Business and Stakeholder Analysis of King of Shave - Case Study Example

King of Shave Case by 16 April Executive Summary The main goal of this report is to conduct business analysis of the King Shaves company. This analysis is going to be conducted, using such instruments as Porter’s five forces model, Porter’s gearing strategies, SWOT analysis, stakeholder analysis, etc. The main task of the analysis is to evaluate the company’s recent performance and answer the question whether creditors, investors and other stakeholders should deal with the company. Taking into account the objectives of the report, it is going to have the following structure: introduction (where main theoretical concepts are provided), findings (the direct analysis of the company’s performance will be made) and conclusions (recommendations how to improve the company’s performance will be provided). Contents Executive Summary Introduction……………………………………………………………………………………4 Findings………………………………………………………………………………………..6 Conclusions…………………………………………………………………………………..10 Reference List King of Shave Case Introduction The so-called Porter’s five factors competitive model is going to be used to analyse this case. First of all we have to define and explain the model for better understanding of the problem. The definition of this model is the following. Named after Michael E. Porter, this model identifies and analyzes 5 competitive forces that shape every industry, and helps determine an industrys weaknesses and strengths. These five forces include the following components: competition in the industry; potential of new entrants into industry; power of suppliers; power of customers; threat of substitute products. This concept is frequently used to identify an industrys structure in order to determine corporate strategy, Porters model can be applied to any segment of the economy to search for profitability and attractiveness (“Porter’s Five Forces Definition”). Simply speaking, the main goal of the model is to evaluate competitive positions of a company on the market, taking into account the different internal and external factors. The model also allows building effective strategy and even its different options. However, this model is not the single one that can be used for such purpose. we can also mention about SWOT analysis. First of all, we would like to provide definition of the term “SWOT analysis”. As for us, one of the most appropriate definitions is the following. SWOT analysis is a simple framework for generating strategic alternatives from a situation analysis. It is applicable to either the corporate level or the business unit level and frequently appears in marketing plans. SWOT (sometimes referred to as TOWS) stands for Strengths, Weaknesses, Opportunities, and Threats. The SWOT framework was described in the late 1960s by Edmund P. Learned, C. Roland Christiansen, Kenneth Andrews, and William D. Guth in Business Policy, Text and Cases (Homewood, IL: Irwin, 1969). The General Electric Growth Council used this form of analysis in the 1980s. Because it concentrates on the issues that potentially have the most impact, the SWOT analysis is useful when a very limited amount of time is available to address a complex strategic situation (“SWOT Analysis Definition”). As it has been already mentioned we will also use such instruments of analysis as generic strategies and stakeholder analysis. In fact, Porter has identified three types of generic strategies that are usually used by businesses. These strategies are the following: segmentation strategy, differentiation strategy and cost leadership. One of the tasks of the report is to answer which strategy is the most appropriate for the company under consideration. The main objective of stakeholder analysis is to identify the groups of internal and external stakeholders that are able to affect the company’s performance. It is important in order to develop the most effective business strategy in the modern economic conditions. Findings To begin with we would like to provide some background information about the company under consideration. King of Shaves is a British company that performs in shaving and skincare industry. The company is owned by private shareholders, mainly members of a founder’s family Will King. King of Shaves was founded in 1993. We can say that it has become a bit international company. Despite the fact that production is mainly performed in Great Britain, it serves some other areas, for example, the United States of America. Some additional information about the company under consideration can be got from the following quote. The King of Shaves Company Ltd. engages in the manufacture and distribution of shaving oils and serums for men worldwide. It offers antibacterial, blemish/spot prone skin, daily use, deep pore cleansing, dry skin, face wash, pH balanced, regular skin, sensitive skin, and unfragranced products, as well as face scrubs. The company was founded in 1993 and is based in Bucks, United Kingdom (“King of Shaves Company Profile”). First of all, we have to talk about Porter’s five forces. Their definition and description have been provided in the previous chapter of the report. Thus, the first two forces are not going to have a significant influence on the company’s performance in the country. It is caused by the fact that this technology is not popular in the country. As a result, only a few companies are able to produce the typical goods. That is why we do not conider these two factors as significant. The other situation is with power of suppliers and customers in the country. The size of the market is just tremendous and the company is going to be able to conquer the new clients. Thus, the power of consumers is significant. On the other hand, the company is going to be able to find reliable vendors in the country. Moreover, raw materials are going to be cheaper than. The power of suppliers is also significant. Finally the threat of the substitute products is not significant. The problem is a little bit different. We mean the mentioned possibility of loosing technological innovations of the company and usage of them by the other firms. Talking about SWOT analysis, let us define the strengths of this strategy. These strengths are the following: 1. The lower costs of production, at least, at the beginning stages, which is considered as the most significant advantage of this country; 2. The region is one of the most developed regions of the world. As a result, a lot of opportunities may occur there. The weaknesses of the option are the following: 1. The low productivity of the cuurent technology, which may decrease the quality of the products and the overall efficiency of the performance; 2. The high transportation costs, related to the delivering of the items, produced in Great Britain, to the sales regions; 3. The high political risks of the country. It is a well-known fact that the country is characterized with the high degree of the government’s interference into the national economy in the modern conditions of the global financial crisis. The opportunities of this particular business strategy are the following: 1. An opportunity to enter the new markets of the Asian regions. Such