Anda di halaman 1dari 94

B Supermarket 1 Enough is Enough

C I M A case study 2012 Application of knowledge management to B Supermarket


Group Name: Enough is Enough.

B Supermarket 2 Enough is Enough

TABLE OF CONTENTS
Description 1. Financial Analysis 2. Mission, Objective & Strategy 3. Structure 4. Corporate Governance 5. Control 6. CSR 7. IT 8. Supply Chain 9. Treasury 10. HRM 11. Change Management 12. Appendix Page No. 01 - 10 11 - 43 44 - 44 45 - 48 49 - 63 64 - 65 66 - 67 68 - 71 72 - 74 75 - 80 81 - 89 90 - 91

B Supermarket 3 Enough is Enough

Enough is Enough
Group Members 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Kavindhya Osun Gayan Sakila Shashini Ruvithra Ruwini Chayanga Niluka Sajeewa

B Supermarket 4 Enough is Enough

1.Financial Analysis
1.1 Business Valuation Concept
This provides a justifiable value to a given business The value of a business can fluctuate at any time Current Market Value of the company Market Value = MPS * No. of shares = 31.37*1350 = 42,350 million

Methods of Business Valuation


1. 2. 3. 4. Asset base valuation Earnings base valuation Dividend base valuation Cash flow base valuation

Normally the valuation could be done considering the unseen material. Following valuations are done according to the pre-seen material. Asset base valuation Valuing the business based on the ownership of assets (actual value) Types Net asset base valuation value of the assets based on the financial statements Replacement value cost incurred for the replacement of a particular asset Net realizable value value derived by selling the assets in the market Divisible value value of segregated assets of the business Uses the historical value and ignores the market

Application of the method B supermarket Total Equity = 24,019 million (net asset base value) Earnings base valuation Value of a business based on future earnings potential Identifies the developments in the market Basis is the P/E ratio

B Supermarket 5 Enough is Enough

Total Market Value = P/E*Total Earnings

Application of the method B supermarket Earnings per share (EPS) = Total Earnings/ No. of shares = 3591/1350 = 2.66 Market price per share (MPS) = 31.37 P/E ratio = MPS/EPS = 31.37/2.66 = 12 Total Market Value = 12*3591 = 43,092 million One of the financial objectives of B is to achieve constant growth in earnings per share of 7% each year. Therefore using Gordons Growth Model(GGM) the earnings base value of B is as follows, GGM = [EPS(1+g)] / [ke-g] = [2.66(1+0.07)] / [0.15-0.07] = 35.58 Earnings based value = 35.58*1350 = 48,033 million Dividend base valuation Uses dividend as a base for valuation Types Constant dividend MPS = Dividend now / Cost of equity Growth dividend MPS = [Dividend now (1+g)] / [ke-g]

B Supermarket 6 Enough is Enough

Application of the method B supermarket Current Dividend Payout ratio of B = Dividend per share/EPS = 1.65/2.66 = 62% MPS = [1.65(1+0.07)]/[0.15 0.07] = 22.07 Market Value = 22.07*1350 = 29,193 million Cash flow base valuation Value based on the Present Value of future cash flow

Intellectual Capital (IC) Concept


Creating value through knowledge Components Human Capital (knowledge & expertise, training & development..etc.) Organizational Capital (systems, culture, patents..etc.) Customer Capital (brand name, market shareetc.) Techniques of measurement Market to book value IC = Market value Book value Tobin Q value Q = Market value Replacement cost Calculated IC value Excess return = [ROI IR][Average assets]

B Supermarket 7 Enough is Enough

Application of the IC B supermarket Book value per share = Book value of Equity / No. of shares = 24,091/1350 = 17.85 Market value per share = 31.37 IC = MPS BVS = 13.52

Mergers & Acquisitions Concept


Types of mergers Horizontal merger (Two companies in the same industry) Vertical merger (Merger with a distributor or a supplier) Conglomerate merger (Two companies irrespective of the industry) Synergy (Merger carried out to increase wealth) Facilitates organizational growth Expansion of customer base Can lead to conflicts in management Variables for successful mergers & acquisitions Common core Contribution Value Linkage Management cover Payments for acquisition Cash suited only for small scale acquisitions Share for share offer acquiring company issuing shares for the acquirees shareholders Earned out agreement payments for the acquisition will be carried out for a period of time

B Supermarket 8 Enough is Enough

Actions against hostile takeover Communicate directly to the shareholders regarding better prospects White sworn management inviting a better company for the acquisition Poison pills Operating with convertibles Share repellent Operation with a super majority requirement for an acquisition Revaluation of assets Reverse takeover

Alternatives for acquisition Sell-off (selling off a particular division or a unit) Spin-off (internal unit or a division to become an independent company) Management buy-put (Internal management acquiring the business management from the shareholders) Management buy-in(External team of specialists acquiring the company from shareholders)

Application of Mergers & Acquisitions B supermarket The company mainly depend on Europe with 82% of the company revenue and 77% of the operating profit and with 13210 stores B can consider a spin-off of the European region as it can create more value as an independent company The average revenue per store in Asia is 9.78 million. This is a very good revenue when compared with the group revenue per store of 7.06 million. Even the operating profit is highest in Asia This clearly shows a growth potential in Asia B can consider acquiring an already established supermarket chain in Asia B can even look for a Vertical Merger with a distributor in Asia

B Supermarket 9 Enough is Enough

Possible Questions
1. Calculate a range of values for B 2. Discuss the appropriateness of each valuation approach used in 1 3. Evaluate the possibility of expansion in Asia 4. State with reasons whether it is favorable for the company to spin off the European region from the main company 5. Explain the non-financial factors to be considered on the expansion decision 6. Advise the management of B whether it is beneficial to merge with or acquire an already established company in Asia when considering the expansion 7. Explain the most suitable method that could be used by B to fund the acquisition in Asia 8. Explain Intellectual Capital and how it could be related to B supermarkets

B Supermarket 10 Enough is Enough

1.2 WORKING CAPITAL MANAGEMENT


This involves managing cash receipts & payments on a day to day basis.

WC Policy
Conservative Policy. A Company will operate with a higher amount of current assets compared with current liabilities. This will lead to under trading situation. Moderate Policy A Company will operate with equal amount of Current Assets & Current Liabilities. Aggressive Policy A Company will operate with higher amount of current Liabilities compared with Current Assets. This will lead to overtrading situation.

FCA

STF

FCA

STF

FCA STF

LTF LTF PCA PCA PCA LTF

Application to B Supermarkets In the case of B, it operates with a higher amount of current liabilities than current assets which indicated by an aggressive working capital policy.

B Supermarket 11 Enough is Enough

WORKING CAPITAL CYCLE CASH CYCLE


This explains the trend in working capital policy based on a company. This will indicate the cash flows generated & payments system. This indicates the relationship between debtor days, stock days and creditor days

Application to B Supermarket Debtor days Creditor days Inventory days 5 109 27

Therefore the working capital cycle for B is 77 days

GEARING
This will indicate the borrowing level of the company.

Gearing

Debt Debt + Equity

Dividend policy
1. 2. 3. 4. 5. 6. Stable policy fixed dividend Constant payout Constant percentage of profit Scrip dividend Issue of shares Homemade dividend Based on the investors personal requirement Residual dividend Based on business opportunity Share repurchase Provides a return on any surplus cash

Application to B supermarkets From 2007 to 2009 B has paid a stable dividend of 1.54 Currently the companys dividend policy is blurred B currently pays 62% dividend payout irrespective of its financial objective to pay 50% constant divide

B Supermarket 12 Enough is Enough

POSSIBLE QUESTIONS
1. Evaluate to what extent Bs Directors has achieved its financial objectives. 2. Identify the impact of non achievement of the stated financial objectives. 3. Advice the directors on measures that can be taken to reduce its operational cost. 4. Evaluate the current working capital policy of B & discuss the suitability of the existing policy for B 5. Advice the directors about the benefits of proper Working Capital Management. 6. Discuss the methods of Short Term Finance including supplier credit. 7. Advice the directors on factors that should be considered in developing a dividend policy

1.3 Ratio Analysis


Performance Indicators for B Group

Operating Profit Margin Net Profit Margin ROCE Current Ratio Quick Ratio

5.7% (W1)* 3.3% (W2) 15.6% (W3) 0.42:1(W4) 0.17:1(W5)

Bs operating profit is 5.7% & Net profit is arrived at 3.3% after deducting groups finance cost & Tax expenditure. However theres 42 % drop in operating profit due to tax & finance cost. Nevertheless, its unable to carry-out further analysis on this & advice B to reduce its finance cost due to the unavailability of the data on interest rates of debt of B. The B operates with quick ration of 0.17 :1 which seems inadequate for a company like B where the sales is carried out mostly on cash basis.

Appendix (W1) Operating Profit Margin = = = Net Operating Profit *100 Revenue 6,211 * 100 109,712 5.7%

B Supermarket 13 Enough is Enough

(W2) Net Profit Margin

= Net Profit Revenue = 3,591 * 100 109,712 = 3.3%

* 100

(W3) ROCE

= PBIT Equity = 6,211 . 24,019 =15%

(W4) Current Ratio

= Current Assets: Current Liabilities =13,038: 30,777 = 0.42: 1

(W5) Quick Ratio

= (Current Asset-Stock) ;Current Liability =5,368: 30,777 =0.17; 1

B Supermarket 14 Enough is Enough

2. Mission, Objectives & Strategy


2.1. Mission Statement
Concept
Mission can be defined as a statement which explains the purpose of the organization, business philosophy & value system. Mission provides a framework to develop strategy & indicate the target market & key stakeholders of the business what business are you in?

Limitations of Mission Statement of B Supermarket.


1. B supermarket is a stock market listed company. Therefore, mission statement should focus mainly on profits. However, B has a main focus on CSR & Ethics. 2. The Mission is too board & the purpose of the business cannot be identified directly from the mission statement.(e.g.;-BMW-The ultimate driving machine/ Coca Cola- We refresh the world) 3. The mission does not create any differentiation in the market to the supermarket & does not facilitate to build any competitive advantage.

Steps in developing a mission statement of B Supermarket.


1. 2. 3. 4. 5. Identify the needs of the target market. Define the target market. Identify the competence of the organization. Identify how to add value to stakeholders Identify how to differentiate.

Objectives. Concept
Objectives are a quantitative statement develops from the mission. Objectives demonstrate a clear result orientation based on a particular achievement. Objectives should be SMART.(Specific, Measurable, Attainable, Realistic & Time Bound)

B Supermarket 15 Enough is Enough

Limitations of objectives of B Supermarket.


