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Managerial Decision Making And Competitiveness

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Question:

Discuss abuot the Managerial Decision Making and Competitiveness.
 
 

Answer:

Introduction

CFC technology is an international company which was registered with the initial capital of USD1000k. Company had gathered experience in producing vacuum, consultancy services, washing and welding technologies with the help of expertise staff. These staff members are asset of the organisation. In order to maintain its asset organisation provide several benefits to them, apart from this CFC also focus on providing good quality of products and services to its customers. This help in establishing good image in eyes of society.

Over the period everything was going well and high profits were experienced by the organisation. However, company experienced downfall in its business because of rise in e-business. Ecommerce was an easy approach for the customers as, they get wide variety of goods and complete information about technology without even stepping out.

‘‘Higher the risk higher the chances of earning profits’’ every business involve some risk. Entrepreneur can overcome this element by conducting proper forecasting, identifying competitors, and sources of raw material and so on.

In this project discussion will be carried on evaluation of company’s performance in terms of revenue, cost, profit, activity drivers and competitive strategies that will enable the organisation to improve its financial conditions.

 

Company performance evaluation

  • Revenue
  • Cost
  • Profit
  • Activities drives

There are two major parts of revenue, cost and profit. Every organisation should earn sufficient amount of profit in order to survive and expand its business but sometimes due to uncertainties such as increase of competition companies like CFC have to bear huge loses (Browne, 2016).

Sales revenue = units sold x sales price

Over the last three years there is fluctuation in sales of goods and services. Initially it’s increasing but later there is decline in the sales. In 2016 sales of goods and services is declined by $816 and $8.

There are many reasons behind decline in sale such as, increase in ecommerce business although, it is  beneficial from the customer point of view as, they get wide choice, better price range and many other benefits but it has adversely affected the business of CFC(Sandford, 2015).

Reverse trend goes with cost. There are different cost involved in the production of tablets such as, raw material cost, direct labour cost, consultant salary and direct over heads. Increment in the cost can be seen in year 2016. Overall it can said that, there is rise in the sale which is beneficial for the organisation.

Cost refers to the amount of money that manufacturer invest in order to produce the final product (Healy & Palepu, (2012). Mainly there are two different types of cost. One is fixed cost and other is variable cost. Fixed cost remains the same even with the increase in production units whereas, variable cost may vary when the production units increase or decreases. Cost trend of CFC over the past three years is not stabilised as, there is in increase in cost every year.

Cost of the company had increased because of increase in the production of goods from 1000 to 1377. Although fixed expenses of the company remained the same but still there is increase in overall cost because of the increase in variable cost. Variable cost include, raw material and overhead expenses.

 


Every organization tries to reduce the overall cost of production, in order to earn higher profit margin but it is possible only with the help of economics of scale (Zimmerman & Yahya-Zadeh, (2011) CFC found it difficult to increase its production as, now customers of their target segment have shifted because of increase in the number of competitors.

As, CFC is a traditionally retail store so, now it’s high time for the organisation to adopt new selling techniques. Apart from their retail outlets they should try and expand their business through ecommerce.

Once they expand their business then it will be easy for the company to work on the basis of economics of scale. This will not only help organisation in earning high profits but consumers will also be benefited by it. At the end company will able to regain its image in the market.

‘‘Higher the risk higher the chances of earning profit’’ (Liebowitz, (2013). Financial gains experienced by the organisation after paying off all its expenses is called profit. Every firm wants to earn reasonable amount of profit in order to survive and expand its business (Heal & Palepu, (2012). Without earning profit no organisation can survive for the longer period of time in the market.

Profit is obtain after deducting all the expenses from the selling price. CFC technology has experienced decrease in profit in year 2015. As, the profit in 2014 was $64882 but it falls to $467 in year 2015. Company had experienced decline in its profits because of tremendous increase in cost in year 2015 and reduce in the sales of tablets.

Although there is again increase in the profitability of the organisation in 2016 but still if, we compare it with the profit earned with the year 2014 its low. This fluctuation is the results in reduction in customer base of the company.

 

Activity drivers

Cost incurred by the organisation are effected by many factors. These factors are commonly called activity drivers (Chea, (2011). These drivers have capacity to change cost of business operations. Sometime many cost drivers can occur in the single cost. One of the most common cost driver is labour hours (Auerbach et al, (2013)Whereas, there are many technical cost drivers such as, contact of customers with the company, how long machine work, in order to perform the task how many machines are required and so on.

CFC has increased the number of operators from 2014 – 2016 as a result, there is increase in labour cost but correspondently there is no increment in sales which result in decline in overall profitability of the organisation (Jordan, (2017). To overcome its situation many consultants have been appointed and their number has increased from 50 to 74 within three years. Advice given by the consultant was not good enough as they failed in helping organisation to get their position back in the market.

Financial position of CFC Technologies is not good enough so, in order to overcome this situation it is important for the organisation to adopt some competitive strategies. Strategies made by the organisation on the basis of long term planning in order to win over the rivals are commonly known as competitive strategies (Chevalier-Roignant & Trigeorgis, (2011).

