Strategic Management of CanGo - Case Study Example

Strategic Management Report Executive Summary The rationale of this report is to examine what chances did CanGo has in its online retail business. As the competitors are also offering the same products, CanGo in some way managed to maintain its success by offering its products at affordable price. The main problem with the company is that it lacks a proper strategic business strategy. While the other online entertainment companies continues to grow at a notable rate accompanied by new customers emerging across the globe on a regular basis, CanGo finds itself in a challenging position. So, the company needs to develop a better business strategy plan to put itself in a good position and also to enjoy its success. Table of Contents Introduction 5 SWOT Analysis 5 Strengths 5 Weaknesses 6 Opportunities 6 Threats 6 Market Analysis 6 Competitive Analysis 7 Financial Analysis 8 Profitability Ratios 8 Liquidity Ratios 9 Efficiency Ratios 9 Strategic Planning 9 Conclusion and Recommendation 10 Reference List 10 Appendices 12 Appendix 1 12 Appendix 2 13 Appendix 3 14 Appendix 4 14 Appendix 5 15 Appendix 6 16 Appendix 7 18 Appendix 8 20 Introduction CanGo was founded in 2009 by Kim Saratov, who wanted to break into the undulating world of commerce. It is an online retail company which offers entertainment products such as music, games, books and videos in an online environment. In this competitive market where other online company also offers same products, CanGo was competent to capture the mass market by offering its products at reasonable price. It enjoys its success in the initial stage but afterwards its share starts dropping down because of an improper business strategy plan. The other drawback is that it also failed to describe its short and long term objectives and how to attain these objectives. The existing managerial structure of this company is also not at place. Though the roles of employees are well defined, the company does not follow the centralized form of decision-making approach. Due to the poor communication among the staff members it was difficult for them to meet the deadlines of the project as well as goals of the company. While the other online entertain industries are growing at a significant rate with new customers emerging on a regular basis, it is becoming difficult for CanGo to prove itself in this competitive era. The company also has to compete with the strong online pirating market which also offers the same product at low cost as compared to CanGo. Eventually, if the company has to survive in this aggressive market then it needs to develop a proficient and proper business strategy plan to achieve its goal of earning more profit. SWOT Analysis The concept of SWOT analysis is applied in business management for the purpose of strategic planning and situational analysis (Hanak, 2009). It is used by senior managers and marketing people to determine the internal strength as well as weakness of the company and also towards considering possible threats and market opportunities. It gives a good synopsis of where an organisation or the company is standing competitively and also influences the manner in which it undertakes the project (Lock and Flouris, 2012; Lussier, 2011). The benefits that the company gets by doing SWOT analysis is that it minimises the cost related with the strategic planning and also provides the analyst with the capability to synthesize and integrate various information (Ferrell and Hartline, 2010). The SWOT analysis of CanGo is as under: Strengths Well-established company: The Company is well set up in the online entertainment retail business. Its target customers are those who enjoy the latest videos, music, books and games online. It pulls its customers from the unlimited base who opt for these products or services. Cost-efficient: It is a cost-efficient company as no physical component is required to construct it. Creative employees: The employees at ConGo are innovative, hard working and creative thereby adding value to the company. Weaknesses Slow decision making process: The decision making procedure is slow because every idea or plan needs to be accepted by the founder of ConGo i.e. Kim Saratov. Lack of proper business strategy: The Company does not have a proper business strategy. Developing business strategy would allow the company to identify its short term as well as long term goals. Poor communication system: The communication system is poor at ConGo. The idea or plan of senior managers is not communicated properly to the staff members because of that they are unaware about the priority of given task and sometimes also fails to reach the deadlines of the project. Opportunities Social networking site: CanGo is moving towards social networking platform thereby expanding its business into the online market. If it will figure how to locate its game on a social networking site then it could successfully develop its business in the online gaming market and also have an immediate access to the huge untapped customer segment. By this way, it can sell its product to new customers also. International Customer base: CanGo provides the entertainment product online which enables the prospective customers to view as well as purchase the product from all over the world. Thus, CanGo enjoys both international and domestic customer base. Threats Competitors: There are various