Investments and Corporate Strategy: Aligning Investment Decisions with Overall Strategy - Essay Example

? jcpenney Contents Executive Summary 3 Introduction 3 Goals of the company 4 5 Vision ment 5 Mission ment 6 Key stakeholders 7 Sense 8 Uncover 11 Solve 12 Build 13 Achieve 14 Conclusion 16 Works Cited 17 Bibliography 19 Executive Summary The following project provides an overview of a company operating in the clothing sector. The project will take into account the entire business process of the concerned organization and its performance over the time period. The report will provide an analysis of the prospects and performance of the organization. The project will include the current position of the company including the future goals, the vision as well as the mission statement which is the focus of the organization. The project also considers the stakeholders who serve the purpose of decision making processes. The difference between the anticipated and achieved growth for the company will not be excluded. The point of view of the customers and some of the managerial limitations will cover the topic of discussions. There will also be some recommendations in order to improve the performance of the company in the years to come. Introduction The organization selected for the project is J.C. Penny Company Inc. It is a chain of the mid range department stores in America. It is based in Texas. The company also operates in many small markets of the nation as catalog sales merchant. The company operates in all the states of the United States. The stores of the company are mainly located in the suburban shopping malls. When the trend of shopping malls came up in the 20th century, the company took the initiative to reallocate the stores there so that it could catch the eye of more people than in the suburban areas. Currently, the company has opened some new sole stores; some of them are close to the competitors’ stores. Some of the newly developed stores can be regarded as the big-box stores. The company has streamlined the catalog as well as the distribution operations and is undergoing renovations at the store levels. The company also entered the playing field of internet marketing in the year 1998. Apart from the sale of usual merchandise, the stores of the company also offer several other departments like restaurants, studios and jeweler shops. The company was founded in the year 1913. In 1914, the headquarters of the company was shifted to New York City with the belief that it would simplify the transportation and usual operations of the organization. The first subsidiary of the company was named The Crescent Company. By 1928, the company was able to open its 1000th store. This signifies the potential of the company and how efficiently the company was being operated. In 2007, the company launched its largest private brand in the history of the company. New additions were made in 2009 in the young men’s department which included the expansion of the private brand named Decree. The year also marked an agreement with a private coffee store which allowed them to open up cafes inside the stores. Goals of the company The sustainability report of the year 2009, announced some of the internal goals of the company which were directed towards reduction of facility energy consumption by around 20 percent per gross square foot. The efforts will be met by 2015 through the improvements in energy efficiency. The culture of the company is to advocate conservation practices. In the last decade, the company invested more than 130 million dollars with the aim to install advanced technology in metering and technologies towards high efficient heating. This type of initiatives from the part of the company resulted in saving of more than 80 million pounds of greenhouse gases. The company also plans to obtain around 25% of their energy need from renewable sources. Measures relating to energy management as well as efficient strategies have been undertaken. Among the other goals of the company includes providing services to the customers at possible lowest cost, enhance the consumer satisfaction and build a healthy relation with the employees (Company News). The company operates in the clothing industry and so there are many competitors present in the market. Therefore, the only way to drive customers to their stores is by providing the finest quality of clothes at lowest price. One of the prime focuses of any company is how to enhance the interests of the customers. Such a measure will not only drive up the sales but will also serve in the periods of turbulence. A healthy relation between the employees and the management serves to increase the efficiency as well as the productivity within the organization. Tokens of appreciation for the employees for serving the company in efficient fashion will encourage the other employees to increase contributions in the company. Such measures will tie the employees towards the organization and will reduce the costs of training the new unskilled or semiskilled employees. Retaining the existing employees and providing them the adequate benefits will be beneficial for the company as a whole not only in terms of productivity but also in terms of brand value and employee satisfaction. Vision Statement Any company wants to encompass its future prospects. The statement through which a company can portray its future image is called the vision statement. The company is executing a strategic plan on long term basis. It aims to create or build a deeper and enduring relationship with the existing as well as the new customers of the company, entrust with additional responsibilities to the Associates, and proving solutions to the industry and plans for optimum benefits to the shareholders (Company Statements & Slogans). It is clear from the vision statement that the company has encompassed the vision plan with four main pillars. The first pillar looks to ensure deeper relation with the existing customers. The other pillar takes into account to endure relationship with