Papy

Draft for Comments

T4 Case study - TOPCIMA

Strategic Analysis

Papy

Nick Bestwith

www.astranti.com

Draft for CommentsWelcome

Welcome to Nick Best’s TOPCIMA strategic analysis

For those of you who don’t know me, I’ve tutored TOPCIMA for BPP, Kaplan, First Intuition and Reed Business School, am

the author of the official CIMA T4 learning system, on which I worked together with one of the TOPCIMA examiners, and now

work for Astranti Financial Training on their TOPCIMA Personal Coaching

Programme.

For Mock Exams on the latest case, and a range of other TOPCIMA information visit

www.astranti.com

Draft for CommentsIntroduction to the case

The supermarket industry is the focus for the lates t T4 Case Study. That will no doubt be a relief to many of you, as it is an indus try which is very familiar to

us all. We’ve all been to and shopped in supermarke ts and have at least a little knowledge of the competitors and their diffe rences. This should also make finding industry examples (necessary for the d iversity marks) very

easy to find.

The case company (Papy) is a successful company ope rating in 8 European countries. It is growing has strong margins, and a loyal an increasing

customer base.

The key twist this time around is the focus on sust ainability, which is the companies key weakness. It lags behind competitors in this increasingly

important area. There is a new CEO, and he is deman ding a big improvement in this area, and has employed a new director to lo ok after this.

Draft for CommentsStrategic analysis – the rational model

This analysis uses the rational planning model of s trategic analysis, summarised in the following diagram

FUTUREMission &Objectives

NOWBusiness Strategy

Business Environment

Internalanalysis

S W

O T

PEST 5 Forces

Product analysis-Product life cycle-BCG matrix

StakeholderMapping

Generic strategiesAnsoff’s matrix

Method of growth

Governance& Ethics


The first stage of analysis is to ensure we fully understand where the organisation is heading, along with its approach to meeting stakeholder needs.


StakeholderMapping

Governance& Ethics

Draft for CommentsMission

The mission statement sets the direction and tone of the organisation, and guides strategic decision making. As is the case with most T4 Case Study exams, we are not given the company’s mission statement.

If it were to have one, we could perhaps conclude that it might focus on good customer service, keeping costs low, looking after employees, and delivering strong returns for shareholders.

Going forward, it should also include a focus on the CSR – particularly sustainability.

Draft for CommentsObjectives 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, which could be the case here, as their has been a lack of strategic focus for the last 2 years due to the ill-health of the former CEO.

We are also told very little about how director and staff performance is measured and rewarded. Again you would assume they do have motivating performance

targets but look out for evidence in the unseen for a weakness in this area.

Draft for CommentsGovernance

• Papy have 7 Non-executive Directors – good, and aligned with good practise under the combined code

• Non-Executive Chairman – some independence on the board, and separate from the CEO – we like this!

• Little evidence in the case of other key governance issues. They are listed so should conform to governance requirements and probablydo, 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

Draft for CommentsEthics and CSR

• Ethics is 10 marks in the exam – and hence is a very important area

• Lack of clear strategy and integrated approach � CSR weak according to new CEO – who is keen to

improve this� High free plastic bag count compared with competitors� High carbon emissions high compared with competitors

• New Director taking charge of this area

Draft for CommentsEthics and CSR - continued

• Some progress recently made:� Reduced waste� Reduced energy consumption 911 (2008) to 858 (2010)� Less plastic (plastic bags) – from 744 (2008) to 549 (2010)� Carbon emissions – 1,109 (2008) to 1,042 (2010) � More fair trade products� Fish – responsible purchasing practises� 90% suppliers treated with respect� Suppliers inspection on working conditions� Employees – valued, training� Customer – healthy eating ranges expanded – 100% nutritionally labelled

• Press statement (appendix 5) – Welcomed but progress must now be made

• Critical area in this case study

Draft for CommentsStakeholder mapping

• Doing a stakeholder map as an appendix in the exam is almost always something which is useful to do. An appendix and done well will usually gain 2 marks – possibly more.

