Harvard Case - BW Manufacturing Company
"BW Manufacturing Company" Harvard business case study is written by Brandt Allen. It deals with the challenges in the field of Accounting. The case study is 5 page(s) long and it was first published on : Jul 8, 2009
At Fern Fort University, we recommend that BW Manufacturing Company (BWMC) implement a comprehensive strategy focused on improving operational efficiency, enhancing cost management, and expanding into new markets to achieve sustainable growth and profitability. This strategy will involve a combination of operational improvements, financial restructuring, and strategic investments.
2. Background
BWMC is a family-owned manufacturing company facing challenges related to declining profitability, outdated cost accounting systems, and a lack of strategic direction. The company's traditional cost accounting methods are inadequate for accurately tracking and managing costs, particularly in the face of increasing competition and changing market demands. The current management team, led by the CEO's son, lacks experience and is struggling to adapt to the evolving business landscape.
The main protagonists of the case study are:
- John West: The CEO's son, who has recently taken over the company's management. He is eager to improve the company's performance but lacks the experience and expertise to navigate the complex challenges facing BWMC.
- The Board of Directors: The board is composed of family members who are primarily concerned with preserving the company's legacy and ensuring its long-term viability. They are skeptical of John West's abilities and are reluctant to invest in significant changes.
- The Employees: The employees are loyal and dedicated but are increasingly concerned about the company's future due to the declining profitability and lack of communication from management.
3. Analysis of the Case Study
The case study highlights several key issues facing BWMC:
Financial Performance: BWMC's financial performance is declining, with profitability eroding due to rising costs and stagnant revenue. The company's financial statements reveal a declining profitability, increasing debt-to-equity ratio, and a shrinking cash flow.
Cost Management: The company's traditional cost accounting system is outdated and does not accurately reflect the true cost of producing its products. This lack of cost analysis hinders effective decision-making and leads to inefficiencies in manufacturing processes. Implementing activity-based costing (ABC) could provide a more accurate picture of costs and enable better resource allocation.
Strategic Direction: BWMC lacks a clear strategic direction and is struggling to adapt to the changing market landscape. The company needs to develop a growth strategy that leverages its core competencies and addresses emerging market opportunities.
Management and Governance: The current management team lacks the experience and expertise to effectively lead the company. The board of directors is also not actively involved in strategic decision-making, leading to a lack of accountability and oversight.
Organizational Structure: BWMC's organizational structure is outdated and hinders effective communication and collaboration. Implementing a more cross-functional management approach could improve decision-making and resource allocation.
4. Recommendations
1. Implement Activity-Based Costing (ABC):
- Action: Implement ABC to accurately track and allocate costs to different products and activities. This will provide a more accurate picture of the company's profitability and help identify areas for cost reduction and efficiency improvements.
- Timeline: Implement ABC within the next 6 months.
- How to do it: Engage a qualified consultant to assist with the implementation of ABC. Train employees on the new costing system and ensure its integration with existing accounting procedures and policies.
2. Develop a Strategic Plan:
- Action: Develop a comprehensive strategic plan that outlines the company's vision, mission, goals, and strategies for achieving sustainable growth and profitability.
- Timeline: Complete the strategic plan within the next 3 months.
- How to do it: Conduct a thorough market analysis to identify growth opportunities and competitive threats. Develop a pricing strategy that reflects the true cost of production and ensures profitability.
3. Improve Operational Efficiency:
- Action: Implement lean manufacturing principles to streamline production processes, reduce waste, and improve efficiency.
- Timeline: Implement lean manufacturing initiatives within the next 12 months.
- How to do it: Conduct a thorough value stream mapping exercise to identify areas for improvement. Train employees on lean manufacturing principles and implement performance indicators to track progress.
4. Enhance Financial Management:
- Action: Strengthen financial management by improving budgeting, forecasting, and cash flow management.
- Timeline: Implement improved financial management practices within the next 6 months.
- How to do it: Develop a robust budgeting and forecasting process. Implement a system for tracking and managing cash flow.
5. Improve Corporate Governance:
- Action: Strengthen corporate governance by clarifying roles and responsibilities, establishing clear decision-making processes, and enhancing board oversight.
- Timeline: Implement improved corporate governance practices within the next 3 months.
- How to do it: Develop a clear organizational structure and design with defined roles and responsibilities. Establish a board committee to oversee financial performance and strategic decision-making.
6. Invest in Technology:
- Action: Invest in new technologies to improve efficiency, productivity, and customer service.
