Chucks Wagon Inc and the Experience of a HBS Student - Case Study Example

Chucks Wagon Inc and the Experience of a HBS Student Introduction: Chuck’s Wagon Inc was found in 1977 by bill chuck; company acquire 15 product categories and 250 SKUs after having 21 year of steady growth company is at its peak was able to have growth of $8.8 million. Company has five different distribution channels that include direct to consumer, private label, gourmet retailers, international retailers, and mainstream grocery retailers. According to the case currently, company is at maturity stage, cash flows are decreasing, processes are not standardized, marketing efforts are lacking, and revenue of the company is declining. The case of Chuck’s Wagon Inc describes the experience of a HBS student as he has been taken a challenge of transition from an intern to a president at Chuck’s wagon Inc. This paper aims to provide the appropriate suggestion for the organization in order to improve the performance of the organization and take the organization out from the bad situation. In order to gain this objective paper has been distributed into 4 major sections in first section Swot analysis has been conducted and on the basis of analysis, a decision to eliminate the lowest sale products has been proposed. In second section, two performance measurement methods have been discussed such as financial and non-financial and appropriate suggestion regarding performance measures has been made. Third section is consists of the incorporation of performance measures in balance scorecard. However, in last section activity based costing method has been suggested to improve the operations and its benefits and appropriateness to organization has been discussed. 1. SWOT Analysis SWOT analysis is an important tool to realize the company’s internal weaknesses and chances that exist outside the firm to grow (Helms, & Nixon, 2010). Therefore, in order to recommend the appropriate strategic model it is essential to analyze the organization potential and opportunities exist for the organization. Strength: Company acquire large number of SKU’s due to which company is able to have growth in sales. Company is recognized as innovator and carry wider range of products Experience in manufacturing unique flavors and products that led organization to growth Company has loyal customers with high demand of products Strong financial history and strong growth in sale Weaknesses: In accurate data collection or lack of data that result in vulnerable decision-making. Company has complicated and confusing process of production and the practical capacity was not known (inefficient operational process). President was not engaged in company’s operation and even sale marketing team had no leaders. (Lack of management). Company is facing marketing, pricing, and credit issues. Lack of power of chief financial officer and vice president (lack of freedom). In sufficient selection of vendors and employees are also not satisfied (lack of motivation). It has been recognized that company has lack of waste managementabilities because ten of thousand products were in warehouse resulted from production error. Company is on maturity stage and facing losses constantly; cash flow of the company is also struggling Opportunities Company has an opportunity to expand business through making diversification and to enhance the product categories. Improve performance through removing lower profit products from portfolio. Company has an opportunity to improve information system and take advantage from it. Threat Increased competition is the threat for the organization. Company is wasting huge amount of material that cost company a lot and can limit the investment ability of organization. If organization continues to run the operation at the slower speed, it may lose more revenues to the existing operational approach. Lack of data will not allow company to make informed decisions and reduce the ability to perform better that allow competitors to be a head and can become significant threat for the organization. On the basis of analysis, it has been determined that the major issues that company is facing include operational complexity, credit issues, marketing and pricing issues, lack of data availability, SKU based profitability, variability in the material of product, and operating losses. Company need to take some strategic decision in order to extract the company from maturity stage. The approach that has been used to make decision is “rational strategic model of decision making” this approach will allow realizing the pros and cons of each decision made (Elbanna 2009). The first possible solution is to eliminate the least selling product from each SKU; the advantage of this approach is that company will be able to communicate that it is still diverse and just eliminate the items that could not get votes from customers in term of their spending. This approach is the most easiest to implement because people will not lose their jobs and production will continue. Moreover, all essential data is available for making informed decision. However, it might make less impact over cost and organization may have no positive cash flows. The second option is to shutdown the second production line of Chuck; the advantage of this decision will be that 20 percent of SKUs will be eliminated immediately that will enable firm to reduce the cost associated with these SKUs and scheduling or operating complexities will decline. However, the disadvantage will be that organization may lose the products that are making reasonable business, this decision may pose significant negative impact on the diversity image of company, and people have to lose jobs (Vishwanath and Mark 1997). The third and last option that organization delay the decision and in perform accounting studies in order to make informed decisions this will allow organization to make decisions that are more precise. However, in this case company has to wait longer and face further decline in revenue. Therefore, the best recommended decision based on rationalesis to eliminate the least selling product from each SKU because it is easy to implement, reduce the raw material an d associated cost, reduction will occur in obsolete and damaged items and the impact of the eliminated product cost is known (Berger 2012). 