the new customers which will strengthen the consumer base. The third pillar includes the retention as well as the engagement of the associates of the organization while the forth pillar concludes to make the necessary amendments that will provide maximum benefits to the shareholders. Such kind of vision statements will help to attract more investments which are beneficial for the growth of the concerned company. Mission Statement Mission statement of the company depicts that its basic area of concern is high customer satisfaction. However it is not possible to achieve high customer satisfaction without having high performance of the company in financial and non financial terms. That is why there is need to make changes in current business model in order to meet attributes of mission statement of the company in the best possible way. When the founder of the organization first opened a store the mission statement of the company was to carry out something before others take the opportunity. Even today, the philosophy of the company follows the mission statement. The company provides an eight point principles for the employees that will ensure the employees to provide work as well as win in all situations and achieve unanticipated superior performance. The principles are named as the winning together principles. The company takes the initiatives to value and develop and provide the appropriate rewards for all the talents in the associates, acts with the ethical standards of the highest level, provides the necessary skills and training programs to perform at the optimum level, wins through leadership, exposure and transparency within the organization, respect forms an integral part of the organization, always makes the necessary plans for excellence in the working environment, services delivered and the products offered, takes care and are always involved in the communities. The company took the initiatives to diversify the business. The company has diversified the products offered over the course of time which provides them with some sort of advantage in the not so good periods. The products which are currently offered by the company include clothing, footwear, furniture, jewelry, beauty products, electronics and house wares. A close look at the products will reveal that the company has made the plans to encompass a circle of products necessary for the daily life. Key stakeholders The individual or the organization holding a stake is called stakeholder. The key stakeholders of the company include employees, shareholders and NGOs. Companies tend to provide some stakes to the higher management as they believe providing them with some proportion of the stakes will not only tie them with the company but also make them more responsible towards the job. The shareholders form the indispensible part of the stakeholders. The shareholders take into account the current as well as the future predictions of the stock prices of the company and then decide upon whether to invest in the company or not. The stakeholders who have direct stake in the considered organization and its successes are regarded as direct stakeholders while the stakeholders who have public or special interest stake in the concerned organization are regarded as secondary stakeholder. The main competitors of the company are Kohl’s (KSS) and Macy’s Inc. (M). The later is department store holding company which specializes in retail sales of some of the same products offered by the considered company. The company operates more than 850 stores in United States and is headquartered at Ohio. The company is renowned in New York for the flagship departmental stores. Deloitte considers Macy’s Inc as the largest retailer of fashion goods in the world and is ranked 36th in the retail sector overall (Macy’s Inc., 2012). The former one operates in 49 states of United States and has more than 1000 stores. In the year 2011, the chain of the company ranked 20th as the largest retailer in terms of revenue. Sense Financial Perspective of JC Penny: Particulars Amount in million $ except EPS 2009 2010 2011 Sales 17556 17759 17260 Percentage change in sales - 1.16% -2.81% Gross Margin 6910 6960 6218 Cost of goods sold 10646 10799 11042 Percentage of change in cost of goods sold - 1.44% 2.25% Total Operating Expenses 6247 6128 6220 Net profit 11309 11631 11040 Percentage change in net profit - 2.85% -5.08% EPS (0.70) 1.63 1.08 Poor financial performance in recent years compared to previous years in terms of its cost of goods sold is due to the decreased gross profit margin of JC Penny. The decrease in the rate of gross margin may be due to the uncertainties faced by the company during the implementation of its strategies which are meant to transform the business as a whole. Even the amount of revenue has taken a dip in 2011 from the last year. Since retail is a very competitive business with many barriers to its entry hence the competition with the other giant retail house may be a cause behind the decline in the decreasing revenue of the company. The rise in the total operating expenses of the company has pulled down the net profit of the company to a great extent. The main aim of any company is to reap favorable net profit and to increase the bar with growing years. But the sudden fall in the net profit margin of the company may pose a problem for the concerned company. According to the analysis made a solution to the given problem is by reducing the operating cost of the company. The negative percentage change in the company may also be due to the changing taste and preference of the company. As a result of decline in the net profit margin the return on the assets will also show a downward trend. The EPS (Earning per share) though turned positive yet has declined by $ 0.55 in 2011. Information provided from the annual report of JC Penny helps us interpret that dividend announced was more or less throughout the given year but the profit after tax has declined and there has been a slight increase in the issue of shares in the form of bonus