1. Build shareholder value through consistent growth in the companys share price. This objective is not SMART at all. Therefore cannot exactly identify the end result. 2. Increase customer satisfaction ratings to 95% as measured by customer feedback surveys. Although this is a measurable objective the period for the measurement is not specifically mentioned. 3. Increase commitment to local suppliers by working towards achieving 40% of our supplies from sources which are local to where B stores trade. This is not a realistic or attainable objective since, B operates over 36 countries. Therefore increasing the commitment of local suppliers is not practical & if B tries to achieve this objective it will matters for cost increase & quality of the products. 4. Reduce carbon emissions calculated by internationally agreed measures by at least 1% per year until B becomes totally carbon neutral. This is also not a realistic task due to the nature of the business. However, this is measurable, attainable and specific with a time bound. 5. Maximize returns to shareholders by employing different generic competitive strategies depending on the market segment in which B stores trade. This objective is not a SMART objective. However, at the end focus should be providing to maximize shareholder wealth.

B Supermarket 16 Enough is Enough

Identifying the Key Stakeholders involved in the business. Mendelow Matrix. Mendelow Matrix can be used to manage stakeholders by prioritizing their needs based on the situation. Power & Interest of stakeholders are used as variables to categorize stakeholders.

Power
Low High 1. Two Investment trusts - 4% each. 2. Hedge Fund 5% 3. Founding Family Trust 7% 4. Regulatory Bodies Ex-Inland Revenue/Board of Investments of each country 5. Government.

High

1. Employees - 5% 2. General Public 75% 3. Pressure Groups

Interest

Low 1. General Public 75% 1. Hedge Fund 5% 2. Government

B Supermarket 17 Enough is Enough

Possible Questions.
1. Appropriateness of the Bs mission statement to the supermarket industry & Bs business sector. 2. Evaluate the basis for the mission statement. 3. Identify the steps in developing a mission statement. 4. Identify the positives & negatives of each objective. 5. Evaluate each objective against the mission & the value statement of the company. 6. Identify new objectives relevant to B Supermarket. 7. Identify how objectives can change in a situation like change of ownership or change of strategy. 8. Importance of critical success factors. 9. Develop critical success factors relevant to the objectives 10. Develop Key Performance Indicators to the Critical Success Factors Identified. 11. Identify the Key Stakeholders involved in the business using the Mendelow Matrix. 12. Identify the areas that stakeholder conflict could arise 13. Management of stakeholder conflict of B Supermarket.

B Supermarket 18 Enough is Enough

2.2 Internal Appraisal


Concept The concept mainly evaluates internal capability of the Organization to achieve
their objective.

According to inter appraisal concept -organization can review whether they can
reach to their maximum potential using internal resources

Models of Internal Appraisal


1. 2. 3. 4. 5. 6. 7. SWOT Analysis M Model Value Chain Benchmarking GAP Analysis Scenario Planning BPR (Business process re-engineering)

SWOT Analysis This can consider as a position audit carried out by the organization to evaluate present position of the market Model mainly appraised internal environment based on four variables which are Strengths/Weaknesses/ opportunities/threats Strengths are an activity which enables organization to create competitive advantage. Weaknesses are particular activities which indicate limitation or competitive disadvantage. Opportunities are any developments in the market which enables to create competitive advantage. Threats are any development in the market which creates negative influence on organization success.

B Supermarket 19 Enough is Enough

Application of the model B supermarket Strengths of B supermarket- 49 year history, reputation as a Global entity, over 15000 stores operates in worldwide, recognized as world largest chain of stores Weaknesses- poor it system which provide misleading information for staff, inaccurate training for employees, poor control of inventory management, Threats- degree of stock loses detect as theft from staff which leads to create criminal culture, regulatory barriers, lack of segregation duties between audit committee and board of directors Threats-Mission statement not integrate with companies core values, reduction share price between 2007-11, higher amount of trade and payables ,current pricing policy against competitor Opportunities- growth potential in Asian regions, CSR policy differentiate company from competitors, new franchise options available in the market, strong integration with local suppliers (40% local supplier policy) M Model This a type of model which evaluates the performance of internal environment based on a particular frame work. Objective of this model is to identify any weaknesses within organization in order to ensure consistent performance Variables of the model-men, money, method, machinery , management , markets, muck- up Application of the model B supermarket Men- existing policy of HRM (0.5 employees, training program provided for employee, competence of workforce Machinery existing IT system (problems detect in IT system), latest machinery used in supermarket industry should be reviewed Markets the existing regions b operates (Europe, Asia, and North America) different characteristics identified in different markets, level of competition

B Supermarket 20 Enough is Enough

Management top down decision making , structured planning for 5years, management control system operates through regional head office, corporate governance issues in main board

Methods franchising policy , EPOS system to control stocks, CSR policy of carbon emission

Benchmarking The model can defines as comparing the organization performance against the best practice in the market. Benchmarking can undertake both internally and externally Internal benchmarking- functional and activity benchmarking/ External benchmarking-competitor and strategic benchmarking Application of the model B supermarket Currently B recognized as one of the leading supermarket chain in world Identify the market leaders in Europe, North America and Asian regions Benchmark existing EPOS system (IT system ) against another stock controlling system and identify the areas to be improve in existing system Develop performance appraisal system after the training program for employees and benchmark their performance against industry statistics ex: number complains about staff service , productivity of employee against industry averages According to external benchmarking appraise performance against market leader in Europe because currently b reach to 20% of market share in Europe There is growth potential in Asian region (current mkt share 1%) and compare performance against market leader in Asia Benchmark existing CSR policy with competitor and evaluate possibility to become carbon neutral in real environment Benchmark existing profitability levels of b against market leaders

B Supermarket 21 Enough is Enough

GAP Analysis This is a technique developed to identify any deviation in performance against expected standard. The objective is to identify the rationale behind any deviation in order to make corrective actions in advance Gap analysis should be practice based on clear objective and result orientation. The model can be practice through using rational planning model and cannot be apply in uncertain environment Demand gap- different between potential and actual demand, Sales gapdifferent between actual sales in the market and organization Application of the Model B Analyze the fluctuation in potential market share of B compare with past years (currently Europe: 20%, Asia: 1% and North America 1.5%) Compare revenue levels of each region against forecast budgets (turnover targets).-(Europe 82%, Asia 9%, North America 9%) The potential demand for supermarket, hyper market, convince and discount stores against industry averages can evaluate and identify the actual demand against forecast targets Scenario Planning The technique recognizes the importance of future developments for the organization success. This mainly evaluates market variables in present and future context. This enables the organization to recognize different possible options that can be happened and preparation for future developments. This enables to recognize impact on environment variables and influence on achieving objective

B Supermarket 22 Enough is Enough

Application of Model B supermarket Variables Detection of loses occurred due to theft of staff Future impact Negative impact on B reputation, create criminal culture between staff , staff avoid responsibility and de-motivation

Change regulatory barriers

Change policy of future franchise agreement, CSR issues related carbon emission, approval from government for future expansion in new countries

Change of ownership

Impact on share prices, possibility of takeover, joint venture with local supermarket chain instead of franchise

Competition

Losing market share of 20% in Europe, reduction of repeat orders made by clients, lose growth potential in Asia

Change customer preference

Customers become more price conscious, easy access and more car parking facility

Recommendations Undertake a competitor analysis Maintain positive relationship with each regional government Forecast more reliable KPI to evaluate customer satisfaction and compare against 95% Improve the existing EPOS system (Access control. Automatic monitoring stock levels ) and reduce possibility of fraud Undertake market survey and analyze the level of competition in supermarket industry, change in consumer behavior, development in technology

B Supermarket 23 Enough is Enough

Management need to review to what extend CSR can apply in future based their core business activity and check whether its practice become carbon neutral .

Currently b paying inducement to government officials if this case published impact on companies brand name, negative publicity from media and whether its acceptable according to companies ethical framework

There is a possibility of reduction in share price in future which make negative signaling effect for the share holders Its important to evaluate expectation of different stakeholder groups such as management of b, suppliers, consumers, employees, government bodies, and etc.

According to competitor overview different markets have different characteristics so company need to analyze the possible threats from new competitor.

In long run employees can be demotivate with existing training programs

BPR (Business Process re-engineering) This model can easily define as fundamental re thinking, radical redesign of a business process to achieve dramatically improvement in cost ,quality and performance Their two main concepts in BPR model which are Michael hammers model and Devon ports model

B Supermarket 24 Enough is Enough

Application of Model B supermarket B need to identify the possibility of undertaking a BPR process for the existing EPOS (IT related stock management system ) because existing IT system failed to generate expected results- ex: misleading information for staff, not detecting stock outs Re-design the Existing system provide accurate information for the staff, monitoring and updating the stock levels automatically , review the physical stock levels against records Company can introduce BPR process for existing procurement chain and stock controlling system to currently certain stocks been detected as outdated items (ex: TQM system of managing stock levels) Re design the existing Training policy for employees

Value chain
Porter develops this concept based on manufacturing organization. This concept emphasis on identify any activities which add value for business process and eliminate non value adding activities There are primary and secondary activities , the concept determine based on customer satisfaction

B Supermarket 25 Enough is Enough

Application of model B supermarket Primary Activities Secondary Activities

Firm Infrastructure : top down decision making, structured planning process, strategic plan been designed by main board, management control operates through head office, strategies been revived in three years, Franchising policy, maintain 40% local suppliers Procurement : existing policy of 40% local suppliers, suppliers from wider geographical area, long distance covered from road or air,20% perishable goods purchase from local suppliers, Long term contract with suppliers

Inbound logistics: need to purchase more from local suppliers, disposal policy for out dated stocks, check the quality of perishable goods when supplies by suppliers, identify the cheapest suppliers for supermarket chain

Out bound logistics : review the packaging system FMG products, secures packaging system, introduce a logo for each store and printed in package, labeling of electric items

HRM : 0.5 million employees, inaccurate training policy for staff, no performance appraisal system for employee, certain stock loses detected as theft from staff and this create a criminal culture in future, employees have 5% share ownership

IT : problems of existing IT system which provide misleading information for employees, existing EPOS system need to change in line with stock outs, need to develop proper it policy, no it manager and should appoint one for main board

Sales and Marketing : reliable sources to advertise FMG products, market survey to review the satisfaction of customer, introduce loyalty cards for existing clients , discounts provided for bulk purchasing, undertake marketing campaign in Asia to reach mass customers After sales service : warranty claims for electric items in discount stores, customer complaints regarding staff service and quality of products Process : quality control system , monitoring and supervision, company can follow international quality standards in operation

