Key Success Factors and Drivers of Change

Running head: MANAGEMENT MANAGEMENT NAME OF THE STUDENT NAME OF THE UNIVERSITY AUTHOR NOTE 1 MANAGEMENT Table of Contents 5. Key success factors and Drivers of change ................................ ................................ ........ 2 6. Diagnosis of strategic alignment ................................ ................................ ........................ 8 7. Change proposal and expected outcomes ................................ ................................ ......... 11 References ................................ ................................ ................................ ................................ 18 Appendix ................................ ................................ ................................ ................................ .. 20 2 MANAGEMENT 5. Key success factors and Drivers of change As it has been discussed that Target Corporation has emphasized over their promotional strategies for improving overall business (Wilson, 2017 ). Hence, it can be studied that with the help of appropriate marketing and advertising strategies, this firm will be able to gain a competitive edge from the market. Effective inventory management has been a key success factor for Target as it helps to maintain positive vendor relationships and minimize markdowns on seasonal and apparel items (Peker, Kocyigit & Eren, 2017 ). a. Industrial analysis Retail industry is one of the fastest growing sectors around the world because of rising customer demand as well as favourable external business factors. In addition to that, the growth rate of retail sector is analysed to be at 3.5% to 4.1% , between 2019 till 20 24 and further the sector is forecasted to reach 3.9 trillion dollars by the end of 2024 (SEC Repor t., 2020 ). Further, the retail sector is observed to be faced with 3.7 percent (SEC Repor t., 2020 ). However, sudden pandemic outbreak has caused temporary shutdown of the businesses, which further negatively affected their profit -margin or overall rate of revenue generation. Negotiating force of suppliers: The switching power of suppliers is high hence ; the brand witnesses a weak force in this context. Retail industry is highly dependent on supply chain network due to which the firm is faced with major challenge (Peker, Kocyigit & Eren, 2017 ). This is because, the presence of various small and medium bu siness as well as the presence of multinational retail business in the market has reduced the overall switching cost for suppliers (Peker, Kocyigit & Eren, 2017 ). As a result, Target Corporation might witness increase of supplier costs that can create a ne gative influence to their sales or overall profit -margin. 3 MANAGEMENT Negotiating force of customers: The switching power of customers is low due to strong brand image; hence the firm witness a strong force in this context (Arunraj , Ahrens & Fernandes, 2016 ). As discussed, the demand for retail markets is rising at a rapid rate due to the current market situation hence, various small and medium retail markets have been observed to operate their business successfully in the market (Peker, Kocyigit & Eren, 2017 ). In addition to that, it has also been analysed that customers holds a lower switching cost due to which they might change their preferences while selecting any retail brand. However, in this case, Target Corporation has established a positive brand image in the market that might help them to gain a competitive edge and further promote their business in the long run (Li et al., 2018 ). Presence of substitutes: There are minimum range of substitutes for the products present in the market due to which the fir m might face minimal threat both in short as well as in the long run (Arunraj , Ahrens & Fernandes, 2016 ). As most of the retail market provides similar product hence, the threat of substitutes is lessened. However, availability of products from other marke ts at a lower price can indeed pose threat to this business thereby hampering its growth or