2. Performance measurement methods In order to run the organization successfully it is essential that the performance of organization and its key staff be measured appropriately. Selection of performance measure is not an easy task; it plays immense role in developing the strategy and measuring the success of the organizations. Organizations use diverse methods in order to measure the success of organization and its key members such as organization utilize different financial measures (revenue, return on investment, return on equity, and profitability), quality measures (output from team, number of rejected and accepted units, and timely project completion), cost effectiveness (how much cost has been spent in order to make each unit), absenteeism, creativity and innovation (Hakala 2008). Key performance indicators are the goals that are associated with company strategy and company measure the performance of the organization on these bases (Parmenter, 2010). Before deciding on which measure to choose, it is essential to have alook on advantages and disadvantage of each sort of measure that is financial and non-financial. Nonfinancial measurements: Non-financial measure enables organization to analyze the long-term performance of the organization and provide closer link to organizational strategies that are of long term (Hope, & Fraser, 2013). Non-financial measures measure the capabilities of key staff in term of business expansion skills, innovations, creating differentiation and so on. Through the non-financial measures, companies assess the focus (ability to set priorities and stick to them) of managers, their proactively, trust, professionalism, competence, leadership skills, and energy that has significant impact over organizational performance. Through measuring performance on the basis of non-financial measure companies offer manager or key staff incentive on the accomplishment of goals and for making strategic solutions (Marr, 2012). In most industries, intellectual capital is the driver of success and therefore, considered mandatory. Non-financial measures help organizations to measure the intellectual capabilities of key staff that assure them to maximize the financial future performance (Wharton 2000). However, the deployment of non-financial measures requires time; larger range of different performance measures require significant amount of time and information. These measures lack in statistical reliability. Financial measurements: Financial measures reflect the performance of organization based on information provided by accounting system; this information is past oriented, and enables Company to create future value (Almasan and Grosu, 2010; Horváthová, 2010). Financial system just measures the short-term performance of the organization basis on accounting standards (Evans et al., 1996). Day to day activities are not identifiable therefore, useless to make decisions. The major focus of financial measures is to enhance the profitability by eliminating waste and reducing cost that can be a big scarifies in term of long-term objectives for short-term advantage. These measures are not able to assess the individual level performance (CEO, 2008). Currently organization is surviving from operational complexities and need to improve its activities in order to attain the goals. Therefore, the preferable methods of performance measurement is non-financial because non-financial methods call for operational improvements and have focus on long term success of the organization (Zuriekat, Salameh and Alrawashdeh 2011), but the importance of financial performance measures cannot be avoided because financial measures reflects the results of individuals’ performance and make sure that organizations is on right track. Therefore, it has been suggested that organization in order to avoid the limitations of each system should deploy the both sort of measures. 3. Performance Measures on Balance scorecard Balance scorecard is a strategic management and planning system that has been founded by David Norton and Robert Kaplan (Kaplan, & David, 1996). More than 50 percent organizations use balance scorecard in order to measure the framework. Management of activities is a complex function and balance scorecard provides the valuable information. The four important perspectives that has been recommended by Kaplan and Norton include the customers perspective in which it is analyzed that how customer should perceive the organization, the second perspective is internal business perspective that guide that what are the things that should be improved to satisfy customer needs; it is about the improvement of internal process (Sharma, 2009). Third is innovation and learning in which the ability of business to improve, innovate, and lean associated with the value of the organization, and forth and last is financial perspective which