TOPCIMA V Outsourcing Vendor Strategic Analysis Nick Best

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Welcome

Welcome to Nick Bests TOPCIMA strategic analysis For those of you who dont know me, Im one of the TOPCIMA tutors at Reed Business School, and the author of the official CIMA learning system, on which I work together with one of the TOPCIMA examiners. In this presentation youll find my views on the latest TOPCIMA case study For details of courses at Reed Business School and to learn more about the exam and how to approach it please see www.topcima.biz

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V Outsourcing Vendor

On the following pages you will find my strategic analysis of CeeCee. Remember that this is my view, not a definitive view of the company. You should review this in the context of your own analysis of the company, and make your own conclusions. If would like to hear more of my views on this and the exam do consider attending one of the courses at Reed Business School, or look out for posts on www.casestudyaide.com.

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CeeCee

I think most people are pleased with the subject of the case study this season. A fashion retail group is something most of us can understand (yes even us men!). There are also lots of real life companies to examine to get industry information on. CeeCee themselves are a highly successful company, with a clear niche in fast fashion getting catwalk designs into the market very quickly. Remarkably customer visit stores an average of 17 times a year compared with an industry average of just 4, so there is excellent customer loyalty, and a premium price charged for the quality, brand, design and exclusivity of a fast changing product range.

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Strategic analysis the rational model

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

Business Environment PEST 5 Forces S W NOW O T Internal analysis Business Strategy Generic strategies Ansoffs matrix Method of growth FUTURE Mission & Objectives

Governance & Ethics

Product analysis -Product life cycle -BCG matrix

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Stakeholder Mapping

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Strategic analysis the rational model

Governance & Ethics

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

FUTURE Mission & Objectives

Stakeholder Mapping

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Mission The mission statement sets the direction and tone of the organisation, and guides strategic decision making. The scenario does not give us a mission statement, but does set out the next best thing which is the companys aims. These are as follows: Products aligned with customer needs Invest in shops, improve customer experience Manage inventory well to keep good margins Monitor and improve margins These principles have served CeeCee well and it has seen excellent growth throughout its life.
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Objectives The objectives provide a focused target to move towards to direct planning, motivate staff and enable accurate performance measurement The five year plan gives us some specific targets for the company: 800 shops by 2014 up from 630 More larger shops going forward to house wider product range Revenue = 5156m by 2014 (85% up on 2009) Profit by 2014 - 1237 (95% up on 2009) Margins to rise from 22% to 24% by 2014 These are tough targets in difficult economic conditions
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Governance
CeeCee is a listed company and as such is expected to have good governance procedures. Governance appears to be good, but there are some key areas where there is no information and upon which suggestions for future development of governance could be recommended: Good points Non-executive Chairman and 6 NEDs mean there is independence on the board Range of executive directors to bring wide knowledge to decisions Clear Corporate Social Responsibility focus No information on: Committees Audit, Remuneration, Nomination Risk management policies and procedures Internal control systems Internal audit (I assume there is not an internal audit department) Directors service contracts

Lots of room here to discuss improvements should there be an unseen issue on control weaknesses or significant risks that need managing
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Ethics

CeeCee have a CSR policy, which appears to be comprehensive My main critisism is that it is a bit general in places
E.g. terms for supplier audits include decent working conditions so what exactly is decent Some CSR goals are not quantified e.g.expand fair trade by how much and by when consciousness of issues such as fair trade and possible breaches in CSR rules or possible mispractise must be dealt with firmly, and you should say so in the ethics section of the report.

CSR is really important in this industry, with increasing customer

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Stakeholder Analysis Mendelows Matrix

Low Interest Casual customers Suppliers employees High Interest Most suppliers Loyal customers Most employees (could increase if unionised, but no evidence of this) Lenders Shareholders Building owners Carla Celli CEO Frank Bartolli - Chairman Board of Directors IT outsourcer

Low Power

Governments Media

High Power

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Stakeholder Analysis Mendelows Matrix There are relatively few key players in this scenario compared to some previous ones, which means that it is less likely that the company will be held to ransom by stakeholders. I have hedged my bets a little with the lenders, shareholders and building owners because relatively little is known about these stakeholders. Shareholders could come into any of 3 different positions depending on their exact shareholding and nature of the shareholder, so you must see what information is given in the unseen to make a clear decision on these.