competitors like Amazon and Zynga and other sites like pogo and yahoo which offers free online gaming chance to the customers. Because of free online gaming offers from other sites or companies, CanGo is facing stiff competition. Torrent sites: The Company is also facing pressure from torrent and online pirating sites, which provide customers with similar products as offered by CanGo but at cheaper rate. Non payment of incentives: Employees were asked to do multiple tasks concurrently which results in overload of tasks for employees and they even don’t get incentives for their extra effort (See Appendix 1). Market Analysis Market analysis gives information regarding the exact market where the business of a particular company will operate. It involves market size, segmentation of market and also a marketing environment of a particular company (Stephenson and Mintzer, 2008; Munizzo and Musial, 2010). The main elements of market analysis/scrutiny are: competitive analysis, investigation of target market, and industry analysis. Competitive analysis recognizes the competitors and examines their weaknesses and strengths (Langford and Male, 2008). Analysis of target market recognizes as well as quantifies the potential customer. Industry analysis measures the environment of general industry in which the Company is competing. It involves identification of markets and products, expertise and competitors, and recognition of the achievement factors (Boulton, 2001). The main purpose is to consider the limitations and potency of the company in relation to its rivals (C.A.Rao, B.P. Rao and Sivaramakrishna, 2009). The ecommerce/online retail market has shown a growth at an average rate of above 18% during the period of 2009-2012 throughout the globe. UK online retailing has accounted a highest proportion of sales in terms of online retailing followed by the United States. Retail Research Centre has forecasted that by the end of 2018 the shares accounting for the sales of online retail market will grow from 12.7% in 2012 to approx 21.5% by the year 2018. The percentage of online retailing in terms of total online sales is 12.7% as of now. The online sales of food items are extremely low i.e. 3.7% and the total share of other online/ecommerce retail sales accounts for 19%. It is forecasted that it will change rapidly over the subsequent five years i.e. from 12.7% to 21.5% in 2018 (Retailresearch, n.d.) (See Appendix 2). The focus of retail on the emergent utilization of mobile tool users and internet users is an extra factor towards making the online retailing more convenient and attractive. Although UK has highest portion of sales, its total growth percentage has shown a decrease from 16.8% in 2013 to 15.8% in 2014. The online market of Europe is conquered by UK, France, and Germany which together accounts for 81.3% of European market sales (See Appendix 3). The average online customers are people with higher degree of education as well as fixed sources of their personal income. Most of the population in the UK have an access towards the internet and broadband subscription. The online share of retail in the UK is predicted to increase up to 13.5% in 2014 (Retailresearch, n.d.) (See Appendix 4). Competitive Analysis The competitive investigation of the company includes identifying its own competition by service or product line and market segment (Sba, n.d.). The main purpose of doing competitive analysis is: determining the reaction of each competitor towards the environmental and industry changes; and predicting the reaction of every competitor towards the tactical moves by other company. The elements of competitive analysis are: competitor’s current strategy, future objective of rival/competitor, main assumptions of competitors regarding the industry, and their capabilities in relation to their weakness and strength (Kozami, 2002). The competitive analysis will focus on two rivals of CanGo i.e. Amazon and Zynga. Amazon is considered as the leading online retailer/dealer, selling more than forty types of goods, i.e. from electronics to books to auto parts to jewellery to groceries. Its competitive strategy is to become a low-cost supplier of online products which is achieved through continuous innovation. Its customers from media category were 37%, from electronics category were 59.7% and from other category were 3.3% in 2011 (See Appendix 5). It differentiated itself by developing an innovative way to buy books easily and quickly online. The power of book sales directed Amazon to develop the product lines by including videos and CDs. Its utilization of personalization techniques, security, and search engines has made Amazon a model, for other sites of online retail business. It has adopted a bit different approach. It pushed its products through targeted email and customized web pages (Kangas, 2003). The strategy adopted by Zynga was that it dominated the sharing and advertising features of Facebook during the time of little competition. It is normally impossible to control Facebook in the manner how Zynga did few years before, because it is too crowded and too expensive (Mares and Weinberg, 2014). It has initiated the Farmville, Mafia Wars, and YoVille games on Facebook (Salt, 2011). ConGo must be aware of the comparative strengths of its competitors to become more successful in the field of online retail industry. In telecommunication and media business, sudden