Harvard Case - Boulevard Sandwiches, Inc. (A)
"Boulevard Sandwiches, Inc. (A)" Harvard business case study is written by E. Richard Brownlee II, Luann J. Lynch. It deals with the challenges in the field of Accounting. The case study is 5 page(s) long and it was first published on : Jan 14, 2020
At Fern Fort University, we recommend that Boulevard Sandwiches, Inc. (BSI) adopt a comprehensive strategy to address its financial performance challenges, focusing on improving operational efficiency, enhancing pricing strategies, and exploring strategic growth opportunities. This strategy will involve a combination of cost accounting, financial analysis, activity-based costing, pricing strategy, and management control initiatives.
2. Background
Boulevard Sandwiches, Inc. (BSI) is a successful sandwich shop chain facing increasing competition and declining profitability. The company operates 20 locations in the Boston area, known for its high-quality ingredients and customer service. However, BSI's financial statements reveal a decline in profit margins, driven by rising costs and stagnant revenues. The case study highlights the company's struggle to accurately track costs, leading to inefficient operations and difficulty in setting competitive prices.
The main protagonist is Peter 'Pete' Bouvier, the owner and CEO of BSI. Pete is a passionate entrepreneur, but he lacks formal business training and relies heavily on intuition for decision-making. The case study explores the challenges Pete faces in managing the company's growth and maintaining profitability in a competitive market.
3. Analysis of the Case Study
The case study presents several key issues:
- Cost Accounting and Financial Analysis: BSI's current cost accounting system is inadequate, lacking the granularity to accurately track costs across different locations and menu items. This limits the company's ability to identify cost drivers and make informed decisions about pricing, resource allocation, and operational efficiency.
- Pricing Strategy: BSI's pricing strategy is based on a simple markup on cost, which fails to consider customer value, competitor pricing, and the impact of different cost structures across locations. This leads to inconsistent pricing and potentially missed revenue opportunities.
- Management Control: The lack of robust management control systems hinders BSI's ability to track performance, identify deviations from budget, and implement corrective actions. This leads to inefficiencies and missed opportunities for improvement.
- Growth Strategy: BSI's current growth strategy relies on opening new locations, but without addressing the underlying cost and pricing issues, this expansion could further strain the company's profitability.
To address these issues, we propose a framework based on strategic, financial, and operational considerations.
Strategic Framework:
- Competitive Advantage: BSI needs to clearly define its competitive advantage, focusing on its unique value proposition, such as high-quality ingredients, customer service, and brand reputation.
- Market Segmentation: BSI should segment its market to identify different customer groups with varying needs and price sensitivities. This will allow for targeted pricing strategies and product offerings.
- Growth Strategy: BSI should develop a comprehensive growth strategy that considers both organic growth through improved operations and strategic acquisitions or partnerships.
Financial Framework:
- Financial Analysis: BSI needs to conduct a thorough financial analysis of its financial statements to identify key performance indicators (KPIs), including profit margins, cost structure, and return on investment (ROI). This analysis will provide insights into the company's financial health and identify areas for improvement.
- Activity-Based Costing (ABC): Implementing ABC will provide a more accurate picture of BSI's cost structure by tracking costs associated with specific activities, such as preparing sandwiches, managing inventory, and customer service. This will enable more informed decision-making regarding pricing, resource allocation, and operational efficiency.
- Budgeting and Variance Analysis: BSI should develop a robust budgeting system and implement variance analysis to track actual performance against budget and identify deviations. This will allow for timely corrective actions and improve operational efficiency.
Operational Framework:
- Process Improvement: BSI should implement process improvement initiatives to streamline operations, reduce waste, and improve efficiency. This could involve optimizing production processes, improving inventory management, and implementing technology solutions for ordering and delivery.
- Employee Performance Management: BSI should develop a comprehensive employee performance management system that aligns with the company's strategic goals and provides clear performance expectations, feedback, and incentives.
- Risk Management: BSI should implement a robust risk management framework to identify, assess, and mitigate potential risks, including financial, operational, and reputational risks.
4. Recommendations
- Implement Activity-Based Costing (ABC): BSI should implement ABC to gain a more accurate understanding of its cost structure. This will involve identifying and tracking costs associated with specific activities, such as preparing different types of sandwiches, managing inventory, and providing customer service. ABC will help BSI:
- Identify cost drivers and areas for cost reduction.
- Develop more accurate pricing strategies based on actual costs.
- Improve resource allocation and operational efficiency.
