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MGMT3030-BSG Strategic Audit

Due: Thursday November 5, 2015


Completed for: Pierre Brunet
Completed by:
Rachel Wilkinson
Brittany Martin
Kaitlyn Mackie
Kelcey McCuaig
Kieran Jeeves

1. Historical analysis
a. Current performance
Return on Equity:
From year 13 to year 14 our ROE dropped from 14.5% to 5%. From these numbers it is apparent
that our ROE had dropped drastically over one year. The investor expectations for both of these
years was 15%. We were close to meeting the expectations in year 13, but in year 14 we were 9%
below the expectations.
Earnings per Share:
From year 13 to 14 our EPS dropped from $2.85 to $1.08. We dropped $1.77 from year 13 to year
14. From this you can see our EPS is in a negative growth. The investor expectations for year 13
were $3.05 and in year 14 $3.26. We did not meet the expectations in either year.
Stock Price:
Our stock price from year 13 to year 14 dropped almost 50%. Our price in year 13 was $30.14 and
in year 14 it dropped to $16.94. The investor expectations were $36.75 for year 13 and $39.25 for
year 14. We obviously did not meet either of these expectations.
Credit Rating:
In year 13 our credit rating was a B+, and this dropped to a C+ in year 14. The investor
expectations for both years was B+, so we met the investor expectations in year 13 but not year
14.
Image Rating:
In year 13 our image rating was 71 and in year 14 it was 76. This shows that our image rating is
growing. The investor expectations for both years was 70. So we surpassed the investor
expectations in both years 13 and 14.
b. Strategic position
Mission:
Cool Runnings mission is to offer competitively priced shoes with an average SQ rating to capture
a large sales volume while offering a wide selection of footwear. Cool Runnings offers a
reasonably priced shoe for everyone's needs.
Generic Competitive Strategy (Porter):
The generic competitive strategy that we are using based on Michael Porters strategies is the cost
and differentiation focus strategy. We have a narrow target market and an average price in
comparison to the other companys in our industry.
c. Marketing mix
Product:
Our shoes are an average quality shoe compared to our competition and we offer a large variety.
This aligns with our mission because we want to be offering shoes with an average SQ rating. We
also offered over 200 models in the wholesale segment for all four market segments and 150 on
the internet for each market as well. This aligns with our mission of offering a wide selection of
shoes.
Price:
The price of our shoes in year 14 were not the highest or lowest priced shoes in our industry, they
fell somewhere in the middle of all the companies. This aligns with our mission and strategy
because we want to be offering a competitive priced shoe within the industry and by offering a
price that is between everyone elses we feel that we do have a competitive price.
Place:
Cool Runnings shoes are distributed to all four geographic regions which include, North America,
Europe-Africa, Asia-Pacific, and Latin America. Our shoes are sold to wholesalers who then sell
them to retailers. This aligns with our mission because we want offer shoes for a large variety of
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people, so by selling in all regions we reach the amount of people we want to. Also, we are doing
strongest in the Europe-Africa market.
Promotion:
In year 14 we spent the most amount of advertising money on the North American market. With
Europe-Africas advertising expense being close behind. This aligns with our strategy of focusing
in on a narrow market because we are mostly advertising to those to regions. We also are planning
on bidding for a celebrity. We feel that having celebrity appeal with help us even more to focus in
on a more narrow target market