issue which dragged down the earning per share of the company; to the extent of the earning per share (JC Penny, 2012) From the diagram given below we can interpret the current status of JC Penny both in comparison to the market and that of its peers. Performance of JC Penny has even gone below the market especially during the global economic crisis. The company has shown improvement but is still lagging behind the market and even its peers. Thus it is advisable for JC Penny to lower down its cost and the stock of inventory. Before the launching of a product in the market to make a detailed study about consumer behavior and plan probable protection against the economic downturn in future, if any. (United States Securities and Exchange Commission, 2012, p.15). Uncover In the situation of turbulence, the shareholders are mostly affected. This kind of situation will lead to withdrawal of investment on the part of the investors. The potential solutions that can take care of this situation is closing down of the less profitable stores, introducing upgraded and new stores in new areas of the countries as well as introduction or opening up of new stores in the other countries where the company operates. The company is sometimes forced to operate in the less profitable areas where only few people can access to the stores mainly because of the policies of the government. Closing down of those stores or shift of the stores will only be beneficial for the company as this kind of initiatives will only increase the consumer base of the company. The other solution can be introduction of stores that will offer some kind of discounts for the consumers. The advanced stores where the consumers will not have to stand in a queue or measures to promote the internet marketing will be the added advantage for the company. The company can also engage itself in introducing new stores across the corners of the globe so that a not so good situation in one country can be nullified by relatively good situation in the other countries where the company operates. However there are certain implications of these solutions. Reallocation of the stores can lead to dissatisfaction for the consumers in that part of the world from where the company planned to shift the stores. This can have negative implications on the entire consumer base but the probability of occurrence of such events is very less. Solve The companies always try to diversify their products. In order to compete in an effective manner in the international market the firm must have the ability to optimize the usage of the resources. Sustained and continuous investments can pave the path for innovations and up gradation. In today’s world the pressure of globalization acts to make investment the prime determinant of competitive advantage. It is necessary for the survival of the firm. Firms usually allocate the resources in a profitable manner so that it brings returns from the investment projects. An important aspect in the allocation of resources is corporate strategy. The concerned strategy deals with the activities of the company and also shows the effective utilization of the resources. In order to achieve the best possible results on the allocation of the resources of the company, the corporate strategy and the financial calculations must go hand in hand. The strategic fit of the investment must be taken into account within the proposal of the investment but there is lack of any formal process that is directed towards diverting the corporate strategy to all who has the ability to make a proposal of investment. People use their studies or the researches to identify the strategic investments. The knowledge that is used by the people in the above process is called structural context which states that the investors are inclined towards those investment which fall in line with the strategy created with the interaction with the concerned organization. If the aim of the management is to ensure that all investments are according to the strategy, there is need to formalize the process of investment. There is also need to evaluate the utility of the motivation within the proposal. If it turns out that the motivations are inconsistent then necessary steps must be taken to ensure that the strategy takes everyone into account. Again if the motivations are consistent it implies that the structural context is successful (Aberg, 2006, p. 48). Build The code of ethics must incorporate the principles of social as well as natural justice. The company should treat and behave with the customers who visit the stores. The company should also focus on the measures that will serve the purpose of the employees and the other associated members. A degree of social integrity must be incorporated within the culture of the organization. The company can also take some initiatives that will protect the people who avail the services of the company. The company must not take any step that can harm the people physically, mentally or emotionally. The products should match with the standards set by the authorities and the technology used should be environment friendly. The industry where the company operates can be held responsible for significant amounts of Green House Gas Emission. Appropriate steps from the part of the company will be beneficial for the society as a whole. The standards of the offered products can be maintained through engagement of highly skilled professionals. The company should ensure that it operates with the principle of perfect information and sole selection criteria must be maintained for all positions. Factors such as age, gender, religion and culture should not be taken into account while providing the services. The terminology of social justice can be unknown to some and so background information can be provided to the candidates which will ensure the process of selection is fair and equitable for all (Multidimensional Development Association, 2008). Achieve Analysts use financial ratios in order to compare the financial statements of one firm