Cervus Equipment Corporation

Business Strategy

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 Introduction
Cervus Equipment Corporation is primarily in the Business of acquiring and managing
agricultural, commercial and industrial equipment. The organization began as a
partnership between Graham Drake and Peter Lacey in the 1990s. During its first 13
years in business it accumulated more than 50 partially and wholly owned equipment
dealerships with 36 representing John Deere and rest representing construction
equipment brands.

More recently, Cervus Equipment had concentrated on carrying out a diversification

growth strategy in the industrial and construction equipment market. Cervus operated
and purchased a number of construction and material handling equipment dealership
that sold globally recognized brands like JCB, Bobcat, Clark, Doosan, Nissan Forklift,
Sellick and most recently Peterbilt trucks.

In 2009 the company discovered opportunities to expand internationally. Cervus

Equipment sealed 10 dealerships with John Deere in New Zealand which made it an
international company in the process. However the company was faced with some
challenges as it did not have full understanding of running complex dealerships around
the world.

The CEO of the company, Graham Drake is trying to move the company towards its
goal of $2.5Billion in revenue by the year 2020. As the industry is becoming more
competitive and technical, Drake is faced with the decision to select the appropriate
growth strategy that would be most suitable for the company in order to attain such a
goal. This case sets out the issues facing Cervus Equipment, an analysis of the firms
internal and external environment, criteria and options for the company as well as
recommendations and an implementation plan on how the company can support the
upcoming growth planned.

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 Key Issues
As Cervus Equipment is making attempt to progress towards its $2.5billion revenue goal
by 2020, it is faced with the decision of choosing an effective and appropriate strategy.
The main issues faced by the company in achieving its goals are identified as follows:

1) Implementing an innovative growth strategy able to achieve desired growth, while

preserving the value based employee model.

2) Increasing products and service capabilities to clients and optimizing operational

requirements for customers.

3) Integration and funding of new acquisitions.

4) Evaluating the growth potentials in international markets.

5) Responding to Information Technology (IT) environmental complexities

alongside exploring available partnership opportunities.

ANALYSIS

Internal Analysis (VRINE) Decentralization and Principles over Policy

The VRINE analysis was adopoted in this case to determine whether Cervus
decentralization capabilities, namely the principles over policy management philosophy
would be able to provide a sustainable competitive advantage.

Value

The dealership network that was established has been a key factor to the success of
the company. Additionally, the empowerment of employee dealers to implement and
formulate growth strategies created significant value for Cervus. Decentralize value

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based decision making enable the front-line employees to make vital customer service
decisions without waiting on managers or referring to corporate policies for assistance.

Rarity: Cervus Equipment decentralized decision making and principle over policy
model is a unique approach in its dealership management, it also allows for a higher
customer satisfaction and support. Most independent dealerships still utilize the
traditional centralized approach for customer-level decision making.

Inimitability: Cervus Equipment dealership network and strategy can be imitated by its
competitors. However because of its present market position, an organization would
need a large amount of investment before it can copy this model. Thus, Cervus
decentralization capabilities would prove difficult to imitate as it requires significant
investment.

Non-Substitutable: Cervus does not have the resources that can be considered to be
non-substitutable because of the presence of other competitors in the industry with
different goals and strategies.

Exploitability: Cervus Equipment exploited its resources which enabled the

organization achieve its present expansion and growth. Cervus Equipment has built a
good customer service, a good brand image and a partnership with John Deere.
Canadian parent and changes name to Cervus Equipment | Farming & Machines
News | The Weekly Times. (n.d.).

EXTERNAL ANALYSIS

PESTEL Analysis:

Political: The recent regulatory changes in the Canadian agricultural industry could
affect Cervus. For example, the Wheat Board regulation encourages large farmers to
market and distribute their product directly without making use of a wholesaler in the
supply chain.

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Economic: Globally there has been an economic slowdown, however customers
growth in such a dynamic business environment resulted in Cervus Equipment gaining
a lot of revenues and profits. As farming technology continues to develop and advance,
the farming industry in the western part of Canada experienced quick growth and high
commodity prices. Increasing growth is predicted in the global agricultural machinery
market. Additionally, in recent years, due to the low interest rates, large amount of
farmers prefer to get equipments on loans and leases.

Socio-cultural: The world population was predicted to increase by 23 percent in 2025,

and global food production is expected to rise by about 50 percent during the same
period. This resulted in the development of the farm business by encouraging both
small and large farmers. Additionally, as Cervus Equipment expands its market to New
Zealand, the company needs to understand the differences in international markets and
cultures.

Technological: Within the industry there have been farming technique and
technological revolution and this is very important as it enhances efficiency and
productivity.

