Ensuring Product Expansion and Addressing Profitability Concerns - Case Study Example

Tennant Case Analysis Evaluation of Alternatives by Criteria The proponent based the assessment of Tennant’s alternatives which centered on the following evaluative criteria: profitability ratios (return on assets, return on stockholder’s equity, net profit margin), product expansion, and funding. The reason why these came out as evaluative criteria is due to the fact that Tennant faces remarkable challenges in the cleaning industry and needs to address the following issues: profitability of its produced products in the future knowing that it is known for its floor-cleaning equipments, expansion of product offerings through its value proposition, and profitability of products from narrow technical functions to offerings with holistic outcomes while considering value creation for society and environment. The first alternative would be Tennant could increase research funds. It means Tennant Company can increase the original portion they invested in technology development. The reason for choosing this alternative is, Tennant had been dealing with balancing to lead customer demand or to follow customer for many years, but the supporting evidence was still unclear. If a company wants rich next level on market they need have clear evidence to prove it. Thus, investing more money to do research is one way to help Tennant out. Also with clear evidence, the production risk will be decrease and this might makes Tennant on the right track in the long run. This is a good alternative as it would address product expansion and profitability concerns. Not only that, potential creation of products associated with value creation for customers and environment could also be remarkable. Profitability concern would be addressed in this alternative since this could eliminate production risk that would just only incur additional cost in the future. Product expansion would also be addressed after knowing prevailing customers’ demand or needs. This has to become the basis of product expansion. Then, research is also one way to discover long-term return on investment for specific funding. However, funding needs actual implementation in which research could not substantially address right away. The second alternative for Tennant would be to cultivate the health-care market in areas like dental hygiene. The strategic for Tennant is, collaborate with dental hygiene, basic on original product developing the chemical-free cleaning product to meet the need of dental industry, and then sell chemical-free cleaning technology into dental industry. The reason for choosing this alternative, people pay more attention to environmentally friendly cleaning solutions. It is big chance for Tennant to introduce their chemical-free cleaning product into dental tools cleaning industry. With this alternative, the profit, and market share for Tennant will increase, and the goal of environmental friendly level will be richer. This alternative could lead to product expansion and profitability concerns. In addition, it could also help create products high created value for customers and environment. Profitability concern is not clear to be addressed in this alternative as the chance associated with production of dental hygiene products needs to be elaborated further. Nonetheless, this is a remarkable potential for product expansion and funding because there is innovation that would be involved on the part of Tennant. The third alternative for Tennant would be investing into emerging markets with base-of-the-pyramid (BOP) business models, to offer lower price points and, typically, less functionality, for low-income consumers. It means Tennant Company could use strategy of market segmentations divide customer into different strategy group, and then, according to the demand and economic capability difference to produce multifunctional product. For instance, in order to attract low-income group Tennant need to reduce price for product, for this situation company could produce the high quality and less functionality product to meet customer needs. The reason to choose alternative is increase Tennant market share, gain profit and benefit the company in the long run. This is another alternative that could help ensure product expansion and addressing profitability concerns. Furthermore, it could also help create products with high created value for both customers and environment. This alternative addresses profitability concern but there are more information needed prior to actual investment process so the return on assets, return on stockholder’s equity, and net profit margin will be guaranteed right after facing substantial risks. However, product expansion and funding could be potentially addressed in this alternative course of action because of employing strategic market segmentations which would ensure discovering consumer demand and economic capability for a multifunctional product. Exhibit: Assumption and Justification Profitability concern through profitability ratios is one significant criterion in order to evaluate the three alternatives stated above. Part of the assumption in using this criterion is based on the idea of considering profitability of products from narrow technical functions to offerings with holistic outcomes while taking into account value creation for society and environment. After all, this is one of the significant issues of concern facing Tennant. Thus, profitability ratios such as return on assets, return on stockholder’s equity, net profit margin are assumed important profitability measures for Tennant as these could be generated from its actual financial statement. Increasing research fund could not eventually harm the financial health of Tennant since its current net profit margins do not eventually vary that much (from 3.82% to 3.67%). In fact, research would just provide substantial justification of future plans or actions due to achievement of substantial information, minimizing the level of future risks. However, research would not give actual result, but just information on how to get specific results. Selling chemical-free cleaning technology into dental industry is another remarkable way to increase profitability for Tennant. However, this would also increase production costs, and even would just provide a not-so-clear assurance on return on assets and return on stockholder’s equity. Investing into emerging markets with base-of-the-pyramid (BOP) business models, to offer lower price for product offerings is a significant risk to reduce revenue leaving net profit margin to be affected at the bottom line. However, this is something to look forward to if Tennant would want to ensure becoming a market leader in its industry. Recommendation Right before taking the plunge into change, Tennant should therefore pursue alternative number 3. This alternative has eventually met the three evaluative criteria: profitability concern, product expansion and funding. Not only that, this alternative could help ensure product expansion and addressing profitability concerns, which are underlying concerns of Tennant just before it would have changed its direction. In addition, this alternative could also help create products with high created value for both customers and environment. Read More