Strategic Case study Strategic Analysis P Plc Plumbing

Strategic Case study Strategic Analysis P Plc Plumbing and Building Suppliers Nick Best with www. astranti. com

Welcome to Nick Best’s CIMA Strategic Case Study preseen analysis For those of you who don’t know me, I am the Managing Director of Astranti Financial Training. I’ve tutored CIMA for over 15 years for BPP, Kaplan, First Intuition and Reed Business School and have authored a number of official CIMA study text’s and revision guides. For Mock Exams on the latest case, free preseen analysis videos and course notes visit www. astranti. com

Introduction to the case The plumbing and building retail industry is the focus for the latest Strategic Case Study. Hardly ‘exciting’ but it’s easy to associate with – real products which are around us all the time and which anyone with a house has probably had to buy. That’s a help! The case company P Plc is based in the UK, but operates worldwide. It’s grown through acquisition, and is profitable, but needs to rationalise its structure and divest unprofitable business units.

Strategic analysis – the rational model This analysis uses the rational planning model of strategic analysis, summarised in the following diagram Governance & Ethics Business Environment PEST 5 Forces S W NOW O T Internal analysis Business Strategy Generic strategies Ansoff’s matrix Method of growth Product analysis -Product life cycle -BCG matrix FUTURE Mission & Objectives Stakeholder Mapping

Strategic analysis – the rational model The first stage of analysis is to ensure we fully understand where the organisation is heading, along with its approach to meeting stakeholder needs. Governance & Ethics FUTURE Mission & Objectives Stakeholder Mapping

Mission The mission statement sets the direction and tone of the organisation, and guides strategic decision making. The case study gives us the following mission related elements: Corporate values: 1. Trading fairly and honestly 2. Responsive to customer needs – continuous improvement 3. Employing committed people 4. Respect for cultural diversity Strategic objectives 1. Market leader 2. Deleverage underperforming parts of the business 3. Continuous improvement of products and service Remember to use these in the exam to help guide the decisions you make on how to move the business forward.

Objectives and performance measurement The objectives provide a focused target to move towards to direct planning, motivate staff and enable accurate performance measurement We are given few specific targets in the case study. They are likely to have more specific strategic targets we are not told about. If the unseen suggests they do not, then this is a weakness in the company’s planning approach. They do record performance, but the analysis in the preseen does not offer much valuable insight – both divisions are very similar. More detailed analysis is needed. Benchmarking of comparable retail divisions might help to identify units to sell or ways to improve underperforming divisions. Balanced scorecard would be beneficial to P Plc with a focus on their key goals by measuring: Customer service and satisfaction Product quality Innovation

Astranti Strategic Mock Exams “Hi Nick, The biggest criteria for success in my opinion is practising mock exams based in this case study These are key since: • They help you with Time Management, a critical problem for most students • They enable you to practise a range of issues that you may see in the real exam Our strategic mocks are tailored to this industry and give you vital exam practise Mock marking with very detailed focused feedback is also available (don’t underestimate how important feedback on approach and technique is to you success! I passed! To say that I am extremely happy is a gross understatement! I would like to thank you for helping me cross that bridge (not an easy one) and achieve another milestone in my life. Your mocks made a big difference and really helped me - this was my 3 rd attempt. There is something very right in what you are doing. Keep up the good work! Kind Regards, Edmore Chinhakwe” Passed November 2011

Governance • P Plc have 6 Non-executive Directors (including the Chair) bringing independence to the board • However they have 7 executive directors – which is more than half, which is not good practise under the UK’s combined code • There is a concern about the power of the ‘Executive committee’ – are they too powerful and so making the NEDs roles insignificant. • Little evidence in the case of other key governance issues. They are listed so should conform to governance requirements and probably do, but look out for weaknesses in the unseen in areas such as: § Committees of Non-execs – Audit, remuneration, nomination § Disclosures of directors and pay § Financial reporting and control § Information for directors § All directors involved in decision making § Regular meetings with institutional shareholders § Good use of the AGM

Ethics and CSR P Plc have a clear statement of ethics. This suggests this will be an important part of the exam. Key elements of CSR for P Plc: • Staff training, development and safety • High ethical standards • Minimise environmental damage • Safe, reliable products Look out for ethics issues in the exam, and ensure you recommend P Plc focus on continued high ethical standards in this area.