relative to its competitors within the industry. The liquidity, profitability as well as the capital structure of the firm is taken in account for the analysis. The analysis of the liquidity ratio will show that the company is a liquid firm. However, the current ratio, inventory turnover as well as the working capital turnover will show that the performance of the company is in line with the industry. But the analysis of the quick ratio reveals that the company performed better than the competitors which indicate that the company is much healthier than the other players within the industry. The company also performs better than many in the areas of return on assets as well as return on equity. But the performance is according to the industry in terms of asset turnover and operating profit margin. Analysts predict that the company will witness an annual growth rate of around 6% over the next ten years after analyzing the changes for year to year in income for the company as well as the industry. The forecasting of the total assets was done by asset turnover ratio and the sales volume that was forecasted. The value of the forecasted sales was used to find the value of the operating cash flows. Once the accounting policies and the financials of the industry have been analyzed the valuation of the company is not too difficult. The calculations of the valuations will help to determine whether the firm is undervalued, overvalued or fairly valued. The valuation ratios showed that the share prices of the company under consideration was overvalued. The wide range of price varied from $14.40, the dividend yield ratio to $82.76 which is the ratio of trailing price. The wide range revealed that the methods are not accurate and cannot be used to find the value of the firm. The final estimates were based on the intrinsic values. The dividend discount model is believed to be inaccurate and given little weight. The low paying dividends of the company can be held responsible for driving the share price to $16.06. The model of free cash flows sets the price of the shares to $36.70. The residual income model forecasts the share price to be at $27.33. The equity residual income model takes only the perpetuity into account and this model the value of the shares to be at $15.33. This model is supposed to be accurate. The reason being it links the equity cost, the return on the long run from equity as well as the growth in the long run on equity. The abnormal growth model is correlated with the model of residual income and the link in the valuations can be thought of to be the reason. The relative price to the residual income was achieved to be at $17.40. The valuation models reveals that the share prices of the company is overvalued (Bartholomew, James, Moody, Tapia and Walker, 2007, 5). In order to achieve the anticipated growth rate the company can reduce the costs of operations and transportation. The stores of the company are in many cases located far from the place of production and as a result the company has to incur huge transportation costs. As there are competition in the market structure, branding as well as advertisements will play an effective role. The company needs to take some measures so that the costumers are driven towards their shops. The company can identify the poor performing stores and close them down or relocate them so that it will be able to attract more customers. The stores can also be shifted in the posh areas of the country so that it is under the reach of more people. Conclusion The statements of the company in the following years witness the fact that the firm is attempting to work within multiple and in some cases with deviating discursive environments. According to some researchers these conditions will still be fluid and so the working of the authority which was established by commitments should take the path of continuous progress. The path should emerge from inside the evaluation criteria predominant in any of the fields where the company has already marked its foothold or still in the going through the process of marking the foothold. Capital can be accrued through communication where the strategies of the company accepted the promises that would be restrained by others and in that process the company will achieve greater strengths. The strategies can also be recognized by importance of appreciation as well as the interests that may or may not be in line with the personal interests. Works Cited Company Statements & Slogans, “J.C. Penney Mission Statement and/or Vision Statement”. Company-statements-slogans.info. (n.d.). Web. 22nd May, 2012. http://www.company-statements-slogans.info/list-of-companies-j/j-c-penney.htm. Macy’s Inc, “About Us”. (2012). Web. 23rd May, 2012. http://www.macysinc.com/AboutUs/. Bartholomew, D., James, R., Moody, D., Tapia, A. and Walker, S. , “J. C. Penney Company, Inc. Equity Valuation and Analysis”. (2007). Web. 23rd May, 2012. http://mmoore.ba.ttu.edu/ValuationReports/Summer2007/JC-Penney.pdf. United States Securities and Exchange Commission, “J C PENNY COMPANY, INC.”. (2012). Web. 23rd May, 2012. http://media.corporate-ir.net/media_files/IROL/70/70528/reports/JCP__2011I10K/images/JC_Penney-10K2011.pdf. Aberg, M., “Investments and Corporate Strategy: Aligning investment decisions with overall strategy”. (2006). Web. 23rd May, 2012. http://www.bth.se/fou/cuppsats.nsf/all/577227ed0abaa88ac12571fe007169cd/$file/Thesis_Aberg.pdf. Multidimensional Development Association, “Code of Ethics and Conduct”. (2008). Web. 23rd May, 2012. http://www.mdainc.org.au/?page_id=42. JCPenny, “Company News”. “(2012). Web. 23rd May, 2012. http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-newsCompanyArticle&ID=1653179. Bibliography Wells, D. “Strategic Management for Senior Leaders”. (n.d.). Web. 23rd May, 2012. http://govinfo.library.unt.edu/npr/initiati/mfr/managebk.pdf. JCPenney, “JCPENNEY New Release”. (2012). Web. 23rd May, 2012. http://www.jcpmediaroom.com/media/469/JCPENNEY-ANNOUNCES-EXPANSION-OF-ITS-LEADERSHIP-TEAM-PDF. Read More