B Supermarket 26 Enough is Enough

Possible Questions 1. Identify the two models that the management could use to analyze internal environment.(Briefly explains the model) 2. Explain how these models could assist the management to analyze internal environment of B supermarket 3. Explains the characteristics of BPR concept 4. If company expect to carried-out BPR process for EPOS system then explains how model could assist IT team in formulating new IT system 5. Discuss the benefits of SWOT analysis and explains how organization can use this model to analyze its internal competence 6. Explains the characteristics of Benchmarking process 7. Evaluate how benchmarking concept can used to analyze regional performance of B 8. Advice the board of directors how Benchmark is important to improve regional performance 9. Construct a Benchmarking process for change existing EPOS system of B 10. Discuss how internal appraisal can be useful for company b to evaluate performance and recommend three models could use to analyze internal environment of b 11. According to companies competitive overview explains how scenario planning can used analyze competition of the environment. 12. Analyze advantages and disadvantages of scenario planning based on B existing competitive overview. 13. Advice top management how GAP analysis can be used to evaluate it potential demand for each region. 14. Evaluate how value chain analyses can used by B supermarket chain 15. Explains the components in porters value chain model and advise how model can apply for supermarket, convince stores, hyper market and discount stores

B Supermarket 27 Enough is Enough

2.3. Environmental Analysis

Concepts
Evaluation of the possible or probable effects of external forces and conditions on an organizations survival and growth strategies

Models of Environment Analysis


PEST Analysis Diamond Theory Five Force Theory Competitor Analysis Uncertainty Game Theory Concept

PEST Analysis
PEST analysis stands for Political, Economic, Social and Technology analysis and describes a framework of macro- environmental factors used in the environmental scanning components of strategic management. Application of the model B supermarket Political Factors B supermarket operates in a globalized environment with stores around 36 countries It operates in the regions of Europe, North America and also Asia. Therefore B supermarket performance is highly influenced by the political and legislative conditions of these countries, including the European Union (EU). Employment legislation can be considered as another critical factor that affects B supermarket in terms of political factors.

B Supermarket 28 Enough is Enough

Economic Factors Economic factors concern on the B supermarkets impacts towards demand, cost, prices and profits. Even though B supermarket has been expanded to Asian and North American regions still European region contributes greater amounts to its overall profits since it comprise a 20% market share. Therefore all the up and downs in European market will directly affects the B supermarket performance.

Social Factors Demographic changes in each region will directly affects the demand for retail FMCG in B supermarkets. Aging population, an increase in female workers and a decline in home meal preparation can be assumed as few examples for demographic changes in Bs operating regions. B own brand also can contribute towards the social factors since it can drive cost out of the business.

Technological Factors Technology can be regarded as a major macro-environmental variable which directly contributes for B supermarkets future survival. Moreover, technology directly influences the customer satisfaction which is an ultimate B supermarket objective. This can be approach via readily available information, more personalize and convenience customer service with the support of modern technology. Not only the customers but also B supermarket itself will be benefited through this since, it create a smooth inventory flow with availability of correct information on time and accurate information regarding stocks will be useful in decision making as well. The B supermarkets prevailing EPOS system will be used in achieving the above objective.

B Supermarket 29 Enough is Enough

Five Force Theory by Potter


This theory emphasis on developing strategy based on specific industry and environment. This identifies possible entry points to the market and concentrate on survival. Application of the model B supermarket Threat of new entrants B supermarket is one of the largest retailing companies in the world and it faces different levels of competition in each region. It possesses a market share of 20% in Europe and 1%, 1.5% in Asia and North America respectively. The practical scenario according to Ritz is over last 30 years the grocery markets has been transformed into the supermarket dominated business. Therefore dominant supermarkets such as B have become a powerful force and it has made a great impact on small traditional business. Hence the prevailing market leaders must be possessing as barriers for new entrants. Moreover huge initial capital and highly developed supply chain will reduce the attraction to new entrants. But in Asia and North America comparatively they can expect more freshers since they are yet expanding economies. Bargaining power of customers As per the standardize nature in B supermarket customers can experience a high bargaining power. As an example consumer durables products in its supermarkets and hypermarkets force to sell them at a competitive prices since there is a strong competition for sale of such goods. But food products and clothing in its supermarkets and hypermarkets gain a comparatively less bargaining power since the better quality of them. Successful customer retention strategy can be achieved via introducing loyalty cards and club cards. In addition to these customizing services, better choices, constant floor of instore promotions and ultimately satisfying the customers with an ultimate

B Supermarket 30 Enough is Enough

shopping experience will enable the B supermarket brand to retain and control their customer base.

Bargaining power of suppliers Along with the B supermarkets policy of 40% local purchase they will experience a high bargaining power based on the availability of local supply chain. Moreover its carbon emission strategies will cause to reduce their bargaining power since they cant switch or barging with small no. of suppliers who do have the same policies. And naturally there is a tendency of charging premier prices by suppliers who supply organic foods and environmental health products. But in other aspect of it along with the economics of scale benefits B supermarket is in a position to exercise less bargaining power. Even though the policy declares 40% yet B supermarket sourced of its 80% of goods from large international manufactures and distributors.

Rivalry

In B supermarket rivalry will differ from one type to other type super markets. In the case of supermarket, a hypermarket again the rivalry varies based on the type of products. Consumer durables seem having considerable higher rivalry compared to food products and clothing. In discount stores selling electrical products usually B exercise a higher rivalry especially because of the informed customer base. Therefore B discount stores used to charge a lower price to compete with other players and satisfy and retain the customer base. Convenience stores seems facing to the rivalry better since they are in position to charge a higher price in terms of the convenience they provide. Therefore even the standardization keep the rivalry high, very small differentiations matters in B supermarkets regardless of what type it is. Ex: Customer loyalty cards

B Supermarket 31 Enough is Enough

Threat of substitutes General substitution is able to reduce demand for product, especially in FMCGs, as there is a threat of consumers switching to other alternatives. There can be a situation where B supermarkets two different types of stores recognized by the customers as substitutes. As an example, except the fact that, convenience and less choices, convenience stores can be serve the urban customers as a substitute to supermarkets, since it fulfills the basic needs such as food items and etc.

Competitor Analysis

The following areas are identified in conducting a competitor analysis. Identifying past, present and future competition. B supermarket should clearly recognize the nature of the competition over a period of time.

Identifying the competitive advantage and the disadvantage of the organization. B supermarket should clearly recognize the advantages and disadvantages compared with other players who are in the industry in developing strategy. Benchmarking can be used in identifying the competitive advantage compared with best players in the industry. And also benchmarking will guide to figure out the position of the company in the industry.

Develop a competitive advantage. B supermarket should focus on the competence based on the advantage and &create a competitive advantage in the market. If Business successful in reducing carbon emission that can be used as a core competence, since customer awareness on green policies seems attractive in current context.

Development of sustainable advantage.

B Supermarket 32 Enough is Enough

The recognized core competence of B supermarket should develop for the betterment of sustainable future.

Game Theory
The Game theory identifies the competition strategy formulation and survival in the market as a game. Therefore the organizations are the players of the game. The Game theory emphasize on identifying the position of the key players and the strategy of each player in the market. Application of the model B supermarket Simultaneous game theory can be applied for B supermarket since the industry support for all individuals equally with opportunities. This provides opportunity for any players including B supermarket to become successful. The comparative highest market share that B supermarket enjoys is European market which is 20%. But B supermarket should take strategies initiatives in order to maintain the 20% market share. B supermarket need to grow its market share in Asian market as well as North American market. Respectively 1% and 1.5% market share has been gain by B supermarket currently. The imaging markets in Asian Region will provide opportunities for B supermarket along with its rapid economic expansions. Not only that but also B supermarket will be able to grow with the sustainable investments opportunities and expansions in North America.

B Supermarket 33 Enough is Enough

Possible Questions 1. Identify and Explain possible theories that can be used to evaluate the environment of B supermarkets. 2. Explain the steps of carrying a competitor analysis by B supermarket in Europe, Asia and North America. 3. Apply Portes 5 force theory with B supermarket scenario and explain the limitations of it. 4. Evaluate how to analyze the competitors in Asian markets with use of its expansion policies. 5. Using game theory analyze the competition in all 3 regions where B operates

2.4. Corporate Appraisal


Definition. This concept mainly evaluates the ability of the organization in achieving its objectivities based on the environment. This will provide a realistic measure regarding possible achievement.

Concepts. 1. Marketing Relationship Marketing Product Profitability Analysis Branding Six Market Model Customer Profitability Analysis 2. Information Systems Organizational Knowledge Management Networks

Relationship Marketing This involves in developing a long term relationship with the customer. The organization will clearly recognize the requirement of the customer in determining the products & services. Therefore every decision will carried out based on customer requirement. This will provide a competitive advantage for the organization based on

B Supermarket 34 Enough is Enough

developing partnership with the customer. This will demonstrate mutual respect & understanding. Following models can be identified under relationship marketing. Product Profitability Analysis (PPA) This concept recognizes total purchases of a customer. Therefore a bundle of products are recognized. This will consider the profit based on the customer visit or the total purchase irrespective of a product. This provides a long-term view since the needs of the customer is recognized.

Application of the model B supermarket PPA will enable B Super market to identify the nature of consumption of products. This will enable B supermarket to identify products which has co-relation in consumption. This model enables to understand the suitable way of displaying products as per the consumption. E.g.:- Shampoo & Conditioner, Bread, Butter & Jam.

Branding A Brand can be identified as a concept which enables the company to differentiate in the market. A brand will enable the organization to create competitive advantage. A brand can be used to differentiate in the market than a product.

Application of the model B supermarket B supermarket has created a reputation through its name over 49 years. However, B can use different brand names for its stores to create differentiation in each store. E.g. - Carrefour supermarket in France has used different brand names for its stores.

B Supermarket 35 Enough is Enough

Hypermarket Carrefour Supermarket Carrefour Market Champion Convenience stores City Express Discount Stores Dia

Six Market Model This identifies different options in developing relationship marketing. Following variables can be identified. Customer markets. This emphasis on developing a relationship through existing customer While satisfying their needs. E.g.:- Discount stores can be applied this concept by providing high Quality electrical items & warranties for the products sold. Recruitment markets. This is developing a relationship with a customer based on staff & the service. E.g.:- B supermarket can use this strategy by providing a suitable training For or the Staff to ensure that they treat well to the customer & maintain a long term relationship. Supplier Markets. This is developing a relationship based on the ability & the quality of Suppliers. E.g.:- B Supermarket - 20% of goods are purchased locally (Europe) & 80% from International manufactures & distributors. Therefore it is essential for them to have a good relationship with their suppliers. Reference Market. This is building a relationship through the reference of other stakeholders. E.g.:- B Supermarket has already created a reference market from its Reputation over 49 years. Influential Market. This is developing a relationship based on the influence of other people or institute. E.g.:- Social Background, Religious Background.

B Supermarket 36 Enough is Enough

Internal Market. This is developing a relationship based on the internal capability & the competence of the organization.

