Harvard Case - Artisan Flooring Products, Inc.
"Artisan Flooring Products, Inc." Harvard business case study is written by Paul J Simko. It deals with the challenges in the field of Accounting. The case study is 5 page(s) long and it was first published on : Dec 15, 2020
At Fern Fort University, we recommend Artisan Flooring Products, Inc. (AFP) implement a comprehensive strategic plan that addresses both internal and external challenges. This plan should focus on improving operational efficiency, enhancing customer service, and expanding into new markets. The implementation of this plan will require a shift in organizational culture, a focus on employee empowerment, and a commitment to continuous improvement.
2. Background
Artisan Flooring Products, Inc. is a family-owned and operated business specializing in handcrafted hardwood flooring. The company has a strong reputation for quality and craftsmanship, but faces challenges related to limited growth, outdated accounting practices, and a lack of strategic planning. The case study highlights the company's current financial struggles, including declining profitability and increasing operating costs. The key protagonists are John, the company's founder and CEO, and his son, Michael, who represents a new generation with a desire to modernize the business and drive growth.
3. Analysis of the Case Study
Financial Analysis:
- Profitability: AFP's financial statements reveal declining profitability, evidenced by decreasing net income margins. This is attributed to rising material costs, labor expenses, and overhead.
- Cost Accounting: The company utilizes a traditional cost accounting system that does not accurately capture the true costs associated with different product lines and customer segments. This lack of granular cost information hinders effective pricing strategies and profitability analysis.
- Financial Performance Measurement: AFP lacks robust financial performance indicators beyond basic profitability metrics. This limits the company's ability to track progress, identify areas for improvement, and make informed decisions.
Operational Analysis:
- Manufacturing Processes: AFP's manufacturing processes are largely manual and inefficient, resulting in high labor costs and inconsistent product quality.
- Inventory Management: The company struggles with inventory management, leading to excessive stock levels, storage costs, and potential obsolescence.
- Customer Service: While AFP prides itself on customer service, there is a lack of formal processes and systems to track customer satisfaction and address complaints effectively.
Strategic Analysis:
- Growth Strategy: AFP has a limited growth strategy, relying primarily on word-of-mouth referrals and a focus on the local market. This limits its potential for expansion and market share gains.
- Competitive Landscape: The flooring industry is becoming increasingly competitive, with larger companies offering standardized products and aggressive pricing. AFP needs to differentiate itself to remain competitive.
- Organizational Culture: The company's family-owned culture, while fostering loyalty, can also hinder change management and innovation.
Using the SWOT framework:
- Strengths: High-quality products, strong brand reputation, experienced workforce, loyal customer base.
- Weaknesses: Outdated accounting practices, inefficient manufacturing processes, limited growth strategy, lack of strategic planning, family-owned culture hindering change.
- Opportunities: Expand into new markets, develop new product lines, leverage technology for efficiency, implement activity-based costing, enhance customer service, improve financial performance measurement.
- Threats: Increased competition, rising material costs, economic downturn, changing consumer preferences.
4. Recommendations
1. Implement Activity-Based Costing (ABC):
- When: Immediately.
- How: Engage a qualified consultant to implement ABC. Train staff on the new system and integrate it into the accounting software.
- Why: ABC will provide a more accurate picture of costs associated with different products, customers, and activities. This will enable AFP to make informed pricing decisions, identify areas for cost reduction, and improve profitability.
2. Modernize Manufacturing Processes:
- When: Within 12 months.
- How: Invest in new equipment and technology, such as automated cutting and finishing systems. Implement lean manufacturing principles to reduce waste and improve efficiency.
- Why: This will reduce labor costs, improve product quality, and increase production capacity.
3. Develop a Comprehensive Growth Strategy:
- When: Within 6 months.
- How: Conduct market research to identify new markets and customer segments. Develop a strategic plan outlining target markets, product offerings, and marketing strategies.
- Why: This will expand AFP's reach, diversify its revenue streams, and drive sustainable growth.
4. Enhance Customer Service:
- When: Immediately.
- How: Implement a customer relationship management (CRM) system to track customer interactions, preferences, and feedback. Develop formal processes for handling complaints and resolving issues.
- Why: This will improve customer satisfaction, build loyalty, and generate positive word-of-mouth referrals.
5. Improve Financial Performance Measurement:
- When: Within 6 months.
- How: Develop a balanced scorecard that includes financial, customer, internal process, and learning and growth perspectives. Track key performance indicators (KPIs) related to profitability, efficiency, customer satisfaction, and employee performance.