Every business man tries to maintain appropriate financial condition within the organisation so, that if any problem occurs it can easily be solved. Apart from this company have to face many problems if it financial conditions are not sound enough. Some of these problem are – difficulty in raising funds, availing raw material on credit and so on (Dewey & Rogers, (2012). 

Competitive strategies

Cost leadership – under this strategy companies try to provide its product at low cost to its target segment. Manufacturing and selling the products on the cheap rates is possible only after adopting economics of scale (Baroto, Abdullah, & Wan, (2012). This strategy will help not only in attracting customers but also help organisation to increase its profitability, correspondently with the increase in sales. Further it will help CFC in improving its financial condition. 

Differentiation – CFC technologies can improve its financial condition by adopting differentiation strategy. In this strategy initially firm have to invest money in research and development, but soon organisation is able to recover its cost because customers are willing to pay high amount if they find that particular companies offer unique services or a product (Heracleous & Wirtz, (2012).

 


Although this is bit difficult for small enterprises to adopt this strategies because of the problem in arranging funds but, it is considered beneficial to larger enterprises. CFC will be able to improve its financial condition if it adopt this strategy because –

It will help the organisation at retain its customers.

Helps in attracting new segment.

Helps in developing goodwill in the eyes of suppliers, customers and so on.

Customer intimacy – it’s all about identifying target customers, collecting complete information about customers such as, their likings, disliking’s, opinion and so on (Peppers & Rogers, (2016) On the basis of the information obtained, organisation should modify its product as well as services.

SWOT

It stands for strength, weakness, opportunities and threats. SWOT analysis conducted on CFC Technology -

  • Strength – organisation strength falls in its customer base, financial resources, and human resources and so on.
  • Weakness – company was not able to attain its targets because of lack of information, inability to understand changing demands of its target group,                                                                                                                                                                                            
  • Opportunity – expansion of business with the help of ecommerce, collaboration with international partners, and diversifying their existing product line are some the available opportunities available.
  • Threats – major threat for CFC are its competitors present in external environment. These competitors are able to win over CFC because they judged expectations of their customer group and changes in Market trends.

Each and every department should be given instructions in detail, regarding change in market trends so, that they can make suitable changes in their respective plans, which further helps them to win over their competitors. Once the company satisfy its target group after that it’s easy for them to increase their sales which will overall improve financial condition.

Conclusion

From the above report it can be concluded that, CFC Technologies can attain their position back by making some changes in their working pattern. Enterprise need to understand that, they have to introduce new things in their business, if they want stabilised financial conditions. Apart from this cost and sales table clearly shows that there is a need of improvement as, there is decline in profits and tremendous increase in cost of the organisation. Apart from this organisation should understand mentality of their target group members in order to increase sale and reduce cost. For this CFC should adopt some competitive strategy, as this will help them to win over competitors.

CFC technologies should try to expand its business through ecommerce. This will help organisation in increasing its customer base. In the recent era no one have that much of time too search appropriate technology. Specially the one who don’t have any knowledge regarding technologies they find themselves more comfortable in online purchasing as, there they get complete information and wide choice to choose best among all brands.

 

References

Auerbach, A. J., Chetty, R., Feldstein, M., & Saez, E. (Eds.). (2013). Handbook of public economics (Vol. 5). Newnes.

Baroto, M. B., Abdullah, M. M. B., & Wan, H. L. (2012). Hybrid strategy: a new strategy for competitive advantage. International Journal of Business and Management, 7(20), 120.

Browne, C. H. (2016). The little book of value investing (Vol. 5). John Wiley & Sons.

Chea, A. (2011). Activity-based costing system in the service sector: A strategic approach for enhancing managerial decision making and competitiveness. International Journal of Business and Management, 6(11), 3

Chevalier-Roignant, B., & Trigeorgis, L. (2011). Competitive strategy: Options and games. MIT Press.

Dewey, J., & Rogers, M. L. (2012). The public and its problems: An essay in political inquiry. Penn State Press.

Healy, P. M., & Palepu, K. G. (2012). Business analysis valuation: Using financial statements. Cengage Learning.

Healy, P. M., & Palepu, K. G. (2012). Business analysis valuation: Using financial statements. Cengage Learning.

Heracleous, L., & Wirtz, J. (2012). Strategy and organisation at Singapore Airlines: achieving sustainable advantage through dual strategy. In Energy, Transport, & the Environment (pp. 479-493). Springer London.

Jordan, J. (2017). Book Review: 40+ New Revenue Sources for Libraries and Non-profits. Reference & User Services Quarterly, 56(4), 296-296.

Liebowitz, J. (Ed.). (2013). Big data and business analytics. CRC press.

Peppers, D., & Rogers, M. (2016). Managing Customer Experience and Relationships: A Strategic Framework. John Wiley & Sons.

Sandford, C. T. (2015). Economics of public finance: an economic analysis of government expenditure and revenue in the United Kingdom. Elsevier.

Zimmerman, J. L., & Yahya-Zadeh, M. (2011). Accounting for decision making and control. Issues in Accounting Education, 26(1), 258-259.

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