Question

QUESTION 2
(This question comes from the OCT/NOV 2018 exam)
Terry’s Chocolates has been supplying the South African market with quality chocolates and chocolate products since 1987. The organisation manufacturers a range of confectionery and has an extensive range of products. A consulting company was hired in order to carry out a strategic review of Terry’s. Terry’s Board of Directors also requested that the consulting company should suggest alternative strategies for achieving growth. Following the review Terry’s management will make their own decision about which strategy to follow.
The consulting company was hired because of the following reasons:
1. Terry’s has failed to increase its market share over the last four years.
2. Profits have been failing gradually, as it has been necessary to keep prices fairly constant to maintain demand. However, both direct and indirect costs have been increasing.
3. The shareholders are becoming restless as dividends have fallen and the share price is gradually declining.
As part of the strategic review the consulting company carried out a SWOT analysis on Terry’s:
Strengths
 Terry’s owns patents for many of its recipes
 It has a wide product range
 It has a high market share of 26% in South Africa
 Strong marketing
 Experienced management team
 Good supply chain
 Previous experience of acquisitions
Weaknesses
 Less than 3% of revenue is from new products each year
 A small product design team, where the majority of staff members are nearing retirement
 Poor succession planning
 Highly inflexible manufacturing processes, with dedicated production lines
 No experience of international expansion
Opportunities
 There is growth potential into Africa
 Selling online
 Flexible manufacturing
Threats
 The confectionery market is declining, due to consumer’s healthier lifestyles
 Brands from overseas
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In addition to producing a SWOT analysis, the consulting company also drew up Ansoff’s growth matrix, showing the potential growth strategies available to Terry’s.
Existing product
New product
Existing market
A. Use intensive advertising to target the existing market. Key television adverts around children’s programmes used to target families, and luxury chocolates being advertised in cinemas and magazines.
B. Develop a new range of products for the home market (South Africa). Designed to resemble and replace the increasingly popular overseas imports.
New market
C. Sell the existing products in African countries.
D. Manufacture and sell healthier goods and snacks, such as dried fruit and nuts. This would involve using a new distribution channel of health food stores.
The consulting company was only asked to present their findings rather than make decisions however, they have given strategic option C as their recommendation to the way forward for Terry’s.
REQUIRED:
(Students must refer to the above scenario in their answers)
(a) Evaluate the four (4) strategies suggested for Terry’s in the above Ansoff matrix (A, B, C and D) for achieving growth, given the findings of the above SWOT analysis.
(b) Evaluate the different methods of expansion (organic growth, mergers, acquisitions and strategic alliances) for implementing strategic option C and explain which method would be best for Terry’s.
(c) Discuss the contribution of SME’s like Terry’s to the economy, how they (especially non-essential sector) were affected by the national lockdown and their future prospects.

[35 marks]
10
QUESTION 3
Healing-Care medical centre (Healing-Care) was founded less than five years ago by a group of medical doctors who believed combining their respective specialities in one centre would give them a competitive edge as a “one stop shop”. The group of doctors is made up of General Practitioner, Paediatrician, Gynaecologist and a Dentist. The GP issues referral letters for patients who need to see the Paediatrician. The medical centre is growing and very profitable thus far. Healing-Care has a centralised claims processing system based on a software package bought back when the centre started operating. The package was adequate until recently when the Finance Manager Mr Leago Mbatha observed the rising number of bad debts in the centre’s financial accounts.
Patients come for consultation with medical savings that are depleted knowing that it will be days before the centre gets feedback from the medical schemes. These patients end up being handed over to the lawyers with the centre only receiving a portion of what was owed after settling the lawyers’ costs. Some of these patients disappear into thin air and never to be seen again.
The admin clerks and Mr Leago have complained that they would rather benefit from an online package that gives real time patient medical benefits from the medical schemes, that way a patient’s savings would be confirmed by the receptionist before consultation with the doctors, if no benefits available the patient would be requested to pay cash for the consultation. They consider the inadequacies of the current claims processing system to be so serious that they would like a Big Bang change which would mean moving straightaway to a new marketing information system that would give them the information they need. They feel Healing-Care is being left behind by its competitors and is losing customers.
The Operations manager, Rhoda Smith, manages Healing-Care’s IT staff. Rhoda was responsible for buying the existing claims processing software and he would also be responsible for the procurement of its replacement. Rhoda has identified three possible solutions to meeting the admin staff’s needs: the first two are evolutionary, the third would be a 'Big Bang'.
Solution 1
The existing claims processing system would be redesigned by Healing-Care’s inhouse IT staff to meet the needs of the admin staff. Although Healing-Care’s IT staff have limited experience of the type of work which would be required, they are confident the redesign could be done within a year. The IT staff are unsure of the cost.
Solution 2
Healing-Care’s in-house IT staff would develop new bespoke software to meet the admin staff’s needs. The IT staff have stated that ‘because Healing-Care’s needs are unique, costs can only be roughly estimated. However, this solution is likely to be considerably more expensive than the 'Modification' solution. The final cost would be dependent upon the length of the project. It should take a minimum of six months to develop new software, but it might take as long as two years. We have little experience of software development but are very enthusiastic about trying’.
Solution 3
Healing-Care could purchase the medical industry standard claims processing system software “Vericlaim”: this would be an expensive purchase but the product is well proven. Some of Healing-Care’s admin staff have experience of using this software in other companies, are very appreciative of its benefits and believe it would help them considerably in their jobs. The software supplier claims that ‘90% of the medical industry uses our product and if you buy it we guarantee to have it working inside Healing-Care within three months of you buying it’.
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Rhoda believes that she represents the majority of opinion within the IT staff who very much prefer that change should be evolutionary. They would be very resistant to change if it was carried out in any other way. Rhoda also pointed out that Healing-Care has experience of 'Big Bang' organisational change in the recent past which failed because Healing-Care’s culture didn’t change to reflect this.
Rhoda stated, ‘It looks straightforward to go out and buy a software package but it’s a lot more complicated than people think and it’s my department that would have to do all the work.
REQUIRED:
(a) Explain the circumstances in which it would be appropriate to use:
i. evolutionary change.
ii. 'Big Bang' change.
(b) Provide an evaluation of the suggested solutions identified by Rhoda and recommend with reasons, which of the three solutions should be adopted.
(c) Advise how Healing-Care could overcome the resistance to change which would arise if Solution 3, the purchase solution, were to be adopted.