Customer profitability analysis. This emphasis on building a long term relationship with the customer. Following variables can be identified. Customer Account Profitability. This recognizes the contribution of the customer for a specific period. Identify the key customers from the contribution generated by each customer. Identify a separate process to reward the key customers.

Application of the model B supermarket. Offer loyalty cards for key customers. Offer gift vouchers or allocate to raffle draws. Offer discounts for the good purchased. Customer Life Cycle Value Analysis. Identify the contribution of the customer over the economic life of the customer. This includes comparison of potential revenue & potential cost over the life of the customer over the economic life. This technique will enable the organization to satisfy & retain customers in the long term.

B Supermarket 37 Enough is Enough

Application of the model B supermarket. This model involves determining the net present value of Bs customer over the life cycle Age Revenue generated products 0-5 5-18 18-30 Food Items, Clothes, Electrical Items 50% 30-55 Food Items, House hold Items, Baby Items, Medicines 80% Above 55 Medicines, Books & periodicals, Wheel Chairs 40%

Food items, Food Items, Toys Stationery, Books & Periodicals 20% 30%

% of NPV

Information Systems. Organizational Knowledge Management. Knowledge can be defined as any information that can be used to generate a competitive advantage. Knowledge provides the basis for business decision making. Explicit Knowledge Knowledge already available & used within the organization. Tacit Knowledge Knowledge which is available within the organization & with people, but not been exploited or used. Data Warehousing A Systematic process of developing & maintaining information for strategic decision making. This involves arraigning data in a logical order to ensure efficiency in obtaining information. Date Mart Data Mart represent the information relating to particular SBU or a department. Data Mining Data mining emphasis on obtaining information effectively & efficiently for strategic decision making. Application of the model B supermarket. B supermarket can use their human assets in order to provide knowledge. OKM will enable B to identify the knowledge available within the organization & its usage. This will enable the company to obtain knowledge from outside if it is not available within the organization.

B Supermarket 38 Enough is Enough

Data warehousing will enable B to store information in a prominent manner which can be easily obtained when its needed.

Networks Internet, e-commerce, intranet, extranet & value added networks can identified As examples for networks. Internet & intranet will enable to develop positive relationship with key stakeholders over the world at any given time. Value added networks can be used to add value to the customers. Possible Questions. 1. 2. 3. 4. 5. 6. 7. Explain the importance of relationship marketing for B Supermarket. Identify the model of Product Profitability Analysis & its relevance for B. Explain the importance of Branding for a supermarket. Explain how branding could be useful for B to create a competitive advantage. Identify the six market model & its importance for B supermarket. Explain the concept of customer profitability analysis. Explain how the customer account profitability could be useful for B in providing value additions to its customers. 8. Identify the concept of customer life cycle value analysis & determine its importance for B supermarket. 9. Determine the percentage of NPV generated by customer over his/her life cycle. 10. Determine the concept of Organizational knowledge management & its importance to B Supermarket. 11. Determine the concept of data warehousing & evaluate the relevance for B supermarket. 12. Identify the importance of networks to the marketing activities of B supermarkets. 13. Identify the advantages & disadvantages of internet for B Supermarket. 14. Determine the features of an intranet & evaluate the usefulness of an intranet to an organization like B.

B Supermarket 39 Enough is Enough

2.5. Strategic Options Generation


1. Introduction After completing position audit the next step is to decide how to develop the business in the future. This involves deciding on development strategies. Following phases taken place when selecting appropriate strategy.

Development strategies Basis of choice Alternative direction Alternative methods

1.1 Basis of choice This deals with choice of competitive strategy to win customers and beat rivals. 1.2 Alternative direction This involves in future of the product and customer portfolio of the business. 1.3 Alternative methods This considers how the firm will gain access to the products and markets it wishes to develop into. 2. Porters generic competitive strategy model Generic strategies were used initially in the early 1980s, and seem to be even more popular today. They outline the three main strategic options open to organization that wish to achieve a sustainable competitive advantage. Each of the three options is considered within the context of two aspects of the competitive environment:

B Supermarket 40 Enough is Enough

Competitive advantage- Firm must adopt a strategy that can combat five forces better than their rivals. Competitive scope This decides about the market segment. Application of the model B supermarket. The company has failed to indicate whether each store is a cost leader or a differentiator, though their intention is to practice generic strategies depending on the market segment. B is practicing both strategies and they are stuck in the middle.

2.1 Cost Leadership The low cost leader in any market gains competitive advantage from being able to many to produce at the lowest cost. Increasing profits by reducing costs, while charging industry-average prices. Increasing market share through charging lower prices, while still making a reasonable profit on each sale because you've reduced costs.

Application of the model B supermarket. According to present context discount stores are focusing on cost leadership, because their strategies producing high volumes at low price levels. Currently, the price levels of discount stores are lower than prices charged in supermarkets & hypermarkets. Theres a possibility that the discount stores can reach to the cost leadership through analyzing the price levels of other competitors.

2.2 Differentiation Premium perceived value in the eyes of the buyer. Give better margin in short run Barrier to new entrant. Bargaining power of supplier.

B Supermarket 41 Enough is Enough

Application of the model B supermarket. Regarding to the differentiation strategy super-market and hyper-market has differentiated themselves based on their high quality consumer durables. This enables them to provide unique products based on their quality. In long run this facilitates both supermarkets & hyper markets to differentiate themselves from other competitors.

2.3 Focus Concentrates on narrow segment and within that segment attempt to achieve cost leadership or differentiation. High degree of customer loyalty

3. Alternative growth strategies.

Expansion Policy matrix. These are the methods by which the firm will gain access to the product and market it has selected.
Internal development External development

Internal Development
Home country

Merger Acquisition Joint venture Alliance Franchise Merger Acquisition Joint venture Alliance Franchise Turnkey

International

Exporting Overseas office Overseas manufacturer Multinational operation Global operation

3.1 Internal development Involves firm is growing using its own resources. The firm will need to be adapt the management of innovation Advantages are

B Supermarket 42 Enough is Enough

o Firm does not need to understand different cultures and operating systems o Investment can be controlled o Provides learning and development opportunities for staff Disadvantages are o Slow response to dynamic market o Increasing number of firms o Firm may lack access to key resources.

Internal international market. This involves continuing the current strategy based on the international market. This demonstrates a lower risk & market development. External development involves developing strategy with another organization. This can be practiced locally & internationally.

Application of the model B supermarket. B supermarket operates supermarkets, hypermarkets, discount stores & convenience stores in Europe. B supermarkets are expanding to Asia and North America within the existing business.

3.2 Joint development strategies Franchise Firm expands its business by granting other firms the right to use its business system The franchiser will provide a variety of supports to the franchiser. Advantages o Quicker business expansion o Reduced risk due to capital having been provided the franchisee o Retains the dynamism of local management o Control over the activities of the franchisees o Reduced cost of control Disadvantages o Reduced profits o Poor franchisee performance will harm the parents brand

B Supermarket 43 Enough is Enough

o Problem of protecting intellectual capital Application of the model B supermarket. The expansion of B supermarkets is already done through franchises & continuing on that strategy. To overcome regulatory issues existing in some countries.

4. BCG Matrix This demonstrates four categories which a companys business units can be classified. It considers two parameters. 1. Market growth rate of the business unit (Cash Usage) 2. Relative Market Share of the business unit (Cash Generation) This is also called as Growth-Share Matrix.

This model uses two assumptions. 1. Increase in relative market share will result in an increase in the generation of cash (In accordance with the experience curve increase in relative market share will result in an increase of generation of cash.) 2. Growing market requires investment in assets to increase capacity and therefore results in the consumption of cash.

Four Categories 1. Dog Low market share and low growth rate. Therefore it does not generate more cash and does not consume more cash. 2. Problem Child. Relative market share is low. Growth rate is high. This means it consumes large amount cash and generates a small amount.

B Supermarket 44 Enough is Enough

Application of the model B supermarket. Asian region can be classified as the problem child since; there is a potential economic growth & potential market share to be covered. The revenue of B Asia is Euro 10,105/- and market share of 1%.

3. Stars Growth rate and relative market share is high. Therefore it consumes a large amount of cash and also generates a larger amount of cash. 4. Cash cow This has low market growth rate and high market share which implies it generates more cash than it consumes cash cows provide cash to cover the administrative and R&D cost of the company and cash to turn question marks into market leaders. Application of the model B supermarket. According to B Supermarket European region is the cash cow because, it generates the highest revenue & market share. The revenue of B Europe is Euro 89,899/- and market share of 20%.

B Supermarket 45 Enough is Enough

2.6. Strategic Evaluation


Johnsons and Scholes outline three tests for assessing whether a strategic option should be undertaken. 1. Suitability test Whether the option is the right one given the circumstances of the firm. 2. Acceptability test Consider whether the strategic option will gain crucial support from the people it needs to or whether it will lead to opposition and criticism. 3. Feasibility test This consider whether the firm will be able to carry out the strategy successfully.

Application of the model B supermarket. This model can be used to evaluate expansion decision in several markets. This is relevant for organizational growth to evaluate the potential options in developing counties. E.g.:- Asian franchise. The suitability & acceptability of this option to the overall company mission is high since this expands the current supermarket chain. Feasibility can be measured on the intended return.

B Supermarket 46 Enough is Enough

Possible questions Generic strategies 1. Advise the Board how B Supermarket could achieve sustainable competitive advantage as defined by Professor M Porter. Your advice should include discussion under the following headings: (i) Overall cost leadership; (ii) Differentiation; and (iii) Either: Cost focus or Differentiation focus. 2. Explain how an understanding of Porter's three generic competitive strategies could help the team to satisfy customer according to segment. BCG Matrix 1. Discuss position of each region using BCG matrix 2. Discuss position of each type of store using BCG matrix Growth matrix 1. Discuss the strategic and operational issues which the directors of B should consider before making a decision on whether to implement an overseas expansion strategy. 2. Discuss the advantages and disadvantages of franchising Bs operations 3. Discuss benefits of internal growth over external growth (franchising) of B supermarket. Evaluation tests 1. Explain how B supermarket could conduct strategy evaluation using three tests. 2. Evaluate each generic strategy using three tests

B Supermarket 47 Enough is Enough

3. Structure
B is an international grocery retail chain which operates in Europe, Asia and North America. The three subsidiary companies referred to as Regions within B, B-Europe, B-Asia and B-North America respectively. Considering this the nature of decision making, control& effectiveness of overall company can be evaluate as follows considering the impact to each regions as well.