overall development, which might further impact its revenue generation (Peker, Kocyigit & Eren, 2017 ). Competitive rivals: Study shows that market competition is one of the biggest challenges for any firm that can result in major economic losses (Peker, Kocyigit & Eren, 2017 ). In this case, it has been observed that sudden change in the retail sector due to Covid pandemic has fuelled the customer demand and helped many firms to grow in this sector. Some of the top competitor for this brand includes Walmart , The ODP Corporation as well as Costco (SEC Repor t., 2020 ). Hence, it can be analysed the firm witness massive competitive threats from their target customer base . 4 MANAGEMENT Potential market entrants: Due to higher rate of financial investment in developing these entertainment parks, most of the small and medium businesses are unable to develop their business (Peker, Kocyigit & Eren, 2017 ). Hence, Target Corporation gains potential advantage due to minimised risks associated with the presence of small and medium business in the market. The total number of small and medium business in this sector is growing massively because of the innovative approaches and technological deve lopment in the sector. Analysing the competitive forces, of this firm, it can be analysed that the brand witness‟s stiff competition from the market due to which, they have not been able to achieve their targeted sales (Peker, Kocyigit & Eren, 2017 ). In addition to that, Walmart is considered as one of the closest competitors for this brand, which caused a potential threat to the concerned business. b. Drivers of change PEST Analysis Political factor: The political factor is considered to be one of the e ssential components for any business that enables them to determine the rate of success or failure in a business. In addition to that, it has been studied, The Target Corporation is faced with favourable political factor that helped them to expand their cu stomer base and gain a competitive edge from the market (Arunraj , Ahrens & Fernandes, 2016 ). Further, it has also been observed that the rising tension between China and USA related to trade war has affected the supply chain network of The Target Corporati on to a certain extent. However, with the help of effective marketing strategy or approach initiated by the US government, The Target Corporation will be able to overcome these potential risks and improve sales in the external marketplace (Pantano & Gandin i, 2018 ). 5 MANAGEMENT Economic factor: Another major essential component responsible for the growth of a retail firm is economic factors such as foreign exchange rate as well as rate of inflation among many others (Peker, Kocyigit & Eren, 2017 ). In this case, it has been observed that the brand is faced with major challenge regarding economy of the market due to pandemic outbreak. The Target Corporation has been observed to witness setbacks in the next three years due to economic instability of the market (Peker, Kocy igit & Eren, 2017 ). Hence, it is necessary for the brand to implement appropriate financial management and optimization of business operations so that it might be able to reduce potential risks and gain competitive advantage that can help them to retain th e profit margin in the next three to five years (Tugrul & Cimen, 2016 ). Social factor: It has been studied that social factor helps a brand to determine their market position and further assist a firm to retain their profit margin even in the long run (Ma nworren, Letwat & Daily, 2016 ). In addition to that, it can be studied The Target Corporation aims to provide quality service as well as product to their range of customers. Further, reports states that the firm has established more than 40 stores across t he United States, which helped them to gain a strong market position and gather a greater number of customers from the market (Courtemanche et al., 2019 ). The business has imprinted a friendly as well as fun memory in the mind of their customer. Technolog ical factor: