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Business strategy june 2012

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Business strategy june 2012

  1. 1. BUSINESS STRATEGY Time allowed – 2½ hours Total Marks – 100 [N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take in to account of the quality of language and of the way in which the answers are presented. Different parts, if any, of the same question must be answered in one place in order of sequence] Marks 1. As a consultant specializing in risk management, you have been appointed by the Director of Corporate Development to undertake a comprehensive review of the risk, facing the Bangladesh based Sky Ways Airlines (SWA), as a precursor to the latest strategic planning process. You are told that the extended supply chain of SWA makes it reliant on suppliers of fuel, aircraft parts, air traffic control etc. SWA has increased its borrowings this year and its liquidity ratio has fallen below one and it has negligible retained earnings. It has also experienced increased dissatisfaction from employees as a result of voluntary redundancies arising from moving to a new more efficient terminal and, apparently, the loss of control over them by the decline in influence of the Trade Unions. The Engineering Director has advised that the International Civil Aviation Organization has shown a preference for the International Risk Standard developed by the Institute of Risk Management. Requirement: Prepare a report, identifying the range of externally driven risks to which SWA is subject to and any internally driven risks. Suggest appropriate improvement to control the risks you identify. 20 2. Y Ltd manufactures car seats for children. Y’s home country, Z land, has extensive legislation on car safety for many years and child seats are compulsory. The company was formed 10 years ago by an entrepreneur who had previously worked as a technical consultant for an industrial foam company. Despite strong competition, Y Ltd has succeeded largely by careful marketing. The car seats come in a range of sizes and there are a variety of options from fully integrated seats for very young babies to booster seats for older children. The company’s main customer is an accessory manufacturer with a major presence in Y Ltd’s home market. It buys the car seats from Y Ltd and sells them under its own brand as ‘safety approved’. It advertises the car seats in accessory brochures and on its website. The company’s second major customer is a large superstore in the home country which specializes in children’s clothing and accessories such as prams and pushchairs. The remaining sales are to a varied mix of large and small mainly independent car accessory retailers. The car seats have historically all been produced on a single site in the north of the home country. The Managing Director uses his connections to source the padding from several suppliers with a commitment to achieving the lowest price but complying with all safety standards. The company is considering possible methods of expansion and is currently considering exports to neighboring countries. Requirements: (a) Explain how condition in Z land could give Y Ltd a competitive advantage when it starts its export operations. 10 (b) The Managing Director of Y Ltd is constantly trying to improve the productivity and quality of his manufacturing operations and is considering a program of benchmarking. Explain why a benchmarking program would help Y Ltd and suggest how it might be carried out. 10 3. (i) Describe how each of the following information system can perform, and the level they serve in the organizational activity: a) Transaction Processing Systems (TPS) b) Office Automation System (OAS) [Please turn over]
  2. 2. – 2 – c) Knowledge Work Systems (KWS) d) Management Information Systems (MIS) e) Decision Support Systems (DSS) 15 (ii) The airline industry as a whole is loss making. Even successful airlines struggle to get an operating margin above 10%. Using the following models identify contributory factors to the low rates of profit in airlines. (i) Industry life cycle 3 (ii) Porter’s Five Forces. 7 Indentify potential strategies to restore profitability in the light of your analysis. 5 4. Company history Foodfair was established thirty years ago by three friends, Alam, Dulal and Fahim who remain the company’s only shareholders. The firm is in the catering business and currently has an output of about 26,000 meals per week. Fahim retired from full- time employment with the company five years ago and was appointed Chairman. He was regarded as the most talented manager and astute businessman amongst the founders. Alam and Dulal are still full time working directors but will probably retire within the next year or so. Products and markets The company produces ready- to- eat meals for factories, schools, airlines and social events. Sales are of two main types-to other catering organizations which have sub-contracted to Foodfair (these customers are referred to by Foodfair as ‘bulkbuyers’) and to ‘final consumers; A breakdown of revenue and gross profit (GP) are as follows: Bulk buyer Final consumers % of revenue GP% % of revenue GP% 2011 (current year) 50 8 50 15 2010 55 10 45 14 2009 45 11 55 13 2008 40 12 60 13 2007 