MNG4801_Exam_Pack__2020.

MNG4801_Exam Pack_2020. MNG4801 - Strategic Management. Define organisational capabilities and then identify and discuss one (1) threshold capability and one (1) distinctive capability evident in the Pick n Pay case study. (6) Refer to TB Chapter 7 page 235 Organisational capabilities are the organisation’s capacity to combine resources into productive activities. Capabilities represent complex combinations of assets, people, and processes that organisations use to transform inputs into outputs Threshold capabilities are the minimum capabilities needed by the organisation to compete in a market. They do not provide competitive advantage since all competitors need these capabilities. Possible example: PicknPay’s threshold capabilities are the abilities to deliver a first-class fresh, convenience and grocery offering, which gives customers unbeatable prices, value and service. Distinctive capabilities are also referred to as core competencies. These capabilities are unique, valuable, and provide a basis for competitive advantage. They form the basis of strategic innovation and they are difficult to imitate by competitors. Possible example: As per case study a key to Pick n Pay’s success and improved revenue growth is its relentless focus on price, monitoring 2,500 prices across the sector each week to make sure that it remains competitive. Therefore this shows that price is the distinctive capability PicknPay had that gained them some level of competitive advantage Possible example: Pick n Pay’s Smart Shopper loyalty scheme can be argued as a distinctive capability. The loyalty scheme reaches more than 7-million active customers each week, offering discounts of about R6.6bn on items that are relevant to the customer. This also allowed PicknPay to stay afloat during its turnaround strategy implementation period. Possible example: To gain some form of competitive advantage Pick n Pay was able to get its distribution right as a big catalyst to cutting costs that will took them a long way to getting close to that 4.5% margin. This distinctive capability allowed them to achieve their strategic goals as part of its turnaround strategy and show a level of superior innovation in the retail industry MNG4801 EXAM PACK: 2020 MEMO Page 4 TRYMPH EDUCATION 2020© 1.2. Briefly discuss the macro-environmental Economic factor or force influencing Pick n Pay. Support your discussion by giving two (2) examples of this economic factor in the case study. (4) Refer to TB Chapter 5 page 163-174/SG page 101 Economic factor: Closely related to the general economic performance is the inflation rate. Other variables in the economic environment include government’s monetary and fiscal policy and interest rates. Possible example: According to the case study Pick n Pay management said its results as part of the turnaround strategy were “underpinned by strong operational and financial discipline, with tight expense control in an inflationary economy.” This indicates that the retailer was able to exploit some opportunities despite a tough economy in the country. Possible example: The case study also indicated that food prices in South Africa are expensive relative to people’s take-home income too. Hence PicknPay’s strategic goals were to reduce costs in order to offer affordable prices to their customers who are under strained due to a tough economy. Therefore PicknPay was able to carve out some opportunities from its macro-environment 1.3. Had Richard Brasher not been able to successfully implement a turnaround strategy at Pick n Pay, what other defensive strategies (and forms) could he have considered for Pick n Pay? (5) Refer to TB Chapter 10 page 352 Divestiture strategy focuses on healthier divisions or raising cash rapidly. Corporate strategic actions that can be employed in divestiture strategies are internal divestiture, selling part of the business, harvesting or focusing on a niche. Selling part of the business entails selling off a business unit that is not performing well or investments required to maintain that business unit are not viable in terms of the potential profits. Harvesting also termed asset reduction entails disposing of a subsidiary once it has maximized returns from it. When the corporate parent wants to withdraw from a declining industry, the harvesting option is most appropriate. Divestment may be voluntary and may take the form of harvesting a business that lacks synergy or is non-core. Focus on niche targets segments or “pockets of demand” that remain promising or better suited to its talents. A multi-business organization may also redirect its energies into one or more niches. MNG4801 EXAM PACK: 2020 MEMO Page 5 TRYMPH EDUCATION 2020© 1.4. Advise Richard Brasher on how the Balanced Scorecard (BSC) tool could assist him to restore Pick n Pay to a position of long-term sustainable growth. As part of your answer, introduce the BCS tool and its components and then support your answer with examples from the case study. (10) Refer to TB Chapter 14 page 502 The balanced scorecard is a framework that firms use to verify that they have established both strategic and financial controls to assess their performance. The balanced scorecard provides for the use of both financial and non-financial performance measures. There are four components in a Balanced Score Card- financial performance measures, customer knowledge, internal business process measures and criteria for assessing learning and growth prospects. There are benefits/advantages to using the balanced scorecard: 1. The balanced scorecard gives a broad perspective on how the CEO is performing in the important issues because it highlights the measures that are most critical to achieving the company’s vision. 