Decision Making Problems: Board structure seems too complicated including regional board structures. The decision making power has been delegated to head office with less power attributed to regions in decision making. Moreover this caused to ignore regional decisions. Therefore even though committees are available, decision making process seems less effective. Suggestions: It should be flexible with less complicated features in its overall aspects where regional managers are given authority and power to take the decision in their regions which differ from region to region in nature. This will give the opportunity to understand and respond to the environment in which it operates considering society, culture and life styles. In practice the leading supermarkets has given enough power and authority to serve their customers based on the values, attitudes and cultures. As an example Wal-Mart is operating in UK as Asda since customer prefer it than the group name Wal-Mart. Therefore from the name to service its all about satisfying customers needs. Thus decision making process should be in line with it.

B Supermarket 48 Enough is Enough

4.Corporate Governance

The concept of corporate governance is developed to ensure, accountability of management towards shareholders especially considering the listed companies. In practice there is a clear gap between decision making and ownership of the company and the purpose of this concept is to minimize those gap.

The main objective of the corporate governance is to provide accurate information to the share holders 1. Cadbury code- Directors 2. Green bury code- Directors remuneration 3. Hampel code-Disclosure 4. Smith code- Audit committee 5. Higgs code- Share holders 6. Turnbull code- Reporting system Combine code

Application of corporate governance B supermarket chain Directors The existing board comprises with Non-executive directors , the chief executive director and nine executive directors Apart from chairman (Non-executive directors) there are nine other nonexecutive directors Currently B operates with adequate number of directors but the role of chairman and other nine non-executive directors are not clear ITs important that segregation of duties should be allocate to ten nonexecutive directors including chairman and their roles and responsibilities required to be highlighted

B Supermarket 49 Enough is Enough

Its important that non-executive directors should contribute on corporate decision making and need to develop positive relationship with executive board

No nonexecutive directors appointed for regional board which creates problems related to transparency in regional work. To overcome situation regional non-executive board need to be appointed.

The appointment of executive and non-executive required to reviewed and evaluate whether appointments are transparent or not Lack of information provided about service period but directors need to be changed after a reasonable service period Its important to appoint a nomination committee for appoint executive and non-executive directors. Clear roles and responsibilities required to allocate for the regional store directors because currently there is a conflict of interest between regional directors and main board.

The existing non-executive directors need to be capable on ensuring that they have significant input ,although the proportion of non-executive directors is strictly less than the 50%

Audit Committee Currently lack of segregation of duties allocate for audit committee because they have to involve on risk assessment and control apart from their main duties. its important to reduce the workload of the audit committee. Clear roles and responsibilities need to be highlight for the audit committee explaining their audit roles Main board need to appoint separate team for undertake risk management Clear roles and responsibilities need to allocated for new risk committee

B Supermarket 50 Enough is Enough

Company need to check whether sufficient number of directors in the audit committee and if not adequate number of non-executive directors need to be appoint for the audit committee

B need to check that whether audit committee meets regularly to practice internal control and reported to the top management Related to role of audit committee mainly they need involve with companies internal audits and need to carry out their operations transparently

Due to expansion policy B has failed to undertake internal audit in certain countries so its important to carry out internal audit in every country.

Share holders Currently majority of decisions made by head office (top management ) and board need to ensure that decisions required to be disclosed to share holders Currently shareholders of B not involve in decision making so board members need to ensure that shareholders participation in critical decision related to business ex: moving to new region, new franchise agreement, reinvestment of capital and etc. Board of directors of B should consider that decisions based on the best interest of shareholders and critical information required to be disclosed to shareholders Currently B faced fluctuation on their share prices between 2007-11 so, rational behind share price changes need to be communicating to the shareholders. Further changes in dividend policy required to disclosed Board of directors should undertake annual general meetings and financial statement required to be distributed for every share-holders

B Supermarket 51 Enough is Enough

Directors remuneration Currently there is lack of information provided about policy of determining directors remuneration Currently regional board does not have a separate committee to decide on directors remuneration so remuneration committee should be appointed A separate Remuneration committee is not available in the regional board, but the main boards committee can determine the remuneration of all directors Adequacy of the remuneration provided not stated so proper policy need to be design to determine remuneration for directors If the remuneration of regional directors is decided by the remuneration committee at head office, then its required to identify the basis are they going to measure the performance of directors through performance appraisal system The performance appraisal method going to use to evaluate directors performance should be monitored by independent group. Disclosure Related to disclosure B needs to review whether following criterias have been met under disclosure Names and details of the existing executive and non-executive board Business interest of directors need to be disclosed

Possible Questions 1. Explains the need of audit and risk committee for B supermarket 2. Comment the involvement of Non-executive directors involvement at regional level given the size and diversity of business 3. Identify the limitations of the current Structure and explain how it will lead to poor management decisions. 4. Identify & evaluate the risk associated with the current allocation of duties to different committees. 5. Recommend the actions to be carried out in order to minimize the identified risks.

B Supermarket 52 Enough is Enough

5. Control
5.1. Risk Management

Risk- Risk demonstrates the possibility of failure. Risk recognizes the possible outcomes however the exact outcome is unknown. Classification of risks Business risk- risk associated with a particular business. Strategic risk- risk associated with strategic decision making. Operational risk- risk associated with business process of the organization. Market risk- risk associated with the customer.

Application to B supermarket Business risk

- Regulation risk restricts operations or nationalizes the industry due to exposure of unethical practice involving bribery of government officials to overcome regulation barriers. - Reputational risk if the products sold in supermarkets are outdated since the inventory system is misleading.

-Risk of fraud where the supermarket products available in the black market for cheap prices.

B Supermarket 53 Enough is Enough

Strategic risk

- The risk on focusing more on carbon emissions without focusing on the customer would result in a competitive disadvantage - Risk of losing of key suppliers due to dragging payments over long periods and loss of bargaining power due loss of supplier confidence - Risk of wrong strategic decisions made based on the incorrect information from the EPOS system. -Reputational arising from deviation in total carbon neutrality further the practical aspect of total carbon neutrality to a supermarket would be impossible -Risk of franchisees deviating from the strategic objectives of B supermarket as a result of no internal controls

Operational risk

-Risk of stock outs during peaks seasons as a result of false inventory balances in the EPOS system -Risk of supplier quality in the selection of local suppliers and the commitment made by them towards minimizing carbon emission - Risk of a criminal culture developed as theft within the supermarket becomes a practice and no security systems towards prevention of theft. - Risk of financing working capital since the cash & cash equivalents are insufficient to pay the creditors. -Risk of business continuity if no sources of long term finance obtained to resolve the liabilities. -Risk of supply chain integration with the malfunction of the EPOS system.

B Supermarket 54 Enough is Enough

Market risk

- Risk of customers switching to competitors based on price differentiation between competitors and B supermarket -Reputational risk in the long term if B supermarket is unable to sustain increased dividend payout ratio during reduction in share price to avoid negative signals to the market -Risk on competition in B-Asia & B- North America is high since the market shares of bother the countries are low.

Management of Risk- The risk management process of the Institute of risk management is used as a standard for managing risk. Risk Management Process- Standard process for managing risk Business Objective expected results of any organization Risk Assessment comprehensive guideline regarding risk based on the nature of the business. Risk Evaluation Risk Reporting Decision Risk Treatment Residual Risk Reporting Monitoring

B Supermarket 55 Enough is Enough

Application to B supermarket Risk management responsibility is allocated to Risk Assessment & Control Committee dispersed from the Audit Committee in 2009. Roles and responsibilities are unclear. Appointment of risk committee has not done therefore this affects the risk management process of B supermarket.

Concepts on Risk Management Risk management Cycle by CIMA Drivers of Value @ Risk by the Institute of Risk Management Risk & Shareholder Value by Ernest & Young Reduction in share price 2008 but the company increased the dividend payment. However in the long run there is a risk of sustaining the dividend further this creates risk of hostile takeover by competitors. Enterprise Risk Management Risk & Society by J. Adams Risk Thermostat by J. Adams

B Supermarket 56 Enough is Enough

5.2. Management Control


Management Control To identify the nature of the business environment and to ensure adoptability of organizational staff to the given environment. Concepts of Control

Levels of Control by Anthony- This demonstrates development of control based on the nature of decision making therefore the control systems based on the nature of decisions. Strategic Control Systems- These controls are developed based on the top management decisions. Tactical Control Systems- These controls are developed based on the middle management decisions. Operational Control Systems- These controls are developed based on managing the lower level staff based on routine decisions.

Nature of Control System Strategic Control Systems Tactical Control Systems Operational Control Systems

Controls Strategic objectives, Financial objectives, 5 year strategic plan, budgets Minimum training hours, strict financial targets

B Supermarket 57 Enough is Enough

Systems Theory-This is a collection of sub units which a relationship through integration. Neither closed System- This is an isolated system that obtains no input from the environment nor provide any output to environment. Open System- This is a system that integrates effectively with the environment by obtaining input and providing output to the environment.

Application to B supermarket B supermarket is an open system that integrates with environment effectively. It obtains input from suppliers worldwide and provides output in the form service to customers by storage of products for purchasing

Control through learning by Simon-this demonstrates management control as a process of learning. Management control developed based on the strategic uncertainty of the organization.

Organizational Structure This demonstrates the nature of decision making .This demonstrates clear responsibility & authority.

Types of Systems Entrepreneurial structure This structure is based on individualistic decision .The decision making is personal & judgmental. Functional structure- This structure is based on specialized decision making based on technical expertise. Divisional structure- This structure is based on different divisions of the organization.

B Supermarket 58 Enough is Enough

Matrix structure- This structure is based on the combination of two different structures with the objective of focusing on the target market & maintaining adequate control.

Network structure- This structure is based on integrating with another organization with objective of developing a competitive advantage through the specialization of & competence of another organization.

Application to B supermarket

B supermarket demonstrates a complex divisionalised structure by area. Regional MD in charge over 9 regional divisions specializing in Finance, HRM , Corporate Affairs, Planning , Marketing , Procurement everywhere a director is in charge and directors for each type of store in the region.

The responsibility of stores is however varying between regions, as in North America there is director responsible supermarkets & hypermarkets, Discount stores but in Asia there are directors responsible supermarkets & hypermarkets, Discount & Convenience stores and Europe three directors responsible for supermarkets & hypermarkets, Discount & Convenience stores.

The level of autonomy to regional board is restricted through financial targets which both the regional and operational employees are dissatisfied since its imposed from the head office.

B Supermarket 59 Enough is Enough

5.3. Internal Control


Internal Control This is a set of controls financial and otherwise established by the management for a particular organization to maintain the expected level of behavior & standard throughout the decision making process. Elements of Internal Control Segregation of duties Organizing Accounting Physical Supervision Personnel Authority Management

Application to B supermarket Segregation of duties- Allocation of more than one staff member to carry out a function. The responsibility of Finance, HR, Corporate Affairs, Planning, Marketing and Procurement is segregated to regional functional directors further segregated to their own staff. Accounting- Financial control. The formulation of plans and strict financial controls to managerial and operational staff to operate. This would involve the allocation of targets and performance would be benchmarked to evaluate personnel. Supervision - Overall supervision of performance. The supervision of regional functions is done by the Regional MD further the Audit committee also provides supervision on governance & control.