Stakeholder Analysis Mendelow’s Matrix Low Interest Minimal interest Low Employees of suppliers Power Occasional customers Keep satisfied Governments High Power Most institutional shareholders Bank High Interest Keep informed Loyal customers Most suppliers Most employees and minor directors Small shareholders Key Players (Keep close) CEO and Chairman Major branded suppliers

Strategic Preseen Video Series – Now available With Nick Best Managing Director Astranti Financial Training Strategic Review - all subjects E 3 - Full Strategic Analysis (including a review of the models) F 3 - Financial Analysis P 3 - Risk Analysis Most likely issues - all subjects Strategic level guide Examiner’s expectations at strategic level The reasons people fail Exam technique guide How to prepare for strategic level Preview the first video for free at www. astranti. com

Strategic analysis – the rational model Business Environment PEST 5 Forces S W NOW O T Internal analysis Product analysis -Product life cycle -BCG matrix Next we need to analyse the current position of the business This helps us ensure the strategies we decide upon are appropriate to the business’ current position and issues they face in the industry and more broadly This position is summed up in a SWOT analysis

SWOT Strengths 1. 2. 3. 4. 5. 6. 7. Customer service Product quality Well recognised brands in local markets and for specific products (e. g. kitchens/ bathrooms) Large company – should be able to obtain economies of scale in purchasing Listed – should help raising of new finance Profitable – helps generate more finance and ensure dividends can be paid Good relationships with suppliers Weaknesses 1. 2. 3. 4. 5. Opportunities 1. 2. 3. 4. 5. Divest unprofitable parts of the business Purchase of new brands Expansion into Asia/Africa, including new warehouses Expand online operations Onsell products between different brands Confused and inefficient organisational structure. Too many functional departments, and a two way divisional split suggesting inefficiencies, repetition and lack of working together Some underperforming divisions – to be sold off, or merged with successful brands Weak purchase process – many underperforming divisions came from poor purchase decisions. No warehouses in Africa/Asia Lack of detailed benchmarking or good performance measurement (possibly!) Threats 1. 2. 3. 4. Foreign exchange Return to recession in main countries in which they operate Competition – lower prices/better quality/better marketing Quality of products from suppliers is poor – leading to poor customer satisfaction

Astranti T 4 Courses • • • Detailed video exam guides Full video debrief of the preseen 2 full day live masterclasses § The exam and marking criteria § Prioritisation of Issues – they new key skill at T 4 § Preseen analysis and discussion § How to pass the T 4 exam § Industry analysis 5 full mock exams § Marking and personal feedback on 3 mock exams 60 industry examples to use on exam day 3 mini-mock exams § Detailed feedback on 2 mini-mock exams Detailed course notes Calculations e-book to practise calculations questions Ethics e-book – ethics is a guaranteed 10 marks at T 4! Private forum: § debate the case with others § focused tutor support Ongoing e-mail support Progress reviews § Keeping you on track for a pass “Hi Nick, I passed with 62% - huge relief. Thanks again for your support – I’m relieved I stumbled across you before signing up with one of the mainstream training providers. Kind Regards, Marc” Marc Thomas Passed September 2011 “I could not recommend this service strong enough and honestly feel this was the reason for my successful pass” Paula Roberts Passed November 2009

PEST analysis Political/ Legal Economic • New laws on – Health and Safety of staff, Product safety • Political uncertainty in overseas markets could threaten some markets • Worldwide economic downturn now ending – opportunity to grow • Exchange rate impact as overseas operations • Interest rates likely to rise over next few years – may make borrowing more expensive • Trend towards DIY/renovations of houses – likely to increase once Social (inc economies recover sustainabil • Increasing customer awareness and focus on CSR, ethics and ity) sustainability – important P Plc operate ethically. • New technologies in distribution and sales will be key to continued Technologi efficiencies cal • Increasing trend towards online sales – important P Plc have addressed this issue in their various markets

5 Forces Analysis • The 5 forces analysis enables the analysis of the industry according to a range of key factors affecting that industry • Each force can be given a strength (e. g. High, Medium, Low). Where all the forces are high, the profitability of the industry is low, and divestment may be a good strategy. • The lower the forces the more attractive the industry is. • Companies may look at the areas where forces are high and develop strategies which may lower these. • The 5 forces analysis for this industry is on the next page § In this case the average of the forces is medium so the industry would be deemed averagely profitable.

