) A Strategic Analysis of the Construction Industry in the UAE Berlin: Diplomica Verlag Higday-Kalmanowitz, Cammie (2005) Implementing Service & Support Management Processes: A Practical Guide New York: Van Haren Publishing Hill, Charles & Jones, Gareth (2009) Strategic Management Theory: An Integrated Approach Mason, OH: Cengage Niven, Paul, R. (2006) Balanced Scorecard Step-by-Step London: John Wiley & Sons Slavin, Simon (1985) Managing Finances London: Routledge Publisihng The Stationery Office (2010) Managing of Risk: Guidance for Practitioners Great Britain: Office of Government Commerce Read More