Strategic Management - Brady Australia - Case Study Example

Introduction Much of the success in terms of growth and profitably of Brady Corporation can be attributed to its program of targeted expansion. Concentration on accessing niche markets, acquisition of smaller and complementary companies that can add to its operations, and expansion into geographical areas where economic conditions are favourable to production and sales are all stated strategic objectives of Brady Corporation, and have been for many years. In fiscal 2007, the company reported a 33.8% increase in sales, of which the larger part, 25.5%, was attributed to acquisitions. The Asia-Pacific segment, of which Australia is a part, had increased sales of 68.1%, more than twice the increase of the company’s European segment and more than three times greater than the American segment. (Brady, 2007 10-K, II-4) This “global footprint”, as Brady Corporation likes to characterise it, places the company in a strong position to maintain growth and profitability, because its diversification allows it not only to take advantage of favourable market conditions in any part of the world, but also reduces its overall exposure to risk associated with unfavourable economic conditions in any particular segment. Since 1996 Brady has acquired and integrated 51 companies to expand its market share, and between 2000 and 2007, has seen its proportion of net sales from international operations grow from 44.4% to 60.9%. (Brady, 2007 10-K, I-2) A wide variety of products and brands contribute to these sales, but the focus of this analysis will be on those that constitute the MRO (Maintenance and Repair Operations) segment, particularly safety signage and label products. In Australia and the Asia-Pacific region the market for these products is served by Brady Australia Pty. Ltd. and one of Brady’s subsidiaries, Seton Australia. Analysis The Brady Corporation expresses a number of strategic objectives as part of its annual report, and in order to analyse these objectives and make appropriate recommendations, a Balanced Scorecard is used. (See Appendix) As a planning tool, the purpose of a balanced scorecard is to communicate strategy in such a way as to make it possible to implement and measure. (Evans, EXINFM, 2002) In a geographically- and functionally-diverse company like the Brady Corporation, a Balanced Scorecard can be valuable for resolving conflicts caused by different approaches to a single objective by different parts of the company. (DaPo, n.d.) The Balanced Scorecard works equally well as an external analysis tool, however, because general objectives are broken down into parts based on strategic themes – Financial, Customers, Internal Processes, and Learning and Growth – and these constituent parts are more easily identified with specific areas of responsibility or concern. Thus, the specific objectives for a particular department or other subdivision of the company, such as the safety sign/MRO products business that is the subject of this study, can be derived from the Balanced Scorecard, and with them, the strengths, weaknesses, and potential areas for improvement for that part of the company. As part of its Form 10-K Annual Report for 2007 the Brady Corporation lists six strategic objectives it has set for the company as a whole: Growth in niche markets, increase overall market share for its products, expand into new markets, expand its ‘global footprint’, make strategic acquisitions, and improve profitability. (Brady, 2007 10-K, I-3) These overall objectives for Brady Corporation apply to each of its diverse parts, but are expressed in more specific and relevant terms. In the safety sign/MRO product area covered by Brady Australia and its Seton subsidiary, the strategic objectives can be defined differently, yet in a way which is still a complement to Brady’s overall goals: Capitalise on Growing Niche Markets:  Brady seeks to capitalise on growth in existing niche markets, one of which is the safety sign market. The company identifies healthy regional economies and changes in legal and regulatory compliance requirements as primary factors in encouraging the growth of this market. Increase Market Share:  Many of the markets in which Brady operates are fragmented and populated with smaller or regional competitors, a situation which the company judges as a potential advantage because of its global sales, operations and distribution capabilities. Brady Australia enjoys these same strengths, particularly through its Seton subsidiary, which also operates in China, Europe, and North and South America. Enter New Markets: This is in some ways simply a different way to re-state the objective of increasing market share, but it has a more specific focus if related specifically to the safety sign market. Globalisation encourages more international business in developing economies. As a result, markets for safety signs and other products related to occupational health and safety will develop and grow in response to demand; not only from those businesses, but also as a result of improving standards in developing countries that require the use of products such as Brady’s, and are increasingly being imposed on those countries’ domestic businesses as well. Expand Geographically:   The Company is committed to being in close proximity to its customers and to low-cost manufacturing. Brady has made strategic acquisitions and has invested heavily in its global infrastructure and flexible manufacturing capacity in order to follow