B Supermarket 60 Enough is Enough

Personnel - demonstrates a control mechanism based on employees. The selection of employees from the local community, training & development of staff based on international guidelines.

Authority Management evaluates decisions based on the ability to achieve organizational objectives. The establishment of the internal audit function and the functioning of the audit committee to ensure goal congruence of management decisions.

Internal Audit
This is an independent appraisal carried out based on the management policies of an organization .This ensure the safeguarding of assets and smooth functioning of operations in the organization. Establishment of Internal Audit Internal audit is audit is carried out by internal employees. Chief Internal Auditor should operate at a higher level ensure smooth functioning. Chief Internal Auditor should operate with a dotted line relationship with the Finance Director. Chief Internal Auditor should report to the Audit Committee comprising of Non-Executive Directors Issues on internal audit will be communicated to the shareholders by the audit committee.

B Supermarket 61 Enough is Enough

Application to B supermarket Audit committee comprising of ten Non-executive directors The Audit committee is pressurized with the work load of the Risk Assessment committee. The audit committee is monitoring the internal audit and control within B supermarkets. Treasury Treasury- Treasury demonstrates how the finance function is established based on the expectation of various stakeholders. Functions of Treasury 1. Financial Management 2. Parceling 3. Liquidity Management 4. Determining Dividend Policy 5. Project Appraisal 6. Manage sources of finance Profit or Cost Centre Cost Centre- This demonstrates operating treasury as another function with objective to provide support service other functions & SBU's. Profit Centre- This demonstrates operating treasury as an investment centre therefore the treasury will allocate funds only if the investment demonstrates the expected return Centralized or Decentralized Centralized - This demonstrates operating treasury as a single unit based on the central decision making process.

B Supermarket 62 Enough is Enough

Decentralized- This demonstrates allowing each department or unit to operate with its own treasury function.

Application to B supermarket B supermarket treasury demonstrates a cost centre focus and its centralized since operated as another function to support the regional boards. The group treasurer is under the Finance Director with no special function established for treasury. The independence of the treasury department is however questionable The current working capital problems are directly associated the treasury mismanagement.

Prediction Questions Risk 1. Advise B supermarket on developing a framework to manage risk using the Risk Management Process by the Institute of Risk Management? 2. Recommend the changes required in B supermarkets to implement a Risk Management Culture? 3. Evaluate the roles & Responsibilities of Risk Assessment & Control Committee? 4. Evaluate the importance of segregation of Risk Assessment & Control Committee & Audit Committee? 5. Develop a Risk Management strategy using the concepts of Risk Management?

B Supermarket 63 Enough is Enough

Management control 1. Evaluate the existing structure of B supermarket and recommend changes required to minimize bureaucracy? 2. Advice the board on the importance of administrative & Network controls in information systems? 3. Discuss the appropriateness of imposing strict financial controls to manage B supermarket? 4. Discuss the decentralization of planning function to individual regions? 5. Advice the main board on controls for selection of franchisees? 6. Recommend changes to the structure of B supermarket to enhance organizational performance? 7. Develop a reporting system to facilitate control? Systems & Control 1. Recommend changes to general controls in the IT system? 2. Recommend network controls to the IT system? 3. Discuss the relevance of financial performance indicators to non-financial indicators as methods of control? 4. Recommend system changes to rectify IT risks? Internal Control 1. Discuss the existing internal controls and provide recommendations to overcome problems? 2. Explain the characteristics of internal control? 3. Evaluate the importance of reviewing internal controls by the audit committee? 4. Advice the board of directors on internal controls to monitor franchisors? 5. Evaluate development of security systems to minimize fraud? 6. Discus the impact on no internal controls established to review periodic internal audit?

B Supermarket 64 Enough is Enough

Internal Audit 1. Evaluate the role of the Audit Committee in internal control? 2. Discus the impact no review periodic internal audit? 3. Recommend B supermarket changes required in structure to facilitate internal audit? 4. Explain the role of the chief internal auditor? 5. Discuss the importance internal audit function in the regional board?

Foreign exchange risk Concept


The risk that an investor will have to close out a long or short position in a foreign currency at a loss due to an adverse movement in exchange rates. Mainly four categories. Transaction risk The risk originate due to timing difference considering the acceptance of the transaction and the actual payment Translation risk Originates due to translation of assets and liabilities based on different currency Economic risk The risk originates due to the economic developments in the market Political risk - The risk developed due to the political system in a particular country

B Supermarket 65 Enough is Enough

Application of the foreign exchange risk B supermarkets Mainly translation risk, political risk and economic risk are related to B Supermarkets due to their existence in several parts of the world Translation risk arises at the end of the financial year when consolidating the assets and liabilities throughout the supermarket chain The effect of risk will be high due the proposed expansion in to Asia Since 80% of the goods are sourced from large international manufacturers and distributors the effect on transaction risk will be high. ex: trade and other payables.- 30,777million. B-Asia and North America are facing a political risk due to the high regulations regarding information systems. In some occasions they have to pay high inducements to government officials to overcome the problem. Management of B will face a difficulty in negotiating with the officials of other countries regarding the reduction in carbon emission. The socialistic thinking of the customers of other countries will be different.

5.4 Management of foreign exchange risk

Concept
The technique of managing foreign exchange risk is referred to as hedging. Mainly two types. Hedge No hedge Hedging techniques Internal Hedging Invoicing in home currency

B Supermarket 66 Enough is Enough

Netting Matching Leading and lagging Restructuring

External Hedging Forward rate agreement Futures contract Options Money market hedge Swap Swaption

Application to B We can consider that B reconciles the potential receipts and payments between the units of the organizations using a common currency.

Possible questions
1. Explain the internal hedging techniques that could be used by B 2. Identify the risks associated with the scenario. . 3. State and briefly explain the possible factors that B should consider in order to minimize the foreign exchange risks. 4. Advice the management of B whether they should consider hedge or no hedge policy. 5. Explain the non-financial factors B should consider during the expansion policy in to Asian countries.

B Supermarket 67 Enough is Enough

6.COPARATE SOCIAL RESPONSIBILITY


CONCEPT
CSR is key element in the management of the organizations relationships with governments and regulatory agencies, NGOs and civil society. CSR however, refers to firms obligation to maximize its positive impact upon stakeholders whilst minimizing the negative effects. Application to B Supermarket B supermarket carries following four main areas considering its corporate social policies. 1. Sourcing of 40% Local suppliers 2. Reduction of Carbon Emission by 1% annually- To minimize damage to natural environment by organizational activities. 3. Reduction of Disposable Plastic bags to customers per Square Meter 4. Providing funds for the development of local amenity projects.

CSR Factor

Expected level

Actual Level

Variance

40% local suppliers policy

40% 5%

20% 9%

-20% 4%

- Reduction of carbon emission by 1% Reduction of Disposable Plastic bags to customers per Square Meter

60%

51%

-9%

Expected 40% sourcing local suppliers has been achieved to a 50%. Since this has been highlighted in strategic objectives as well as financial objectives there is a high consideration along with its benefits to both B supermarket and local communities.

B Supermarket 68 Enough is Enough

Following benefits can be identified from local suppliers point of view. Support for the local community and economy of the country of operation. Upgrade the individual living standard of each country. Minimizing the carbon emission through reduction in travelling miles. Reduction in the consumption of Kilowatt Hours per square meter has been reduced by 9%. It records a 4% additional achievement since B supermarket has targeted 5% initially. Benefits of this approach will be enjoyed by everyone since it has lead to minimize the damage to natural environment by organizational activities. Reduction of plastic bag usage has been achieved up to 51% and yet to achieve 9% since the target has been 6%

Possible Questions

1. 2. 3. 4.

Identify the concepts of Corporate Social responsibility Discuss how the CSR factors support in achieving each Compare and contrast the CSR factors with mission and objectives Explain how concept of CSR can operationalize for B supermarkets existing objectives 5. Construct a CSR analysis for existing business practice of B supermarket

B Supermarket 69 Enough is Enough

7.Information Systems & Control


General Control- these controls are developed based on the use of information systems in a management perspective. Administrative Control- Control developed based on people & management. Access Control- Controls developed to prevent unauthorized access to the system Facility Control- Controls are based on establishing the information system Business Continuity Control- Control developed to ensure long term strategy in information systems. Application to B supermarket Access Control-These are controls developed to prevent unauthorized access to the information system. -Physical access controls -Passwords- users in B- Asia, B-North America, B-Europe to access the EPOS -Electronic identification devices- specialized terminals with barcode readers to capture the sale & adjust inventory levels.

Business Continuity Control- These are controls developed to ensure continuation of information based business strategy

-Identification of system risk- risk theft by employees, misleading inventory -Anticipate future business strategy- expansion into Asian markets therefore the developments in the system to facilitate this strategy.

B Supermarket 70 Enough is Enough

Practice of Control- this demonstrates how control is developed within an organization. Financial Control- These controls are developed based on a financial perspective considering a financial measurement. Non-financial Control-- These controls are developed based on the modern management techniques to overcome flaws of financial measurement.

Application to B supermarket

Financial Controls Constant growth in EPS of 7% Dividend payout ratio of 50% Gearing 40%

Non-financial Controls Customer satisfaction of 95% Local supplier sourcing of 40% Reduce carbon emissions by 1% Value chain

B Supermarket 71 Enough is Enough

8. Supply Chain Management.


The supply chain is the network of organizations that are involved, through upstream and downstream linkages, in the different process and activities that produce value in the form of products and services in the hands of the ultimate consumer. Importance of supply Chain Management for B 1. Supply chain management is directly attached with Bs strategic objectives. a. Customer satisfaction- availability of goods b. Local suppliers Sourcing 2. Global organization 3. Supply chain management is significant in retail organization because continuous supply according to demand is compulsory in retail industry.

Supply chain of B can be analyzed under following criteria 1. Procurement 2. Sourcing 3. Transportation 4. Inventory management 5. Distribution

Procurement 1. Process of purchasing of goods 2. Screening suppliers B should be careful when selecting suppliers because reputation of B can be damaged due to slipups of suppliers. 3. Quality checking A process of quality control must be carried out before goods are displaying on racks. 4. Group procurement director Role of procurement director

B Supermarket 72 Enough is Enough

Issue Some contracts are agreed between procurement director and supplier. Consequences- Frauds Low quality products

Sourcing 1. There are two types of sourcing a. Local suppliers in host country- 20% b. International manufacturers and distributers- 80% 2. Issues a. Only perishable goods are purchased from local suppliers and b. The percentage is below as stated in objectives. (Less than 40%) c. Physical quantity is not an appropriate measure 3. Solution a. B can expand its sourcing beyond perishable goods Ex:- FMCGs from local suppliers b. Increase commitment to suppliers to achieve 40% target c. Use appropriate measures like percentage of cost of sales. 4. Advantages of sourcing from local suppliers a. Better relationship with government b. Reputation among local community c. Low transportation cost d. Reduce the wastage e. Reduction in carbon emission because of low distance transportation 5. Disadvantages a. Local suppliers might not feel as their own organization because B is European based company. b. Quality issues c. Products might not meet the required standards of B 6. Evaluation of having Bs own brand name on products.