Nick Bests Strategic Analysis

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Strategic analysis the rational model

Business Environment PEST 5 Forces S W NOW O T Internal analysis Product analysis -Product life cycle -BCG matrix
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Next we need to analyse the current position of the business This helps us ensure the strategies we decide upon are appropriate to the business current position and issues they face in the industry and more broadly This position is summed up in a SWOT analysis

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SWOT

On the following page youll find my SWOT analysis. Remember that you MUST do a SWOT analysis as Appendix 1 in your answer. You will score 1 mark in the technical section for this, and up to 3 further marks in the application section - if done well. You must update this SWOT for unseen issues (underline or bold these in your exam script), and should aim to include ALL your top 5 issues in your SWOT. A recent CIMA student script review I read, also made it clear that 2-3 word points in the SWOT are NOT sufficient. Aim to write at least 7-8 words for each point in your SWOT AND roughly 5 points per heading. Ive shown my points in priority order as I see it. You dont need to do this in the exam, but it can help at this stage as you can replace the less important points with those from the unseen. www.topcima.biz

Nick Bests Strategic Analysis

SWOT
STRENGTHS 1. Clear competitive position and reputation niched on fast fashion, quality, primarily women retained profits even in poor economic climate Loyal customers 2. Integrated IT systems, facilities service, inventory management and cost reduction 3. Excellent supplier relationships ensure quality and speed of service 4. Experienced board of directors and motivated staff 5. The shops are in excellent locations and are well fitted out 6. Good profit margins - cost control strong financial position helps when raising finance OPPORTUNITIES 1. Expansion in new overseas markets 2. Expand new product ranges 3. Online sales 4. Improved customer information to improve targeting data mining/online information 5. Takeover competitor to expand quickly WEAKNESSES 1. Possible loss of focus on core strengths by moving into varied new products 2. Lots of small stores hard to expand into new products in these stores 3. Short term leases could give building owners power 4. Lack of accurate product profitability analysis 5. Getting into online late in the day missed big opportunity - weak strategic decision 6. Possible over-reliance on a single distribution centre creates risk

THREATS 1. Highly competitive market price reductions could hit profit margins 2. Worldwide recession 3. Low share price threatened takeover 4. Not keeping up with technological changes or changing customer requirements 5. Currency changes

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PEST analysis

On the following page youll find my PEST analysis. The PEST analysis is always an optional appendix in this exam. Do aim to add one or two additional issues from the unseen into your PEST if you do one in the exam You MUST cross reference your PEST in your script however, and many students do not do this well. Aim for 2-3 cross references There are lots of PEST issues in this pre-seen but they are very broad and general, so look for more specific ones in the unseen to improve this one.
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PEST analysis
Political

Possible trade barriers for imports from Asia Abiding by local laws in a variety of countries operated in

Opportunity to renegotiate shop rentals downwards Weak economic climate pressure on prices/people moving to Economic value retailers/product mix changes Exchange rate issues sales non-, Buying in Asia Customer expectations have risen availability, service, changing rooms CeeCee must keep standards high Attitudes changed generally towards lower cost clothing Increasing awareness of CSR issues

Social

Online shopping Opportunity and threats + security issues Technolo Must keep up with technological trends
gical

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5 Forces Analysis

The 5 forces analysis enables the analysis of the industry according to a range of key factors affecting that industry Each force can be given a strength (e.g. High, Medium, Low). Where all the forces are high, the profitability of the industry is low, and divestment may be a good strategy. The lower the forces the more attractive the industry is. Companies may look at the areas where forces are high and develop strategies which may lower these. The 5 forces analysis for the clothes retailing industry as a whole is on the next page In this case the average of the forces is medium so the industry would be deemed averagely profitable, although CeeCee are doing better than average due to a clear niched position.
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Opportunities and Threats 5 forces analysis

Factors increasing Force
Buyer Power Medium Supplier Power Medium/ low Competitors High New Entrants Low Subs Low
Nick Bests Strategic Analysis
Lots of choice easy to switch easy to compare online

Factors lowering force

Individual customers have little power

Short term rental of shops, with large fitting costs increases power of shop owners Some power to IT outsourcer Dependent on long term relationships and quality increasing power Intense competition influx value retailers high street (Primark) Supermarkets also dept stores Online shopping, Easy to copy designs Increases in difficult economic times Online shopping

Long payables period (155 days) suggests CeeCee have most power with suppliers Many international manufacturers CeeCee are large manufacturers want their business CeeCee have strong niche protecting their profitability