Study shows that technology plays a vital role in any business due to which many retail businesses has implemented advanced technologies that can help in gaining a competitive edge from the market (Peker, Kocyigit & Eren, 2017 ). In addition to that, it has also been studied that The Target Corporation has invested 7 billion dollars to modernize their business operations (SEC Repor t., 2020 ). On the other hand, various studies show that the technological advancement in retail busi ness is increasing at a huge rate that can even help the firm in next 5 years. Implementation of AI in the retail market 6 MANAGEMENT apart from digital payment is forecasted to be upcoming trend in retail industry that can enable the firm to double their revenue gener ation (Manworren, Letwat & Daily, 2016 ). c. Key Success factors Product quality : Reports states that the brand is highly concerned with premium product as well as service that can support them in gaining potential advantage from the external marketplace. It has been studied that, product quality helps a brand to improve or retain its brand image both in the short as well as in the long run (Manworren, Letwat & Daily, 2016 ). On the other hand, if a brand fails to implement appropriate strategy towards sustaining the product quality, then it might negatively affect their brand image. The mission statement of „The Target Corporation‟ mentions that they aim to establish „The Target Corp oration‟ as preferred shopping destination for customers across US (Capell, 2019 ). This can be attained by delivering outstanding values, exceptional guest experience as well as continuous innovation by appropriate business techniques. This reflects their approach towards improving and retaining product quality in the target customer b ase (Manworren, Letwat & Daily, 2016 ). Competitive Pricing : Developing pricing model helps a brand to improve their sales and retain the customer base (Balaji & Roy, 2017 ). In this case, the concerned brand has emphasized on implementing competitive pric ing model for their range of products so that they can minimise competitive threats in the market. Further, it has also been studied that competitive pricing strategy allows a business in regulating the overall competition by preventing major economic loss or even the loss of customer & market share to its competitors (Manworren, Letwat & Daily, 2016 ). Hence, this type of pricing model or strategy is analysed to provide potential benefits to the firm in long run. As discussed, 7 MANAGEMENT The Target Corporation is face d with stiff market competition, hence, competitive pricing strategy is assumed to provide the business with competitive benefits. Customer -oriented approach: The Target Corporation aims to provide customized products or services to its range of customers (Manworren, Letwat & Daily, 2016 ). It has been discussed that the customer -oriented approach implemented by the brand has benefitted them to attract a greater customer base while retaining the existing one. In addition to that, it has also been studied Th e Target Corporation aimed to attain higher customer satisfaction with the help of effective marketing strategy and customer relationship management (Ying et al., 2020 ). Further, this helped them to interact with their target customers and identify their p otential needs and requirements. The firm is observed to be highly active in their social media platforms, where they encourage their customers to share their feedback and reviews so that they can improve their customized approach (Peker, Kocyigit & Eren, 2017 ). Marketing strategy: The marketing strategy is considered to be one of the effective business approach es for The Target Corporation that enabled them to reach their target customers. Study shows that the concerned brand looks to provide their customers with various ways of convenient retail shopping (Alshakhoori et al., 2019 ). The brand emphasizes on effective market research to understand the pricing implemented by its competitors so that they can reduce any risks associated with market compet ition. In addition to that, The Target Corporation aims to focus on market penetration approach that further enables them to gain competitive benefits (Peker, Kocyigit & Eren, 2017 ). The brand is highly dependable on digital marketing especially social med ia marketing that helped them to reach their target customer base within a brief time -period. 