B Supermarket 73 Enough is Enough

Transportation 1. Transportation is indirectly attached with Bs objective regarding carbon emission. 2. Perishable goods must be transport carefully otherwise it will lead to wastage. 3. Alternatives to reduce carbon emission in transportation a. More sourcing from local suppliers 4. Efficient fleet management- It is preferred to have a own fleet for transportation Inventory Management There is no proper inventory management exists within B. 1. Issues a. Stock outs do occur from time to time b. Inaccurate management information regarding inventory 2. As a result of above issues B is losing sales revenue and the worst case is B will lose its customers. Continuous supply according to the demand is the key success factor in retail organizations.

Sales and Distribution 1. There are four types of distribution 2. Issues a. Different pricing for same product in different stores b. Competition among stores c. Discount stores only sells consumer durable products d. Limited brands in convenience stores 3. Solution a. Same pricing for same products otherwise customer could switching to another supplier because bargaining power of buyer is high in retail organizations. b. Expand the product range in discount stores.

B Supermarket 74 Enough is Enough

How to gain competitive advantage through enhancing supply chain 1. Backward integration 2. Continuous supply 3. Seasonally changes 4. Information technology Information technology plays vital role in supply chain management. B and its upstream and downstream partners should be linked by information. B can utilize its EPOS and Inventory management system in order to efficiently run the business. This has analyzed in details in Information Technology chapter.

B Supermarket 75 Enough is Enough

9. Treasury
Concept
This is considered as the key in firms financial strategy & financial policy. Further, this focus on what business to invest in , Organizing appropriate funding. Controlling risk in the organization. Most importantly, treasury in an organization will create an appropriate capital structure of debt & equity to fund the business, getting the optimum balance between cost & risk. confusing in B supermarket chain.

In this case it is imperative to evaluate the role of the treasury function since its

Role of the treasury function


Capital markets & funding. This considers on different sources & techniques for raising funds. In Bs case they are hoping to expand B supermarkets to Asian countries where especially North Asia regional treasury should evaluate the finance options/sources to fund the expansion. Cash & Liquidity management. This involves in forecasting the companys cash needs to run the business & then managing group wide CF. It is clear that company currently facing an OVERTRADING situation where company is operationally managed through credit. Company has adopted an AGGRESSIVE POLICY of working capital where it need to be changed as soon as possible. Corporate financial management. This looks at the companys business strategy and financial strategy and seeks to determine the optimum solution to mesh the 2 together. It answers the fundamental questions as to what assets the business should invest in-including major projects, acquisitions, mergers and

B Supermarket 76 Enough is Enough

divestment and what capital structure should be put in place to raise the money to make the investments. Risk management This is simply the process of understanding the exposed risk. For instance currency risk, interest rate risk, liquidity risk. In this case B supermarket is highly exposed to foreign exchange risk where company should focus on hedging techniques in order to minimize the exchange rate risk.

Finance function in an organization is a combination of TREASURY & FINANCIAL CONTROL. Treasury is responsible for obtaining finance & managing effectively where financial control is concerned with the allocation & effective use of resources. Hence, financial control is responsible for investment decision.

Treasury

Finance Function
Financial Control

B Supermarket 77 Enough is Enough

Advantages of a specialized treasury function Control of cash will be recognized as a separate & significant activity,
concentrating on the more efficient use of this resource.

Central funding arrangement provides greater control to ensure that adequate


funding is in place & that debt covenants are monitored & standardized as far as possible. It also allows for economies of scale.

Corporate planning staff will be aided by expert advice & quick feedback from
specialists in such matters as interest rates & currency movements.

Marketing management will be given a competitive edge by specialist expertise


and speed of response in making important cash based decisions.

Possible questions
1. Discuss the importance of having an appropriate treasury role. 2. Evaluate the roles of the treasury function in each region. 3. Discuss the conflicts that might occur due to inappropriate treasury structure in B supermarket chain. 4. Advice the BOD on how the treasury functions should be structured in order to be more efficient & effective in decision making. 5. Explain the impact of overtrading to the treasury function. 6. Discuss the factors that the treasury department should consider when determining financing or re-financing strategies in the context of the economic environment in emerging Asian countries.

B Supermarket 78 Enough is Enough

10. Human Resource Management (HRM) in B-supermarket

1. Number of Employees Total number of employee =0.5 million (500000) 0.5 Million employees = B-Europe B-Asia B-North America Employees = Local staff (The existing policy in B supermarket provide priority on recruiting local staff) Foreign staff

2. Recruitment policy of Local staff 1. Roles and regulation in each region ex: Labor law / minimum wage rates / Trade unions 2. Individuals knowledge / thinking / behavior and cultural issues 3. The existing policy of recruiting local staff- roles and responsibility of regional human resource director 4. Economic development and income level of people to determine wage rates 5. New job opportunities create to economy Problems

Regulatory barriers Cultural barriers- ex: Language problems Conflict of interest between local and foreign staff Health and safety issues in working environment

B Supermarket 79 Enough is Enough

3. Human resource Director A. B. C. D. Member of a main board of B Roles and responsibly of Regional Human resource director Involvement of HR director in staff training program No clear integration between HR director and Regional HR director

4. Training program for store staff A. B. C. D. Compulsory training program Specialist team carried out training program Every store participate in training program Some countries the training considered to be at sufficiently high level to be recognized by national training bodies 4.1 Training Hours

2011 Training hours per year Monthly training hours Increase in training hours 17 hours 1 hour 41 min + 30%

2010 13 hours 1 hour 8 min

4.2 Analysis of Training program A. Integration between specialist (training group) and store staff B. Success of past training program C. Feed-back of employees towards training group D. Performance appraisal of staff after training program E. National regulation towards training program ex: minimum training hours F. Monitoring process of training program G. Involvement of regional HR director H. Financial feasibility cost allocate on training program

B Supermarket 80 Enough is Enough

I. Roles and responsibility of specialist team (to whom they accountable regarding to training program J. Healthy and safety issues during training program K. Loss in daily operations by undertaking training program L. Operationalizing CSR issues in training program ex : reduction of carbon emission

4.3 45%- additional staff Declared as Disability A. Resistance from existing staff ex: pressure from trade unions, media B. Regulatory framework in staff redundancy ex : regional employment law/government influence C. Impact on B brand image/reputation D. Job security of remain staff members E. CSR issues in Human resource management F. Involvement of specialist team in selecting disability staff G. Staff redundancy policy redundancy scheme, voluntary disclosure H. Process of selecting disable staff- performance appraisal I. Involvement of group and regional HR director

4.3 Problems Conflict of interest between specialist (training group) and staff members Negative experience staff make resistance from staff No clear monitoring system to check progress in training program Only 1hour and 41 min per moth not sufficient time real working environment Cultural issues National regulatory issues for training No clear roles and responsibilities for specialist team Financial feasibility can be a problem- high cost related to training program Resistance for 45% additional staff redundancy/ regulatory problems No monitoring system to review the progress of training

B Supermarket 81 Enough is Enough

5. Human resource management (HRM) in Franchise stores


Analysis Franchise stores staff

Problems
Regulatory issues on franchise agreement Control issues for regional HR director of management franchise store staff Language and cultural barriers of communicating franchise store staff
Conflict of interest between store management and HR group of B

Involvement of regional HR director towards franchise stores staff management No clear policy for management of staff in franchise stores Recruitment policy- foreign or local store

The training program undertake for franchise staff members Performance appraisal of staff members and reward structure ex : fixed salary or hourly rate payments Monitoring process of B head office towards franchise store staff

Problems of maintaining and monitoring staff service in franchise store Issues of undertaking training programs in franchise stores-lack of knowledge, experience or in adequate technology

6. Theft of staff in chain store groups and Misleading information provided to head office staff 6.1 Misleading information provided to head office staff through IT system A. Existing information system provided misleading information A.1.1.1.1.1. Information can be overloaded A.1.1.1.1.2. Poor integration between IT staff and head office staff A.1.1.1.1.3. Staff can be confused with misleading information A.1.1.1.1.4. No action has taken against IT system B. Fail in operation due to misleading information provided to staff C. Demotivate employee to deal with IT system D. No involvement of HR director 6.2 Analysis of current situation A. No investigation carried out to review the loss of theft by staff B. No action taken against for theft of staff in chain store groups C. Disciplinary procedure for frauds

B Supermarket 82 Enough is Enough

D. Independent and transparent investigation required E. Review recruitment policy- background check of staff/ involvement in criminal activities 6.3 Problems The loss of theft in stores will continue for future No involvement from group and regional HR director Encourage employees to involve in criminal activities due to poor control Negative impact on companies brand image

7. Employees 5% share ownership A. Total number of shares = 1.350 million (1350000)-(employees have 5% share ownership 5% employee ownership = 1.350 million * 5% = 0.675 million shares Total number of employees = 0.5 million 7.2 Problems Conflict of interest between employees and remain 95% share holders Employees influence in corporate decision making Currently company operates with 0.5 million employees and individual ownership is smaller percentage. Dividend policy for employees needs to be review because company might use different dividend policy for employees. Employees involvement in decision making- participation for annual general meeting, voting rights. Additional benefits for employees- share option scheme.