• You must update the map for changes in the unseen, and add all new stakeholders which are in your top 4 issues

• Refer to your map in the main body of your text, adding a comment to say what the position of that stakeholder on the map means in relation to this specific issue (e.g. a key player should be involved fully through regular meetings, and incorporating their views into the final decision)

Draft for CommentsStakeholder Analysis Mendelow ’s Matrix

Key Players

CEO and Chairman

Major shareholdersMajor branded suppliers (e.g. Unilever, Diageo)

Keep satisfied

Governments

Some major shareholdersHigh

Power

Keep informedMost customers

Smaller SuppliersMost employees and minor directors

Small shareholders

Minimal interest

Employees of suppliersLow Power

High InterestLow Interest


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

NOW

Business Environment

Internalanalysis

S W

O T

PEST 5 Forces

Product analysis-Product life cycle-BCG matrix

Draft for CommentsSWOT

• On the following page you’ll find my SWOT analysis.

• Remember that you MUST do a SWOT analysis as Appendix 1 in your answer.

• You will score 1 mark in the technical section for this, and up to 3 further marks in the application section - if done well.

• You must update this SWOT for unseen issues (underline or bold these in your exam script), and should aim to include ALL your top 5 issues in your SWOT.

• A recent CIMA student script review I read, also made it clear that 2-3 word points in the SWOT will not score as well as points made in more depth, so it is worth writing 5-68 words for each point in your SWOT AND aim for roughly 5 points per heading.

Draft for CommentsSWOT

• Very competitive market – price competition (competitor 2 appears to be growing due to lower prices), new store locations, etc……

• Do not achieve CSR goals – re reputation in market• One off issue affects reputation e.g. food hygiene

• Expansion outside Europe• Expansion into other European countries• CSR improvement – re branding

ThreatsOpportunities

• CSR lack of overall strategy + Poor carbon emissions vs competitors, high plastic bags (some improvement in last year)

• Lack of CSR reporting – no EMS• Lack of leadership due to ill-health of old CEO for 2

years + new CEO lacks industry knowledge• Small number of weak convenience stores• Few large supermarkets opened• Paying suppliers earlier (less free finance)• Much smaller than competitors 1 and 2 – difficult to

match their buying power re prices

• Listed, increasing EPS – facilitates raising finance

• Strong financial position = Large revenues, profitable, stable financial position, cash generating, increasing margins = well run

• Reduced inventory levels, and good IT control• Loyal customers, increasing numbers• Mix of supermarkets and convenience stores• Experienced Chairman• New IT solutions – improve efficiency/cut costs –

order tracking, 70% linked to suppliers, investment allows for growth

• Continued growth in stores (particularly convenience)

• Share scheme – motivation of staff

WeaknessesStrengths

Draft for CommentsPEST analysis

• On the following page you’ll find my PEST analysis.

• The PEST analysis is always an optional appendix in this exam, although this is one of the best case studies for a long time for this model as there are so many relevant points.

• Do aim to add one or two additional issues from the unseen into your PEST if you do one in the exam

• You MUST cross reference your PEST in your script however, and many students do not do this well. Aim to do this 2-3 times in your script

Draft for CommentsPEST analysis

• New technologies in procurement, inventory management, purchasing, will be key to continued efficiencies (Papy appear on course except in the area of environmental reporting)

Technological

• Trend in sustainability – supermarkets slow to and some do not incorporate it into strategic plans (e.g. Papy)

• Global scope for improvement in reporting sustainability

• Increasing customer awareness and focus on sustainability

Social (inc sustainabil

ity)

• Difficult economic times increases importance of price e.g. value range

• Many supermarkets not adversely affected by economic downturn as food is a necessity and other products sold at the value end of the market

• Exchange rate impact as overseas operations

• Euro crisis – uncertain impact

Economic

• New laws on – Health and safety, Carbon emissions• Carbon trading schemes

Political/Legal

Draft for Comments5 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.