8 MANAGEMENT 6. Diagnosis of strategic alignment Alignment of firm’s strategy with current resources and capability It has been studied that the firm is highly concerned with th eir environmental sustainability that helped them to retain a positive brand image in the external marketplace (Andreoli, 2018 ). In addition to that, the current resource of this brand includes raw materials, human capital and financial capital. On the oth er hand, capabilities of The Target Corporation are „large sales & distribution network‟, „human resources‟, „private label & exclusive brands‟ as well as „brand equity‟ (Manworren, Letwat & Daily, 2016 ). In addition to that, the firm is also comprised of appropriate marketing strategies that helped them to attain higher customer satisfaction. Companies or brands associated with The Target Corporation are guided to manufacture products as per the environme ntal guidelines or standards. This enabled the firm to retain their business sustainability and improve sales thereby gaining higher profit -margin (Peker, Kocyigit & Eren, 2017 ). On the other hand, it allows this firm to focus on other aspects in its busin ess operations such as supply chain management, inventory management, store operations as well as e -commerce. Studying these factors, it can be described that the brand aligns well with its environmental and current resources & capabilities that helped the m to enhance sales and improve market position (Manworren, Letwat & Daily, 2016 ). Drawbacks the business strategy Even though, this firm is highly concerned with its customer satisfaction, however they are faced with strategic challenges. They aim to expa nd their customer base across various regions of US; however, the firm fails to implement appropriate business strategies that inhibits them to reach their target customer base (Peker, Kocyigit & Eren, 9 MANAGEMENT 2017 ). The e -commerce strategy implemented by this fir m does not align with their brand expansion strategy and inventory management (Pantano & Vannucci, 2019 ). Hence, it can be assumed that if the brand does not focus on improving their e -commerce strategy, then it might not be able to improve their sales or overall business growth. Study shows that e -commerce is one of the effective business approaches for reaching the target customer base and gaining higher sales (Manworren, Letwat & Daily, 2016 ). Further, it has also been analysed that failure to implement appropriate e-commerce strategy might increase overall business expenses and reduces effectiveness of the brand (Manworren, Letwat & Daily, 2016 ). Another study shows that the brand is failing as a competitor to attract customers as their closest competitor, Walmart is marketing aggressively to increase marker share that further negatively influence this firm in the long run (Ying et al., 2020 ). The Target Corporation targets on its core customers, which is young family by providing them with private label goods particularly in home categories. However, lack of aggressive marketing skills can hamper their sales thereby, reducing the profit margin or market share of this firm within the next five years. The Target Corporation is focus ed on competitive pricing strategy or cost differentiation strategy for reducing competitive threats (Mourdoukoutas, 2019 ). However, the firm failed to implement aggressive marketing as compared to its competitors (named Whole Foods and Walmart), which can cause potential loss of customers apart from financial loss (Manworren, Letwat & Daily, 2016 ). Whole Foods is studied to invest in store improvements and infrastructure development