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A Case Study
Strategic Audit
of
( XYZ Company Inc. )
CONTENTS
Background
1. Current Situation
A. current Performance
B. Strategic Posture
2. Corporate Governance
A. board of Directors
B. Top Management
3. External Environment ( Opportunities and Threats )
A. Societal Environment
B. Task Environment ( Industry )
C. Summary of external Factors
4. Internal Environment ( Strengths & Weaknesses )
A. Corporate Structure
B. Corporate Culture
C. Corporate Resources
1) Marketing
2) Finance
3) Research and development
4) Human Resource Management
5) Information System
D. summary of Internal Factors
5. Analysis of Strategic Factors
A. Situational Analysis
B. Review of Mission and Objectives
2
Background
XYZ Company was founded in 1687. It started by producing Baking Soda Packages with the
brand name (Arm & Hammer ).
For 150 years XYZ Company kept developing and adding more consumer products to its
product line, until the products carrying the brand name (Arm & Hammer) could be seen on
about 95 % of all U.S households .
The company has full coverage of the market in the U.S and Canada, but less than 5% of its
sales are outside the U.S, therefore it is working hard now to expand its international
operations . International operations will face two problems :
1-Lack of recognition of the brand name Arms & Hammer outside the U.S .
Overcoming this problem will require huge and expensive marketing efforts
2-The Transportation Cost from the US to target markets in Europe / Asia is high
This problem will deprive the company from one of its main competitive
advantages, which is low prices .
To strengthen its position in the European Market, The company acquired De Witt
International Corporation . This acquisition provided XYZ with the following advantages :
1- Increased international Exposure
2- Ownership of Production facilities and technology of tooth paste .
Products
XYZ Company remained focused on its main product ( Baking Soda ) for a long time, but in
the 1970 The company started to apply a strategy of increasing the number of its consumer
products.
It implemented this strategy by Developing new products in-house and Buying well known
consumer brands, such as : Brillo, Parsons, Ammonia ,,,
The largest selling consumer product is Laundry Detergent ( 4 % of the market ) .
Its main competitive advantage is low price.(15-20% lower than market leader, Proctor &
Gamble ), but this product line faces 2 difficulties :
1- The growing environmental concerns over chemical detergents .
2- The competition of the new entrants
3
Ι-Current Situation
a. Current Performance
1-Market Share
4
2-Financial Performance
The Main Financial Ratios of XYZ Company
1-Liquidity Ratios
a-Current Ratio = Current Assets / Current Liabilities .
b- Quick ( ACID Test ) Ratio = ( Current Assets – Inventory )
Current Liabilities
a-Current Ratio = Current Assets / Current Liabilities .
Item Date 1 Date 2
Total Current Assets
Total Current Liabilitis
Current Ratio = Current Assets / Current Liabilities
b- Quick ( ACID Test ) Ratio = ( Current Assets – Inventory )
Current Liabilities
Item Date 1 Date 2
Total Current Assets
Inventory
Total Current Asset – Inventory
Total Current Liabilitis
Acid Test Ratio = (Current Assets – Inventory ) / (Current Liabilities )
5
2-Asset Management Ratios
A-Inventory Turnover Ratio = Sales / Inventory
B- Days Sales Outstanding Ratio = Receivables / Average daily sales.
C- Fixed Assets Turnover Ratio = Sales / Net Fixed Assets
D- Total Assets Turnover Ratio = Sales / Total Assets
2.721.078 2.119.655
Average Daily Sales (270 Days) (360 Days)
DSO Days Sales Outstanding Ratio = Receivables / Average Daily Sales 39.76 -
6
c- Fixed Assets Turnover Ratio = Sales / Net Fixed Assets
7
3- Debt Management Ratios
a-Total Debt to Total Assets ratio.
b- Times Interest Earned ( TIE ) Ratio
c- Fixed Charge Coverage Ratio
8
4- Profitability Ratios
a-Profit Margin 0n Sales Ratio.