- Timeline: Implement technology upgrades within the next 12 months.
- How to do it: Conduct a thorough assessment of the company's technology needs. Prioritize investments in technologies that will have the greatest impact on operational efficiency and profitability.
7. Explore New Markets:
- Action: Explore new markets to expand the company's customer base and revenue streams.
- Timeline: Begin exploring new markets within the next 6 months.
- How to do it: Conduct market research to identify potential new markets. Develop a strategy for entering these markets, considering factors such as international business regulations, cultural differences, and risk management.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations focus on leveraging BWMC's core competencies in manufacturing and expanding into new markets while staying true to its mission of providing high-quality products.
- External customers and internal clients: The recommendations aim to improve customer satisfaction by providing better products and services while also enhancing employee morale and engagement.
- Competitors: The recommendations consider the competitive landscape and aim to position BWMC for success in the long term.
- Attractiveness ' quantitative measures if applicable (e.g., NPV, ROI, break-even, payback): The recommendations are expected to generate positive returns on investment, improve profitability, and enhance the company's overall financial performance.
- Assumptions: The recommendations are based on the assumption that BWMC has the resources and commitment to implement the proposed changes.
6. Conclusion
By implementing these recommendations, BWMC can improve its operational efficiency, enhance cost management, and expand into new markets to achieve sustainable growth and profitability. The company can overcome its current challenges and secure a strong future by embracing change, investing in its people and processes, and focusing on strategic growth.
7. Discussion
Alternatives not selected:
- Merging with a competitor: This could provide immediate access to new markets and resources but also carries significant risks, such as cultural clashes and potential loss of control.
- Selling the company: This would provide a quick exit strategy but would not address the underlying issues facing BWMC.
Risks and key assumptions:
- Resistance to change: Employees and management may resist change, hindering the implementation of the recommendations.
- Financial resources: BWMC may not have the financial resources to implement all of the recommendations.
- Market conditions: The success of the recommendations depends on favorable market conditions.
Options Grid:
| Option | Benefits | Risks | Cost | Timeline |
|---|---|---|---|---|
| Implement ABC | Improved cost accuracy, better decision-making | Resistance to change, implementation costs | Moderate | 6 months |
| Develop a strategic plan | Clear direction, improved focus | Lack of commitment, market uncertainty | Low | 3 months |
| Improve operational efficiency | Reduced costs, improved productivity | Resistance to change, implementation costs | Moderate | 12 months |
| Enhance financial management | Improved financial controls, better cash flow | Resistance to change, implementation costs | Moderate | 6 months |
| Improve corporate governance | Enhanced accountability, improved decision-making | Resistance to change, cultural clashes | Low | 3 months |
| Invest in technology | Improved efficiency, enhanced customer service | High upfront costs, technology obsolescence | High | 12 months |
| Explore new markets | Expanded customer base, increased revenue | Market uncertainty, cultural differences | Moderate | 6 months |
8. Next Steps
- Form a task force: Create a task force composed of key stakeholders to oversee the implementation of the recommendations.
- Communicate the strategy: Clearly communicate the strategy to all employees and stakeholders.
- Implement ABC: Begin the implementation of ABC within the next 6 months.
- Develop the strategic plan: Complete the strategic plan within the next 3 months.
- Implement lean manufacturing initiatives: Begin implementing lean manufacturing initiatives within the next 12 months.
- Improve financial management: Implement improved financial management practices within the next 6 months.
- Strengthen corporate governance: Implement improved corporate governance practices within the next 3 months.
- Invest in technology: Begin investing in new technologies within the next 12 months.
- Explore new markets: Begin exploring new markets within the next 6 months.
By taking these steps, BWMC can create a roadmap for success and secure a bright future for the company.
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Case Description
A small manufacturer of gas grills is making final changes to its 2009 operating budget and considering several changes in pricing, advertising, and product availability. This short case addresses the topic of contribution analysis as an easy way to analyze profit planning issues such as adding or dropping a product or service; changing a price; adding or decreasing expected volumes; or preparing a profit budget. In this situation there are three products, each with different proportions of variable and fixed costs. The product with the highest profit/unit on a full cost basis has the lowest contribution/unit on a variable cost basis, and vice versa. Four different marketing plans are proposed before one is finally adopted as the plan for the year. At year end, the actual results can be compared to the budget and to a flex or adjusted budget based on the actual product volumes realized. The numbers are simple and the students can readily see the benefit of variable costing.
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