includes typical measures such as market share and profitability; in other words result oriented measures (United States office of Personnel Management 2001). By keeping all these point in mind, the measures have been incorporated in balance scorecard. S. No Measures Description Financial Growth in revenue Increased profitability Return on investment Cash flow Increased market share Non-financial Internal Focus Energy Proactive Judgment Leadership Relationship Trust professionalism Competence Customer perspective Diversity Customer oriented Positive image Innovation and learning perspective Technologies leadership in order to develop next generation. New accounting system Product focus include introduction of new products as compare to competitors Ability to eliminate old processes to reduce complexities In financial section all the indicators have been explored that will be used to measure the performance of overall organization. In nonfinancial internal perspective section, in order to analyze the performance of key staff in day-to-day basis some measures have been proposed. Moreover, innovation and learning section include the initiative those are required to be undertaken to improve the performance of the organization. 4. Activity based costing Company has three major operational choices in front of it in order to reduce the losses and increase the profitability. First, it has been considered that company can reduce its number of SKUs that can reduce the operational complexities and will enable company to better align it sales and marketing operations. Second company can reduce the lower sale products from each SKUs, or company can delay the decision in order to make the more précised decision. The approaches to make improvement require some operational audit that will enable firm to make more informed decisions such as company can consider activity-based-costing, can perform audit of operation, can used manufacturing software application to manage its production and accounting data, they can take labor studies into consideration, or they can use spreadsheet tool to collect the data to make decision. However, if the organization chose to use activity based costing then organization will be able to allocate the cost on the basis of resource consumption, which means they have accurate idea that what item is taking how much cost and allow organization to compare the cost and sale advantage analysis; in such way organization can eliminate all those products that are high in cost but not making appropriate sale. It will help in customizing the products. Through the activity, based costing chuck will be able to analyze the indirect cost and enable company to realize the true cost that has been occurred in result of manufacturing. Though breaking the activities into components, Company will be able to realize the extra activities that will enable company to reduce the time of production and enable it to produce more unit in limited time as it has been analyzed that chuck is bearing huge amount loss in result of production error; activity base costing will allow organization to realize that at what part of production error is made and how it can be removed. This approach will enable company to eliminate the activities that are not creating value to products and organization can better allocate the resources and save itself from waste (Huynh, Gong, & Huynh, 2014). This will also add value on constant basis in result business will face constant improvement (Schawel, & Billing, 2012). It also determine the overhead cost, data help in identifying extra costs; this method will encourage organization to price the product according to the cost and will enable them to take corrective measures. In such way, company will be able to improve the overall quality of operations (Kapian, & Anderson, 2014). Conclusion: It has been determined that in order to have success chuck’s wagon require to pay attention on its operational activities, company is having wide range of SKUs that are creating complexities in operational process and in order to reduce the complexities it is essential that slowest moving items are eliminated from each category. Company needs some decisive actions that can track back the organization. Company rather to focus on slowest moving items can expand its business and enhance revenues and profitability through having some additional product categories that have demand in market. It has been realized that management does not have focus, energy, pro-activeness, and other capabilities that can cause to make the organization successful. Therefore balance scorecard approach has been suggested and these all measures has been considered for management success, which means a manager must have good relation with employees, ability to complete goals through teams, ability to make decisions and be proactive in decision rather to be reactive. Listed measures in balance scorecard are some through which the performance of key staff will be assessed. Moreover, activity based costing method due to its credibility and efficiency has been suggested that better suited the problems of the organization. References Almasan, C., and Grosu, C. (2010). Financial measures for performance measurement in a regulated environment, International Conference on Economy and Management Transformation, Vol. 2. ISSN: 1792-5983. Berger, R. (2012). Mastering product complexity. Available fromhttp://www.rolandberger.us/media/pdf/Roland_Berger_Mastering-Product-Complexity_20121107.pdf [Accessed 26th April, 2015] CEO. (2008). 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