innovation and changes have a remarkable impact on market. For example, tablets and E-readers have changed the publishing companies and therefore pose a major challenge to traditional magazines, newspapers as well as book industries. “Creative destruction” practices is taking place in gaming industry, because Zynga as well as other mobile gamers disturbed the traditional soothe market that Sony and Nintendo once dominated (Gershon, 2013). In spite of all these rivals, yet CanGo does own the chance to place itself in better position in these retail markets. Zynga has ended its two year agreement with Facebook, so it’s a change for CanGo to form a joint venture with Facebook. By doing so, CanGo can feature its games on Facebook and can have an access of more than one million users which could lead its success. Financial Analysis Financial analysis is done to focus on the credit worthiness and financial weaknesses and strengths of the organization. It helps in predicting the future financial catastrophe and in taking the remedial action beforehand (Sagar, 1998). An effective investigation of financial analysis will help the CanGo to reduce its reliance on guesses, intuition, and hutches and will also diminish its uncertainty in the decision making (Bernstein and Wild, 2004). These ratios will present an insight in the exact state of company’s financial health. Profitability Ratios Net Profit Ratio: It is used to evaluate the profitability of the company. It assesses how much of each dollar is converted into profits. It provides a clue to the company’s cost structure, pricing policies, and production efficiency. The profit margin of CanGo has shown a decrease of 22.22% which specifies a low scope of safety and more risk for CanGo. Return on Investment (ROI): It evaluates the loss/gain created on the investment in comparison to the money invested. An investment with positive return is only undertaken. The return on investment has shown a decrease of 1.8% which indicates that there is a little opportunity and the investment should not be accepted. Liquidity Ratios Current Ratio: It shows the level of cover that the company has from its current asset to pay its current liabilities and measure the short term solvency situation of the business. It is a chief measure of the company’s liquidity position. A ratio of 2:1 is always preferable. The current ratio of CanGo for 2012 and 2013 is below 2:1 i.e. 1.76:1 for both the years, which means that it will face difficulties to pay its obligations. Quick Ratio: It evaluates the ability of a company to utilize the quick assets in order to pay the current liabilities. A quick ratio of 1:1 is preferable. CanGo’s quick ratio for both the years is 1.31:1 which indicates that it can meet the current monetary obligations with existing quick funds. Efficiency Ratios Debtor Turnover Ratio: The debtor turnover ratio of CanGo is increased by 0.04 times, which signifies that the company is rapidly collecting money. It indicates effective and speedy collection. Return on Capital Employed (ROCE): It is referred to the evaluation of returns that the company is getting from the capital employed. A better return on the capital employed is one that is more than the rate at which company borrows. It has decreased from 7.76% to 7.33% which signifies that the company is not generating more income. It shows lower profitability. Refer to Appendix 6 and 7 for CanGo’s balance sheet and income statement. Strategic Planning Strategic planning is defined as a process through which the company plans action and make decisions that influence its long and short term performance (Lewis et al, 2006). An effective strategic planning helps in taking important decisions regarding the aim and policies of the company and also helps in addressing the key challenges (Bryson, 2011). For CanGo, strategic planning is necessary at both micro and macro level. At macro level, business is carried out in the worldwide marketplace. With the support of internet and technology development more individuals will have an access to CanGo’s products. On a micro level, strategic planning would add a needed intellect of direction and purpose to CanGo. Before embracing a proper strategic planning, the company should make a mission and vision statement. The mission statement would define the purpose and aim of CanGo, while a vision statement should explain what it plans to accomplish over the long and medium term. The current structure of the Company is hierarchical in nature, so, instead of operating in hierarchical structure, it should consider implementing the matrix management construction which will group employees together, based upon their related skill-sets which would result in flexibility and decentralized process of decision making as well as better coordination among workers. Performance appraisals could be proposed to provide workers with a way to set as well as realize their goals. The Company can also provide training sessions on time-management and multi-tasking to its employees. CanGo’s strategic planning method could also think upon hosting work events outside on a quarterly basis that will allow the group to chill out and connect to one another, thus increasing fellowship and trust among the team will lead to more dedication towards their work and ultimately result in company’s success. Conclusion and Recommendation CanGo must adopt the concept of strategic planning