[Grand

Answer 1

2)
Four strategies suggested to Terry's for achieving growth-

1. By using intensive advertising, by television advert among children families to advertise luxury chocolates in cinemas and magazines.
2. For a home-market develops a new range of products.
3. Selling healthier snakes like dry fruits and nuts.
4. By selling healthier products in the African market too.

FINDING OF SWOT ANALYSIS

• By having a strong supply chain it is having a wide range of products and a high market share of 26% in South Africa.
• With less international exposure, it has old staff members who are about to retire. All this leads to poor succession planning resulting in less than 3% revenue from a new product this year.
• Lots of opportunities including growth potential in Africa with flexible manufacturing.
• But due to a healthy lifestyle and international top brands, the confectionery business is collapsing day by day.

b)

Different methods of expansion-

Organic Growth-It is an internal growth method, involves from within the business. The following are the ways of using the Organic method as an expansion.

• Focus on your best customer which helps to increase the revenue of a company.
• Raise price strategically.
• More focus on the sales team.
• Proper advertising channel to market the product.
• Focus on organizational changes as per the need and time.

Mergers- It is the external reach of a company used to expand the business by collaborating two or more companies and give the new name to that merger. It is the collaboration of two or more companies. It will help to expand international acquisition. It is used to increase the company's reach. It has the following types-

• Horizontal
• Vertical
• Congeneric
• Reverse
• Conglomerate

Acquisitions- It is the purchase of another entity or having a 51% share in another entity by taking assets of that company. This can be-

• Hostile
• Buyout
• Friendly

Strategic alliances- It is the mutually beneficial conglomeration between two companies to undertake a project. This can be achieved by-

• Joint venture
• Equity strategic alliance
• Non- equity strategic alliance

BEST FOR Terry- As per my opinion, Terry should use the organic growth expansion method as Company has a Name in the market and expected to increase its sale if product launch in Africa so to achieve this internal growth needed like organizational changes, hire new staff. Proper advertising of new products as less than 3% of revenue generated through new products. also, focus on existing products.

c)

Contribution of SME like Terry's to the economy
SME plays a backbone to any economy and following are the points through which contribution can be easily be felt-

• Employments
• growth of GDP
• Help in value creation
• Help in minimization of Import and maximization of Export

EFFECT Of Lockdown

• Disrupted supply chain
• Health concern among customer
• Transport issues.

EFFECT On the Future prospects

• Deal canceled.
• New projects are on a halt.
• International contracts are disrupted due to borders locked.

3)

CIRCUMSTANCES in which appropriate to use

EVOLUTIONARY CHANGE- These are changes that are supposed to do on existing features.

• To redesign the existing claim processing system.
• To consider admin staff needs

Big Bang change- These are the changes that includes complete changes in the features

• Adopting new software.
• Well-tried and experienced result.
• Full proof guarantee of success

B)
Evolution of the suggested solution by Rhoda
Rhoda suggested adopting evolutionary change.
Earlier failure of Big Bang change clearly noticed in a company.
Buying is easier but adapting it to its way is tough.

In my opinion, Solution 1 should be adopted, as the issue is with the staff need, if the staff properly organized and balanced their needs the company gets the solution to their problems. Redesigning the existing system as per the requirement of staff could be a better solution.
C)
Healing Care should overcome resistance to change by-
Extra compulsory training session of newly adopted software.
Well trained technical staff who can easily deal with software issues.