- Why: This will provide a comprehensive view of AFP's performance, facilitate data-driven decision making, and drive continuous improvement.
6. Foster a Culture of Innovation and Change:
- When: Ongoing.
- How: Encourage employee participation in decision-making, provide training and development opportunities, and reward innovation.
- Why: This will create a more adaptable and responsive organization capable of meeting the challenges of a dynamic market.
5. Basis of Recommendations
These recommendations are based on a thorough analysis of AFP's financial, operational, and strategic challenges. They are aligned with the company's core competencies in craftsmanship and quality while addressing the need for modernization, efficiency, and growth. The recommendations consider external factors such as competition, market trends, and technological advancements. The implementation of these recommendations is expected to improve profitability, enhance customer satisfaction, and drive sustainable growth.
6. Conclusion
Artisan Flooring Products, Inc. has a strong foundation built on quality and craftsmanship. By implementing the recommended strategic plan, AFP can address its current challenges, improve its competitive position, and achieve sustainable growth. The company needs to embrace a culture of innovation, leverage technology, and focus on customer satisfaction to thrive in the evolving flooring market.
7. Discussion
Alternatives:
- Mergers and Acquisitions: AFP could consider acquiring or merging with another flooring company to gain access to new markets, resources, or technology. However, this option carries significant risks and requires careful due diligence.
- Outsourcing: AFP could outsource certain manufacturing processes or administrative functions to reduce costs and increase efficiency. This option requires careful selection of reliable partners and managing potential risks associated with quality control and data security.
Risks and Key Assumptions:
- Implementation challenges: Resistance to change, lack of resources, and inadequate training can hinder the successful implementation of the recommendations.
- Market volatility: Economic downturns, changes in consumer preferences, or increased competition could impact the effectiveness of the growth strategy.
- Technology adoption: The successful integration of new equipment and technology requires careful planning, training, and ongoing maintenance.
Options Grid:
| Option | Advantages | Disadvantages | Risks | Assumptions |
|---|---|---|---|---|
| Implement ABC | Improved cost accuracy, informed pricing, profitability analysis | Implementation costs, training required | Resistance to change, data accuracy | Management commitment to change, qualified consultant |
| Modernize manufacturing | Reduced labor costs, improved quality, increased capacity | Significant investment, potential disruption | Technology failure, skilled labor shortage | Availability of funding, skilled workforce |
| Develop growth strategy | Expanded reach, diversified revenue, sustainable growth | Market research costs, competitive analysis | Market volatility, execution challenges | Effective market research, strong marketing team |
| Enhance customer service | Improved satisfaction, loyalty, referrals | Implementation costs, CRM system integration | Customer expectations, data privacy | Dedicated customer service team, effective CRM system |
| Improve financial performance measurement | Data-driven decision making, continuous improvement | System development, data collection | Data accuracy, resistance to change | Management commitment to data-driven decision making, skilled analysts |
| Foster innovation | Adaptability, responsiveness, competitive advantage | Cultural shift, employee buy-in | Resistance to change, lack of resources | Management commitment to innovation, employee engagement |
8. Next Steps
Timeline:
- Month 1-3: Implement ABC, conduct market research, develop a growth strategy, and implement a CRM system.
- Month 4-6: Invest in new manufacturing equipment, develop a balanced scorecard, and begin training employees on new systems and processes.
- Month 7-12: Launch new products and marketing campaigns, monitor key performance indicators, and continuously evaluate and refine the strategic plan.
Key Milestones:
- Successful implementation of ABC and accurate cost data.
- Identification of new markets and development of a comprehensive growth strategy.
- Acquisition of new manufacturing equipment and implementation of lean manufacturing principles.
- Increased customer satisfaction and positive feedback.
- Improved financial performance and profitability.
By taking these steps, Artisan Flooring Products, Inc. can position itself for long-term success in the competitive flooring market.
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Case Description
The owner of a small retail flooring company is projecting her company's financial performance and financial position for the current 2020 calendar year. The company began business in 2019, and by all measures, that first year had been a financial success. A small profit was earned, and the year ended in a strong financial position. But disruption caused by the COVID-19 pandemic has caused the need for new planning. A number of changes to business activity are projected, together enabling the construction of pro forma 2020 financial statements. Liquidity, profit, and the ability to take an annual owner's draw could then be assessed. This case is optimally used early in an introductory financial accounting course, or as a stand-alone exercise that illustrates the construction of financial statements. It can also be used as two distinct accounting analyses: (i) students can use the case data to reconstruct the 2019 balance sheet and income statement provided within the case exhibits, and (ii) they can also use the new projections to complete the 2020 pro forma financial statements.
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