its customers into new geographies. Brady’s regional management structure is a key component in effectively entering and competing in new geographies. Pursue Strategic Acquisitions: Strategic acquisitions have long been a key part of Brady’s strategy to enter new markets and geographies. Improve Profitability:  Constant improvements in operating efficiency, reducing costs, and improving productivity and return on assets are common objectives of many successful businesses, and Brady is no exception. Brady Corporation identifies a number of risks to its successful achievement of its strategic objectives, and several of these are directly related to the safety sign/MRO segment. The health of the economies of the countries in which Brady manufactures and sells its MRO products affects this part of the business, according to the company’s assessment. (Brady, 2007 10-K, I-9)Therefore, it is important to Brady not only to diversify their business into as many regions as possible, but to identify and concentrate on those regions that are the most economically healthy. An even more challenging risk is presented by Brady’s sourcing of low cost MRO products from regions such as China. This presents a potential problem on two fronts. First, Brady’s customers may choose to source cheaper products from low cost regions, essentially by-passing Brady. Second, changes in local regulations, export laws, and disruptions in manufacturing and transportation could adversely affect Brady’s performance. (Brady, 2007 10-K, I-11) These strategic objectives and risk factors, when considered from the perspective of opportunities presented by the strength of Brady’s business in the Asia-Pacific region, suggest a clear recommendation for their safety sign/MRO products segment. Recommendation The Brady Corporation itself is an example of the opportunity presented by the well-known growth of business in the Asia-Pacific region. As described in the introduction, not only has the company been very successful, and in so doing illustrated the potential of the Asia-Pacific region, but a part of its own corporate governance illustrates another potential more specifically related to the safety sign/MRO market. Because Brady is a U.S.-based corporation and subject to U.S. laws and regulations regarding environmental control and occupational health and safety, as well as being subject to sometimes even more stringent standards in its European and Australian operations, the company uniformly employs standards designed to meet or exceed all of these requirements, regardless of the location. This is an example of corporate responsibility, certainly, but has a significant practical advantage for Brady as well; operational processes, equipment, and training are more cost-effective and simpler to manage if they are done according to one set of uniform standards throughout the company. Just as Brady has realised this, many companies building operations and market share in various industries in the developing Asia-Pacific region also share the same philosophy. This is also advantageous to customers, who have the assurance of quality in products purchased from companies operating in regions where safety standards are commonly perceived to be lower than in other parts of the world. (Findley & Gorski, 2005) Therefore, the strategic objectives of Brady Corporation, defined in terms of the safety sign/MRO business, would be for Brady to take advantage of the growth of foreign industries and businesses in the Asia-Pacific region, many of whom apply high safety standards from their home countries, or are required to by industry certification regimes like ISO. Since these standards are often higher than in the Asia-Pacific countries, the local supply of MRO/safety products is naturally limited, which is a niche that Brady is well-positioned to fill. To minimise the risks anticipated by the company because of its sourcing of MRO products from suppliers in these low-cost regions, the company should focus its future acquisition efforts on these suppliers. Not only would this acquisition initiative reduce or remove the competitive risk presented by low-cost suppliers, it would also reduce the risks presented by manufacturing or transportation interruptions by bringing these products into Brady’s established internal system. It would also better serve their safety sign/MRO products customers in their long-established markets in Australia and elsewhere, by giving the company a greater control over the supply of these products. And of course, the ability to better maintain and even expand customer bases in developed countries is an effective hedge against the risks presented by possible instability in emerging economies. An aggressive acquisition focus on the suppliers of MRO products and components throughout the Asia-Pacific region is the best way for Brady Australia to not only respond effectively to risks the company faces, but also to do its part to achieve the strategic objectives set out for the whole of Brady Corporation. Sources Brady Corporation. Form 10-K Annual Filing Report. 28 September 2007. DaPo Consulting. Introduction to the Balanced Scorecard. 7 October 2008. Evans, Matt H. “Course 11: The Balanced Scorecard.” Excellence in Financial Management online course module, revised 4 February 2002. 23 September 2008. Findley, Michael, and Gorski, June. “OSH Disparities in Developing Countries: The SH&E professional as an agent of change”. Professional Safety, 1 April 2005. AllBusiness.com. 7 October 2008. Read More