opportunity will become more close, if the production is established in the region; 2. An opportunity to benefit from the development of the country. The country is going to become the world’s economic leader in the nearest future. Respectively, the analyzed company can surely benefit from this growth; 3. We believe that the productivity of the current technology is going to grow. As a result the quality of the products and efficiency of performance will be improving. Finally we may differentiate the following strengths of the analyzed option: 1. A possibility of loosing competitive advantages because of the higher transportation cots; 2. A possibility of the government’s interference in the company’s performance. The following step of the business report is to choose the most appropriate generic strategy for the company. We believe that the optimal choice for the company would be combination of differentiation strategy and cost leadership. First of all, we must say that the company’s business is not diversified enough. The company should expand different ion in the context of another sales regions and expansion of assortment. Second of all, we have already mentioned that one of the weaknesses of the company is quite an old technology. The company should implement new technology, which will let it decreasing the costs of production and attracting price sensitive consumers. Cost leadership may be a very effective strategy in the conditions of the global financial crisis. Talking about the company’s stakeholders, we must say that some danger can be waited from external stakeholders, since internal stakeholders are one family. That is why the company should pay more attention to construction of relations with vendors, investors, creditors and other external stakeholders. We are going to conduct a ratio analysis of its financial statements. We are going to use the last company’s annual report, retrieved from its official website. We are going to analyze the company’s performance in terms of its profitability, liquidity and financial stability. Le us, first of all, pay some attention to the company’s level of liquidity. Liquidity is an ability of the company’s assets to be turned into cash without significant losses of time and money. As you probably know, the most popular measurement of liquidity is current ratio (current assets/current liabilities). Thus, the company’s current ratio was 0.57. We should say that this is quite low level of liquidity since the level of 1.2-1.3 is considered as normal. The current ratio was 0.67 in 2009. Such insignificant level of the company’s liquidity may be a bad sign for the company’s creditors since its ability to pay off its debts seems to be suspicious. For the purpose of evaluating this problem more deeply, we also have to look at the of the company’s financial stability. To do it we are going to use a ratio of financial autonomy or independence (equity/total assets). This ratio is quite similar to the so-called debt ratio. Because using it we also may evaluate the share of financial debt in the company’s assets. Thus, the company’s financial independence ratio was 0.36 in 2010 and 2009. Again we should say that this is quite low level since the normal value is about 0.5. It means that the company is characterized with a big share of financial debt in its total assets. It is not good, especially in the circumstances of the global financial crisis, when the value of debt financing has significantly grown. Moreover, we should say that such high level of debt financing is not typical for the large manufacturing companies. Also it means that the company is not able to generate needed cash flow to pay off its debts and finance its production and performance, in general. To prove it we have to estimate the company’s profitability, using such financial ratio as ROA (return on assets). This ratio is calculated using the following simple formula: net income/((total assets in 2010/total assets in 2009/2). Thus, the company’s ROA was 0.72% in 2010. We should admit that it is not an impressive level of profitability. On the other hand, it is a sign that the company’s performance in terms of profitability was improved in 2010. Conclusions First of all, the company should increase quality of financial management. We believe that some difficulties in the company’s performance are related not only to the problems with realization, but also to mistakes in financial management. Probably, new financial managers should be invited. The company should develop the overall strategy of development of business. This strategy must contain the following elements: sales strategy, production strategy, financial strategy and marketing strategy. For example, the company should realize how to decrease the costs of production in order to increase profits. To increase its inventory turnover, the company will have to increase its inventory in order to match the volume of business which it handles. The company should avoid too much investment on fixed assets and current assets in order to increase revenue generation from the fixed assets. King Shaves should use the company profits to finance its operations instead of debts in order to prevent riskiness of its investment. The company should choose the most effective strategic directions of the company’s development. These directions will affect the overall positions of the company and, respectively, financial conditions. Among such strategic directions, the following ones can be pointed out – development of the online segment, entering the new segments and expansion of assortment. First of all, expansion of the company’s assortment should be considered. The company tried to change the assortment a few years. The results were really disappointing. That is why the company’s managers should deeply consider this perspective and weight up all pros and cons. The other strategic direction is development of online sales channel. The role of Internet in the modern society just cannot be overestimated. We cannot imagine our life without computers and chatting online. About 2 billion people have an access to Internet nowadays. It means that the size of online market is just tremendous. Moreover, it is only going to grow in the nearest future. More and more people desire to use Internet for shopping nowadays, because it provides a lot of benefits for them. Among these benefits the following ones can be pointed out: they do not have to waste their time, they can make shopping from home, and they have a broader access to different assortment of companies and products. The companies also can get a lot of benefits from such a trend. They do not have to construct special stores, they do not have to waste money on storage of products and, moreover, some businesses do not have to pay sales taxes on the products sold via internet. That is why the online sales channel develops really fast nowadays. E-commerce does not include only online shops, but also other elements that can increase the sales’ efficiency. Reference List King of Shaves Company Profile, viewed 16 April 2013, Porter’s Five Forces Definition, viewed 16 April 2013, SWOT Analysis definition, viewed 16 April 2013, Read More