Nova Building Supplies provides supplies and parts to construction firms throughout the United States. Nova is...
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Nova Building Supplies provides supplies and parts to construction firms throughout the United States. Nova is divided into two segments, residential construction (mostly single-family homes) and commercial construction (e.g., office buildings). The construction industry is largely local, so Nova is also organized into geographic regions. Historically their strategy has been focused on high volume and low prices, but increased competition has begun to significantly erode their margins. As a result, Nova has decided on a new sustainability strategy which will focus on products and procedures which reduce harm to the environment. While it is expected that this strategy will increase costs, Nova believes that it will allow them to differentiate themselves from their competitors, leading to increased market share and higher margins. They also expect that it will improve employee morale, which will increase employee productivity and at least partially offset the increases in costs. As a test of this strategy, Nova rolled it out in two regions (Northern California and Louisiana), and collected the following data (from a fiscal quarter prior to the roll-out and a fiscal quarter one year later, which was six months after the roll-out). 31 1. Draw a simple strategy map for Nova's NEW sustainability strategy, using, as much as possible, goals that can be measured by the metrics on the following page. Briefly discuss the logic behind your strategy map. For each objective on the strategy map, suggest one performance measure which you might use to measure it (most, if not all, should come from the list on the following page). Commercial Sales (a) Commercial Margin (b) Cost Index (c) Customer Satisfaction (d) Employee Retention (e) Employee Satisfaction (f). Labor Productivity (g) Marketing Spend (h) Residential Sales (a) Residential Margin (b) Sustainability Index (1) Northern California Before $7.2 23% 100% 8.2 79% 7.8 1.04 $0 $18.6 31% 0.34 After Before $8.3 24% 108% Louisiana 8.8 77% 8.4 0.98 $270 $19.3 28% 0.47 $1.1 18% 100% 9.1 82% 8.5 1.12 SO $2.5 28% 0.34 After $1.2 16% 107% 9.3 83% 8.8 1.14 $40 $2.7 24% 0.47 (a) In millions of dollars. (b) This is a gross margin, computed as (sales minus cost of goods sold) divided by sales. (c) This is an index that Nova set up as part of the new strategy to measure the increased costs as a result of greater sustainability practices. The before number is set to 100%, and the after number represents the increase in cost per unit produced after the new strategy. Note that while the residential and commercial markets are separate, the products in the two markets are very similar. (d) Based on surveys of customers (1 = very unwilling to recommend; 10 = very willing to recommend). (e) Percentage of employees in the department one year before the start of the quarter, who were still employed by Nova at the end of the quarter. (f) Based on surveys of employees (1= very unsatisfied; 10 = very satisfied). (g) This is a labor efficiency variance (1.00 indicates that our employees take the budgeted amount of time authorized to complete the work that they are assigned; a number less than 1.00 indicates that they are more efficient than budgeted, while a number higher than 1.00 indicates that they are less efficient than budgeted). (h) In thousands of dollars. This represents incremental marketing spend to promote awareness of Nova's new focus on sustainability. Corporate's plan is to spend approximately 1% of sales in each region. (1) Based on GRI (Global Reporting Initiative) standards, this represents the extent to which Nova's manufacturing facilities are actually sustainable (0-lowest level of sustainability, 1-highest level of sustainability). Note that this is a firm-wide measure, and so is the same for all regions. 2. Based on the strategy map and the measures, what can you conclude about the effectiveness of Nova's new sustainability strategy? Be as specific as you can as to what part or parts of the strategy are effective or ineffective. You should be able to do this without any formal statistics. Nova Building Supplies provides supplies and parts to construction firms throughout the United States. Nova is divided into two segments, residential construction (mostly single-family homes) and commercial construction (e.g., office buildings). The construction industry is largely local, so Nova is also organized into geographic regions. Historically their strategy has been focused on high volume and low prices, but increased competition has begun to significantly erode their margins. As a result, Nova has decided on a new sustainability strategy which will focus on products and procedures which reduce harm to the environment. While it is expected that this strategy will increase costs, Nova believes that it will allow them to differentiate themselves from their competitors, leading to increased market share and higher margins. They also expect that it will improve employee morale, which will increase employee productivity and at least partially offset the increases in costs. As a test of this strategy, Nova rolled it out in two regions (Northern California and Louisiana), and collected the following data (from a fiscal quarter prior to the roll-out and a fiscal quarter one year later, which was six months after the roll-out). 31 1. Draw a simple strategy map for Nova's NEW sustainability strategy, using, as much as possible, goals that can be measured by the metrics on the following page. Briefly discuss the logic behind your strategy map. For each objective on the strategy map, suggest one performance measure which you might use to measure it (most, if not all, should come from the list on the following page). Commercial Sales (a) Commercial Margin (b) Cost Index (c) Customer Satisfaction (d) Employee Retention (e) Employee Satisfaction (f). Labor Productivity (g) Marketing Spend (h) Residential Sales (a) Residential Margin (b) Sustainability Index (1) Northern California Before $7.2 23% 100% 8.2 79% 7.8 1.04 $0 $18.6 31% 0.34 After Before $8.3 24% 108% Louisiana 8.8 77% 8.4 0.98 $270 $19.3 28% 0.47 $1.1 18% 100% 9.1 82% 8.5 1.12 SO $2.5 28% 0.34 After $1.2 16% 107% 9.3 83% 8.8 1.14 $40 $2.7 24% 0.47 (a) In millions of dollars. (b) This is a gross margin, computed as (sales minus cost of goods sold) divided by sales. (c) This is an index that Nova set up as part of the new strategy to measure the increased costs as a result of greater sustainability practices. The before number is set to 100%, and the after number represents the increase in cost per unit produced after the new strategy. Note that while the residential and commercial markets are separate, the products in the two markets are very similar. (d) Based on surveys of customers (1 = very unwilling to recommend; 10 = very willing to recommend). (e) Percentage of employees in the department one year before the start of the quarter, who were still employed by Nova at the end of the quarter. (f) Based on surveys of employees (1= very unsatisfied; 10 = very satisfied). (g) This is a labor efficiency variance (1.00 indicates that our employees take the budgeted amount of time authorized to complete the work that they are assigned; a number less than 1.00 indicates that they are more efficient than budgeted, while a number higher than 1.00 indicates that they are less efficient than budgeted). (h) In thousands of dollars. This represents incremental marketing spend to promote awareness of Nova's new focus on sustainability. Corporate's plan is to spend approximately 1% of sales in each region. (1) Based on GRI (Global Reporting Initiative) standards, this represents the extent to which Nova's manufacturing facilities are actually sustainable (0-lowest level of sustainability, 1-highest level of sustainability). Note that this is a firm-wide measure, and so is the same for all regions. 2. Based on the strategy map and the measures, what can you conclude about the effectiveness of Nova's new sustainability strategy? Be as specific as you can as to what part or parts of the strategy are effective or ineffective. You should be able to do this without any formal statistics.
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Foundations of Finance The Logic and Practice of Financial Management
ISBN: 978-0132994873
8th edition
Authors: Arthur J. Keown, John D. Martin, J. William Petty
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