MIGHTY DELIGHTS plc is a large consortium that owns a UK subsidiary Delightful Ltd which manufactures luxury ice creams. Background Information
DELIGHTFUL LTD is a well-known luxury brand based in Liverpool in the North of England; it is a UK market leader in the manufacture of ice cream products. DELIGHTFUL LTD's ice creams are packaged in plastic or cardboard-lined containers and distributed to customers throughout the UK, including supermarkets and other retailers. DELIGHTFUL LTD's product range includes ice creams with nut combinations, ice creams with fruit syrup, and a combination of both. DELIGHTFUL LTD, unlike its competitors, currently only specializes in ice creams as opposed to other dessert offerings.
DELIGHTFUL LTD is run as an autonomous operating division of MIGHTY Delights. Other subsidiaries/divisions with the MIGHTY Delights consortium operate in luxury frozen food market. Divisional managers are responsible for sales and costs, and they provide the MIGHTY Delights board with a monthly analysis of each division's revenue and operating costs. Key strategic decisions, including capital expenditure, are taken centrally. Divisional managers are permitted to make day-to-day operating decisions without interference from MIGHTY Delights central management provided they satisfy their budget targets set by the head office in the New Forest. The head office charges the divisions for the key functions they control centrally, such as marketing, research and development, human resources management, finance, and IT. Only the head office has permission to develop new products, and divisional management is currently not offering innovation incentives. A new opportunity
Navia Nguyen was appointed last year as the new head of DELIGHTFUL Ltd. She has an outstanding track record for leadership and innovation in the food industry, with significant experience heading organizations in Malaysia, Brazil, Italy, and the UK. Navia Nguyen has recently expressed her concerns regarding the lack of autonomy and authority to implement new ideas to improve her division's operational and financial performance. In a previous role in Venice, Italy, Navia previously ran a smaller but hugely successful luxury smoothie brand (Smelt). Navia arranged to have a formal meeting with the previous employer (Carla Minnilo) at Smelt, who is keen on expanding its operations to the UK. Carla, however, expressed some concerns with their current offering in particular:
Navia believes that DELIGHTFUL LTD could benefit from a strategic alliance with Smelt. DELIGHTFUL LTD has facilities large enough to support the manufacture of smoothie products. Navia would, however, have to seek the collaboration of another MIGHTY Delights division to support transportation facilities. Other divisions within MIGHTY Delights have facilities to freeze, store and distribute frozen products, including manufacturing air-tight containers that can maintain frozen products' freshness. Navia believes that DELIGHTFUL LTD's existing customers, including large supermarkets, would be interested in buying Smelt's frozen smoothies on a large scale.
Navia and Carla held a formal meeting a week later. Carla commented as follows:
"l think that this is a great opportunity for both enterprises but I certainly have some concerns about the potential venture. I am not willing to give up my recipe and business to a larger company. Smelt may not be big enough to own its manufacturing plant, cooling vehicles, or produce airtight containers but I wish to maintain a level of ownership and control of my business. I can clearly see the benefits of a potential alliance but in order for me to enter into a negotiation, I need the following assurances:
Requirements:
(Total mark: 50)
After a competitive process, the tender for providing public transportation in the Torremolinos region was awarded by the local council to the Vroom Bus Company (Vroom) with effect from January 2018. Vroom won the tender particularly due to its simplified pricing structure; they propose to charge a fixed fare of €2 per one-way journey, which would be affordable for all users. Vroom also has a favourable sustainability agenda as part of its business plan, which went down extremely well with the selection committee.
Vroom's mission statement states, "Vroom is committed to operating our bus services sustainably to meet the social and environmental needs of the communities we serve". Vroom currently has 150 fairly new buses, and 55% of these are electric-hybrid vehicles, all meeting the carbon emissions target. The whole fleet has low-level floors, enabling easy access to all service users.
