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A Case Study in Strategic Management Assignment Answers

A Case Study in Strategic Management

Al Qassim Foods is a fast growing agro-based industry in the central region of Saudi Arabia. The company was established by Abdulaziz Alothaim in the year 1996 for supplying vegetables to the retail outlets of Unaizah city. Over the years the operations of the company grew rapidly and it started supplying its produce to all major cities in Al Qassim province. The vision and mission statements of Al Qassim Foods are stated below:

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Vision

To be the leading agro based company in the kingdom.

 

Mission

Al Qassim Foods is committed to provide the Saudi society with best quality agricultural products by making use of latest technology and processes. We value the contribution of all our stakeholders in helping us to achieve success in all aspects of business and in meeting our commitment to the customers and society at large.

In 2002 the company started its poultry business, in addition to its existing portfolio. The company has its own farms for vegetable production and chicken farming. The poultry unit supplies eggs to the retail outlets and chicken to a major processing firm in the region. Encouraged by the healthy growth of the Farming and Poultry divisions, the company started its dairy division in 2008 and it earned quick success in the market. The dairy products capitalized on the Al Qassim brand name that was already popular in the region. The company went public and its share price saw a rapid increase over the years. However, since year 2012, the competition in the agro industries has been growing and it has started impacting Al Qassim Foods considerably.

The division wise financial performance of the company for the last three years is given in Table 1 below:

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Table 1: Division wise performance for Al Qassim Foods (All figures in Million Saudi Riyals)

Farming division Poultry division Dairy division
2012 2013 2014 2012 2013 2014 2012 2013 2014
Revenues 37.5 42.8 53.4 12.6 13.3 12.8 4.5 6.7 9.8
Total costs 29.3 31.7 37.2 10.4 11.5 11.6 3.6 4.8 6.8
EBIT 8.2 11.1 16.2 2.2 1.8 1.2 0.9 1.9 3.0
Interest paid to banks 1.2 2.5 3.2 0.5 0.5 0.5 0.2 0.6 0.8
Industry growth rate 15.6% 14.8% 16.2% 12.0% 13.5% 14.6% 16.2% 17.2% 17.4%
Relative Market share 56% 63% 87% 35% 22% 16% 8% 16% 22%

 

The Income tax rate is 4.5% for all years. The average gross margin for the food industry for the year 2014 is 20% and net margin is 12%.

Mr. Alothaim has been concerned about the growing competition and the general financial health of the company. After discussing his concerns with his executives, it was decided to employ an external strategic management consultant to review the company position and suggest future course of actions.

Accordingy, the company appointed Mr. Khaled Al Harbi, a reputed Strategic Management consultant to examine the current position of the company and suggest possible course of action for the future. The consultant worked with a team of representatives from different departments to conduct external and internal assessment of the company. The results of the assessment made by the team are tabulated below:

Table 2: External Factor Analysis (ratings: 1 – low, 4 – high)

EFE Ratings

Factors Weight Farming Poultry Dairy
Increasing competition 0.21 4 2 3
Dropping oil prices 0.13 3 2 3
Governmental support for industries 0.13 3 2 3
Availability of skilled manpower 0.20 3 1 2
Technological advancements 0.10 4 2 2
Growth of Saudi Economy 0.14 2 2 2
Variations in customers’ choices 0.09 4 2 3

 

Table 3: Internal Factor Analysis (ratings: 1- low, 4 – high)

IFE Ratings
Factors Weight Farming Poultry Dairy
Financial position and stability 0.16 4 1 2
Technological knowhow 0.11 3 3 3
Market share 0.18 3 2 3
Management expertise 0.14 4 3 3
Outreach in the region 0.16 3 2 3
Client relationships 0.12 3 3 3
Operational capabilities 0.13 3 3 3

 

Based on the assessment of external and internal factors, the Strategic Management team analyzed the strategic position of the company and developed several alternative strategies. The budget for these alternative strategies and their estimated impact on possible increase in revenue was also estimated. This information is presented in Table 4 below.

Table 4: Alternative strategies for Al Qassim Foods

 

Sr.

Strategy Estimated

expenditure (Million SR)

Estimated

impact on total revenues (%)

1 Increased Advertising effort for poultry products in existing

markets

9.5 1.5%
2 Market development for Dairy products in Hail region 4.75 5.5%
3 Closing down a division and absorbing the work force in

other divisions

0.25 0.5%
4 New product development in Dairy division 6.5 4.5%
5 Setting up exclusive distributors for all products in Buraidah

and Unaizah

4 4%
6 Acquisition of additional farms for growing vegetables 5 6.7%

 

The Finance department sanctioned a maximum budget of 22 million SR for implementing the selected strategies. The finance could be raised through equity, debt or mixed financing. The current value of the

company’s shares is 165 SR and there are 2.35 million outstanding shares in the market. The bank interest rate for loans is 6.5% and tax rate is 4.5%.

Mr. Alharbi has submitted his recommendations and Mr. Alothaim and his team has an important task on their hands to steer the company in the right direction.

Questions:

  1. Crtically analyze the vision and mission of Al Qassim Foods. If you were to re-draft the mission for it to be more comprehensive, how would you do it?
  2. Comment on the current financial position of each division and overall status of Al Qassim Foods. (**)
  3. Compute EFE and IFE scores for each division and comment on their strategic
  4. Develop IE Matrix to examine the strategic position of the divisions of the company, and comment upon it.
  5. What strategies should be recommended for each division? Which strategies should be selected for implementation? How much capital will be required for them?
  6. Perform EPS/EBIT analysis to recommend the appropriate financing option for the company to raise the capital suggested in question 3 above. (Note: First calculate total EBIT for all 3 divisions for the year 2014).

** Calculate EBT, Income Tax paid, Net income. Calculate Gross margin and Net margin and compare with industry performance.

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