2. The process of developing a balanced scorecard forces the organisation to think about the critical success factors and allows people in the organisation and on the board to see what the vision really means. 3. The balanced scorecard provides the strategic manager with information that may help to prevent control failures or at least identify them early (risk management). 4. The benefits are direct financial gain, motivated workforce and improved management control Recommendations to restore PicknPay to a position of long-term sustainable growth: a. Financial measurement – Possible argument: As one of their strategic goals Pick n Pay aims to continue to build its Boxer business into a thriving national limited-range discount format, and to continue to grow sales outside South Africa in a planned and prudent way. The revised strategy also entailed a major reduction in costs, a turnaround in the newly introduced logistics operations, as well as a reduction in management and consultant costs. Therefore through use of the Balanced Scorecard PicknPay can be able to effectively measure all the key performance indicators related to financial aspects of the business. MNG4801 EXAM PACK: 2020 MEMO Page 6 TRYMPH EDUCATION 2020© b. Customers Possible argument: One of PicknPay’s strategic goals was to deliver a first-class fresh, convenience and grocery offering, which gives customers unbeatable prices, value and service. The retailer also has an effective Smart Shopper loyalty scheme that reaches more than 7-million active customers each week. Although by 2017, Pick n Pay was already delivering on its turnaround strategy by cutting costs in a bid to regain lost market share, moving forward the use of Balanced Scorecard could be beneficial to measure customer satisfaction, market share and development of new products. c. Internal processes Possible argument: Part of Pick n Pay’s turnaround strategy was to impove its supply chain and other services, reducing the cost and improving the accuracy and responsiveness of distribution. Pick n Pay also aimed to improve the efficiency and cost-effectiveness of its employee costs, both in stores and in its head office structures, while minimising increases in rentals, rates, electricity, water and other charges. Some progress has been over the years, however the use of Balance Scorecard could also be effective in measuring results in regards to supply chain management, productivity, employee skills and work flow. d. Learning and Growth Possible argument: PicknPay aimed to increase productivity in stores and ensure that support office functions are delivered to benchmark levels of effectiveness and efficiency. PicknPay could use the Balance Scorecard to set measurement points in regards to training employees and investing in research and development. Then use this tool to measure the progress of some of these key performance indicators to see how far their learning and growth is QUESTION 2 2.1. Critically evaluate Pick n Pay’s industry by conducting an industry analysis on the relationships that shape the industry by using Porters five forces framework. Support your evaluation with examples from the case study. (15) Refer to TB Chapter 6 page 202-206 1. Rivalry among existing organisations The level of competitive rivalry or competition between firms in an industry is affected by a number of factors, including the underlying market structure (type of competition, degree of concentration), the maturity of the industry, the degree to which the product or service is differentiated and the size of exit barriers. Possible example: The existing competitors in retail industry in SA according to the case study its Woolworths, Shoprite and PicknPay. The case study further stated that Pick n Pay’s share price has slid only 13.9%, compared with rivals like Shoprite (down 28.6%) and Woolworths (down 25%) due to somewhat of a meltdown in retail over the past year. This MNG4801 EXAM PACK: 2020 MEMO Page 7 TRYMPH EDUCATION 2020© may indicate some threats that PicknPay had to deal with in their industry. However as CEO Brasher said it’s unfair to draw direct comparisons between Pick n Pay and Shoprite, which has a higher-margin furniture business and fewer franchises (Pick n Pay’s has 1,795 stores and 719 are franchises). Therefore one of the ways PicknPay was able to exploit some opportunities was through competitive price offering. The retailer was able to improve revenue growth is its relentless focus on price, monitoring 2,500 prices across the sector each week to make sure that it remains competitive. 2. Threat of new entrants The extent to which new entrants are a threat depends on the existence and level of barriers to entry into the industry, where barriers to entry provide an advantage to existing companies over new entrants. Barriers to entry are many and varied and include the level of capital requirements, economics of scale, absolute cost advantages, product differentiation, access to distribution channels, legal/regulatory barriers as well as the likelihood of retaliation by competitors. Possible example: There is no specific evidence in the case study to suggest any new entrants in the retail industry PicknPay is trading in. However moving forward PicknPay must continuously study its industry in order to look out for any possible new entrants. Currently PicknPay and other existing competitors may be protected by high levels of barrirs of entry such as capital requirements and access to distribution channels as PicknPay has managed to improve on its supply chain 3. Substitutes Substitutes are those products or services that an industry’s customers can switch to as they satisfy the same basic need. This normally takes the form of new technologies or business models. The substitutes are that they affect the price that industry competitors can charge. This limits an organisations’ profit potential Possible example: Apart from Woolworths and Shoprite the case study doesn’t offer much evidence of possible substitutes to the retail sector PicknPay is trading in. Due to PicknPay current low margins, fewer branches and tough economy a competitor like Shoprite could pose a major threat leading to customers switching in order to get lower prices to satisfy their basic needs. 