Strategy and Performance & OKom Case Study – Accounting & Finance Assignment Help

Assignment Task


Strategy and Performance

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Subject Learning Outcome/Objectives
SLO1 Advise on the development of strategy to enhance stakeholder value in changing environments
SLO2 Critically review and adapt an organisation’s existing strategy to take advantage of opportunities for improvement
SLO3 Create a measurement framework to monitor an organisation’s strategic performance
SLO4 Effectively communicate recommendations to key stakeholders to support strategic proposals

A growth strategy for OKom

Background information
You are a newly qualified CA working in the management consulting division of a medium-sized accounting firm. You and your manager, Kwan Jones, have just attended an interesting meeting with clients Charles and Andrea. This husband and wife run a small family business that consists of a chain of health food stores located in the wealthy suburbs of Sydney.

Charles and Andrea have grown their business from scratch over the last 20 years and now have three stores employing 45 people. They started out with a farmers market stall, then established a regular store and eventually expanded to open another in an adjacent suburb. A few years ago, they bought into a larger health food store in another suburb, as the owner was looking to retire. As part of the buyout, the owner retained a 30% share of the parent company but is not actively involved in its day-to-day operations. All three stores now operate under a single brand: Your Organic Wholefoods Centre. The brand does not have an online presence. Each Your Organic Wholefoods Centre store stocks a similar range of organic fruit and vegetables, grains, cereals, gluten-free bread, ground coffee, tea, vegan-friendly snacks and some health supplements.

Typical customers are:
from the suburbs where the stores are located
middle-aged (40s–60s)
well-off, with high disposable income
interested in sustainability.

All stores are profitable and have a stable base of regular customers. However, Charles and Andrea, who are in their late 50s, work long hours to keep on top of the logistics and management of the three stores. While the stores have a reasonably healthy cash flow, Charles and Andrea took on extra debt to finance the store buyout and do not want their gearing to increase, even with the current low levels of interest rates, particularly at their age. They have good relationships with similar stores in the health food retail industry in Sydney and its suburbs. This network sees itself as sharing a similar heath-focused purpose. Charles has been in the industry for many years and has a strong reputation as a champion of food and beverage consumer health. He is highly respected by the other store owners.

Many of the other stores Charles directly interacts with attract slightly younger customers as they are located in suburbs with more affordable housing, some near universities. Every year, Charles and Andrea take part in two large health and wellness festivals where they catch up with the other store owners, share ideas and hear what different stores are doing. Most independent stores in this sector are doing well due to an increase in consumer interest in sustainable and healthy food options. These stores are always looking for ways to expand their presence in the heath food space. There is a level of camaraderie among the store owners – as long, of course, as they do not compete against one another. At the moment, this is not a problem due to the geographical spread of the stores and current profitability levels. However, large supermarket chains are starting to market themselves heavily in the health food space and are increasing the number of organic product lines they sell. These products are from major manufacturers, and even some small-scale ones, at very competitive price points. The store owners are wary of the supermarkets and worried about what this might mean for the future of their independent stores.

Six months ago, Anna used her European contacts to secure an exclusive licensing agreement for Australia and New Zealand to produce and market a kombucha product, branded ‘OKom’, which has been successful in the Scandinavian market. The owners of OKom, Janssons, who are themselves only just starting up, have committed to continued investment in research and development to increase the brand’s range of flavours. For Anna, the cost of the arrangement is a 5% royalty on sales. Janssons has granted her considerable freedom to market the product in Australia and New Zealand as long as the original beverage recipes and quality processes are followed during production.

Anna has partnered with a small-scale local craft beer brewery called Chesterfield to produce OKom. When Anna reached out to several small craft breweries, she was surprised that quite a few were interested in a partnership. While the craft beer trend is gaining momentum, and producers are investing heavily in manufacturing facilities, many have found they have excess capacity and are keen to try something additional to their existing production to help with fixed costs. Anna has invested in some equipment specifically required for OKom, but the size of the production runs mean that the brewery’s existing production facilities can be utilised, and major up-front investment in machinery or factory space is not required.