2. EXTERNAL ENVIRONMENT: OPPORTUNITIES & THREATS


a. Environmental analysis
The key environmental situation that is presented in the BSG simulation is since there is only so
much market to go around we are all competing against each other to offer the best price as well as
the most product line. Throughout the past years one company has dominated the overall market
by having a stronger advantage and strategy than the rest, it impacted our company by offering
less market share to us as well as it has made it harder for us to compete with them, it has also
made us keep our prices low which in return gave us the opportunity to be a low price leader
against the other competitors. Another situation that is presented is that we all want to be first in
our industry, this causes extreme competition every year that passes we are all still striving to
survive. We also have a greater market in Europe-Africa. However, with having a large demand
from Europe-Africa than the other markets, the Tariff prices opposes as a threat to our company
with each year the Tariffs are going up it is costing us more money to ship our shoes to from other
plants to the Europe-Africa market. We also have a big opportunity in private label since we are
not already in that market, it could help increase our sales and gain a higher revenue. Our industry
is always changing every year there are new strategies that companies plan out, a big threat for us
is a drop in competitors prices. This is a threat to us because it will cause the average consumer to
purchase from them instead of us causing our pairs sold to be low which will generate a low
revenue.
b. Porter 5-forces analysis
1. Threat of new entrants
Threat of new entrants that would enter in the competition in our industry (industry 2) would have
a hard time surviving unless they enter with a strong competitive advantage against the other
competitors. The rating for this force would be high because it is a strong and difficult industry for
a new entrant to enter into. This drives competition in our industry because since we are in a very
hard industry to survive in, and they would be up against very competitive companies. Other
companies will not want to enter into our market which leaves less companies wanting to enter.
2. Bargaining power of buyers
Bargaining power of buyers is rated medium because the buyers have a strong ability to get
companies to lower prices and increase quality in the shoes made. This will make the companies
in our industry compete against each other which will then allow buyers to get the best deal from
the company with the best quality shoe at low prices. Buyers will look for the best offers, they do
not just purchase from the first company they see. This drives competition in our industry because
everyone is always coming up with new prices every year, we are never the same companies
offering the same prices. This is will make consumers shop around for the best deals.
3.Threat of substitute products or services
The threat of substitutes in terms of products that we are currently offering (shoes) it would be
rated high, other companies can offer a more high quality shoe compared to others. However, if a
company was to increase their S/Q rating as well as their superior materials this will draw
attention to the buyers who demand high quality over low prices. This draws competition in our
industry because every company wants to offer a high quality shoe to gain a larger market share,
however with a higher quality shoe comes with higher costs to produce/make the shoe, therefore
companies are required to offer a higher price to cover the high costs. Which means for our
company we can offer a slightly lower quality shoe for a less price, drawing in more demand.
4.Bargaining power of suppliers-MEDIUM
The bargaining power of suppliers is rated medium because the shoe industry is dominated by
companies that have the ability to raise prices or reduce quality. This drives competition in our
industry because if other competitors drop their prices more people will buy for them. The same
for unexpected changes from other companies, if other companies produce changes that could
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affect the average industry standards it will cause a shift in prices expected and the S/Q rating that
is needed for that year.
5.Rivalry among competing firms-HIGH
Rivalry among competitors is extremely high in our industry, it is difficult for a company to get
ahead since everyone is so competitive. During the years 11-14 we have offered a relatively lower
price than our competitors but still have not gained any major revenue or strong growth. To
compete with our competitors we must obtain a strong strategic plan that could potentially blind
side the other companies. However, for a new company to enter into our industry they would need
to keep up with the rivalry that comes up every year. This drive competition because since the
rivalry is so high it leads to the companies being in a strong competition between each other, we
all want to be first in our industry.
c. Strategic grouping
PRICE VS. PRODUCT LINE (MARKET SNAPSHOT)
The strategic grouping in our industry has changed in many ways through the year. Each company
has different grouping in all markets.
Year 11-14 North America:
in these years for the market is has normally been dominated by Delta. In year 11 every
company was scattered throughout the map for the internet segment our company was the direct
competitor to Company B offering the same amount of products for the same price. Delta had the
most market share for both internet segment as well as wholesale segment. Each company had
their own differences in price and S/Q rating as well as product line breadth. In year 13 we had a
change in competition, for both the internet and wholesale segment Agility and Edge were
competing with similar if not the same prices, as well as a low product line. It wasn't until year 14
where we had offered the lowest price out of the competition.
Year 11-14 Europe- Africa:
In year 11 every company was scattered across the map, no one had any direct
competition. However, we had less market share in both internet and wholesale segment than the
other companies. Our market share then increased in year 12 by 50% we had the largest market
share in both internet and wholesale segments. In year 13 our biggest competitor was Delta, they
had a similar price as well as product line.
Year 11-14 Asia- Pacific:
starting out in the beginning like every other market we were all scattered and had no
direct competitor with the same price or product line, in year 12 both our company and delta had
the largest market share, ranging from 20.5% to 26.1% we both offered medium range prices as
well as medium range product lines with Delta offering more models offered than us. In year 13
we had our biggest weakness during this year, with our weakness consisting of our S/Q rating,
advertising, rebate offer, etc. we didnt have the same offerings as the other companies causing our
market share to drop 1%. In the last year (year 14) our market share continued to drop.
Year 11- 14 Latin America:
In year 11 we started off having no internet sales and focusing more on the wholesale
segment which resulted in a below average compared to our competitors. Year 12 is when we
entered into internet segment for Latin America which we gained 27.7% of the market share
allowing us to have the second highest percentage. With Delta having the most market share
overall they dominated in the Latin American Year 12. However, in compared to the wholesale
segment Edge was first with the most pairs sold at 938. In year 13 we were direct competitors with
Delta once again, offering similar prices as well as very similar models available, in the wholesale
segment we sold more than Delta did allow us to be the dominate in this year. Last years data
Year 14 everyone did fairly well, everyone came close in pairs sold however, Agility was the only
one in the private label segment.
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d.