b- Basic Earning Power ( BEP ) Ratio
c-Return on Total Assets ( ROA ) Ratio
d-Return on Common Equity( ROE ) Ratio
9
Common Equity
Total Assets
3 Return on Total Assets Net Income / Total Assets
( ROA ) Ratio
4 Return on Common Net Income / Common Equity
Equity( ROE ) Ratio
11
A.Strategic Posture
1.Mission
12
2-Objectives
3- Strategies
4- Policies
2.Corporate Governance
A. Board of Directors
13
B. Top Management
14
A. Societal Environment
1-Political Environment
2- Economical Environment
4- Technological Environment
Threat
2-Corporate Culture
3-Corporate Resources
a-Marketing
b-Finance
c-R& D
d-HRM
19
SWOT analysis
( Strengths, Weaknesses ,Opportunities and Threats )
Strength Weaknesses
Opportunities Threats
More and more uses are found for Competition of existing local
the products of the Company. producers of detergents.
The products of the Company are Competition of new entrants in
environmentally friendly. the Tooth Paste market.
The increasing demand on Dental
Hygiene products as a result of
continuous growth of oral
Use of the main product of the
company ( Sodium Bicarbonate ) in
the treatment of drinking water .
20
5.Analysis of Strategic Factors
A. Situational Analysis ( SFAS)
Strategic Factors Analysis Summary ( SFAS )
Weighted
Strategic Factors Weight Rating Comments
Score
21
Part 2
Strategy Formulation
for
XYZ Company
22
To formulate Strategy, we use the TOWS matrix
Internal
Factors Strengths ( S) Weaknesses ( W )
* Low labor cost * Low productivity due to
* Enjoying the popular under-utilization of
image of IDEAL capacity
Products in the market * Low market share
* Reduced Expenses * Lack of management
External * Providing warranty & skills in middle
Factors after sale service to managers .
consumers .
Opportunities (O) SO Strategies WO Strategies
* The increasing demand 1-Increase productivity 1-Running management
on gas cookers. to meet the increasing Training courses to Middle
* The potential export to demand. Managers .
Arabic & African 2- Focusing of marketing 2- Analyze production
countries activities on opening processes to identify
* Low prices, relative to new external markets causes of low
its medium quality level for export , utilizing the utilization.& take actions
* The good & Popular I advantage of low prices to remedy them
image of the product 3-Emphasizing in the
line (IDEAL ) marketing plan on the
old & popular name of
IDEAL .
ST Strategies WT Strategies
* Benchmarking CMEI 1- Focusing in advertising
cooker to products of on the issue of providing
Threat ( T )
competitors to identify after sale service to the
*Competition of locally
strengths & weaknesses . product, an advantage that is
built gas cookers
not available for imported
*Competition of imported
products .
Gas Cookers
2- Analyze production cost
*Approaching the date of
and take actions to reduce it
full Implementation of
to reduce selling price, to
GATT,
keep the low price
competitive advantage when
the GATT is implemented.
23
Formulation Of Strategies
Using TWOS Matrix
Based upon the TWOS Analysis, CMEI should follow the following strategies :
3 Emphasizing in the marketing plan on the old & popular name of IDEAL .
Focusing in advertising on the issue of providing after sale service to the product,
7 an advantage that is not available for imported products .
8 Analyzing production cost and take actions to reduce it, to reduce selling price, in
order to keep the low price competitive advantage when the GATT is
implemented
24
The Strategic Position and Action Evaluation ( SPACE ) Matrix
Of
XYZ Company
Return on assets in the year 2000 = 10.7% . This ratio is low compared
+3
to the running bank interest , which is about 10 % .
Profit before taxes in the year 2000 = 4.576.000 E.P , which is about
four times the year 99 +5
Average value of CA -2
25
External Strategic Position
Environmental Stability ( ES )
Rating
The increase of the exchange rate of the U.S $ against the Egyptian
Pound increase the value of imported parts in the end product, which -1
increases the production cost, and the selling price
Fluctuation of the prices of sheet metal affects the production cost, and
-2
consequently the selling price of the end product to consumers .
The threat of imported Cookers, with lower price & higher quality -1
Average value of IS +5
RESULTS
Conservative FS Aggressive
+6
+5
+4
+3
+2
+1
CA -6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6 IS
-2
-3
-4
-5
-6
Defensive ES Competitive
CONCLUSION
The Graphical representation of results indicate that CMEI is in a strong
financial position, and operates in a growing industry , therefore CMEI
should adopt an Aggressive Strategy
27