cima 2014 case report.docx
TRANSCRIPT
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CIMA 2014 CASE REPORT
Team name: Fantastic Dream
Sichuan International Studies University
Team Members:Gu YangNie Kaiyu
Liu Lu
Adviser:Li JiangPan Yao
Qian Qingyi
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TABLE OF CONTENTS
1 Executive Summary
2 Introduction
3 Strategic Analysis
3.1 Company Analysis
3.2 Industry Analysis
3.3 SWOT Analysis
4 Issues Analysis and Recommendations
4.1 Prioritization of Issues
4.2 Core Competencies Issues
4.2.1 Late Delivery of a Hull from Topcrest
4.2.2 JKL
4.3 Diversification and Marketing Plans
4.3.1 New Design Supplier for Surania
4.3.2 Sales Staff and Agents
4.3.3 Racing Boat
4.4 Accident at Work
5 Appendices
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1. EXECUTIVE SUMMARYThis report aims to prioritize, analyze and evaluate the current issues facing Merbatty. The
report begins with a strategic and financial analysis of Merbatty and the industry. The 4 main
issues Merbatty facing have been categorized into 2 broad categories, namely issues that threaten
business and profitability and plans relating to expansion and marketing.
The first issue is the late delivery of a hull from its supplier Topcrest. The team
recommends that in the short term, Merbatty should cancel the contract with Topcrest and
complete the order on time and find more suppliers in the long term.
The second issue- JKL, is the second largest shareholder of Merbatty, but Alberto Blanc,
the Chairman, still views Merbatty as his personal property. Also, Alberto is fond of doing
charity, but JKLs Investment Director, Simone Lellet thinks it is absolutely a cost. The
recommendation is that Merbatty should strengthen the communication of the shareholders.
Alberto needs to remove his idea that he can control Merbatty completely.
The final issue is the ethical implication from accident at work. The accident arose from
one of Merbattys employee, called Paulo, arrival for work high on drugs. He fell off and broke
his leg .His addiction to drug reminds us to show concern for the ethical issue of the company.
With regard to expansion and marketing plans, Jesper (Marketing Director) wants to build
and race a speedboatin the competition. But his father, Alberto (chairman) disagrees with him.
Merbatty should accept the proposal in relation to the racing boat. This is due to the increasing
demand for the large boat and this increasing demand will enhance brand awareness.
The interior design supplierfor the new boat building facility in the Middle East is still not
found. There are two design companies available: Cooper Designs and Arabian Interiors.
Merbatty should choose Cooper Design as it has a long history and a good reputation.
Stefan Gil (sales director) wants to employ sales staff to replace the agents, but Marie Lopp
(HR director) has a recognition of agents work. It can be dealt with by combining both sale staff
and agent.
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Finally, the five year plan is evaluated. From the evaluation, Merbatty should increase its
total profits and continue expanding market share.
2. INTRODUCTIONMerbatty, founded in 1979, is a luxury boat building company specializing in wealthy,
successful individual and corporate clients. In order to achieve the expected sales, Merbatty
adopts custormising interior design and production management software system to increase
productivity and improve resource utilisation.
Merbatty has devised a five year plan that aims to achieve the following milestones by
2017:
- Number of boats commenced in the year -Increase by 78.57% to 500 in 2017 - Sales
revenue -Increase by 99.20% to 1,000 in 2017
- Operating profit -Increase by 80.26% to 137 in 2017
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3. STRATEGIC ANALYSIS3.1 Company Analysis
Merbatty has adopted the custormisation model to differentiates itself from other companies
and has built a strong customer base. This model was possible as Merbatty possess core
competencies among the similar products. The model represents a further 11% on top of basic
selling prices and also relies on remaining in close contact with suppliers.
3.2 Industry Analysis
Merbatty competes in the luxury boat building industry, espeially in the US and Europe.
In 2012, the luxury boat building industry generated approximately $5.5bn revenue. Over 5
years to 2012, the industrys revenue decline at a rate of 8.6%, and expects an average annual
revenue of 6.9% in the 5 years to 2017. Although Merbatty has held a global market share of 8%
in 2012, it still has so much risks.
Five Forces
Substitute ---strong
There are a large number of domestic and international builders of luxury boats, which
together produce a range of over 180 different models. The better the price offered by substitutes,
the more likely customers will switch.
New entrants---strong
The threat from new entrants is high because the strength of the barriers is low.