to install AI across its stores. However, in case of The Target Corporati on, the brand has solely focused on improving inventory management and store operations, which might 10 MANAGEMENT reduce competitive advantage for this brand in 5 years. As retail industry is highly dependent on advanced technologies hence, if The Target Corporation fa ils to develop appropriate infrastructure in their store s, then they might not be able to install technologies in stores across United States (Manworren, Letwat & Daily, 2016 ). As they (The Target Corporation) aim to increase brand equity, however, failing to align with the market demand can result in potential drawbacks. Recommendations to overcome one major misalignment Analysing the above misalignment or challenges in their b usiness strategy, it can be stated that the firm should improve their e -commerce strategy so that they can reduce potential business expenses and gain competitive benefits from the target customer base (Manworren, Letwat & Daily, 2016 ). It has been observe d that developing e -commerce strategy can help the firm to reach their potential customer within a very short period of time (Ying et al., 2020 ). Hence, if the brand aligns its company mission and vision in developing e -commerce strategy then it might be a ble to retain their customer base as well as hold a strong market position in the long run. The Target Corporation witness massive challenges from the market due to stiff or fierce market competition, hence, implementing e -commerce strategy might help the m in overcoming those challenges. In addition to that, the firm also aims to expand their product portfolio for increasing sales (Manworren, Letwat & Daily, 2016 ). Therefore, with the help of this approach, they will be able to attain their organizational goals and corporate objectives, which can promote the business in nearby future or within 3 to 5 years. Advertising and Promotional Expenses Advertising $ 11 MANAGEMENT 7,050 Signage 2,500 Printing 12, 200 Travel & Entertainment 4,0 50 Other / Additional categories 2,300 Total Adv and Promo expenses $ 27,100 Payroll and payroll taxes Expense 1 $ 12, 700 Expense 2 1,500 Total Payroll and payroll taxes $ 13, 200 Figure 1: Advertising costs for the strategy Source: author 7. Change proposal and expected outcomes Recommendations for strategic change In order to gain potential benefits from the market, this firm (The Target Corporation) can focus on offering subscriptions to their range of customers. This will help them to attract a greater number of customer and improve sales in the market. It has bee n observed that subscription offers attracts higher customer traffic (Manworren, Letwat & Daily, 2016 ). On the other hand, adding reviews as well as ratings in the official website can assist customer to prefer The Target Corporation for making a purchase. Providing online customer review with rating can help the brand to attract their target customer base, as positive reviews will help them improve sales thereby, increasing the rate of competitive benefits (Santoro et al., 2019 ). 12 MANAGEMENT On the other hand, develo pment of e -commerce strategy can help them to minimise potential business expenses as well as economic loss (Manworren, Letwat & Daily, 2016 ). As discussed, this approach can help the firm to improve their brand equity and help them align with their corpor ate mission and vision that is involved with approaching their target customer within a short period of time. Reports states that retail e -commerce revenue is amounted to be 431.6 billion dollars in the fiscal year of 2020 (Ying et al., 2020 ). On the contrary, this sector is estimated to witness a sharp increase that can promote the value to 563.4 billion dollars (Ying et al., 2020 ). Forecasting of the net performance that can be gained from implementing the recommendation The Target Corporation is fo recasted to open several new stores (around 30 -40 stores) each year prior to opening of 30 new stores in 2020 (Bhasin & Marley , 2018 ). In