Question

Case study Cakes R Us operates a series of bakeries in Canberra that specializes in supplying the range of cakes to restaurants and coffee shops. Major production includes lamingtons, scones, éclair and custard tarts. Until last year sales levels were fairly stable. However, sales have been decreasing for the last 18 months. Ralph Slick the marketing manager of Cakes R Us is worried and has visited major customers to find out the reasons for their decreasing sales order. The comments of the owner of one of the most popular Canberra Coffee Shop sums up the general response. ‘Ralph, your style of cake is old fashioned. They are not what people want anymore. Our customer preferred lighter taste your food. They want variety and are willing to pay more for high quality innovative creations. At a recent meeting, Slick stated that the company should expand its product offerings or there may be no future for the company. Specifically, he believes that there is untapped market for the gourmet pies. The Managing Director is uncertain, he states; “I really don’t think that we can afford to invest time and money into fads”. We sell cakes, we are not a gourmet caterer. Slick points out that it is these new items that customers are asking for, so it makes sense from a strategy point of you to develop these products. However, the Managing Director is still Page 2 of 2 Case study assignment : MAC007 A Strategic Management Accounting uncertain. I have no idea whether we’re going to make a profit this year and cash is always tight. We don’t need strategies, I prefer to just sell good products. Slick understands why the Managing Director is resisting his plea to be more innovative with the products-the bakery has been producing the same line of cakes for 30 years. Slick also knows that there has never been any formal planning undertaken within the company or consideration of objectives or strategies.

Required: Ralph Slick has asked for your help. As the new management accountant prepare a report for the managing director conducting strategic analysis of the organisation in the light of comments made by Ralph Slick. Also based on the strategic analysis advice what type(s) of strategy(ies) help in achieving business goals and objectives.

Answer 1

Answer :

1.         There are many advantages in implementing processes to determine organisational objectives, strategies and planning systems. Clarification of objectives and strategies would encourage the company to formally evaluate the competitive market in which it operates, including the activities of competitors and the preferences of customers. It would allow managers to assess the strengths and weaknesses of the company and put in place future plans that would allow it to undertake its strategies to achieve its objectives. The company can formally consider opportunities for producing new products and evaluate whether or not it is advisable to focus solely on old, established product lines. If new products are to be introduced then formal planning systems will allow the business to consider the cash flow implications and establish timelines for introducing those new products. The formalisation of objectives and detailed plans will provide the business with targets against which actual performance can be measured, and communicate to employees the future directions of the business. Currently there seems some uncertainty as to what types of products the company should be offering. As part of the strategic planning process, customer preferences need to be assessed and predictions made of the likely future demand for products.

2.         The control system that can be put in place may include monthly targets that should derive from the yearly budget and longer-term plans, and a system that monitors areas of key strategic interest. These targets will be used by employees and managers to compare against actual performance. The targets may be financial, such as cost targets and sales revenue. However, it will also be important to set non-financial targets, such as those relating to quality and delivery performance. In selecting these targets the company needs to decide which areas are of the most importance in managing the company. Customer preferences are obviously crucial to this business. The company needs to put systems in place to monitor any changes in customer preferences for particular products. The company must keep track of what competing bakeries are offering and try to anticipate changes in demand for its products by carefully monitoring changes in sales mix.