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Advanced Strategic Management - Development of Strategic Audit and Recommendations - Example

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The paper "Advanced Strategic Management - Development of Strategic Audit and Recommendations" is an exceptional example of a business plan on management. Almarai Company was founded in the year 1977 and its headquarters is in Riyadh, Saudi Arabia. The company specializes in the production and distribution of dairy products, food, and beverages both locally and internationally…
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Strategic Audit and Recommendation University: Name: Introduction Almarai Company was founded in the year 1977 and its Headquarter is in Riyadh, Saudi Arabia. The company specialises in production and distribution of dairy products, food and beverages both locally and internationally. The company is ranked the best fast moving consumer goods company in the Middle East and North Africa. Initially, the company was specialising in dairy products but later diversified its portfolio to production of other products such as juices, infant formula, chicken and baked products. Time frame of the analysis The analysis covered in this paper will be for three years (2011 to 2013). The analysis will focus on key parameters and strategies that Almarai Company has used to remain competitive. Vision statement: “To be the consumers’ preferred choice by leading in chosen markets with superior food and beverage products” ("Almarai - Mission, Vision & Values”, 2016). Mission statement: “To provide quality and nutritious food and beverages that enriches our consumers’ lives every day” (“Almarai - Mission, Vision & Values”, 2016). Comparison of vision and mission statements with other company Almarai’s leading competitor is Al Rawabi Dairy Company, a firm in Dubai but also trades to parts of the Middle East. The company’s mission is “to develop and produce quality dairy and juice products which promote a healthy lifestyle” and its vision is “to be the UAE market leader in fresh dairy and juice products while creating a performance based environment for our people to thrive in and maximize their potential.” (“Al Rawabi Dairy”, 2016). According to David (2009), vision statement envisions a company’s goals and where the company intends to be in a given time frame. Essentially, a vision should indicate the company’s growth, employees, values, contributions to the society e.t.c The major difference between Almarai’s and Al Rawabi Vision statements is a clause on the specific market. Al Rawabi specifies its major market i.e. UAE. However, the firm has operations in many regions in the Middle East. A mission statement should be able to answer questions such as; what a firm does, how a firm does and for whom the company does for. In both companies, the mission statements are almost the same according to David (2009). They both answer the questions for a mission statement. Analysis of vision and mission statement Industry attractiveness Business Unit Strength High Medium Low High Consumer preference Nutrition Quality Medium Food Markets Beverages Low Health Affordability Competitors The mission statement of Almarai does not answer one question and therefore, there is need for improvement. It does not answer the question of how it does to provide quality food and beverages to consumers. The mission should have a clause such as; by use of natural ingredients, by use of modern technology among others to answer the question of how it does the production. The improved mission statement will give consumers an insight of how the company’s products are developed. This will work for the envisioned strategy of increasing consumers of the company’s product hence increase the sales revenue and market share. Internal Assessment Financial ratio analysis Ratios 2008 (SAR Million) 2009 (SAR Million) 2010 (SAR Million) Sales growth rate {(5030-3770)/3770}% = 33% {(5860-5030)/5030}% = 17% {(6931-5860)/5860}% = 18% Operating income margin (1999/5030)%=39.74% (2366/5860)%=40.38% (2736/6931)%=39.47% Net income margin 18.1% 18.7% 18.5% Administration and marketing expenses divided by total sales (938/5030)%= 19% (1087/5876)%=18.50% (1276/6931)%=18.41% Current ratio 136.5% 151.5% 115.0% Debt-to-Worth ratio 96.4% 73.2% 75.6% ROA (return on assets) 16.5% 15.8% 14.1% EPS (earnings-per-share) if available 4.18 4.97 5.59 From the ratio analysis, Almarai Company had recorded a decrease in the percentage rate of growth of sales from the year 2008 to 2010, from 33% to 18%. However, the company has a significance increase in the sales level over the years. However, for the three years, the company has reduced debt financing from 96.4% to 75.6%. In the year 2008, the company used debt financing almost entirely (96.4%). As a result of a decrease in debt financing over the years, the earnings per share did increase from SAR 4.18 to SAR 5.59. Debt financing reduces the earnings due to interest charged on loans. However, return on assets reduced over the years from 16.5% in the year 2008 to 14.1% in the year 2010. Almarai’s organisational chart Discussion of the improvement of organisational chart From the organisational chart, there are two Chief Executive Officers. On my opinion, there is duplication of operations from the two offices. There is no need of two CEOs in a single company. The president