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AQA AS Business Studies Case Study Toolkit. Key Themes in the Case Study. About the Business. INTRODUCTORY THEMES. Type of business Retailer – operating in a niche market Private limited company Raised money from two outside shareholders Product range Cosmetics, underwear & accessories
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AQA AS Business StudiesCase Study Toolkit Key Themes in the Case Study
About the Business INTRODUCTORY THEMES • Type of business • Retailer – operating in a niche market • Private limited company • Raised money from two outside shareholders • Product range • Cosmetics, underwear & accessories • An income elastic product range and fashion is a fast moving market where customer tastes can change quickly • Market • Little direct competition for this niche in UK or Europe until arrival of CC plc • According to independent figures, the market is set to grow by 18% in the next year.
Main Characters • Seyi • Opportunistic; limited experience but has money • Ambitious plans, drives hard bargains; aggressive personality • Insensitive to the “softer” human issues • Lily • Has the idea • More socially aware but less “hard-nosed” • Sam • Main investor and loan provider • The only one with direct experience of running a business
Suppliers • Suppliers of retail merchandise • Distributors of US branded products (Palmers, Luster, Sleek) • Manufacturers of Black Looks’ own-label range • Own-label manufacture is a focus of the Case • Littlehampton - initially (labour intensive / cell production) • Cardiff: replaced Littlehampton (capital intensive / flow production) • Boulogne –alternative to Cardiff (less capital intensive, more environmentally friendly) • Key theme – developing effective supplier relationships
The Meeting – Key Decisions • Three key problems now face the four owners • (1) Problems of a growing business – control and delegation • (2) Potential of a recession • (3) Arrival of CC plc
The Way Forward? • Problems of a growing business – control and delegation • Need to set clear objectives • Reorganisation of management roles? • Potential of a recession or an upturn • Revise the marketing strategy? e.g. lower pricing • Slow down the store opening programme to conserve cash? • Entry of CC plc with aggressive price discounting • Not clear how long this will last • Potential responses • Reduce price too • Focus on product knowledge and customer service • Options to develop the Black Looks brand in other ways • Mail order • Online store? • New products
Strategic Options • Important issues Black Looks must consider • Threat from CC plc • Existing UK sales and profits are under threat – it would be good to know how much the UK contributes overall. • Recession or an upturn • Planning for one and then experiencing the other could be disastrous • Restructuring the business • Could be expensive and painful, but necessary if they are continue to expand as they are at the moment. • Can the existing management team cope with the challenge? • Controversial line of thought • Is Lily uncomfortable with the growth and increasing complexity of the business • Letting go of your idea and letting someone else run with it is very difficult to do, but might be necessary to see long term success for the business. • Perhaps Lily could have her role redefined – development of new products (it was her inspiration in the first place) and possibly product training for staff • Seyi – little evidence of senior management talent
People – Key Issues • Leadership styles • Rewarding and motivating employees • Recruitment and Training • People problems faced by a fast growing business
Leadership Styles • Different approaches of Seyi and Lily • Seyi • Authoritarian traits and initially a theory X view of workers • Tough, decisive, uncompromising and at times ruthless • Lily • Natural style is softer and friendlier • Finds it difficult to achieve the right balance between consultation and delegation • More risk averse than Seyi • Do different styles matter? • Is this a sign of poor teamwork or a healthy difference of opinion that can complement each other and lead to the best solution? • Good manager/leaders are versatile in their approach and call upon the right style at the right time. Is Seyi or Lily the best manager/leader? • Style of managers has a large influence on the overall culture of the business
Rewarding and motivating employees • How is motivation achieved currently? • Range of financial benefits: salaries, commission, profit share and fringe benefits • Are these successful and could they have done more? • Non-financial incentives • Less emphasis on these by management • Some degree of empowerment for store managers for example • With few “people problems” so far – is this approach justified? • Further growth of the store portfolio will require more focus on non-financial incentives • In the exam room: • Always refer to how different approaches to rewarding employees fit in with views of the different motivational theorists. • For example only Taylor viewed pay as a genuine way of motivating workers, others such as Herzberg viewed pay as a hygiene factor and advocated other non-financial approaches such as empowerment and job enrichment and Mayo emphasised the role of teamworking and good communication.
Recruitment and Training • Track record so far • Broadly successful with recruitment • One exception (D3- Karen’s appointment left quickly) • External recruitment so far – with many applicants • Consider the recruitment methods (personal recommendation and advertising) and selection procedures (interviews) they used for different appointments and what others could they have used? Should they encourage more internal recruitment like Karen? • Consider the importance of recruitment and selection to this business • E.g. costs involved in recruiting and selecting the wrong people? • What are the various factors that determined the effectiveness of Black Looks recruitment procedure?
Growing Pains • The people implications of growth • Larger workforce • Dispersed across multiple locations • Harder to motivate, co-ordinate, communicate • Implications for productivity • Recruiting • Recruitment becomes more demanding • Better able to recruit internally • Should store managers have the ability to determine local recruitment needs? • Organisational structure • Danger that it becomes un-wieldly • The business increasingly needs new / experienced management • But how many layers? Who should report to who? • Seyi and Lily as the entrepreneurs may find it difficult to relinquish the control and running of the business • Is the business becoming too large for them to be able to make all the important decisions and they will need to adapt their leadership and management styles.
