Strategic Business Management Answers
Question one
Current performance and position:
- Analysis of the environment in which Daldi operates and how this might impact its business model, mission and strategic goals
Daldi is a national chain of clothes retailers. The company uses both diversification and cost strategy to penetrate the market. To achieve its strategic goal, the company used a unique ownership structure where employees share in the profit of the company hence creating a sense of ownership. As a result, the employees are loyal to the company and most likely this impact on their productivity in the business. The company is focusing on operating its operation in the international market.
Daldi operates in a competitive market. Being a small chain, it is not able to compete with the larger competitor and as a result, this has impacted its ability to generate revenue. The compactors of Daldi operate on low-cost low-price strategy as opposed to Daldi which operates on low and mid-priced clothes. The stiff competition affects the company revenue.
Furthermore, Daldi can be considered to be a socially responsible and ethical company. The company follows and promote ethic is business. As compared to other competitors, Daldi employees are well paid, these results in excellent customer service performance hence increasing customer loyalty.
Based on this case study the fashion is projected to continue growing. In the past three years, the industry has grown by 21%. Compared to other markets the fashion retail has demonstrated vigorous growth. Despite many commutations on the high street and closure of several reputable chains, the online fashion market has continued to experience tremendous growth. Fast fashion retail market account for 66% of the online fashion market. The technological factor, therefore, is observed as one of the factors that determine the success of fashion companies today.
The success of most businesses in the fashion industry is influenced by the amount of sale volume made through social media, influencer endorsement and speed, and agility.
Further ethics and sustainability play an important role in the management of the business. To remain competitive the business should, therefore, ensure it observes ethics as well as corporate social responsibility.
Finally, the company operates in a business environment where companies are required to comply with regulating to a green environment. The company is therefore required to be socially responsible in how it contributes to the improvement of environmental conservation. The company, therefore, is required to develop a policy of how it is going to avoid the emission of greenhouse gas emissions.
(b) Evaluation of the overall performance of Daldi from an integrated reporting perspective.
Integrated reporting refers to communication on the company strategy, corporate governance, financial performance, and the prospect of value creation over the short, medium, and long term.
Based on the integrated reporting data (2016–2019) from the finance director, the company has shown an increase in revenue in the year 2017 and 2018, however, in 2019, the revenue decreased from 7.4 million in 2018 to 6.95 million in 2019. The decrease in revenue can be linked to higher competition in the market.
A similar situation was observed in the gross profit. The decrease in gross profit is a result of a decrease in sales revenues and an increase in the cost of sales. The company profits decrease by 75%. This huge decrease in the company net profit was also a result of the increase in financing cost.
The company staff turnover over the four years has demonstrated a decreasing trend from 10% in 2016 to 4% in 2019. This low staff turnover has been contributed to by the company’s social responsibility. All the employees of Daldi are partners in the company, this makes the employees more loyal in the company and hence reduced employee turnover. Moreover, staff turnover has been contributed to by increasing employee satisfaction score. The Employee satisfaction score has shown an increasing trend from 61% in 2016 to 73% in 2019.
The company has also worked on ensuring that the customers get maximum satisfaction. The number of customer complaints as % of sales has demonstrated a decreasing trend. In 2019 the customer complaints as % of sales was 1.5% which is low compared to 3.5%, 2.4% and 2.0% in 2016, 2017 and 2018 respectively. This increase in customer satisfaction has been contributed by high satisfaction on employees, hence increasing their productivity. In addition, customer satisfaction has been contributed by increased investment in market and product development expenditure. This increases the quality of the products and services offered by the company.
Finally, the performance in relation to Carbon emissions in kg per £1,000 sales revenue has demonstrated an increasing trend. The emission of carbon increased from 60 kg per £1,000 in sales revenue in 2016 to 80 kg per £1,000 in sales revenue in 2019.
- Improvements
(a) Ways in which data analytics and big data could be used in improving performance and customer relationship management in order to improve the long-term value and effectiveness of the Daldi brand.
Big data refers to the science applied to analyze raw data to make an informed conclusion. Big data is used to define a large and diverse set of information that is characterized by a continuously increasing growth rate. Big data involve the speed or velocity and information volume which is developed and gathered, and scope or variety the data point being covered. Big data and data analytic transform the business performance including an increase in revenue and profit as well as improved client satisfaction and retention.
Data analytics help the company to meet its ability to meet the demand of the customer. The company is therefore able to develop the strategy of meeting the daily demand of the customers hence increasing their satisfaction. Furthermore, data analytics and a big role in maximizing consumer value. When the company identifies its potential customers the company can optimize its marketing investment. Therefore, the company can develop a long-term relationship with its customers hence maximizing its value and the level of referrals. Big data analytic also play an important role in analyzing the market and therefore the company is able to make its profitability projections. Finally, in relation to customer relationships, the company can use big data analytic to access the customer’s expectation and hence providing products that meet their need. This helps to improve customer satisfaction as well as build customer loyalty.
- b) Why an environmental and sustainability audit of Daldi would be useful, suggesting ways in which Daldi can become more sustainable in the management of the company’s carbon footprint. Environment and sustainability is an important environmental management tool used to measure how certain activities affect environmental policy. Environmental and sustainability help to identify its contribution to environmental pollution and climate change. An environmental audit helps the company to comply with legislative policies about a sustainable environment. In addition, environmental and sustainability audit helps to reduce insurance cost and environmental liabilities.