- Develop a Data-Driven Pricing Strategy: BSI should move away from a simple markup on cost and develop a data-driven pricing strategy that considers:
- Customer value and willingness to pay.
- Competitor pricing and market dynamics.
- The impact of different cost structures across locations.
- The potential for price differentiation based on menu items and customer segments.
- Enhance Management Control Systems: BSI should strengthen its management control systems to improve performance tracking, identify deviations from budget, and implement corrective actions. This could involve:
- Implementing a standardized reporting system across all locations.
- Developing key performance indicators (KPIs) aligned with strategic goals.
- Implementing regular performance reviews and variance analysis.
- Providing managers with the tools and training to effectively manage costs and performance.
- Explore Strategic Growth Opportunities: BSI should consider strategic growth opportunities beyond simply opening new locations. This could involve:
- Expanding into new markets or customer segments.
- Developing new product offerings or services.
- Exploring strategic partnerships or acquisitions.
- Implementing a franchising model to accelerate growth.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations align with BSI's core competencies in providing high-quality sandwiches and excellent customer service. They also support the company's mission of delivering a unique and satisfying dining experience.
- External Customers and Internal Clients: The recommendations consider the needs of both external customers and internal clients (employees). By improving efficiency and offering competitive pricing, BSI can enhance customer satisfaction and loyalty. By providing employees with clear performance expectations and opportunities for growth, BSI can improve employee engagement and productivity.
- Competitors: The recommendations acknowledge the competitive landscape and aim to position BSI for success in a challenging market. By implementing ABC and developing a data-driven pricing strategy, BSI can differentiate itself from competitors and maintain a competitive edge.
- Attractiveness ' Quantitative Measures: The recommendations are expected to improve BSI's profitability by reducing costs, optimizing pricing, and improving operational efficiency. The implementation of ABC and other cost control measures will lead to tangible cost savings, while the data-driven pricing strategy will generate additional revenue.
- Assumptions: The recommendations assume that BSI has the resources and commitment to implement the proposed changes. They also assume that the market for high-quality sandwiches remains strong and that BSI can continue to attract and retain customers.
6. Conclusion
By implementing these recommendations, BSI can address its financial performance challenges, regain profitability, and achieve sustainable growth. The company needs to embrace a data-driven approach to decision-making, focusing on improving operational efficiency, enhancing pricing strategies, and exploring strategic growth opportunities.
7. Discussion
Other alternatives not selected include:
- Closing underperforming locations: This option would be a drastic measure and could negatively impact brand reputation and customer loyalty.
- Reducing product quality: This option would compromise BSI's core value proposition and could lead to customer dissatisfaction and loss of market share.
- Outsourcing operations: This option could lead to loss of control over operations and potential quality issues.
The recommendations are based on the assumption that BSI is committed to maintaining its core values and brand reputation. The main risk associated with these recommendations is the potential for resistance to change from employees or management. To mitigate this risk, BSI should communicate the rationale for the changes clearly and involve employees in the implementation process.
8. Next Steps
- Develop a detailed implementation plan: This plan should outline the specific steps required to implement each recommendation, including timelines, resources, and responsibilities.
- Secure buy-in from management and employees: Communicate the rationale for the changes and involve key stakeholders in the implementation process.
- Pilot test the ABC system: Implement ABC in a few pilot locations to test its effectiveness before rolling it out to all locations.
- Monitor performance and make adjustments: Track key performance indicators (KPIs) and make adjustments to the implementation plan as needed.
- Continuously evaluate and refine strategies: BSI should regularly evaluate its performance and make adjustments to its strategies to remain competitive in the evolving market.
By following these steps, BSI can successfully implement the recommended changes and achieve its strategic goals.
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Case Description
Carla Thomas, the owner of Boulevard Sandwiches, is preparing to meet with Alan Philips, the new manager of Boulevard Sandwiches, Inc., Unit No. 2, in mid-December 2017. The primary purpose of this meeting is to finalize the 2018 operating plan for the location, as well as to conduct sensitivity analysis related to the assumptions included in the budget. Thomas has decided that, due to the growth of her business, she can no longer continue to manage the operation as she did when there were only a couple of locations, so she is in the process of implementing a more formal and extensive planning and budgeting process. This case may be used as a stand-alone case on budgeting, or it may be paired with "Boulevard Sandwiches, Inc. (B)" (UV7971) in a module on budgeting and strategic profitability analysis or flexible budgeting.
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