Operations – Key Issues • Implications of increasing size • Production methods
Implications of increasing size • Economies of scale • Many mentions of the benefits of economies of scale, in particular in relation to purchasing or bulk-buying economies, which can lead to lowering cost per unit • As the store portfolio grows – then Black Looks needs additional administrative and management overhead • Suppliers • Growing sales increase bargaining power with suppliers • Also creates need for more secure / reliable sources of supply
Production methods • Case study describes various production methods • Don’t forget – these describe how Black Looks’ suppliers operate – not the retail business. Don’t make the mistake of describing Black Looks as a manufacturer! • How successful are Black Looks’ suppliers? • There is little mention of any lean production techniques • E.g. kaizen, time based management, JIT) • Useful to consider where these methods could have been used to improve performance of Black Looks suppliers • Should Black Looks integrate backwards into manufacturing? • No experience • Why? There are many potential suppliers
External Influences • Economic issues • Recession or boom • Exchange movements • Competition • CC plc • UK/EU legislation • Social responsibility
Recession or Boom? • Newspapers and some evidence on the ground suggest that recession is looming • Forecasts are mixed – unemployment up, but consumer spending, investment down • Implications for business – demand for products, remember Black Looks products are IED elastic • If Black Looks is planning to continue expansion, they will have to take a view what future demand will be • Seyi notes that it is not only the black community that is suffering under the present economic situation – this will adversely affect Black Looks.
Exchange rates • Exchange rates will affect the cost of imports and the price of exports • The forecasts tend to suggest a positive outcome for Black Looks, cheaper import costs and falling export prices • However they are only estimates and some of the forecasts disagree by a large margin • Remember that demand for products is not just affected by price
CC plc – New Competition • CC plc is a large high street chemists who will have buying power and already have shops established in the areas where Black Looks are competing • They are able to undercut Black Looks by 45% • Is this something they can sustain, or temporary? • Can be seen as PREDATORY PRICING and potentially unfair competition • Black Looks will need to consider how to react this price competition • Better branding of own label products • Improved sales and after sales service • New product range
UK/EU legislation • Black Looks has had some problems with its products in Europe. It will need to look carefully at obligations to provide safe and fit for use products. • The Cardiff supplier may need to examine carefully EU employment laws. There is a danger that they come under pressure due to the number of hours worked.
Social responsibility • Black Looks seems to make no conscious effort to be socially responsible, rather to react to situations as they arise • Berlin and Paris incidents – responsibility to customers • Dropping Littlehampton as a supplier without much notice • Cardiff supplier making their workers work long hours – purchasing director shocked, but decides to keep them on • However, they then take on a socially responsible supplier in France • Does this signal a change in their thinking • Should Black Looks act more responsibly – do they have a duty to show themselves as an important part of the community (act like the French suppliers)
Key Issues – Objective & Strategy • Starting a small firm • Corporate Objectives • Conflicting aims • SWOT analysis
Starting a small business • The Start Up • Quick start from initial idea to first shop opening • Unsystematic market research • Not much marketing drive but successful shop opening with excellent sales • Cash flow problems reduced due to raising large amount of capital from the investors (£95,000) • Some problems with setting up shop and getting suppliers due to being a new business (e.g. gaining credit and paying for in-shop displays) • It has succeeded probably because: • Strong idea and identified genuine gap in the market • Good initial combination of entrepreneurial skills: Seyi with negotiation, Lily with shop workers • No other similar competitors in local retail markets • Cost-effective launch promotion • Good luck meeting German entrepreneur (for both sides probably) • Now have to address the problems of growth • Management of more people • Loss of direct, day-to-day control • And have to consider the problems of success • Other firms think they can also make profits in this market (CC)
Corporate Objectives • What are Black Looks’ corporate objectives? • An objective is a time specific target to help achieve their aims – what are their aims? • Without objectives the business lacks direction or cohesion – look at some of the problems they have over suppliers, Lily’s worries over management and Seyi’s decision-making not necessarily fitting with Lily’s thoughts • Can a business of this size be successful without objectives – if there is nothing to measure progress against then it is difficult to tell whether are as successful as they should be • There is evidence of some plans in the figure 2 forecasts • If these are the objectives, then the first of these have been achieved (opening more shops). • However it also illustrates the need to have flexible objectives – new economic forecasts and the arrival of CC plc may mean objectives need to be modified.
Conflicting aims • What do the four investors want from the business? • Seyi • Ambitious for the business • Wants it to grow nationally and internationally • Seeking status (Maslow) as well as good returns (tough on costs) • Lily • Determined, but not necessarily to achieve the sort of growth that Seyi seeks • Nervous of problems that have arisen and also the style/culture that has been employed to achieve them • May seek satisfactory profits but be more socially responsible to all the stakeholders • Sam • Businessman with other interests • Wants a good return on his investment, but has not sought to interfere so far in the business • Might want to sell up, seek short term profits at the expense of long term growth, or take greater control • Corinne • Passive investor – little if any involvement • Purchasing director • In the meeting – his incentives are a 4% profit share – his aim is probably short term profits
SWOT Analysis Remember management are not always very good at admitting their weaknesses so Black Looks might not be very effective at filling in this section Not an exhaustive list – but which are the most important and what strategies should they therefore follow?