The audit helps the company management to see exactly what is happening in the company and evaluate the operation of procedures and systems. The environmental and sustainability audit is motivated by the occurrence of environmental incidents and problems. An environmental audit helps in revealing the weakness of the company strategy hence reducing the risk of uncertain events. To add on top, the company can improve its marketing opportunities and business image.
Environmental and sustainability audits can help Daldi to become more sustainable in the management of its carbon strategy. To reduce the emission of carbon the company should reduce the production of throw away garments. Furthermore, the company should develop the disposal plan for its wastage. With good waste management, the company can reduce climate change contributed by carbon emission.
- The potential acquisition of Dressery
(a) Evaluation of the potential acquisition of Dressery and recommendation
The recommendation for whether to acquire Dresseryis based on the review made by Margie Clear Magazine. First, the company has had overwhelming feedback from their customers. The company has invested in online marketing through its simple website. Dressery works with the world’s best manufacturers hence improving their customer experience. The company is also established by people who have rich knowledge about the fashion industry and hence contributing to its brand success. Based on this argument we recommend the acquisition of the company. Further, the fashion industry has shown increasing growth in the last three years therefore with good strategy there is much potential for the company to gain from the acquisition. Based on customer loyalty the company is expected to perform well hence increasing the profitability of the business.
(b) The valuation of £5 million for Dressery in the context of PE ratios for companies in this sector and Highlight of any concerns about the valuation.
Investors use a pricing earnings ratio to determine the company value in comparison to the company earnings. The average PE ratio on the online market Is 40 while the Market leading online clothing retailer has a PE ratio of 40. PE ratio is obtained by dividing share price by the earnings per share. The industry PE ratio the company has been overvalued and hence the investor may pay more the current value of the company. The PE ratio valuation assumes that all companies in an industry will have the same performance which is not true. The company may also manipulate their PE to attract the investor but in the real sense the PE ratio low.
(c) The due diligence assurance procedures that would be required prior to the acquisition.
Before confirming any acquisition deal it is important to perform due diligence. This involves the process of investigation or verification of potential investment opportunities to confirm financial information and relevant facts of the project being undertaken. Due diligence should be performed before the closure of the deal to get the assurance that the business is viable. Before the acquisition, the management should understand why the business is being sold. Also, it is good to request for the long-term strategic plan of the business. The management should evaluate the complexity of the company concerning products and services.
The management should visit the business and observe the number of customers who visit the business so as to predict the expected sale revenue. Further, the company should conduct an interview with the key stakeholders of the business so as to get a clear picture of the business performance.
Furthermore, the Dedli should request the audited financial statement so as to understand the profitability of the company. If possible it is good to employ a professional accountant or independent auditor to access the company financial information on your behalf. This can help to know whether the company’s profit and sales have been overstated or not. The management is also required to evaluate the company’s intellectual properties and technology. For companies like Dressery, you should access the number of orders made online in the last three months. Finally, it is good to access the compliance of the company with legal requirements as well as environmental and sustainability policy.
- Financing the Dressery acquisition
(a) Advise, with reasons, which of the two methods of issuing share capital should be used.
It is exploring issuing new share capital through an initial public offering (IPO) or private equity investor. Ipo will involve selling shares to the public through new stock issuance. Based on the amount of finance that the company requires I propose the private equity investor is a better method of financing the acquisition.
Establish organizations that prefer initial public offering to raise capital. However, the strategy can be costly and complex and it is not suitable for less established and small businesses. The private placement allows an entity to sell stock to private investors instead of the public. The advantages associated with this method include reduced time and cost, fewer regulatory requirements, and the ability of the company to remain private. The company will remain private and hence less government intervention will be required. Unlike in public offers in private equity the company will not lose its control of the affairs of the business. Unlike the initial public offer (IPO) financing method which requires compliance with much regulatory procedure, private equity financing will only require the two parties to agree and sign the contract. This reduces the time and cost involved in financing the business.
Compared to credit financing which can be another option for financing the acquisition the company will be required to prove its creditworthiness. Companies with poor financial history or poor credit history find it difficult to obtain finance from a lending institution. In such case equity financing is considered to be the most suitable method of financing.
The company is also able to learn from its new partner. With private equity financing, the company can establish informal partnerships with investors who are more knowledgeable and hence take advantage of their skills and expertise.
- Corporate governance
- The key weaknesses of the current governance structure of Daldi and how these might become more serious following the potential acquisition of Dressery.
It is not advisable for businesses like Daldi with a small number of employees to employ ESOP as its corporate governance strategy. All employees of Daldi are shareholders in the company. The structure dilutes the shareholding of the company and well as control of the company. The company also pays its staff more compared to its competitors. Though this increases employee loyalty this may increase the cost of business operation hence reducing the company profitability. The corporate governance structure employed to increase the time required for decision making. The management should compensate employees based on their performance. Pegging remuneration on performance could increase business profitability. Only employees in the management should be allocated share instead of issuing shares to all employees.