Rivalry--strong
As the boat industry is not dominated by a few large companies, rivalry is intense. It is
difficult to differentiate your product.
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Suppliers power---moderate
Although Merbatty has a number of key suppliers, many other suppliers are available and
switching are available and switching costs are low. The price is not controlled by one or two
dominant suppliers.
Buyers power ---moderate
As switching costs are low and customers can easily have full information, it is essential for
Merbatty to put emphasis on advertising and promotion to create brand awareness.
Threat to the Luxury Boat Building Industry Market
(Chart)
3.3 SWOT ANALYSIS
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Therefore, Merbattys priorities would focus on retaining market share because of the fierce
competition and at the same time, expanding global and domestic market.
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4. ISSUES ANALYSIS AND RECOMMODATION4.1 Prioritisation of Issues
The 5 main issues may be broadly categorized as follows:
Given the direct impact of the issues which threaten business profitability, they are chosen
to prioritize over expansion or marking plans.
Among the issues that threaten the core business or profitability, the late delivery of hull
poses a greater risk because it also means a two-month state delivery to its customer which will
not only result in financial loss. ? The second issue is misunderstanding between JKL and
Merbutty. This will influence the share price.
Among the expansion and marketing plans, choice between two suppliers for Surania
takes precedence as it involves Merbutty?s future plans for expansion in the Middle East.
But also its reputation will suffer the choice between
agent and staff. On the other hand, it also requires the company
to act quickly.
Though the racing boat proposal may increase the sales
of P-3000, its effect on total sales is limited. The suppliers for
Surania proposal will be the main driving force in sales growth
and should therefore take precedence.
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4.2 Core Competencies Issues
4.2.1 Late Delivery of a Hull from Topcrest
Financial Impact
Due to the late delivery, 0.5% of customers may require a refund (according to the financial
data given), which will reduce the profit in 2014. On the other hand, it also will reduce
employees efficiency. Hence, Merbatty will lose a plenty of money and waste a lot of time.
Strategic Impact
As Merbatty plans to expand its market, suppliers late delivery makes the relationship
between supplier and Merbatty go worse and it will affect Merbattys later order. In that case, the
target of boat building of 340 in 2014 will not be achieved.
Reputational Impact
Reputation is an important part of a company, which is strategic for the future. Due to the
late delivery, customer will doubt Merbattys ability of taking orders. It affects customerschoice
and makes Merbattys situation become worse because Merbatty is a new comer in the stock
market.
Potential Solutions to the Late Delivery
Continue the contract with Topcrest
Merbatty accepts the fact that Tocrest has delivered the hull late, it will get approximately
118.5k from Topcrest and the boat customers will get 25k discount, so it will reduce
Merbattys cost even though customers cancel their order.
Because Merbatty is a key customer of Topcrest, when making further orders, Topcrest will
take Merbattys order more seriously, it will benefit Merbattys future strategy.
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Cancel the contract with Topcrest and find another hull supplier
To find another hull supplier to supply the hull at short notice, it will reduce the possibility
of customer canceling the order, also, the market for its ability to resist risk assessment will be
better. Although Merbatty and Topcrest have recognized the importance of working close for
future designs, Topcrest did not see Merbatty as its important customer. Hence, merbatty should
not take Topcrest as a main supplier anymore.
Amend the contract and find another hull supplier
Late delivery is a fact that can?t be changed. What Merbatty has to do is to reduce the risks.
Considering the close relationship with Topcrest and its compensation, Merbatty shouldn?t break
the contract directly. Merbatty can reduce the order with Topcrest and find another hull supplier
to complete the rest of the orders. Hence, Merbatty may not receive unsubscribe from customers.
Recommendation
Short-term
In the short-term , Merbatty wants to receive the hull as soon as possible. It will cancel the
contract with Topcrest and complete the order on time ,which needs workers to work overtime.
Although it will increase the cost, customers won?t lose their faith in Merbatty and Market
reward will be more.
Long-term
Merbatty wants to expand its market share in the long term. It need to reduce the risks at
aspects, the most important one is the supplier. Hence, Merbatty should reduce the affect from
suppliers. In this case, it needs more suppliers for one order. So Merbatty needs to find more
suppliers to reduce the risks.
