QUESTION 2 (35 marks) (This question comes from the OCT/NOV 2018 exam) Terrys 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 Terrys. Terrys Board of Directors also requested that the consulting company should suggest alternative strategies for achieving growth. Following the review Terrys management will make their own decision about which strategy to follow. The consulting company was hired because of the following reasons: 1. Terrys 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 Terrys: Strengths Terrys 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 consumers healthier lifestyles Brands from overseas MAC4863/2020 9 In addition to producing a SWOT analysis, the consulting company also drew up Ansoffs growth matrix, showing the potential growth strategies available to Terrys. Existing product New product Existing market A. Use intensive advertising to target the existing market. Key television adverts around childrens 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 Terrys. REQUIRED: (Students must refer to the above scenario in their answers) (a) Evaluate the four (4) strategies suggested for Terrys in the above Ansoff matrix (A, B, C and D) for achieving growth, given the findings of the above SWOT analysis. (15 marks) (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 Terrys. (10 marks) (c) Discuss the contribution of SMEs like Terrys to the economy, how they (especially non-essential sector) were affected by the national lockdown and their future prospects. (10 marks) [35 marks] 10 QUESTION 3 (25 marks) 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 centres 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 patients 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-Cares 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 staffs 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-Cares inhouse IT staff to meet the needs of the admin staff. Although Healing-Cares 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-Cares in-house IT staff would develop new bespoke software to meet the admin staffs needs. The IT staff have stated that because Healing-Cares 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-Cares 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. MAC4863/2020 11 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-Cares culture didnt change to reflect this. Rhoda stated, It looks straightforward to go out and buy a software package but its a lot more complicated than people think and its my department that would have to do all the work. REQUIRED: (a) Explain the circumstances in which it would be appropriate to use: (4 marks) 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. (12 marks) (c) Advise how Healing-Care could overcome the resistance to change which would arise if Solution 3, the purchase solution, were to be adopted. (9 marks) (25 marks) [Grand