addition to that, two more distribution centres are assumed to be opened in Chicago & Delaware, which is aimed to prov ide higher return on investment from the market (Ying et al., 2020 ). On the other hand, this brand is also assumed to provide order pickup as well as drive up in some states (including Florida). With the help of e -commerce strategy, and considering the cur rent pandemic situation, this firm will be able to channelize the growth and improve overall sales. In addition to that, the brand can also increase their revenue by 20% within next six months and improve rate of employee retention. Further, analysing the growth rate of e - commerce sector and rising customer demand, it can be assumed that The Target Corporation will be able to attract huge customer base in the market (Bhasin & Marley , 2018 ). Hence, with the help of these e -commerce strategies the firm can aim to achieve its organizational goals and corporate vision (Bhasin & Marley , 2018 ). 13 MANAGEMENT Forecasted Profit and Loss Account Year -by -year profit and loss assumptions Year 1 Year 2 Year 3 Year 4 Year 5 Annual cumulative price (revenue) increase - 2.30% 4.30% 6.30% 8.30% Annual cumulative inflation (expense) increase - 2.30% 4.30% 6.30% 8.30% Interest rate on ending cash balance 0.5 2% 0.5 2% 0.5 2% 0.5 2% 0.5 2% Year 1 Year 2 Year 3 Year 4 Year 5 Revenue Gross revenue $25, 12 0, 000 $25, 23 5, 000 $26,7 05, 200 $28, 15 2, 312 $30, 92 3, 697 Cost of goods sold $5, 22 2,5 00 $5,2 32 ,7 50 $5,4 55 ,3 80 $5,8 12 ,9 63 $6,2 70 ,3 60 Gross margin $20,0 17, 700 $20,4 22 , 210 $21,3 20 , 810 $22,5 55 , 34 5 $24,3 00 , 370 Other revenue [source] $0 $0 $0 $0 $0 Interest income $0 $0 $0 $0 $0 Total revenue $20,0 17, 700 $20,4 22 , 210 $21,3 20 , 810 $22,5 55 , 34 5 $24,3 00 , 370 Operating expenses Sales and marketing $2 0,000 $2 0,500 $2 5,520 $2 6,111 $28 ,360 Payroll and payroll taxes $1 0,000 $1 0,260 $1 0,790 $1 3,618 $1 4,787 Depreciation $3 0,180 $3 0,844 $3 3,507 $3 4,171 $3 4,834 Maintenance, repair, and overhaul $4, 130 $4,3 05 $4, 599 $4, 68 4 $4, 768 Total operating expenses $80,5 10 $86,918 $89,217 $92,384 $96,550 Operating income $20, 103 , 090 $20, 142 , 332 $21, 329, 603 $22, 404, 966 $24, 507, 787 Interest expense on long - term debt $0 $0 $0 $0 $0 Operating income before other items $20, 103 , 090 $20, 142 , 332 $21, 329, 603 $22, 404, 966 $24, 507, 787 Loss (gain) on sale of assets $0 $0 $0 $0 $0 Other unusual expenses (income) $0 $0 $0 $0 $0 Earnings before taxes $20, 103 , $20, 142 , $21, 329, $22, 404, $24, 507, 14 MANAGEMENT 090 332 603 966 787 Taxes on income 32% $6, 103,6 20 $6,1 03,7 50 $6,36 5,8 80 $6,7 22 ,4 85 $7,29 0,3 35 Net income (loss) $14, 11 8, 46 5 $14,2 08, 602 $14, 755 , 72 0 $15,75 0, 455 $17,0 77 , 45 0 Cumulative income $14, 11 8, 46 5 $28,2 11 , 09 0 $43, 21 7, 801 $58,9 00 , 29 5 $75,9 55 , 74 5 Figure 2: Forecasting Profit and Loss Source: Author Cash Flow statement Year 1 Year 2 Year 3 Year 4 Year 5 Total Operating activities Net income $14, 111 , 46 5 $14,2 00 , 63 5 $14,86 5, 72 1 $15,7 00 , 47 5 $17,01 0, 45 0 $75,9 77 , 755 Depreciation $33,1 50 $33,84 0 $34,50 0 $35,17 0 $35,83 0 $172,53 0 Accounts receivable ($10 2,00 0) ($20 7,04 0) ($32 0,42 2) ($45 0,27 7) $0 ($1,0 72,7 39) Inventories ($10 2,00 0) ($20 7,04 0) ($32 0,42 2) ($45 0,27 7) $0 ($1,0 72,7 39) Accounts payable $20,6 25 $42,1 30 $65, 00 7 $92, 99 9 $0 $221, 99 2 Amortization 0 0 $0 $0 $0 $0 Other liabilities 0 0 $0 $0 $0 $0 Other operating cash flow items 0 0 $0 $0 $0 $0 Total operating activities $1 5,860, 29 0 $1 5,952, 52 0 $1 6,318, 10 0 $1 6,972, 97 0 $17,0 01, 28 0 $74, 00 5, 17 5 $0 Investing activities $0 Capital expenditures $0 $0 $0 $0 $0 $0 Acquisition of business 0 0 0 0 0 $0 Sale of fixed assets ($6,0 50 , 62 1) ($6,1 03, 750) ($6,3 58, 871) ($6,7 21, 49 5) ($7,29 8, 33 5) ($32,5 35 , 03 0) Other investing cash flow items 0 0 0 0 0 $0 Total investing ($6,0 50 , ($6,1 03, ($6,3 58, ($6,7 21, ($7,29 8, ($32,5 35 , 15 MANAGEMENT activities 62 1) 750) 871) 49 5) 33 5) 03 0) Financing