Other HR related issues of the B supermarket Currently company have no clear performance appraisal technique to measure employees performance According to present context majority of decisions taken by head office (strategic planning style) and employees not take part in decisions Bureaucracy culture for employees due to top down decision making No clear policy has developed to monitor employees motivation

B Supermarket 83 Enough is Enough

11. Change Management


Change In a Competitive environment markets are change in rapid scale and every organization has come across the concept of change in day to day life. An organization change can arrived in different forms such as rules, procedures, goals, values, rituals and etc. Its important for an organization to identify the internal and external and external variables which can influence for an organizational change There can be five types of changes in an organization: Plan, emergent, incremental, step and transformational change. Areas to change in B supermarket The existing structure required to be change because it complicated and inconsistent practices used in different region. Lack of segregation in different units. Existing EPOS system need to be change because systems are not perfect in stock outs and existing system provide misleading information for employees. Further this made negative impact on sales revenue during peak seasons The existing training program required to be change because time allocate for employer is insufficient, no performance appraisal system carried out after training program, no monitoring system to evaluate training CSR policy required to be change mainly because B need to check whether its realistic to become carbon neutral , application of CSR policy to supermarket industry, carbon emission related to railway transportation Mission statement should change because it too broad , not defines what business are you in ,not in line with core objective of company , mission not explains characteristics of business The existing value system required to be redesign because using generic strategy in value statement has create complication situation

B Supermarket 84 Enough is Enough

Change required for existing culture of employees because certain stock loses detected as theft from staff, autocratic decision making of top management ,conflict of interest between regional staff and main board

Treasury function need to be change because role of treasury is not clear, regional treasury operates with dual responsibilities Changes related to corporate governance- lack of segregation of audit committee, in-adequate focus on risk management, lack of audit governance related to expansion

Decision making process required to change because rigid control, very high financial control, central planning creates bureaucratic environment and poor management of regions

Dividend policy need to be change because it might provide negative signaling effect for shareholders (reduction in share price between 2007-11)

Barriers to change According to present context many organizations failed to introduce successful changes for their existing working practice due to resistance created through from internal and external environment. Its a difficult task to identify the exact reasons for the resistance to change in an organization and understanding the shape of resistance enables to develop a strategy to overcome it. General barriers to implement change- culture, poor leadership skills, uncertainty, fear of new development, fear to change and etc. Barriers in B supermarket to introduce change Mainly the existing top down decision making has created bureaucratic and authoritarian culture within the company. This reduces the flexibility to introduce changes for the B. Strict finance control and possible conflict between regional managers and Head office

B Supermarket 85 Enough is Enough

External barriers changes in regulation of each regions, entrance of new competitor, change in customer preference towards FMG goods. In-sufficient training provided to employees and staff can be demotivate in future Ability to control every franchise store operates in each region. Ability to implement change for over 15000 stores operates in nearly 36 countries Application of CSR policy in to companies operations is complicated Poor internal IT system insufficient technology to control inventory

Change management Management of change is a very challengeable task for any organization because due to high level uncertainty arisen from the environment and many organizations are not very keen on responding towards the change. Management of change is about capitalizing todays strength and create platform to develop future niches. Management of change in B supermarket New IT system need to be introduced for control stock outs and monitoring physical stocks against records- redesign EPOS system Appoint an IT team to investigate existing problems of providing misleading information to staff. Segregation of duties should allocate to the audit committee Mission statement need to be change and new mission statement need to design in line with core-business activity of B supermarket Appoint Non-executive director for each region and separate committee for risk management Change the existing training program and allocate more time for individual employee, develop monitoring and performance appraisal system for workforce

B Supermarket 86 Enough is Enough

B supermarket can used following models to introduce change for the organization Force field analysis (Kurt lewin) Change through Entrepreneurship Theory E and theory O Change through Learning(Peter senge) Constant change Chaos theory (Tom peters)

Example: Force-field Analysis (Kurt Lewin) Unfreeze Change Refreeze

Conflict of interest between regional board and main board regional board dissatisfied with existing bureaucratic procedure Problems can be arise among IT staff related to poor information system Insufficient training for employees which leads to staff dissatisfaction

Change the structure of decision making

Develop a proper reporting system and arrange meeting between main board and regional board

and redesign EPOS system of managing inventory

Develop monitoring and control for review the IT system

Change training policy for work force

Performance appraisal after training program

Possible Questions 1. Advice board of directors of B to what extend change management is required for the existing IT system 2. Explain how change management is important for improving performance of employees and culture 3. Discuss the barriers that company B going to face introducing change for current training program 4. Explain the barriers that B need to face engaging with new franchise agreement with local player

B Supermarket 87 Enough is Enough

5. Identify the two models that the management could use to introduce change for it existing IT system 6. Explain how these models could assist the management to overcome the barriers of IT system and training program 7. Discuss how force field analysis could be used introduce changes for existing culture of the organization

Change Management
Change In a Competitive environment markets are change in rapid scale and every organization has come across the concept of change in day to day life. An organization change can arrived in different forms such as rules, procedures, goals, values, rituals and etc. Its important for an organization to identify the internal and external and external variables which can influence for an organizational change There can be five types of changes in an organization: Plan, emergent, incremental, step and transformational change. Areas to change in B supermarket The existing structure required to be change because it complicated and inconsistent practices used in different region. Lack of segregation in different units. Existing EPOS system need to be change because systems are not perfect in stock outs and existing system provide misleading information for employees. Further this made negative impact on sales revenue during peak seasons The existing training program required to be change because time allocate for employer is insufficient, no performance appraisal system carried out after training program, no monitoring system to evaluate training

B Supermarket 88 Enough is Enough

CSR policy required to be change mainly because B need to check whether its realistic to become carbon neutral , application of CSR policy to supermarket industry, carbon emission related to railway transportation

Mission statement should change because it too broad , not defines what business are you in ,not in line with core objective of company , mission not explains characteristics of business

The existing value system required to be redesign because using generic strategy in value statement has create complication situation Change required for existing culture of employees because certain stock loses detected as theft from staff, autocratic decision making of top management ,conflict of interest between regional staff and main board

Treasury function need to be change because role of treasury is not clear, regional treasury operates with dual responsibilities Changes related to corporate governance- lack of segregation of audit committee, in-adequate focus on risk management, lack of audit governance related to expansion

Decision making process required to change because rigid control, very high financial control, central planning creates bureaucratic environment and poor management of regions

Dividend policy need to be change because it might provide negative signaling effect for shareholders (reduction in share price between 2007-11)

Barriers to change According to present context many organizations failed to introduce successful changes for their existing working practice due to resistance created through from internal and external environment. Its a difficult task to identify the exact reasons for the resistance to change in an organization and understanding the shape of resistance enables to develop a strategy to overcome it.

B Supermarket 89 Enough is Enough

General barriers to implement change- culture, poor leadership skills, uncertainty, fear of new development, fear to change and etc.

Barriers in B supermarket to introduce change Mainly the existing top down decision making has created bureaucratic and authoritarian culture within the company. This reduces the flexibility to introduce changes for the B. Strict finance control and possible conflict between regional managers and Head office External barriers changes in regulation of each regions, entrance of new competitor, change in customer preference towards FMG goods. In-sufficient training provided to employees and staff can be demotivate in future Ability to control every franchise store operates in each region. Ability to implement change for over 15000 stores operates in nearly 36 countries Application of CSR policy in to companies operations is complicated Poor internal IT system insufficient technology to control inventory

Change management Management of change is a very challengeable task for any organization because due to high level uncertainty arisen from the environment and many organizations are not very keen on responding towards the change. Management of change is about capitalizing todays strength and create platform to develop future niches.

B Supermarket 90 Enough is Enough

Management of change in B supermarket New IT system need to be introduced for control stock outs and monitoring physical stocks against records- redesign EPOS system Appoint an IT team to investigate existing problems of providing misleading information to staff. Segregation of duties should allocate to the audit committee Mission statement need to be change and new mission statement need to design in line with core-business activity of B supermarket Appoint Non-executive director for each region and separate committee for risk management Change the existing training program and allocate more time for individual employee, develop monitoring and performance appraisal system for workforce

B supermarket can used following models to introduce change for the organization Force field analysis (Kurt lewin) Change through Entrepreneurship Theory E and theory O Change through Learning(Peter senge) Constant change Chaos theory (Tom peters)

B Supermarket 91 Enough is Enough

Example: Force-field Analysis (Kurt Lewin) Unfreeze Change Refreeze

Conflict of interest between regional board and main board regional board dissatisfied with existing bureaucratic procedure Problems can be arise among IT staff related to poor information system Insufficient training for employees which leads to staff dissatisfaction

Change the structure of decision making

Develop a proper reporting system and arrange meeting between main board and regional board

and redesign EPOS system of managing inventory

Develop monitoring and control for review the IT system

Change training policy for work force

Performance appraisal after training program

Possible Questions 8. Advice board of directors of B to what extend change management is required for the existing IT system 9. Explain how change management is important for improving performance of employees and culture 10. Discuss the barriers that company B going to face introducing change for current training program 11. Explain the barriers that B need to face engaging with new franchise agreement with local player 12. Identify the two models that the management could use to introduce change for it existing IT system 13. Explain how these models could assist the management to overcome the barriers of IT system and training program 14. Discuss how force field analysis could be used introduce changes for existing culture of the organization

B Supermarket 92 Enough is Enough

12. Appendixes
12.1 Issues of carefour supermarket.

The two supermarket stalwarts trail Wal-Mart globally, but the French group is faring worse.
Shares in Britain's biggest supermarket chain Tesco (LSE: TSCO) are down by 21% this year, thanks to last Thursday's Christmas trading statement where the company said that profits growth in the current year would be "minimal". However, shareholders in the French supermarket group Carrefour, with whom Tesco fights for second place in the global market, would love to see "minimal" profits growth. That's because profits have fallen in the last few years and Carrefour issued five separate profit warnings in 2011, losing some 249 million in the first six months.

Fast food giant McDonalds and French supermarket chain Carrefour have apologized to Chinese consumers following the exposure of food safety scandals on Thursday. The two companies said they are willing to cooperate with government inspections to ensure the highest standard of food safety.

Fast food giant McDonalds and French supermarket chain Carrefour have apologized to Chinese consumers following the exposure of food safety scandals on Thursday.
Quick apologies are announced after a report exposed food safety problems at a Mcdonalds branch in Beijing.

B Supermarket 93 Enough is Enough


Sophia Luan, Vice President of McDonalds in China, said, "As a member of the managerial staff, Im very sorry for the loopholes in our system. I apologize to our customers. From today, we will rectify operations of more than 1,400 outlets in China, not only this one." The food safety scandal was exposed on Thursday, showing that a McDonalds branch in Beijing was selling fried chicken wings beyond the preset time limit, and worse still, dropped cutlets were directly picked up for use again. Investigators started probing the problems immediately.

Fast food giant McDonalds and French supermarket chain Carrefour have apologized to Chinese consumers following the exposure of food safety scandals on Thursday.
Yan Chuanyan, Food Safety Supervisor, said, "Trash cans in the operation room were not covered in time. The bread bases stored in normal the atmospheric temperature were mixed with groceries, which violates our rule; moreover, there were some damage to plastic bags of some bread bases, which led to food contamination."

B Supermarket 94 Enough is Enough


The branch has been closed until the investigation is complete. Meanwhile, Carrefour also made a apology after reports exposed the practice of labeling some poultry products with incorrect production dates. Standard chicken was also as the more expensive free-range variety. Xavier Bodenes, Head of Food Safety and Quality of Carrefour China, said, "Carrefour China knew about the case that happened yesterday. Carrefour apologizes, apologizes for the case that has happened, and apologizes to our customers about this incident." Carrefour China said it will enforce out serious punishments to people involved in this food quality case.