in order to identify its goals and strategies and also to construct a competitive advantage over its rivals. It must modify its organizational structure, levering from hierarchical to matrix management structure which is more flexible in nature. The company should pay attention to its financial position because the ROI and net profit ratio has shown a decrease which indicates a low margin of safety and the ROCE ratio has also decreased thereby indicating incapability of CanGo in generating its earnings. However, debtor turnover ratio has increased which signifies speedy collection of money and also has a preferable quick ratio which indicates that it can meet the current monetary obligations with existing quick funds. If the company will address the above issues then it will be in good position and will also enjoy the success. Reference List Bernstein, L.A. and Wild, J.J., 2004. Analysis of Financial Statement. New York: Tata McGraw-Hill. Boulton, W.R., 2001. Strategic Analysis Model. [online] Available at: < http://www.auburn.edu/~boultwr/html/strategic_analysis_model.htm> [Accessed 15 Nov 2014]. Bryson, J.M., 2011. Strategic Planning for Public and Nonprofit Organizations: A Guide to Strengthening and Sustaining Organizational Achievement. United States of America: John Wiley & Sons. Ferrell, O.C. and Hartline, M., 2010. Marketing Startegy. United States of America: Cengage Learning. Gershon, R.A., 2013. Media Management, Telecommunications, and Business strategy. New York: Routledge. Hanak, I.M., 2009. Language, Discourse and Participation: Studies in Donor-driven Development in Tanzania. Germany: LIT Verlag Munster. Kangas, K., 2003. Business Strategies for Information Technology Management. United Kingdom: Idea Group Inc. Kozami, A., 2002. Business Policy and Strategic Management. New Delhi: Tata McGraw-Hill. Langford, D. and Male, S., 2008. Strategic Management in Construction. United States of America: John Wiley & Sons. Lewis, P., Goodman, S., Fandt, P. and Michlitsch, J., 2006. Management: Challenges for Tomorrow’s Leaders. United States of America: Cengage Learning. Lock, D. and Flouris, T.G., 2012. Managing Aviation Projects from Concept to Completion. Farnham: Ashgate Publishing. Lussier, R., 2011. Management Fundamentals: Concepts, Applications, Skill Development. United States of America: Cengage Learning. Mares, J. and Weinberg, G., 2014. Traction: A Startup Guide to Getting Customers. United States of America: S-Curves Publishing. Munizzo, M.A. and Musial, L.V., 2010. Advanced Residential Applications and Case Studies. United States of America: Cengage Learning. Rao, C.A., Rao, B.P. and Sivaramakrishna, K., 2009. Strategic Management and Business Policy. New Delhi: Excel Books India. Retailresearch., n.da. Centre for Retail Research. [online] Available at: [Accessed 15 Nov 2014]. Retailresearch., n.db. Centre for Retail Research. [online] Available at: < http://www.retailresearch.org/onlineretailing.php> [Accessed 15 Nov 2014]. Sagar, R., 1998. Together With Accountancy. New Delhi: Rachna Sagar Pvt. Ltd. Salt, S., 2011. Social Location Marketing: Outshining Your Competitors on Foursquare, Gowalla, Yelp & Other Location Sharing Sites. New Jersey: Pearson Education. Sba., n.d. Market Analysis. [online] Available at: < http://www.sba.gov/content/market-analysis> [Accessed 15 Nov 2014]. Stephenson, J. and Mintzer, R., 2008. Ultimate Homebased Business Handbook. Canada: Entrepreneur Media, Inc. Appendices Appendix 1 SWOT Analysis of CanGo Appendix 2 Growth of Online Retail Appendix 3 Online Retail Sales (Source: Retailresearch.org) Appendix 4 Online Retail Share for the year 2014 (Source: Centre for Retail Research) Appendix 5 Customers of Amazon (Source: Amazon.com) Appendix 6 BALANCE SHEET Assets Dec. 31. 2013 ($m) Dec. 31. 2012 ($m) Current Assets Cash 20,000 19,500 Debtor 5,878 6,328 Accounts Receivable 31,223 30,578 Less: Allowance for bad debts (3,000) (2,400) Net Accounts Receivable: 28,223 28,187 Inventory: Raw material 6,025 6,600 Work-in-progress 4,000 4,000 Finished goods 12,000 11,072 Total Inventory: 22,025 21,672 Prepaid expenses 9,000 8,700 Total Current Asset 85,126 84,387 Fixed Assets Plant & Machinery 29,800 28,400 Less: Depreciation (5,800) (5,600) Net Plant and Machinery 24,000 22,800 Furniture & Fixture 14,800 16,981 Goodwill 29,700 33,400 Total Fixed Assets 68,500 73,181 Total Assets (T.A) 153,623 157,568 Liabilities & Owner’s Equity Equity share capital 70,994 72,836 Long term loan 24,000 25,900 Current Liabilities Creditors 5,081 5,700 Account Payable 23,219 23,500 Other liabilities & accrued expenses 20,000 18,700 Total Current Liabilities 48,300 47,900 Treasury Stock (1400) (1000) Total Liabilities (T.L) 141,894 145,636 NET ASSETS: (T.A-T.L) 11,732 11,932 Appendix 7 INCOME STATEMENT 31 Dec. 2013 ($m) 31 Dec. 2012 ($m) Revenue/ Net Sales 5,676 5,317 Earnings Before Interest Tax Depreciation & Amortization (EBITDA) 6,983 7,691 Less: Depreciation & Amortization (20) (26) Profit before interest & tax (PBIT) 6,963 7,665 Profit before tax (PBT) 1,049 1,271 Tax (287) (282) Profit After Tax (PAT) 762 989 Net Income 730 956 CanGo is a fictional Internet Company. Appendix 8 As CanGo is a fictional company so all the figures mentioned in the balance sheet and the income statement are based on my own assumptions and the detailed calculation of the ratios mentioned in the financial analysis; is shown in the above chart. Read More