4. Bargaining power of buyers/Customers Buyer power, the power of buyers relative to that of their suppliers, is affected by the bargaining ability of buyers and their price sensitivity. Bargaining power is affected by the size and concentration of buyers, the level of information buyers possess and the ability of buyers to integrate backwards. Possible example: According to the case study food prices in SA are expensive relative to people’s take-home income too and the economy in SA is rather tough. This may cause threats to the retail sector and PicknPay’s ability to meet their revenue and profitability targets. However due to Pick n Pay’s relentless focus on price, monitoring 2,500 prices across the sector each week to make sure that it remains competitive, opportunities may be exploited. Further opportunities could come from PicknPay’s Smart Shopper loyalty scheme MNG4801 EXAM PACK: 2020 MEMO Page 8 TRYMPH EDUCATION 2020© that reaches more than 7-million active customers each week. This scheme offers discounts of about R6.6bn on items that are relevant to the customer and has been key to its success in keeping the tills ringing therefore able to curb the threat of losing customers to competitors like Shoprite 5. Bargaining power of suppliers Supplier bargaining power, the power of suppliers relative to that of their buyers, increases, when the concentration of suppliers relative to the concentration of the buyers that are sold to is greater; there are fewer substitutes for the suppliers’ goods or services; the supplier’s product or service is more differentiated and the interdependence of buyers and suppliers is greater Possible example: Examples of typical suppliers in the retail industry mentioned in the case study could include wholesalers and landlords at shopping malls. PicknPay has managed to find some opportunities from this factor through its Buy Better programme that has deepened its relationship with its suppliers, allowing for greater efficiency and squeezing out R500m of value in the year. In regards to the landlords PicknPay has managed to utilize most of its store space as it has improved its supply chain efficiencies thus opening up floor space in their stores to sell more products. Further the company through its turnaround strategy has minimised increases in rentals, rates, electricity, water and other charges. Overall PicknPay has taken power away from their suppliers by building good relationships and managing its supply chain well 2.2. Briefly discuss how Richard Brasher led and managed change at Pick n Pay. Support your answer with examples from the case study. (4) Refer to Chapter 12 TB page 439-440 Strategic leaders must also lead and manage these changes. This may, however, prove to be a challenging task because of resistance to change. Leaders need to formulate a course of action or game plan (strategy). Strategic leaders need not only to change strategy in response to the environment, but also to implement strategy successfully Possible example: As per case study Richard Brasher, CEO of Pick n Pay developed the strategic turnaround plan that included a revised strategy to restore the business to a position of long-term sustainable growth along with new strategic focus areas. Therefore this indicates that the CEO was able to formulate a course of action or game plan to improve the organization. Possible example: The CEO was able to implement the turnaround strategy with some success. As per case study the revised strategy entailed a major reduction in costs, a turnaround in the newly introduced logistics operations, as well as a reduction in management and consultant costs. Between 2017 and 2019 Pick n Pay continued to work on the second phase of its recovery strategy and to recover sales and to get the business to the next level. Further Richard Brasher, the CEO, unveiled its best annual results in a decade, as its pretax profit grew 24.4%. Under his leadership PicknPay was also to achieve revenue growth through its relentless focus on price and improve its distribution efficiencies. MNG4801 EXAM PACK: 2020 MEMO Page 9 TRYMPH EDUCATION 2020© 2.3. Identify and discuss two (2) types of strategic control evident in the Pick n Pay case study. Support your answer with examples from the case study. (6) Refer to Chapter 14 TB page 491 a. Implementation control- Implementation control takes place as events unfold. It assesses whether the overall strategy could be changed in the light of the results associated with the incremental actions that implement the overall strategy. Possible example: The case study stated that PicknPay noted that its track record between 2014 and 2017 of greater operating efficiency and improved customer focus has provided a strong platform for growth. Pick n Pay also stated that a successful turnaround required a programme of improvement over a number of years, and the half-year results of 2017 represented the 7th consecutive reporting period of substantive profit growth for Pick n Pay. This could be argued that PicknPay used the implementation strategic control approach in measuring the progress of their turnaround strategy by looking at their incremental actions over the years. b. Environmental scanning/strategic surveillance - Environmental scanning or strategic