4.2.2 JKL
Financial Impact
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JKL, as Merbattys biggest investor, which holds 28% shares of the company, but Alberto
Blanc, the Chairman, still views Merbatty as his personal property after the company became
listed in 2012. If the news of the contradiction is known to the public, the share price will be
affected. For example, shareholders dispute of 58 city affect the company greatly before
companys IPO.
Strategic Impact
The companys executives and shareholders are in lack of communication, so Simone
doesnt know the benefit of doing charitable work for the company. Alberto still considers
Merbatty as his private property, but he can not think that now. JKL will not be happy to see that
and will doubt his investment. In that case, Merbatty will drop into high risk.
Potential Solutions to the Problem
Strength the communication between its shareholders
The weak link must be changed. Mebatty should take this communication into a serious
part, the good relationship between the shareholders is very important for company development.
Strengthen Albertos credibility between shareholders
If Alberto wants to implement his plan successfully, he needs the support from shareholders.
Therefore, it is important for company to increase its credibility.
Recommendation
Merbatty should strengthen the communication between its shareholders, hence, JLK will
know much more about its main ideas. Furthermore, the company does charity because all itsprofits are from society. Also, Alberto needs consider if he controls Merbatty completely,
whether the company will develop rapidly or not.
4.3 Diversification and Marketing Plans
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4.3.1 New Design Supplier for Surania
Background
The new boat building facility in the Middle East is nearly completed. But, the interior
design supplier is still not found. Lukas Dian (Technical Director-Design) has selected two
design companies: Cooper Designs and Arabian Interiors.
Market Factors
Recent years, the demand for luxury boat especially the large boat is increasing. Because of
the Arab Spring, the Middle East is a potential market. As the market has become more
competitive, the need to live up to what the customer wants, the customer gets has become
more important.
Financial Factors
Merbatty want to open Middle East market, and it has a revenue of 40m which generated
in this region 8% market share. In Merbattys 5 years plan, they are respectively 180m and
18%.
Customer Factors
The buyer of luxury boat is wealthy who would not care much about the selling price but
more about the boat itself and are tend to buy larger boat. To attract more customers, the most
important thing for company is service.
Factors of Interior Design
A preference for the advanced technology system id aroused. There is a CAD system which
allows customers to remotely view the current design for their boat at any time. Due to the use of
this technology, the system used in the luxury boat is slowly changing.
Recommendations
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Based on all of the factors above, Lukas Dian should choose Cooper Designs. Cooper
Designs has a long history and a good reputation. It provides service that allows interaction
between designer and customers which leads to more reliable results.
4.3.2 Sales Staff and Agents
Background
Stefan Gil (sales director) wants to employ sales staff to replace the agents, but Marie Lopp
(HR director) has a recognition of agents work. Also the solution will affect compans strategy.
Factors Proposal Intends to Achieve
In order to meet the sales forecast for next five years, intensive marketing and advertising
will be required. By 2017, Merbatty expects sales growth to increase by 99.20% to
1,000m.Such targets can partly be achieved by the use of more visible marketing.
Endorsement of Stefan Gils Opinion
Because agents are worldwide with abroad range of customer sales network, they know
what the customer sales network, they know what the customer needs and know to sale the boat
to which particular individuals. And because agents have kept cooperative relationship with
Merbatty for a long time, they are familiar with Merbattys products, and can sale them better.
Endorsement of Maice Lopps Opinion
Merbatty uses sales staffs, they can communicate with customers directly, grasping the
market demand quickly. Because using sales staff, Merbatty can reduce the delivery cost. Thus,
the price of boat decrease, Merbatty may have competitive prices. Sales staff also can makecustomer get close to Merbatty. Thus, Merbetty can get more information to improve its
competitive.
Factors Affecting the Proposal
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Agent
Due to agents are all around the world, more and more people will be convinced that
Merbatty is a brand indeed which is accepted widely. The most important one is that agents can
know more about the culture of target market so that they can sell boats more efficiently.
However, there are still some problems. The agents of Merbatty cant bear the risk directly.
Thus, they may sale product negatively or may not. In reality, its hard for Merbatty to control
the activities of its agents. In a way, Merbatty was dominated by its own agents.
Sales staff
Sales staff can sell to customer directly and they can gather a mass of first-hand data.
Furthermore, compared with the agents, they are more loyal to the company.
Nonetheless, the disadvantage is that its bad for Merbatty to develop itself and utilize most
optimum distribution of resources. If Merbatty uses sales staff, it may pay extra money and
spend much more time to train people. On the other hand, sales staff will spend much time to
know about Merbattys products.