Industry matrix

Key
Success
Factors

Weigh
t

Company Company
A rating
A
Weighted
Score

Company Company
D Rating D
weighted
score

Company Company
E rating
E
weighted
score

Market
Share

0.20

0.80

1.5

0.30

0.60

Price

0.25

0.75

0.75

S/Q
Rating

0.15

0.45

0.75

0.60

Models
0.20
Available

0.20

0.20

Free
Shipping

0.10

0.50

0.10

0.10

Rebate

0.10

0.40

0.70

0.30

Total

1.00

3.90

4.05

2.55

Rating 1-5; 1 being low 5 being high

e.

Summary of External Factors

External Factors

Weigh
t

Ratin
g

Weighted
Score

Comments

Low Price Leader

0.15

0.45

Advantage from other


competitors

Dominate in
Europe/Africa

0.05

0.15

Large market share

Private Label

0.15

2.5

0.375

Will increase revenue

Celebrity Appeal

0.10

1.5

0.15

Will help with advertising

Increase Internet Sales

0.05

0.10

Higher revenue

Total

1.00

Opportunities

1.225

Threats
Drops in competitive
prices

0.20

Causes consumers to buy


their shoes over us

Tariff prices

0.05

2.5

0.125

Especially in Europe-Africa
since we are bigger here

Losing Asian market

0.05

0.05

Less revenue

Drop in average S/Q


rating

0.05

0.15

Cause our cost per pair sold


to increase

Unexpected changes from


other companies

0.15

0.75

Could change our results


drastically

Total

1.00

2.075

3. INTERNAL ENVIRONMENT: STRENGTHS & WEAKNESSES


a. Competency analysis
Factor
Raw Materials
Primary Manufacturing
Fabrication
Distributor
Retailor
Corporate Culture
Marketing
Finance
R&D
Operating Manufacturing
Operations Logistics

Value
yes
yes
yes
no
yes
no
no
no
yes
yes
yes

Rareness
no
no
yes
no
yes
no
no
no
yes
no
no

Imitability
yes
no
yes
no
yes
no
no
no
yes
no
yes

Organization
yes
yes
yes
no
yes
no
no
no
yes
no
yes

b. Value chain analysis


Raw Materials:
In year 14 we had a high cost for our raw materials. We receive materials on a just-in-time
shipping schedule from multiple sources. During this year, we had an SQ rating of 9, which meant
we had to use a higher percentage of superior materials which were priced at $14.66 a pair and
standard materials costing only $0.59 a pair. After reevaluating, we decided to decrease our costs
by using about half superior and standard materials. This way we can still meet industry standards
without inflating our cost of materials.
Primary Manufacturing:
Cool Runnings has 2 manufacturing plants, a 2 million capacity plant in North America, and a 4
million capacity plant in Asia. We have not built any more capacity as our demand is not high
enough to justify investing. We have made some plant upgrades to reduce reject rate.
$10 000 upgrades in year 14, $14000 in year 12
Best practice training- $0.53 NA, $0.82 Asia
Fabrication:
In year 2014, there were 383 workers employed in North America, producing 2284 000 pairs with
a reject rate of 4.8%. In Asia we employed 1219 employees and produced 4 660 000 pairs with a
reject rate of 2.9%.
Distributor:
We distribute our product to different warehouses in all 4 geographic regions based on our
projected sales demand. For example, we sell about half the pairs in Asia than in the
Europe/Africa market so we ship accordingly. However, we did not meet demand in Asia last year
and need to ship fewer to North America and more to Asia.
Retailor:
Our Company sells their shoes in a large variety of stores. In year 14 we were selling in 4102
retailers, second best to Delta with 5555 retailors.
c. Corporate culture analysis
Cool Runnings partakes very little in corporate social responsibility activities. In the past we have
partaken in ethics training for our managers and small percentages of charitable contributions. We