surveillance is an unfocused way of controlling strategy in order to detect possible changes in the environment that may render the current strategy out of line with reality. In this type of control system, the business environment and organisational resources are monitored to identify threats or opportunities for the continual existence of the organisation. Further, in this feed-forward control mechanism managers monitor both the internal and external environments by talking to customers, suppliers, reading current affairs, etc. Possible example: Some of the threats faced by PicknPay during its strategy implementation were economic issues. As case study noted Pick n Pay management said its results were “underpinned by strong operational and financial discipline, with tight expense control in an inflationary economy.” Further food prices in SA are expensive relative to people’s takehome income too. Therefore this shows that PicknPay could have used an environmental scanning strategic control approach to measure the progress of their turnaround strategy QUESTION 3 3.1. Briefly discuss the macro-environmental Demographic factor or force influencing Pick n Pay. Support your discussion by giving two (2) examples of this factor in the case study. (4) Refer to Chapter 5 TB page 170 Demographic refer to changes in society that include age, trends, religion, gender, population size, level of education and increasing urbanization that may present opportunities and threats. Possible example: Pick n Pay’s Smart Shopper loyalty scheme reaches more than 7-million active customers each week, offering discounts of about R6.6bn on items that are relevant to the customer. It can be argued that PicknPay has studied the demographics of its MNG4801 EXAM PACK: 2020 MEMO Page 10 TRYMPH EDUCATION 2020© customers in the retail industry and exploited some opportunities from the customers buying patterns and changing preferences. Additionally PicknPay also developing a strong multiplatform and multi-channel retail offer, including standalone clothing and liquor stores and an online business. This indicates an organisation that is finding opportunities from the changing lifestyles and trends in society and is catering a variety of offerings to meet the customer’s different needs. 3.2. Consider the following excerpt from the Pick n Pay case study; “Pick n Pay offers customers unbeatable prices, value and service.” Critically discuss Pick n Pay’s choice to follow a best value low-price strategy. Support your answer with examples from the case study. (6) Refer to Chapter 8 TB page 270 Best-cost provider strategy (best value strategy)- This strategy involves giving customers more value for their money by incorporating good-to-excellent product attributes at a lower cost than rivals; the target is to have the lowest (best) costs and prices compared to rivals offering products with comparable attributes Possible example: One of the strategic focus areas for PicknPay was to grow sales in line with or ahead of the market by providing great value, service and innovation for customers. Thereby delivering a first-class fresh, convenience and grocery offering, which give customers unbeatable prices, value and service. This relentless focus on value and competitive price indicates that the retailer is using a best cost strategy to compete in their industry. There has been some success in that regard as revenue has grown thereby achieving their intended strategic goal. However on the other hand food prices in South Africa are expensive and other competitors like Shoprite who could offer lesser prices thereby reducing revenues and profits for PicknPay. Therefore PicknPay needs to continuously monitor its industry, customer needs and drive cost down but offer good quality products if they want to remain competitive 3.3. Critically discuss Pick n Pay’s turnaround strategy. As part of your discussion, define a defensive turnaround strategy and identify and discuss the three (3) types (forms) of turnaround strategies evident in the case study. Incorporate theory and support your discussion with examples from the case study. (11) Refer to Chapter 10 TB page 350-352 Defensive strategies apply to organisations or business units that have potential, but have suffered setbacks in recent times. The emphasis of a defensive strategy is on speed of change and rapid cost reduction or revenue generation. Defensive strategies are aimed at transforming organisations into more potent competitors. a. Retrenchment is a strategy that takes remedial action in response to prolonged deterioration among business units. It takes two forms, namely cost cutting and reducing MNG4801 EXAM PACK: 2020 MEMO Page 11 TRYMPH EDUCATION 2020© non-core assets. Cost cutting entails reducing the number of an organisation’s employees or number of operating units in the multi-business organization. Reducing non-core assets involves selling vacant land, equipment and buildings. Possible example: Pick n Pay was able to use this form of defensive strategy successfully. As per case study the retailer improved the efficiency and cost-effectiveness of its employee costs, both in stores and in its head office structures, while minimising increases in rentals, rates, electricity, water and other charges. Further the revised strategy involved a major reduction in costs, a turnaround in the newly introduced logistics operations, as well as a reduction in management and consultant costs. In regards to its distribution efficiencies PicknPay was able to get it right thereby getting the relater closer to that 4.5% margin. Therefore all these actions indicate an organization that was able to cut cost and reduce non-core assets effectively in order to turn around a struggling organization.