and the CEO of Almarai should delegate his job only to the assistant CEO. By having two CEOs, there is the likelihood of conflict of interests since the scalar principle will be difficult to be implemented. According to Cadle, Paul and Turner (2010), chain of command defines an organisation’s authority and in this case, the other CEO will just duplicate the presidents’ responsibilities. Map on Almarai’s Operations The current operation chart is very efficient to the company. The company’s vision strategy on operation is to produce its own raw material entirely. The company farm pasture for the cows. This cuts the cost associated with the upkeep of the herd of cows. To remain competitive, the company should emphasis on effective marketing strategies to increase the level of consumption of food and beverages even beyond GCC region. In addition, just in time production is recommended to reduce storage costs and to avoid products expiring in the company’s store. Marketing strategy Almarai marketing strategy is on improving operational synergies. The company has a competitive edge over its competitors by placing its products effectively by using outlets such as Savola (Hyper Panda). In addition, the company acquired HADCO to enhance distribution network. IFE matrix Key internal factors Weight Rating Weighted Score Strengths 1. Skilled workforce 0.09 4 0.36 2. Domestic market 0.11 5 0.55 3. Barriers of entry 0.09 4 0.36 4. Reduced labour cost 0.14 3 0.42 5. Experienced business units 0.12 3 0.36 6. High profitability and revenue 0.08 4 0.32 7. Mergers and acquisition 0.11 3 0.33 8. Less wastage 0.10 5 0.5 9. Market leader in GCC 0.09 3 0.27 10. Improved packaging technology 0.07 4 0.14 Total weight 1.00 3.38 Weaknesses 1. Tax structure 0.08 2 0.16 2. Competitive market 0.07 2 0.14 3. Brand portfolio 0.11 1 0.11 4. Future debt rating 0.10 2 0.2 5. Productivity 0.12 1 0.12 6. Limited market share in GCC 0.13 2 0.26 7. Operating with a single brand name “Almarai” 0.09 2 0.18 8. Highly dependent on expatriate skills 0.13 1 0.13 9. Source of raw materials is mainly from imports 0.17 2 0.34 Total 1.00 2.87 External Assessment Major competitors The major competitors to Almarai Company are Al Rawabi Daily Company and Savola Group LTD. Al Rawabi Company is a company founded in Dubai, United Arabs Emirates in 1989. The company specializes in the production of milk, juices, and dairy products. However, Almarai has a competitive edge over Al Rawabi in portfolio diversification of products. It produces food products while Al Rawabi does not. Savola Group Company is the closest to Almarai in the food and beverage production in the Middle East market. The company has its operations in Central Asia, North Africa, and the Middle East. The Company has a wide portfolio of activities including; oil and edible fats, sugar, packaging, investments in dairy among others. Unlike Almarai, the company has different brand names to different products. The company was incorporated in 1979. CPM Table Almarai Savola Al Rawabi Critical success factor Weight Rating Score Rating Score Rating Score Variety of products 0.18 3 0.54 2 0.36 2 0.36 Brand reputation 0.17 3 0.51 3 0.51 3 0.51 Market share 0.21 4 0.84 1 0.21 3 0.63 Variety of distributions channels 0.15 3 0.45 2 0.3 2 0.3 Customer loyalty 0.14 2 0.28 3 0.42 3 0.42 Profitability of the business 0.15 4 0.6 3 0.45 1 0.15 Total 1.00 3.22 2.25 2.37 The table illustrates Almarai Company is stronger than the two competitors. External Factor Evaluation Matrix Key External factors Weight Rating Weighted Score Opportunities Reduced cost of exchange of currencies 0.05 3 0.15 Low interest rates 0.04 4 0.16 Increase in population 0.02 2 0.04 Reduction of import duties 0.05 4 0.2 Consumer’s awareness of healthy eating and diet 0.12 3 0.36 Diversification of products 0.03 2 0.06 Market penetration 0.01 4 0.04 Product differentiation 0.03 3 0.09 Development of new products 0.02 2 0.04 Mergers and Acquisitions 0.01 3 0.03 Threats Oil subsidies 0.05 2 0.10 Government funding 0.04 4 0.16 Risk with expansion 0.03 2 0.06 Life span of the products 0.07 2 0.14 Dependency on a single brand name 0.04 1 0.04 New entrants into the market 0.03 4 0.12 Outbreak of diseases to cows 0.01 3 0.03 Government sanctions 0.03 2 0.06 Quotas and tariffs in the GCC region 0.15 3 0.45 Political instability 0.12 2 0.24 Economic recessions 0.05 4 0.20 Total weight 1.00 1 2.27 The company has a low score i.e. 2.27 than the recommended score of 2.5. This implies that the company is neither effective nor ineffective in its strategies. It should use the opportunities to mitigate the effects of threats. Strategy Formulation SWOT matrix Helpful Harmful Internal origin Strengths: Market leader Effective quality system Less wastage Mergers and acquisitions Weaknesses: Limited share in the market Dependency of a single brand name External origin Opportunities: Reduced exchange cost Reduction of import duties Increase in population Development of new products Awareness of health Low interest rates Threats: Oil subsidies Government funding Risk with expansion Life span of the products The company’s strengths are in line with its marketing strategy of being the leader in market both in quality production and market share. The company has the largest market share in GCC. In the year 2010, the company had a market share of 60%. In addition, the firms marketing strategies position it to be the