activities Long -term debt/financing $0 $0 $0 $0 $0 $0 Preferred stock 0 0 0 0 0 0 Total cash dividends paid 0 0 0 0 0 0 Common stock 0 0 0 0 0 0 Other financing cash flow items 0 0 0 0 0 0 Total financing activities $0 $0 $0 $0 $0 $0 Cumulative cash flow $7,8 26,6 00 $7,8 00 ,8 02 $7,9 50 ,2 20 $8,2 30 ,4 82 $9,7 60 ,9 49 $41, 70 5, 140 Beginning cash balance $6 00 ,30 0 $8,46 0,9 66 $16, 30 6, 788 $24,2 56, 010 $32,4 70 , 49 0 Ending cash balance $8,4 70 ,9 65 $16,2 99 , 78 5 $24,2 50 , 00 0 $32,4 70 , 49 0 $42,2 30 , 44 5 Figure 3: Cash Flow statement for The Target Corporation Source: author Challenges or drawbacks of the recommendation Even though e -commerce is a growing platform that might help The Target Corporation to align with their resource and corporate objectives, however if the fir m fails to implement these strategies, then it can face major setbacks (Peker, Kocyigit & Eren, 2017 ). However, it can be observed that there are potential challenges that The Target Corporation can face by implementing these e -commerce strategies. This include s increase of busines s expenses and requirement of high skilled labour who holds an expertise in advanced technical systems (Peker, Kocyigit & Eren, 2017 ). This is because, e-commerce business requires employees with higher knowledge about specific software and tools that can help them to execute the required business operations. 16 MANAGEMENT On the other hand, providing discounts or exclusive offers to numerous customers can negatively influence the financial stability of this firm (The Target Corporation). In addition to that, subscription offers can also refrain them from achieving higher sales margin thereby, negatively affecting this firm (Peker, Kocyigit & Eren, 2017 ). Key steps to implement the proposal The change proposal will be implemented with the help of a Gant chart , that will define and distribute the research and findings gained for this firm. 0-2 3-6 7-8 9-10 14th Research Activities Weeks Weeks Weeks Weeks Week Conducting a market research Developing e - commerce strategy Developing a budget Preparing a technical team Implementation of e -commerce strategies Figure 4: Timeline for change proposal Source: author The key steps involved with the implementation for this change proposal includes: 17 MANAGEMENT 1. Conducting a market research , where the marketing manager will analyse demand or customer requirement for implementing this change. Further the manager can also analyse its internal business environment to identify the misalignment. 2. Developing e -commerce s trategy to gain competitive position in the market. The manager can study benefits and advantages gained from such marketing strategy. 3. Developing a budget for executing the e -commerce strategy, which can also help them to optimise the finances. 4. Preparing a technical team in the workplace to identify or align business goals with their e -commerce strategy and alter the rate of organizational growth. This requires training to the employees. 5. Implementation of e -commerce strategies in this business so th at they can attain organizational goal in next 3 to 5 years. 18 MANAGEMENT References Alshakhoori, N., Alkenaizi, A., Ebrahim, N., & George, S (2019). Business Strategies of Discount Retailers: A Comparative Study of Target Corporation and Costco Wholesale Corporation. Andreoli, B. (2018). Strategic Analysis of Target Corporation. Arunraj, N. S., Ahrens, D., & Fernandes, M. (2016). Application of SARIMAX model to forecast daily sales in food retail industry. International Journal of Operations Research and Information Sy stems (IJORIS) , 7(2), 1 -21. Balaji, M. S., & Roy, S. K. (2017). 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European Management Journal . 