Chesterfield has provided Anna with its expertise in applying for food certification requirements and exploring any issues surrounding alcohol regulations. Kombucha production involves fermentation processes, which can also cause alcohol to be produced. The Australia New Zealand Food Standards Code allows a level of alcohol of 0.05% by volume before the product is deemed alcoholic and, therefore, subject to further labelling requirements and restrictions. Alcoholic products are also subject to state liquor licensing laws. A recent government inquiry found considerable under-declaration of alcohol in kombucha products. Anna wants to produce and market OKom as non-alcoholic to ensure access to the youth market, so the product must comply with these regulations. Chesterfield has been able to advise Anna on this matter.

Under the licensing agreement with the OKom brand owner, Anna has access to some marketing material, but it needs to be redesigned to ensure it is relevant to local consumers. She has not yet developed any significant marketing material or strategy beyond the bottles’ labels, which have been changed to meet local regulatory requirements. Anna has also set up pop-up stands in the family’s stores to give out samples to get customer feedback. Two weeks ago, the main Your Organic Wholefoods Centre store started selling OKom. Anna was in-store for the promotion, managing the pop-up stand and talking to customers. 

Very few customers knew about kombucha and its potential health benefits but, once they heard more, were interested to try it. The 500ml bottles were priced at $8 each, with enough stock for 250 bottles per week for the two-week trial. The stock sold out in the first week, with 85% of stock sold in the second week. The direct cost to produce each bottle was around $2.50 but, overall, there was a financial loss on this two-week run due to the relatively high fixed costs associated with setting up the bottling process. Also, overheads for Anna’s time and use of the shop space were not included in calculations, nor was the cost of Charles using the company’s delivery truck to get the finished product from the brewery to each of the stores. Despite this, the family was encouraged by the feedback from existing customers

Future plans
Charles wants to develop OKom further, not just because of the opportunity for the business, but also as a means of keeping daughter Anna in the business. Charles and Andrea have talked about having a succession plan for the business, but never had time to put a clear plan in place. Current ‘stated strategy’ 

During your meeting with your client, Charles described the strategy for OKom:
‘We think this can be really big and want it to be a million-dollar brand in two years’ time. We need to get some more marketing going because we don’t really do much of that for the stores. We rely on looking after our existing loyal customers, who spread the news by word-of-mouth in their area, but we want all our existing customers to become fans of OKom. We’re going to do some pamphlets and drop them around the neighbourhood soon. We also want to set up sampling stands in the other two shops. We might need to reinvest some of the profits from the stores into this, which may mean a smaller return for all of us in the short term.’

‘We’ll need to convince our other shareholder that it’s worth it and that it makes good business sense, too. We’ve succeeded at growing our business over the years, but this is new territory for us, so we need your help. We want to hear your suggestions for how we should make the most of this opportunity.’ Following the meeting, Kwan asks you to prepare a briefing paper (for internal use only). This paper should include the analysis he needs to provide to Charles and his family, with recommendations about their strategy – in particular, how they can incorporate OKom into their current business model by growing the brand over the next two years to make it a significant and sustainable part of their business.

Your task
Prepare an internal briefing paper that includes:
a Business Model Canvas
your analysis of OKom’s current strategy and advising how it can be adapted and improved.
Your internal briefing paper should be no longer than 1,300 words and include each of the requirements detailed below. 

Use the internal briefing paper worksheet provided to complete the following tasks:

1. Complete a Business Model Canvas (BMC) for OKom outlining how the brand has been incorporated so far within Charles and Andrea’s existing business.

2. Complete a strategic analysis of the external environment. Identify and explain eight (8) key issues, forces or trends that are relevant to the successful development of OKom and could impact its current or future strategy. Identify at least two (2) key issues, forces or trends from each area.

3. Complete a strategic analysis of the internal environment:

  • Identify two (2) key capabilities and explain why each capability is a source of potential advantage that is highly relevant to the OKom strategy.
  • Identify two (2) key weaknesses and explain why the weaknesses may affect the OKom business.

4. Make four (4) key recommendations for adapting or improving the current OKom business model to enhance stakeholder value. For each recommendation, identify which BMC building block(s) would be impacted and describe how the strategic analysis (internal and/or external) has prompted those recommendations. You are not required to build a new BMC.

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