at a competitive edge than its competitors. The company uses integrated supply chain, chilled distribution network, advanced technologies among others. However, the company has weaknesses such as use of a single brand name i.e. Almarai. According to Cadle, Paul and Turner (2010), use of a single word is discouraged in a case of a defect of a single product. This means the entire company’s products will be affected by that defect. Therefore, the company should use many names to avoid collapse of the whole operation in the occurrence of single product defect. Opportunities to the companies such as use of single currency in the GCC will reduce costs associated with exchange rates. The region has a steady increase in the population and the company will utilize the opportunity and provide its products to the people. However, the company is faced with the threat of subsidies to oil. This will affect the market of Almarai. Space Matrix Conservative Aggressive Space matrix Suggested strategy type 1.00 3.38 Defensive Competitive BCG matrix Market growth rate High Low High Stars (Fresh Dairy) Question mark (Cheese and butter) Low Cash cows (Fruit juice) Dogs (Long-life dairy) Fresh dairy has the highest market share and generates the highest revenue to the company. More resources are allocated in production and distribution of the product to the market. The Fresh dairy product gives the highest return compared to other products produced by the company. Fruit juice product is the company’s cash cow. The product generates more cash but uses less resource in their production. In addition, the juice can be preserved for a longer time than the fresh dairy products hence saves the company costs of storage and preservation. Cheese and butter is the company’s question mark. The product has the potential of growth. However, it has low market share. Production of cheese consumes a lot of resources with minimal returns in the end. However, the product has potential of becoming a star with diversification of marketing strategies such as establishment of new markets. Long-life dairy has low market share and low growth rate for the company. This product may at times break even or make some profit. However, they don’t consume more resources and Almarai produce the product to reduce the cost associated with stock outs and reference buying. Grand Strategy matrix Almarai’s current position is the first quadrant of grand strategy matrix. The company have strong strategic position. The firm has taken risk in diversifying into poultry farming Rapid Market growth Quadrant 2 Quadrant 1 -Product development such focusing on nutritional value of Almarai products -Market penetration into other regions of the world -Diversification of portfolio such poultry farming. -Merger and acquisition with companies that will enable diversification of investment portfolio Weak Competitive position Strong competitive position Quadrant 3 Quadrant 4 Slow market growth Recommendations Existing Strategies The company should continue in focusing on consumers’ needs and preferences, quality production and on brands. By so doing, the company will remain the best food and beverage firm in the region and to new markets. Retention of employees is a contribution factor to success. Almarai Company has been committed to ensure talent and career development among employees through its career programs. The company initiated training to employees as strategy to acquire new skills and the best from the employees. In addition, the company has a polytechnic for training employees among others. The company should continue to provide education and training to employees to cope with the evolving world in terms of new technology and ways of doing things. New Strategies Almarai’s future strategies should focus on the foundation laid by the firm. The progress of the company is at good pace. The company should lay emphasis on the following pillars; Growth drivers; these are measures to increase the current operations in a broader perspective including; establishing new customers, segmentation of products, nutrition focus, development of new markets e.t.c. Competitive advantage; the company should focus on attributes that are hard to be copied by competitors such as production of unmatched products, penetration of unmatched markets, unmatched coverage among others. Operational pillars; the company should focus on key competencies to remain competitive in the industry and the market as well. It should consider differentiation of its products from the competitors, improve operational performance, quality of the products, and enhance relationships with the consumers among others. References Almarai - Mission, Vision & Values. (2016). Almarai. Retrieved 26 April 2016, from https://www.almarai.com/en/about/vision-mission Al Rawabi Dairy. (2016). Alrawabidairy.com. Retrieved 26 April 2016, from http://www.alrawabidairy.com/ Cadle J., Paul D. and Turner P. (2010). Business Analysis Techniques, 72 Essential Tools for Success, BCS the Chartered Institute for IT. David, F.R. (2009). Strategic Management: Concepts and Cases. 12th ed. FT Prentice Hall Pitta, D.A., (2010). Product Strategy in Harsh Economic Times: Subway. Journal of Product and Brand Management. Vol. 19. No. 2. Pp. 131 – 134. https://www.almarai.com/wp-content/uploads/2015/06/Almarai-Annual Report_EN.pdf?25f275 Read More
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