Environmental: Factors such as changes in weather has a great influence in the

farming industry. However, the issue of drought would not be of concern in water-rich
provinces of Alberta and Saskatchewan.

Legal: As Cervus Equipment expands its business to other countries, it needs to take
into consideration the maturity of the countries legal and political environment. It needs
to pay attention to the legislations and regulations in the countries where it intends to do
its business. For example, some legislation require higher levels of bio-fuel in gasoline
and this led to a rise in demand for corn acreage. In addition the company should have
knowledge about the quality regulations on equipment.

Porters Five Forces

Threats from substitutes (Low)

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The threat of substitutes is low because there is not any substitutes of agriculture,
commercial and industrial equipment. Labor is a costly and inefficiency substitute that
was not applied any more. There is only one problem that the customers selection. For
example, larger farms prefer large combine. On the contrary, tractors and equipment
are the chosen by small farms.

Threats from new entrants (Low)

The new entrant of either agricultural or construction equipment industries should

compete against the consolidated grow competitors such as Cervus. The small new
entrants are hard to avoid the acquisition of these competitors. Considered about the
fact that the number of farms is decrease, the partnership is becoming more important
for the dealers. Therefore, the threats of new entrants is low

Rivalry between competitors (High)

There are two primary competitors of Cervus, Rocky Mountain Equipment and Titan
Machinery. Those two companies have similar growth strategies and strong ties with the
OEM Case Construction. RME has a better position in construction industry due to the
oil and gas development in Alberta and Saskatchewan. And it represents Case
Construction and Case IH which owns good international reputation. Actually, RME is
bigger than Cervus. That means RME is a powerful domestic competitor.

There is an extremely competitive in international markets because of the growth in

agriculture machinery, construction and equipment market. Europe, America and Asia-
Pacific are three key markets which grow robustly for the agriculture machinery industry.
In construction and equipment market, China and India are two large potential
consumption markets as the forecast. Then, Titan will be a potential international
competitor of Cervus. As a result, the degree of rivalry is high.

Bargaining power of Suppliers (Medium to High)

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Regardless the positive partnership between Cervus and John Deere, the bargaining
power of John Deere is high. The reason is John Deere understand the behaviour of
their dealers related to market and it has right to approve the ownership transactions
within the dealer network. However, we ranked the bargaining power to moderate due to
the successful partnership with Cervus. The synergy is benefit for both two entities and
that allows Cervus to get successful acquisition. That is the reason why we think the
bargaining power of suppliers is high to medium.

Bargaining power of Buyers (Low)

The component of customers is changing all the time. And it is differ from country to
country. Because of the death of the small farmer, large farms are interested in
consolidation which driven by economies of scale and advanced farming technology.
That shows great impact on the farm equipment business. The low interest rate
encourages farmers to purchase more new equipment through loans or leases. These
transaction increase the needs of equipment and reduce the bargaining power of
buyers. And facing the expansion of Cervus, the bargaining power of buyers becomes
lower.

SWOT Analysis

Strength Largest dealer group in Canada for John Deere and Peterbilt Motors
Company (Cervus Equipment, n.d.).
Represent premium brands in the market.
Own good business model, great leadership and execution
capability.
Weakness Lack of management personnel in dealership.
Organization need more centralization and consolidation and the
software to support these combinations.
Opportunity The international markets growth provides the opportunity of
international expansion.
Restructure organization management and resources can realize the
capability on sales and make the organization more efficiency.

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Threats Cervus would bear great risk in integration process when acquiring
medium sized consolidated dealership.
There is intense international competitiveness

Financial Analysis
2012 2011
Current Ratio 1.696 1.901
Quick Ratio 0.362 0.691

Debt-to-Equity Ratio 0.982 0.532

Return on Asset 0.0613 0.0652

Return on Equity 0.1216 0.0998

The ratios are calculated from data of Cervus annual financial report 2011 to
2012(Cervus, n.d). From the table above, we can see that the debt-to-equity ratio
increased dramatically, from 0.532 in 2011 to 0.982 in 2012. According to
Petersons(1999) study, this ratio indicated the relative proportion of shareholders
equity and debt. And it shows the financial leverage of a company. That means the total
liability increase over the equity during one year period. The main reason of this
increase is the growth of non-current liability (from $9,928 to $69,562, see Exhibit 5)
which is used to purchase several new dealerships.