5 forces analysis Factors increasing Force Buyer Power Medium Supplier Power Low Competitors High New Entrants Low Substitutes Low Factors lowering force • Customers can easily switch to competitors • Lots of small customers. No particular as products are standard (the competitor’s are likely to be very similar) customer can negotiate price discounts as none as over-riding power. • Good suppliers on long term contracts may • Lots of suppliers (90, 000) means lots of have some power when renegotiating contract. choice for P Plc on standard products – so • Some suppliers with strong brands may have most of the time the power lies with P Plc power (e. g. ICI with their Dulux paint brand) • Lots of small competitors in every town • Relatively few very large providers – the direct worldwide • Some large competitors • Products are not differentiated greatly so easy for customers to switch competitors of P Plc • Easy to enter this market as products easily • A mature market that is unlikely to attract sourced significant new players to the market • Main substitute is going without where there • Very few substitutes for most products (e. g. if is a choice (e. g. during a recession customer may just choose not to have a new kitchen or bathroom) you need a new tap there are few alternatives) • P Plc provide all alternatives so are at little risk of not providing most substitute products

Strategic analysis – the rational model Next we need to analyse the strategic options, and make a conclusion on the way forward for the business S W NOW O T Business Strategy Generic strategies Ansoff’s matrix Method of growth FUTURE Mission & Objectives The usual approach to defining a business strategy is to begin with a definition of the generic strategies, followed by analysing options in Ansoff’s matrix, looking at how these might be implemented with the ‘Methods of Growth’ and then deciding upon a final strategy

Opportunities and Threats Products/Generic Strategy Products Generic Strategies • Most products in the maturity • Not followed by P Plc phase of the product life cycle. Most are likely to be cash cows generating ongoing revenues – Cost leadership although there may be the opportunity to review product profitability to examine the product range in more detail and divest unprofitable products. BCG/ Product Life Cycle • Products are standard so their may be few opportunities for significant product innovation • Quality is key for P Plc • Customer service is their key Critical success factor Differentiate • Wide product range providing • Broad focus used to a very wide virtually all customer needs customer base of consumers and builders throughout the world. Focus

Ansoff’s Matrix and methods of growth • Ansoff’s matrix enables the generation of strategic options. • Those you’ll find in my analysis over the page are just ‘options’, not my recommendations. • You might like to add your own options (1) Based on your own ideas to take the business forward (2) Based on those in practise exams you undertake • The final stage is then to decide on the methods which the organisation can use to take the options (as generated in Ansoff’s matrix) – again these are just possibilities at this stage

Ansoff’s Matrix and methods of growth Existing Market • Divest unprofitable products and New Market • Africa and Asia expansion, brands • Continue to improve customer Existing service and quality to retain new Product customers • Increased marketing to attract new customers • Brand consolidation including new warehouses • Other regions where they do not have a presence e. g. Russia, Brazil Possible product expansion into: • Gardening/Plants • Lighting New • Furniture Product • Carpets Potential to onsell P Plc products within each brand e. g. kitchen retailer starts selling bathroom products • Vertical integration – e. g. buying a manufacturer (unlikely as they have previously moved away from doing this)

Methods of Growth Internal Development • Store growth of current brands • New warehouse • Ongoing efficiencies • Significant part of growth strategy over recent years. Further Acquisition opportunities to expand by acquisition may present themselves, but care needs to be taken about the price paid and appropriateness of the company due to previous errors having been made. • Possible joint ventures in countries where little market knowledge Joint Venture Divest e. g. China • Unprofitable brands • Unprofitable products More analysis of brand products is needed.

Defining a business strategy • On the following page you will find my recommended strategy for the company. • Remember that this is my view and is not a definitive answer • Also remember that in the exam, you are NOT expected to define a way forward like this – you MUST deal with the unseen issues and only those issues • However, dealing with those issues in light of a strong logical approach to how the business should be taken forward can help you make a strong argument in your recommendations.

Nick’s Strategies going forward • Continue with the successful areas of the business § Strong, profitable brands § Existing wide product ranges § Take further purchase opportunities as they arise • Clear generic strategy • Structural review § Continue to develop excellent customer service and retain high product quality to cement differentiated position § § Remove current two divisional split Fewer functional areas Regional divisions Merge brands where significant links so all part of coherent structure § Retailers report to retail manager not warehouse manager • Ensure half board are NEDs and they have power, through a review of the role of the current executive board

Nick’s Strategies going forward • Continued organic growth in existing markets § Expand retail outlets of successful brands • Product and brand profitability analysis § Divest unprofitable products or brands or consider merging brands within profitable groups • Wider expansion into new markets through acquisition – particularly high growth markets such as China, Russia and Brazil § Including analysis and purchasing of new warehouses.

Please ‘Like’ the site So that’s what I would do. I’m sure you’ll have your own views. Just remember not to hold onto these too tightly in the exam – you must primarily deal with the unseen issues! If you’ve found this useful, I would be most grateful if you could “like” our page at www. astranti. com/t 4 topcima. html. This helps to raise our profile on search engines, which helps us reach as many people as we can. ebook account