After the first full year of trading under the new contract, Vroom has provided some summary accounts of its performance. Per their tender submission, the performance attained is below the targets they have aimed to achieve. Vroom's managing director (MD) suspects that Vroom is making more profit on some routes than others. Costs and profitability per route are difficult to measure accurately, so the MD wants help identifying how Vroom can measure performance and how it can improve profitability. The table below shows some operating and financial data regarding two typical routes.
Performance data from two typical routes
The MD has also noted that a significant proportion of the vehicle operating costs are fixed per route; Vroom incurs central costs for managing a centralized admin team and bus garage. She also noted that Vroom incurs higher costs than other operators due to its sustainability agenda.
Under the current provision, passengers purchase tickets traditionally from the bus driver. An internal audit that was carried out in November 2018 revealed that the cash handling internal controls require tightening. The cash collected by bus drivers was identified as not reconciling with the passenger numbers, which led to speculation that some passengers may be avoiding payment or drivers are committing thievery. Therefore, the Vroom Bus Company is considering investing €350,000 in a contactless smartcard payment system with on-bus smartcard readers. The smartcards to be used by passengers, called the Juicer Cards, will have the capability to be pre-loaded with money online. Passengers will therefore tap their Juicer on the reader when entering the bus and again at the exit at their destination, ensuring that the correct fee is applied.
Passengers will still be able to pay for their journey to the driver in cash, but this will include a 10% surcharge to encourage customers to use the smartcard payment systems. As an additional incentive, Juicer users will also be able to obtain discounts from selected businesses across the region, including garden centres, supermarkets, and restaurants, on the presentation of the juicer. These discounts are being funded by local businesses and the council to encourage people to use public transport and reduce pollution. The juicer will be launched alongside an app through which passengers can manage their cards, plan journeys, track buses in real-time and receive service updates.
The new payment system is expected to yield savings of approximately €200,000 per annum by improving the efficiency of operations. It is also forecasted that the punctuality of busses will improve due to less time being taken by passengers and drivers to purchase and issue tickets respectively. The council charges transport providers for each service that is not running on time; the Vroom Company encountered fines of
€22,000 in the last trading cycle. The new system will enable Vroom to capture big data, including information about individual passenger journeys, monitor bus capacity usage, and reconcile revenues with passenger numbers.
(Total mark: 50)
Delightful LTD adopts a differentiation focus strategy to remain competitive in the manufacture of ice cream products. The organization strives to outperform its competitors by availing products that customers perceive to be of better quality than those of its competitors. It packages its ice cream in plastic or cardboard-lined containers and only produces three different product categories. Unlike other companies that produce multiple types of products within the United Kingdom’s ice cream production industry, Delightful LTD only specializes in ice-creams. According to Islami et al., businesses that adopt a differentiation focus strategy develop competitiveness by focusing on a narrow market segment to which they offer superior products. As a result, such organizations are perceived to be unique producers of high-quality products, which attracts a positive reputation and customer loyalty in the long run. To achieve such an objective, Delights LTD focuses on improving the quality of its products rather than developing new brands to seize emerging market niches. For example, although the company has multiple branches, only the head office is responsible developing new products. The organizational structure helps to ensure that the company’s workforce mainly focuses on improving the quality of its products and refining customer service to attract more prospects. Therefore, Delights LTD owes its competitiveness to its differentiation focus strategy.
Porter’s value chain involves several primary activities: inbound logistics, operations, marketing and sales, and outbound logistics. Inbound logistics focuses on how the resources required in the production process are availed into the company, while outbound logistics focuses on the demand side of the supply-demand equation through which goods and services leave the company to satisfy the prevailing demand in the market. Services and marketing, and sales focus on ensuring that potential customers gain access to the company’s products. Operations include daily organizational activities that are conducted to ensure the steady production of goods and effective management of the company’s resources. On the other hand, support activities include strategic management activities such as procurement, human resources, technology development, and firm infrastructure. Procurement involves the process of finding and acquiring resources required by an organization to continue producing goods and services and maintain its operations. Human resources and technology development initiatives seek to ensure that the organization has adequate equipment and workforce to maintain or expand its productivity. As illustrated in Figure I below, both primary and support activities of Porter’s value chain interact to create a clear picture of an organization’s cost drivers and sources of differentiation to inform strategic decisions.