Very competitive market Expensive to enter Many small start ups, but hard to build a competing large business takes many years Very few substitutes for clothing

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Opportunities and Threats Products/Generic Strategy

Products
High fashion fast changing PLC

Generic Strategies

BCG/ Product Life Cycle

Womens clothing still known for this

Cost leadership

Branding critical for differentiation

Strengths
Accessories Mens clothes branding unclear Home furnishings is higher margin, but probably has a lower return per m2 of floor area Product profitability unclear

Differentiate

Design and service increasingly important for differentiation

Weaknesses

Focus

CeeCee Fashion at low cost Young professional women but now mens and childrens could threaten focused position and brand

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Strategic analysis the rational model

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

S W NOW O T

Business Strategy Generic strategies Ansoffs matrix Method of growth

FUTURE Mission & Objectives

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Ansoffs Matrix
Existing Market
More shops - within current countries Increase marketing spend currently low Franchising

New Market
Only in 18 countries fewer than many competitors key opportunity

Existing Product

Concessions within department stores Online new channel Franchising Accessories Shoes. Underwear. Jewellery Perfumes Cosmetics Mature clothing range Gift cards Sportswear Country clothing

New Product

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Methods of Growth
New products

Internal Development

New markets Distribution development Could buy a competitors -Enable expansion into new countries -Must take care to ensure consistent with current business model

Acquisition

-Online long term in future

Franchising may provide a low risk way to enter new markets and gain local experience and share risk (and rewards)

Joint Venture

A Joint Venture or alliance may be useful to enter vastly different markets, like in Asia, to gain local knowledge. Mens clothing is a possibility unclear branding of this product not focused on core customers Home furnishings Is this too far from successful business model, and too low a return for floor area? More information needed. Retail outlets in poor locations (although fewer than 10)

Divest

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SWOT
STRENGTHS
1. Clear competitive position and reputation niched on fast fashion, quality, primarily women retained profits even in poor economic climate Loyal customers 2. Integrated IT systems, facilities service, inventory management and cost reduction 3. Excellent supplier relationships 4. Experienced board of directors motivated staff teamworking amongst staff 5. Shops locations and fittings 6. Good profit margins - cost control strong financial position e.g. raising finance

WEAKNESSES
1. Possible loss of focus on core strengths by moving into varied new products 2. Lots of small stores hard to expand into new products in these stores 3. Short term leases 4. Lack of accurate product profitability analysis 5. Getting into online late in the day missed big opportunity - weak strategic decision 6. Possible over-reliance on a single distribution centre creates risk

OPPORTUNITIES
1. 2. 3. 4. Expansion in new overseas markets Expand new product ranges Online sales Improved customer information to improve targeting data mining/online information 5. Takeover competitor to expand quickly

THREATS
1. Highly competitive market price reductions could hit profit margins 2. Worldwide recession 3. Low share price threatened takeover 4. Not keeping up with technological changes or changing customer requirements 5. Currency changes

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My suggested strategy going forward

Continue - Shop expansion programmes in current countries - Investment in IT - Good relationships with suppliers - Employment of young designers - Teamworking in stores - Focus on CSR - Online sales big new market continued investment

Nick Bests Strategic Analysis

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My suggested strategy going forward

1) Expand into new countries

1) Very successful brand and concept which is likely to work in new markets 2) Examine market position and social trends in potential markets 3) Plan ongoing programme of gradual expansion 4) Internal expansion funds need to be raised 2) Negotiation of long term leases going forward, particularly as there are likely to be good terms available in current markets 3) Product profitability analysis 4) Refocus of product portfolio stick to key niche focusing on professional women 1) Depending on product specific data to the contrary stop home furnishings and mens fashions due to inconsistency of branding, and store space required 2) Trial related products such as cosmetics and jewellery
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Reed Business School

So thats what I would do. Im sure youll have your own views. Just remember not to hold onto these too tightly in the exam you must primarily deal with the unseen issues! If you dont pass this sitting please do consider coming to our residential centre in the Cotswolds for retakes in the future where youll get focused tuition on how to pass this exam, and detailed feedback on mock scripts. I also work with individuals one-to-one, usually where people have failed in the past and need more personal guidance to help them get through. Although Im now fully booked for this sitting, should you not be successful this time and feel this would be useful for the next sitting, please do get in touch at nickbest@live.co.uk.
Nick Bests Strategic Analysis www.topcima.biz