The current ratio decreases from 1.901 to 1.696 and seems stay a good condition.
However, the quick ratio does not show a good signal. It reduced from 0.691 to 0.362.
The lower quick ratio exhibits that the high risk on the companys short term debt paying
capability. This is caused by the large inventory accounting for the current assets.
Return on assets (ROA) remained stable at 0.0613 and return on equity (ROE)
increased to 0.1216. The reason which indicated by Woolrigdg and Gary (2006) is
increased debt will make a positive contribution to a firm's ROE only if the matching
Return on assets (ROA) of that debt exceeds the interest rate on the debt. And those
reflected in price to earnings ratio (Exhibit 8) which is higher than the other competitors.

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That is also the reason why investors show a higher confidence in their business
strategy and approach.

Recommendation
Alternatives:

First, alternative for Cervus is to stay in the existing market and concentrating on
consolidated acquisition and dealership improvement. This will guarantee that Cervus
dealerships and staff are very much prepared and all around prepared to handle the
future of agriculture. Sales representatives can enhance associations with ranchers
through customized administration and by offering on-going mechanical backing.
Staying in local markets in the transient is a more secure methodology, as the firm will
have sufficient energy to better get ready for the outside risks and uncertainties of
expanding internationally. These business sectors can be misused after domestic
dealerships are sufficiently arranged for the future. However, this might have some
disadvantages. To illustrate, as long as the acquiring consolidated dealerships is outside
Cervus, it is going to be a challenge.

Second, Cervus can seek international expansion promptly, concentrating on

dealership development and new partnerships over long term. Regarding the
partntership, Brandon Hickie suggested Consider partnerships, establishing a reseller
relationship or a referral partner in a market of interest is typically the best way to
aggressively test an entry without fully committing to it (Brandon Hickie 2014). The firm
should embrace an imaginative concentrated procedure rapidly with a specific end goal
to oversee universal dealerships. Enhancement techniques ought to be utilized in the
dealership improvement strategy to decrease any inward shortcomings and fill any
crevices in the product offering. Entering international markets promptly will probably
give Cervus a head begin to achieve the board's objective for sales in 2020. Penetrating
these business sectors early guarantees that Cervus has an opportunity to set up solid
brand acknowledgment before they turn out to be excessively immersed. Dealerships
can be created later on which will expand deals further by means of; new items, cross-

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offering and innovative backing. However, The apparent risk of international expansion
can dissolve shareholder esteem as the organization assumes more noteworthy capital
risk through internationalization.

Recommendation:

It is best for Cervus to remain in the market and concentrating on consolidated

acquisitions and the development of current dealerships. Also, Cervus should consider
the international expansion, because this will probably make Cervius grow faster,
diversify revenue, improve their return on capital, and reinvestment rate (John R. 2012).
After expanding and catching more noteworthy piece of the overall industry in Canada
and New Zealand, the firm should expand into Brazil within five years. When acquiring
already consolidated dealerships, Cervus should enable a single management group to
lead the acquired of stores, treating them like autonomous dealerships. In doing as
such, Cervus will receive a somewhat more concentrated methodology for simplicity of
coordination while as yet staying consistent with their 'principles over policy' show that is
ingrained in Cervus' hierarchical society. Cervus should develop sales representatives
at each dealership that offer gear, parts and administration as well as prompt
agriculturists on new advancements, for example, site-specific farming, improvement
methods and yield information frameworks. Partnerships must be made with
horticultural and development innovation firms so that Cervus representatives can get to
new technologies

Implementation
The Heart of Change suggests that we need to break from tradition and start using
compelling, eye-catching situations to see problems and solutions. Cervus Equipment
Corporation wants to expand globally and they want to find out the best possible
business model which is a one-step solution both for local business and as well as for
international expansion. Kotters 8 steps model is very effective for the corporation to
bring the change in by following step by step procedure. Webster, M. (n.d.).

Kotters 8 Steps Change Model for Leading Change

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Increasing Urgency: Cervus want to expand their business and doubled their business
growth. For instance, more recently they started their business operation in New
Zealand and Australia. Graham Drake, CEO of Cervus, says, "There is some
consolidation yet to do, but in partnership with Deere, that's why we're in Australia and
New Zealand.. However their local business model is not fitting very well in their
international expansion. So it is very important to change the business model and
operational structure to get success. Why Cervus Equipment Expanded Overseas?
(2012, March 20)

Building the Guiding Team: Cervus is very successful in Western Canada however
they dont have capable management team to get success in overseas. Cervus seeking
for their true leader through their own established Cervus Leadership University. Doiron,
D., & Schryer, D. (2013, September 27). Moreover this is a very lengthy process to get
quick result because it takes time to settle down as it needs more time and experiences.
Leader hunting competition could be the best possible result for this problem. Cervus
arranged a case competition for the future leader program. Where they appointed the
winner in their business operation. This one is very effective solution for short-term
solution. UNBSJ MBA Students Win Big in Cervus Case Competition [Web log post].
(2013, May 29).