have made the decision to not be involved in these activities because it uses cash we do not
possess.
Offered 1% pay increase year 11-12 and 12-13, but this is all we could afford
Incentive and wage compensation: $22.30 NA, $5.20 Asia per pair
Best training practices (cumulative): $0.40 per pair NA, $0.62 Asia
Cultural Intensity is low due to corporate social responsibilities and lack of wage increases.
d. Functional analysis
Marketing:
Penetration Pricing: is the practice of offering a low price for a new product or service during its
initial offering in order to attract customers away from competitors.
Pull Strategy: company spends more money on consumer advertising designed to build brand
awareness so that shoppers will ask for the products
Finance:
Capital Budgeting: analyzing and ranking of possible investments in fixed assets such as land,
buildings and equipment in terms of the additional outlays and additional receipts that will result
from each investment.
Best use of funds: cash must be raised through internal or external forces and utilized in the best
way.
Research & Development:
Followership:
Imitates the products of its competitors in order to meet customers demands.
Differentiation:
Adapts the product or delivery system more closely to buyers needs.
Operations (Manufacturing):
Continuous Systems:
laid out as lines on which products can be continuously assembled or processed.
Economies of Scale:
unit costs are reduced by making large numbers of the same products.
Operations (Logistics):
Just-In-Time:
The manufacturing plant orders on a just-in-time schedule meaning they do not need to store the
materials as they can order them and receive them the next day.
Facility Utilization:
Producing at maximum capacity and implementing quality control programs and decreasing reject
rate through training and plant upgrades.

e. Summary of Internal Factors


Internal Factors

Weight
1

Rating
2

Weighted Comments
Score
3
4

Strengths
Little idle capacity
Reduced reject rates
Europe/Africa distribution
Large variety of retailers
High six sigma quality

0.15
0.05
0.10
0.15
0.05

3.5
3.5
2.5
2.2
3

0.525
0.175
0.25
0.33
0.15

Not building plants without consumer demand


Plant upgrades to lower reject rate
Heavy distribution to this area because of demand
High level of retailers selling our products
Invested in high level of Six Sigma practices to ensure
quality from workers

Weaknesses
Cost of Product
Rebate Offers
Advertising
Low Cash

0.20
0.05
0.10
0.10

2
2.5
2.5
2

0.4
0.125
0.25
0.2

Asian Market

0.05

2.2

0.11

Cost of materials and labour per pair is high


Offers few rebates to customers
Low expenditures in advertising
High costs resulting in low cash and a poor financial
position
Low demand in Asia due to low retail support and
advertising

1.00

2.515

Total:
Notes:
-

4. ANALYSIS OF STRATEGIC FACTORS (SWOT)


a. Strategic Factors Analysis Summary (10 marks):
1

_____
3

Durati
on
Strategic Factors

Total:
-

Notes;
S: Short, I: Intermediate, L: Long

Weig
ht

Ratin
g

Score

1.00

X.XX

Comments
S

5. STRATEGIC ALTERNATIES
a. Strategic Alternatives TOWS Analysis
INTERNAL
FACTORS

(IFAS)

EXTERNAL
FACTORS
(EFAS)
Opportunities (O)

Low price leader


Domination of European
market
Private label
Celebrity appeal
Increase internet sales

Threats (T)

Drop in competitive prices


Rise in tariffs
Losing Asian Market
Drop in SQ ratings

Strengths (S)
Little idle capacity
Low reject rate
Europe/Africa distribution
High number of retailers
Six Sigma training

Weaknesses (W)
High costs
Advertising
Asian Market
Low cash
Celebrity appeal

SO Strategies
Continue to increase
advertising in Europe
market for online sales
Utilize remaining
capacity to sell to
private label

WO Strategies
Reduce costs through raw
materials
Expand presence in Asia
by increasing advertising
and offering more retailor
support
Lowering costs will allow
us to have a more
competitive price for
private label

ST Strategies
Build capacity in
Europe to avoid tariffs
Use some of the idle
capacity to distribute
more to Asian market

WT Strategies
Reduce costs to maintain
profit margins if
competitors drop prices
Distribute more shoes to
Asia
Lower SQ ratings to lower

Unexpected changes in
market

cost/price

6. Recommended Strategy
Recommended Strategy (10 marks):
_____
As you look as your current strategy, which builds on the competitive strategies described by Michael
Porter (refer textbook and PowerPoint presentations slides), how do you modulate or adjust your current
strategy to take into consideration the information gathered in your SWOT/TOWS analysis?
In addition to assessing your strategy, discuss how you might adjust your implementation and tactics

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