20 MANAGEMENT Appendix Advertising and Promotional Expenses Advertising $ 7,050 Signage 2,500 Printing 12, 200 Travel & Entertainment 4,0 50 Other / Additional categories 2,300 Total Adv and Promo expenses $ 27,100 Payroll and payroll taxes Expense 1 $ 12, 700 Expense 2 1,500 Total Payroll and payroll taxes $ 13, 200 Figure 1: Advertising costs for the strategy Source: author Forecasted Profit and Loss Account Year -by -year profit and loss assumptions Year 1 Year 2 Year 3 Year 4 Year 5 Annual cumulative price (revenue) increase - 2.30% 4.30% 6.30% 8.30% Annual cumulative inflation (expense) increase - 2.30% 4.30% 6.30% 8.30% Interest rate on ending cash balance 0.5 2% 0.5 2% 0.5 2% 0.5 2% 0.5 2% Year 1 Year 2 Year 3 Year 4 Year 5 Revenue Gross revenue $25, 12 0, 000 $25, 23 5, 000 $26,7 05, 200 $28, 15 2, 312 $30, 92 3, 697 21 MANAGEMENT Cost of goods sold $5, 22 2,5 00 $5,2 32 ,7 50 $5,4 55 ,3 80 $5,8 12 ,9 63 $6,2 70 ,3 60 Gross margin $20,0 17, 700 $20,4 22 , 210 $21,3 20 , 810 $22,5 55 , 34 5 $24,3 00 , 370 Other revenue [source] $0 $0 $0 $0 $0 Interest income $0 $0 $0 $0 $0 Total revenue $20,0 17, 700 $20,4 22 , 210 $21,3 20 , 810 $22,5 55 , 34 5 $24,3 00 , 370 Operating expenses Sales and marketing $2 0,000 $2 0,500 $2 5,520 $2 6,111 $28 ,360 Payroll and payroll taxes $1 0,000 $1 0,260 $1 0,790 $1 3,618 $1 4,787 Depreciation $3 0,180 $3 0,844 $3 3,507 $3 4,171 $3 4,834 Maintenance, repair, and overhaul $4, 130 $4,3 05 $4, 599 $4, 68 4 $4, 768 Total operating expenses $80,5 10 $86,918 $89,217 $92,384 $96,550 Operating income $20, 103 , 090 $20, 142 , 332 $21, 329, 603 $22, 404, 966 $24, 507, 787 Interest expense on long - term debt $0 $0 $0 $0 $0 Operating income before other items $20, 103 , 090 $20, 142 , 332 $21, 329, 603 $22, 404, 966 $24, 507, 787 Loss (gain) on sale of assets $0 $0 $0 $0 $0 Other unusual expenses (income) $0 $0 $0 $0 $0 Earnings before taxes $20, 103 , 090 $20, 142 , 332 $21, 329, 603 $22, 404, 966 $24, 507, 787 Taxes on income 32% $6, 103,6 20 $6,1 03,7 50 $6,36 5,8 80 $6,7 22 ,4 85 $7,29 0,3 35 Net income (loss) $14, 11 8, 46 5 $14,2 08, 602 $14, 755 , 72 0 $15,75 0, 455 $17,0 77 , 45 0 Cumulative income $14, 11 8, 46 5 $28,2 11 , 09 0 $43, 21 7, 801 $58,9 00 , 29 5 $75,9 55 , 74 5 Figure 2: Forecasting Profit and Loss Source: Author 22 MANAGEMENT Cash Flow statement Year 1 Year 2 Year 3 Year 4 Year 5 Total Operating activities Net income $14, 111 , 46 5 $14,2 00 , 63 5 $14,86 5, 72 1 $15,7 00 , 47 5 $17,01 0, 45 0 $75,9 77 , 755 Depreciation $33,1 50 $33,84 0 $34,50 0 $35,17 0 $35,83 0 $172,53 0 Accounts receivable ($10 2,00 0) ($20 7,04 0) ($32 0,42 2) ($45 0,27 7) $0 ($1,0 72,7 39) Inventories ($10 2,00 0) ($20 7,04 0) ($32 0,42 2) ($45 0,27 7) $0 ($1,0 72,7 39) Accounts payable $20,6 25 $42,1 30 $65, 00 7 $92, 99 9 $0 $221, 99 2 Amortization 0 0 $0 $0 $0 $0 Other liabilities 0 0 $0 $0 $0 $0 Other operating cash flow items 0 0 $0 $0 $0 $0 Total operating activities $1 5,860, 29 0 $1 5,952, 52 0 $1 6,318, 10 0 $1 6,972, 97 0 $17,0 01, 28 0 $74, 00 5, 17 5 $0 Investing activities $0 Capital expenditures $0 $0 $0 $0 $0 $0 Acquisition of business 0 0 0 0 0 $0 Sale of fixed assets ($6,0 50 , 62 1) ($6,1 03, 750) ($6,3 58, 871) ($6,7 21, 49 5) ($7,29 8, 33 5) ($32,5 35 , 03 0) Other investing cash flow items 0 0 0 0 0 $0 Total investing activities ($6,0 50 , 62 1) ($6,1 03, 750) ($6,3 58, 871) ($6,7 21, 49 5) ($7,29 8, 33 5) ($32,5 35 , 03 0) Financing activities Long -term debt/financing $0 $0 $0 $0 $0 $0 Preferred stock 0 0 0 0 0 0 Total cash dividends paid 0 0 0 0 0 0 Common stock 0 0 0 0 0 0 Other financing cash flow items 0 0 0 0 0 0 Total financing activities $0 $0 $0 $0 $0 $0 Cumulative cash flow $7,8 26,6 00 $7,8 00 ,8 02 $7,9 50 ,2 20 $8,2 30 ,4 82 $9,7 60 ,9 49 $41, 70 5, 140 Beginning cash balance $6 00 ,30 $8,46 0,9 $16, 30 6, $24,2 56, $32,4 70 , 23 MANAGEMENT 0 66 788 010 49 0 Ending cash balance $8,4 70 ,9 65 $16,2 99 , 78 5 $24,2 50 , 00 0 $32,4 70 , 49 0 $42,2 30 , 44 5 Figure 3: Cash Flow statement for The Target Corporation Source: author 0-2 3-6 7-8 9-10 14th Research Activities Weeks Weeks Weeks Weeks Week Conducting a market research Developing e - commerce strategy Developing a budget Preparing a technical team Implementation of e -commerce strategies Figure 4: Timeline for change proposal Source: author