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Getting the Right Vision: Cervus already has their focused future vision which is rapid
and sustainable business growth. According to Graham Drake, CEO of Cervus, says,
we dont want rapid growth which wont be sustainable. We want both the growth and
sustainable business operation. More recently, Cervus Equipment had focused on
operational diversification in the cinstruction and industrial equipment markets.
Management believe that this sector has a great potential. So their vision is very clear
which is grow the business successfully .Doiron, D., & Schryer, D. (2013, September
27).

Communicate for Buy-in: Organizational changes is mandatory when cervus wants

strategic expansion and growth. Cervus is currently using decentralize decision
structure where each regional dealer can take their own decision. On the other hand
foreign operation needs more structured and integrated decision otherwise it will be very
tough to manage. Moreover foreign operation need centralized operation. Bring the
changes in the organization is very important task. According to Kurt Lewin he said that
change is a process where the organization must transition or move into this new state
of being. At this stage this company can implement new changes. Kurt Lewin, "Frontiers
of Group Dynamics", Human Relations, Volume 1, pp. 5-41 (I added the emphasis)

Create Short-term plans: Cervus should gradually expand their business wings
instead of starting at the same time. First they went global operation through New
Zealand and then Australia. These expansion was very successful now they are
planning to move to Brazil which is one of the fattest growing economy in the world.
This is very important strategic decision of gradual expansion and it is very important for
a large organization like Cervus. Why Cervus Equipment Expanded Overseas? (2012,
March 20)

Implementing and Sustaining Change: Cervus should change their decentralized

decision structure to centralized structure otherwise it will be difficult for their
sustainable existence. Centralized decision structure for the dealership in order to drive

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efficiencies in areas of the business such as parts sourcing, financing and human
resource management. Doiron, D., & Schryer, D. (2013, September 27).

Make it stick: At this stage management should have to establish these changes
permanently in the mind of the employees, organizational culture and practices. Kurt
Lewin, "Frontiers of Group Dynamics", Human Relations, Volume 1, pp. 5-41 (I added
the emphasis).

Technological development
Technological development is very important because technology is rapidly changing.
Moving away from traditional dealership sales and service to solution based business is
not only demand of customer but also it is important for the existence.

Automation in inventory management allow company to be more efficient and helps

to reduce cost. Cervus can follow Just in Time inventory management which means
they wont have any kind of extra or unsold equipments. Just In Time (JIT) Definition
| Investopedia. (2003).
Centralize monitoring for integrated operations so that the management can keep
track what is happening and what improvement needed.
Centralized communication system with the related parties and employees. Which is
very important to implement quick decisions throughout the corporation. According
to Microsoft Cervus contracted them to implement cloud based solution for them,
which is very good initiative. Customer Stories. (n.d.)

Research and Development

Cervus operating their business in such a sector where research and development is
very crucial factor. They are the very close to the customer so they knows very well
what technological developments needed to increase productivity. Technology is
changing rapidly in this sector based on new invention and ideas. A strong Research
and development could be trump card for long term sustainability. As mention in the
case Doiron, D., & Schryer, D. (2013, September 27). Equipment for harvesting.
Dimensional compatibility of forage harvesting machinery. Cervus Equipment
Corporation: Harvesting a New Future that, water resources management and farming

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process innovation issues are coming forward and customer wants rapid and up-to-date
changes.

Conclusion
Cervus is a company with a great potential and long term sustainability in the market. It
has strong market share and powerful financial capability. They are the market leader
not only in their local market but also in international expansion. Moreover they need
strategic expansion for long term success in-terms of international expansion. They
need to bring some mandatory changes in their management and they are working on
it. They are the market leader so they have to strategically analyze all the current scope
and future scope as well to become the best.

Bibliography

Webster, M. (n.d.). You are here: Home / What Leaders Need to Know / Successful
Change Management Kotters 8-Step Change Model Successful Change
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Doiron, D., & Schryer, D. (2013, September 27). Equipment for harvesting. Dimensional
compatibility of forage harvesting machinery. Cervus Equipment Corporation: Harvesting
a New Future. doi:10.3403/30275035

Why Cervus Equipment Expanded Overseas? (2012, March 20). Retrieved June 25,
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equipment-expanded-overseas

UNBSJ MBA Students Win Big in Cervus Case Competition [Web log post]. (2013, May
29).

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 Cervus Equipment Corporation Announces $30 Million Public Offering of Convertible
Debentures. (n.d.). Retrieved June 25, 2016, from http://www.marketwired.com/press-
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