Draft for Comments5 forces analysis

• Food is a necessity• Clothing a necessitySubstitutes

Low

• Lots of competition – they have economies of scale – this deters new entrants• Difficult to get planning permission on new large stores

• Global competitors do enter local markets using organic growthNew

EntrantsLow

• Many large international competitors –globally recognised brands• Wide coverage – international, large and convenience• Price is key to being competitive

CompetitorsHigh

• Many suppliers of undifferentiated products (e.g. Fruit, Milk, Own Brand manufacturers) have little power

• Large brands can dictate terms as supermarkets are forced to stock these itemsSupplier

PowerMedium/Low

• Some loyalty – most people shop in same store each week• Often people choose most convenient • Buyers are small and not able to negotiate special terms individually

• Lots of competitors allows for easy switching between competition

Buyer PowerMedium

Factors lowering forceFactors increasing Force


Next we need to analyse the strategic options, and make a conclusion on the way forward for the business


NOWBusiness StrategyS W

O T Generic strategiesAnsoff’s matrix

Method of growth

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

Draft for CommentsOpportunities and ThreatsProducts/Generic Strategy

Focus

Differentiate

Cost leadership

• Convenience stores – increasing focus• Few new large stores

• Limited economies of scale vs larger competitorsWeaknesses

• Products are mostly generic –hard to differentiate• Some competitors such as M&S and Waitrose operate in the higher quality area• Papy do not appear to have clear differentiating factors

• Growing convenience stores

Strengths

• VITAL to success in this industry• Most competitors must keep costs low• Papy may find it difficult to compete on price long term against much larger competitors with high Economies of Scale• Papy are potentially ‘Stuck in the Middle’

• Wide range of products-food<75%• Branded, Own Brand, Value range• Value range important in difficult economic times•Convenience vs large supermarkets

BCG/Product Life

Cycle

Generic StrategiesProducts

Draft for CommentsAnsoff’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

Draft for Comments

• Food production• Logistics (e.g. to competitors or other retailers)• Other retail areas e.g. Coffee shops, PC sales

• Some uncertainty exactly what their product range incorporates but could expand wider like Tesco into areas such as financial servicesNew

Product

• Expand into new overseas markets – South America, Africa, other European countries

• Value chain review – remove non-value adding activities – cost reduction

• Improve CSR

• New technologies – increase efficiencies + reporting (EMS)

• Continue focus on customer satisfaction and service, and achieving efficiencies

Existing Product

New MarketExisting Market

Ansoff’s Matrix and methods of growth

Draft for CommentsMethods of Growth

• Unprofitable stores• Unprofitable profits linesDivest

•New markets (e.g. India, China)

•Some new products e.g. Coffee chain within large storesJoint Venture

•Competitors

•Small companies

•Suppliers•Companies which are in new markets e.g. India, China

Acquisition

•Cost reduction

•New products•New markets

Internal Development

Draft for CommentsDefining 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 away 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.

Draft for CommentsNick’s Strategies going forward

• Continue with the successful areas of the business� Keeping costs low� IT investment (inventory, ordering)� Customer service and satisfaction

• Clear generic strategy – undertake strategic review of existing products and markets – perhaps with a focus on convenience stores which is a growing area with higher margins

• Continued organic growth in existing markets – consider profitability and viability of growth in areas convenience vs large stores

• Wider expansion into new markets through acquisition – particularly high growth markets

• CSR strategy devised and implemented, with clear targets and CSRreporting

Draft for CommentsNick’s TOPCIMA Coaching Programme

So that’s what I would do. I’m sure you’ll have you r own views. Just remember not to hold onto these too tightly in the exam – you must primarily deal

with the unseen issues!

Remember to use www.astranti.com for more specific guidance towards the exam, and if you don’t pass this time, perhaps consider working

with me in my personal coaching sessions for the next sitting.

Documents

Papy