Figure 1
Porter’s value chain model
Based on Porter’s value chain model, the strategic alliance for Delightful LTD would attract multiple strategic benefits. Delightful LTS’s head, Navia, identifies that the company has sufficient resources to support the manufacture of smoothie products after forging a strategic alliance with Smelt. Since the company has adequate resources, engaging in an alliance with Smelt would open up more effective inbound and outbound logistics and procurement opportunities. For example, the company will likely gain a new customer base and access Smelt’s resources. The company will also benefit from increased intellectual capital as its workforce collaborates with specialized and experienced employees from Smelt. Moreover, the strategic alliance will allow the organization to reach a broader audience without putting in extra time and capital, which will attract economic and competitive benefits in the long run. Therefore, the proposed strategic alliance between Delights LTD and Smelt will refine both organizations’ value chains.
The current operational strategy adopted by Vroom company faces multiple inconsistencies that pose potential threats to profitability. The company uses an outdated payment system through which passengers purchase tickets from bus drivers. As a result, the buses spend significant time as drivers issue tickets to all passengers. Moreover, a mismatch between the number of passengers and the amounts collected by the drivers has been realized, which demonstrates the ineffectiveness of the company’s payment system. Such a faulty payment system could expose the company to security and fraud risks, resulting in a significant decline in profitability and a negative reputation as potential customers associate drivers with thievery. To avoid such risks, Vroom company should consider leveraging emerging payment system technologies that guarantee accuracy and a timely experience for the business and its customers. For example, the company could implement a digital wallet system allowing passengers to pare for their fares online with a few clicks. The technology could integrate other payment methods to allow passengers to complete their payments by using the balances available on their banking accounts, credit cards, or loyalty cards. The company could also implement leverage contactless payment methods that allow passengers to make payments for their trips without involving liquid cash or swiping cards. The technology allows users to complete payments by tapping a card or waving their mobile phones near a compatible card reader when checking out. Implementing such technologies could help save a lot of waiting and processing time and reduce fraud cases to safeguard the company’s profitability.
Effective corporate governance strategies could also help to address the risks associated with the traditional payment method used by the company. Effective corporate governance ensures employees’ compliance with an organization’s mission, vision, and strategic objectives to minimize business risks (Li et al. 101334). Through corporate governance, business leaders oversee the actions of junior and subordinate staff members to ensure that all activities conducted within the company are focused on its strategic goals. As a result, effective corporate governance encourages positive behaviour among workforce members and reduces risks associated with employee misconduct. Vroom company should, therefore, refine its corporate governance structure to address inconsistencies in its payment system. For example, the company could establish the position of a chief technological officer who would address its technological needs. The organisation could implement an efficient payment system through the help of a chief technology officer.
The company adopted a risk reduction approach to avoid the potential implications of the existing irregularities in its payment system. The company is considering implementing a new payment system to replace the traditional payment method that it has been using. In so doing, the company seeks to reduce the risk of loss by implementing a more stable payment system that helps to save time and increases revenue in the long run. A risk reduction approach focuses on establishing new ways to perform a task through which a risk becomes less severe. Companies that implement a risk reduction approach assess the available measures or courses of action that would help to make risk more manageable. Therefore, Vroom company adopted a risk reduction approach to reduce the possibility of loss resulting from using an outdated payment system.
Islami, Xhavit, Naim Mustafa, and Marija Topuzovska Latkovikj. “Linking Porter’s generic strategies to firm performance.” Future Business Journal, vol. 6, no. 1, 2020, pp. 1-15. https://link.springer.com/article/10.1186/s43093-020-0009-1
Li, Zhiyong, et al. “Predicting the risk of financial distress using corporate governance measures.” Pacific-Basin Finance Journal, vol. 68, 2021, p. 101334. https://www.sciencedirect.com/science/article/pii/S0927538X19305542
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Published On: 01-01-1970