Recommendations
Agents and sales staff both have their own advantages and disadvantages. Merbatty should
combine these two types of ways to sell products. On the one hand, agents can help Merbatty
expand their markets, as they know what customers need and how to satisfy them. On the other
hand, Merbatty can train sales staff to communicate with customers. It is good for Merbatty to
analysis the market and to make good decisions. Although, Merbatty may spend extra money and
time, it will help Merbatty expand maket and get more profit.
4.3.3 Racing Boat
Background
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Jesper (Marketing Director) wants to build and race a speedboat in the competition and this
step will lead to more sales of Merbattys performance motorboats, the P-3000 specifically. But
his father Alberto (chairman) thinks this act will cost too much and racing is of high risk.
Suitability Assessment
Supporting factors
Merbatty is planning to produce a wider range of mew models, which will enable
Merbatty to offer customers a wider selection of boat sizes and engine capabilities.
Lukas Dian, technical director design, believes that there is a strong opportunity to
build larger boats which would be in the range of 35 to 40 metres in length, which
will have a bright market prospect in the Middle East.
The press launch of Merbatty?s first 38 metre boat in May 2013 had a good
response.
There is an increasing demand for large boats.
The Five-year plan includes opening of Merbatty?s third boat building facility in
September 2013. Because there is an increasing trend for the boats ordered by
customers in the Middle East to be the larger models, so this new facility will
specialise in building larger boats.
From Appendix 2, sales revenue are analysed by home base of customers.
Sales revenue will increase from
40m to 180m between 2012 and 2017 in
Middle East. Its the second largest
booming region next to Europe.
Acceptability Assessment
Risk assessment
If the sales of p-3000 boats cannot be
up to 25, this may not reach the breakeven
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point. Besides,20m of fixed cost is a large number. So if the market prospect is not as good as
the expectation, it will make a big loss.
Benefit
If the sales of the third building facility in Middle East are in a good condition, as this is in a
great possibility, there will be a good beginning for large boat market and Merbatty will be in a
virtuous circle.
Feasibility Consideration
Merbattys research shows that skilled labour is available in Surania and also there
are sufficient skilled employees at Mebattys exiting boat building facilities who are
willing to be seconded to the new facility.
Merbatty already has sales agent located in Surania who has been selling Merbatty
boats for over 15 years, and they will continue generating sales through his
established reputation and contacts. In addition, Merbatty has recently appointed
four additional sales agents in other countries in the Middle East region.
Recommendation
Based on the above assessment, this proposal should be accepted. This is due to the
increasing demand for the large boat and this racing will enhance the brand awareness. This will
give the Merbattys large boat market a good beginning.
4.4 Accident at Work
Background
One of Merbattys employees called Paulo arrived for work high on drugs. He fell off and
broke his leg .Paulo is a good friend of Jesper (marketing director). Jesper was aware of Paulos
drug taking habit but decided to ignore it.
Dilemma
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Merbatty has encountered 2 ethical issues.
The first dilemma is whether Jesper should ignore Paulos drug taking habit. On the
one hand, it is Jespers responsibility to take reasonable care for the health of his
employees and erase potential risks in the work place. On the other hand, Paulo is
his good friends and Jesper is concerned about if he informs Paulo, their friendship
may come to an end.
The second ethical issue is that Paulo goes to work after taking drugs. It evidently
breaks the code of conduct for employees and this careless behavior will pose a
threat to other co-workers.
Recommendation
For the first issue, Jesper should tell the company that Paulo has been taking drugs.
As a marketing director, he should act in the interest of the company. After that, he
should comfort Paulo and offer help if he needs because they are good friends.
For the second issue, Paulo should obey the code of conduct for employees. As a
result, every employee has the duty to obey the rules set out by the company.
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5. ACHIEVABILITY OF THE FIVE-YEAR PLANBased on the Appendix 1, the year on year growth rates forecasted increase from 10.56% to
18.34% for revenues and 10.53% to 14.17% for operating profits with operating margin
remaining relative constant.
From Appendix2 we can see the market share in Middle East increases significantly from
7.97% to 18%. Europe still the main market makes up about 40% of the total revenue. The
remaining 5countries havent changed much during 5 years.
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Sales revenue 2012
Planned sales revenue 2017