Control of competitive strategy
As per above table, in the 5- year period (1999- 2003), turnover of the company has gone up by 38% and as given in the case, market share of the store is also steadily increasing. However profit- turnover is almost halved from 30% to 16% from 1999 to 2003. Also admin/ Mngt cost has doubled from 1200 to 2400. Moreover, debt is increasing steadily year after year. Above financial figures and ratios reflect the sub- optimal health of the store / company profitability. Qualitative: • Middle management competencies and commitment is low.
• Quality of sales staff which must be interacting with customer on routine basis is also poor. • Management Information System (MIS) which is important is controlling the health of the business is given to be weak/ low. 2. Analysis Primary reason for increase in turnover and steady market share is the access to good quality products and good after- sales service. From a customer point of view, any retail store offering good quality products and good after- sales service would be their first choice.
In event of loyal customer base, store would see a steady/ growing footfalls and positive word of mouth, which would result in regular growth of
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However, reality is different as moral of staff is low and quality of staff is deteriorating with 20% of staff leaving every year. With 20% staff attrition, every 5- year store would see 100% new staff. Such huge turnover of employees, call for robust training system in place. To the dismay of employees, management of retail chain is not giving due preference to the training. Senior management of the organization is committed to the success of the store and also aligned with the philosophy/ mission. However the problem lies with the middle management who is told to be weak in competencies level and commitment.
Reason for low morale of staff/ worker is the absence of healthy and regular communication between staff and management. Middle management is oblivious of the company mission and so are unable to communicate the same to lower tier/ staff. Middle management has not strengthened the training process even when 20% of the staff leaving and new staff joining every year. Surprisingly administration costs have double is last 5 year period, which signify the expenditure of the money in insignificant or low- priority activities.
Debt is increasing which means the store has increased the borrowing to meet increased expenditures. These expenditures have not resulted in increase in profit margins. The summary of analysis is that in absence of management information system (MIS), management IS not aware of inefficiencies and weaknesses creeping into the organization’s fabric. An effective MIS assist senior/ middle management to surface the problems beforehand, so that organization can take corrective actions. 3. MIS or Balance Score Card (1) for the store
Following Key Performance Indicators (KPI) are must for effective diagnosis of retail sales efficiency. • Sales/ Employee Costs and Sales/ Number of employees • Profit (USD)/ square feet of store space • Inventory costs with respect to best in competition or the global benchmark • Number of training days per employee, benchmarked with most preferred employer in same/ similar industry • Administration/ Turnover ratio These KPIs need to be part of balance score card of Chief Executives and flow to middle management to ensure alignment.
Moreover these Score Cards need to be reviewed and discussed on half- yearly basis. Over time trend charts need to be developed and displayed at the staff offices for them to be alive of the health of the organization. To motivate staff, their targets need to be linked with the incentives. Best ‘Staff of the Month’ must be publicly recognized and rewarded to create positive and competitive work environment.
(1) Robert Kaplan and David Norton, 1996 : Using the Balanced Scorecard as a strategic management system, Harvard Business Review