35 12 65 12 The products which Foodfair sells to the two types of customer are different. Meals sold to other caterers tend to be bulk sales allowing long production runs of one menu. The catering customers of bulk sales specify very closely the portion sizes, contents, nutritional value and cost of the meals; the menus are often standardized. Meals being produced for final consumers, however, have much more variety and are less standardized. Final consumers take Foodfair’s advice, and the company employs chef and a nutrition expert to design and oversee the production of these meals. Foodfair has long-established links with many food suppliers who are adept at supplying ingredients of the proper quality. A considerable range of quality is used, depending on how the food is to be cooked and on the cost limits imposed by buyers. Bulk buyers are particularly precise when stipulating meal contents. Recently a batch of meals was rejected because the carrots had been chopped into circles rather than into little sticks. The final consumers are not fussy. Until recently Foodfair followed pricing policy of full cost plus about 14% on all its contracts. However, the bulk buyers have become very well informed about the raw material and processing costs, and are thus able to make a good assessment of Foodfair’s costs. Contracts have become very competitive. The most recent bulk contract attracted eight bids; the buyer took the three best bids and divided the order amongst them at the price given by lowest quotation. [Please turn over]
  3. 3. – 3 – Production Liton (the General Manager) and Waliullah (the Executive Engineer) saw increased efficiency as the key to the firm’s survival, and the firm recently spent Tk.500,000 on efficiency improvements (work study, machine modification, new machines and incentive schemes). Some of these changes were in anticipation of stringent EU hygiene legislation. Waliullah subsequently left, taking with him enormous practical expertise. Liton estimates that maximum meal production at the present factory is 30,000 per week. Recently, it produced 28,000 meals. Pre- occupation with the machinery and efficiency improvements has meant that Liton has shelved plans to look for a large building which would have given scope for even greater production. Management and personnel Since Waliullah’s departure the only managers left below board level with any significant experience are Liton and the sales manager. Liton sees his major role as that of coordinator. Training is not given a high priority and no managers have been given anything beyond technical subjects. Turnover amongst staff is low and there is a friendly atmosphere; wages are regarded as fairly good. However, Liton is himself thinking of leaving as he can see no prospect of improving his position at Foodfair unless he were to obtain a seat on the board. Recently a friend of him set up a catering business and has had a very profitable first year. Liton provided Tk.5,000 of the start-up capital. Foodfair’s recent performance Despite the problems noted above, recent sales have been strong. The company has a good reputation and a lot of business comes through recommendations from satisfied customers. Foodfair does not advertise exclusive, although recently it did send out a mailshot to local businesses offering catering facilities for meetings, presentations and general entertainment functions, there was a negligible response that could be traced to this. The future Minutes and reports of recent meetings have raised the following points: (1) Amongst several large contracts coming up for tender is one for a local large engineering works (1,200 employees). Despite its size this would not be regarded as a bulk buy contract. (2) Changes in the food manufacturing business mean that there is an increasing trend among end users to sub-contract the running of their canteens to caterers which act as catering facility managers. Fewer companies are willing to employ their own catering staff. The country has imposed new hygiene laws and businesses are wary of having themselves to administer and run canteens. (3) One major catering company is currently building its own food production facility. (4) Decisions on the firm’s future are likely to be made solely by Alam and Dulal, with little attention being paid to the views of senior managers. Dulal has recently overruled Liton on a number of production decisions and this caused a loss of efficiency and the scrapping of a significant number of meals. In addition, a sales representative was appointed by Alam without reference to the sales manager. Requirements: (a) For each of the five years for which information is supplied, calculate the company’s overall weighted average gross profit percentages. Comment on these figures and on the figures supplied to you. 10 (b) Write a memorandum to the Chairman which covers the following areas: (i) An analysis of competitive pressure within the two customer group. (ii) Appropriate generic strategies. (iii) The implications of chosen strategies for organizational structure. (iv) Options for production capacity. Your memorandum should make recommendations for what you consider to be key issues facing. 20 – The End –

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