Harvard Case - Custom Research, Inc. (A)
"Custom Research, Inc. (A)" Harvard business case study is written by William J. Bruns Jr., Susan S. Harmeling. It deals with the challenges in the field of Accounting. The case study is 22 page(s) long and it was first published on : Jul 8, 1998
At Fern Fort University, we recommend that Custom Research, Inc. (CRI) implement a comprehensive strategy to address its financial performance challenges. This strategy should focus on improving operational efficiency, enhancing customer relationships, and fostering a culture of innovation.
2. Background
Custom Research, Inc. (CRI) is a privately held company specializing in custom market research services. The company has experienced significant growth in recent years, but profitability has been declining. This is primarily attributed to a combination of factors, including rising labor costs, increased competition, and a lack of standardized pricing for its services. The case focuses on the company's founder and CEO, John Smith, who is struggling to manage the company's growth and maintain profitability. He is considering various options to address the situation, including hiring a new CFO, implementing a new cost accounting system, and adjusting the company's pricing strategy.
3. Analysis of the Case Study
Financial Analysis:
- Profitability Decline: CRI's declining profitability is a major concern. The case highlights a decrease in operating margin and a lack of clear financial performance metrics.
- Cost Structure: CRI's cost structure is opaque, with a lack of standardized pricing and limited understanding of the true cost of providing services. This hinders effective cost management and pricing decisions.
- Financial Reporting: The case suggests potential weaknesses in financial reporting and internal controls. This can lead to inaccurate financial information and hinder decision-making.
Operational Analysis:
- Lack of Standardization: The company's lack of standardized pricing and service offerings creates inefficiencies and makes it difficult to effectively manage costs and resources.
- Growth Challenges: Rapid growth has strained CRI's operational capacity, leading to inefficiencies and a potential decline in service quality.
- Limited Technology Adoption: CRI's reluctance to adopt new technologies for data collection and analysis puts it at a competitive disadvantage.
Management & Organizational Structure:
- Leadership Style: John Smith's leadership style, while effective in the early stages, may be hindering the company's growth and adaptation to changing market conditions.
- Lack of Formal Structure: The absence of a formal organizational structure and clear reporting lines can lead to confusion, inefficiencies, and difficulty in managing growth.
- Employee Motivation: The case suggests a lack of clear employee incentives and performance management systems, which can negatively impact employee motivation and productivity.
Strategic Analysis:
- Competitive Landscape: The market research industry is highly competitive, with both large and small players vying for clients. CRI needs to differentiate itself and build a sustainable competitive advantage.
- Growth Strategy: CRI's current growth strategy is unsustainable without addressing its financial and operational challenges.
- Innovation: The company needs to invest in innovation and develop new services and technologies to remain competitive.
Framework:
This analysis utilizes a combination of frameworks, including:
- Porter's Five Forces: To assess the competitive landscape and identify opportunities and threats.
- Value Chain Analysis: To understand the key activities and cost drivers within CRI's operations.
- Financial Statement Analysis: To analyze profitability trends, cost structure, and other key financial metrics.
- SWOT Analysis: To identify CRI's strengths, weaknesses, opportunities, and threats.
4. Recommendations
1. Implement a Robust Cost Accounting System:
- Activity-Based Costing (ABC): Adopt ABC to accurately allocate costs to individual projects and clients, providing a more accurate understanding of profitability.
- Standardized Pricing: Develop standardized pricing models for services based on ABC cost analysis, ensuring fair pricing and profitability.
- Cost Control Measures: Implement cost control measures across all departments, including resource allocation, vendor management, and expense tracking.
2. Enhance Financial Reporting and Internal Controls:
- Hire a CFO: Recruit a qualified CFO with experience in managing growth companies and implementing financial controls.
- Improve Financial Reporting: Implement a comprehensive financial reporting system that complies with GAAP and provides accurate and timely information to management.
- Strengthen Internal Controls: Develop and implement robust internal controls to mitigate financial risks, ensure accuracy, and improve transparency.
3. Enhance Operational Efficiency:
- Process Standardization: Standardize service offerings and processes to improve efficiency, reduce errors, and enhance client satisfaction.
- Technology Adoption: Invest in new technologies for data collection, analysis, and reporting to improve efficiency and competitiveness.
- Employee Training: Provide employees with training on new technologies, standardized processes, and cost-effective practices.
4. Foster a Culture of Innovation:
- Research & Development: Invest in research and development to develop new services and technologies that differentiate CRI in the market.
- Employee Incentives: Implement performance-based incentives to encourage employee innovation and creativity.
- Collaboration: Foster a culture of collaboration and knowledge sharing among employees to encourage innovation.
5. Strengthen Leadership and Organizational Structure:
- Leadership Development: Provide John Smith with leadership development training to enhance his skills in managing growth and change.
- Formal Organizational Structure: Implement a formal organizational structure with clear reporting lines and responsibilities to improve efficiency and accountability.
- Performance Management System: Develop a comprehensive performance management system to track employee performance, provide feedback, and motivate employees.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies: The recommendations focus on strengthening CRI's core competencies in market research, data analysis, and client service.
- External Customers: The recommendations aim to improve client satisfaction by providing more standardized services, accurate pricing, and higher quality research.
- Internal Clients: The recommendations aim to empower employees by providing them with the tools, training, and incentives to perform at their best.
- Competitors: The recommendations aim to position CRI as a more competitive player in the market by improving efficiency, innovating, and offering competitive pricing.
- Attractiveness: The recommendations are expected to improve profitability, enhance financial performance, and increase the long-term value of CRI.
Assumptions:
- The recommendations assume that CRI is committed to growth and profitability.
- The recommendations assume that John Smith is willing to adapt his leadership style and embrace change.
- The recommendations assume that CRI has the financial resources to invest in the necessary technology and training.
6. Conclusion
By implementing these recommendations, CRI can address its financial performance challenges, improve operational efficiency, and position itself for sustainable growth in the competitive market research industry. The company can achieve this by embracing a culture of innovation, developing a robust cost accounting system, and strengthening its financial reporting and internal controls.
7. Discussion
Alternatives:
- Merging with a Larger Company: This option could provide access to resources and technology, but it could also lead to a loss of control and a potential culture clash.
- Selling the Company: This option could provide a quick return on investment, but it would also mean the loss of a valuable business.
- Doing Nothing: This option would allow CRI to continue operating as it is, but it would likely lead to further decline in profitability and competitiveness.
Risks & Key Assumptions:
- Implementation Challenges: Implementing these recommendations requires significant effort and commitment from all stakeholders.
- Financial Resources: The recommendations require financial investment, which may be a challenge for CRI.
- Employee Resistance: Employees may resist change, which could hinder the implementation process.
Options Grid:
| Option | Advantages | Disadvantages | Risks |
|---|---|---|---|
| Implement Recommendations | Improved profitability, efficiency, and competitiveness | Requires significant effort and investment | Implementation challenges, employee resistance |
| Merge with Larger Company | Access to resources and technology | Loss of control, potential culture clash | Integration challenges, loss of identity |
| Sell the Company | Quick return on investment | Loss of a valuable business | Finding a suitable buyer, negotiating a fair price |
| Do Nothing | No immediate change | Further decline in profitability and competitiveness | Loss of market share, potential business failure |
8. Next Steps
Timeline:
- Month 1-3: Implement a new cost accounting system and develop standardized pricing models.
- Month 3-6: Hire a CFO, strengthen financial reporting, and implement robust internal controls.
- Month 6-9: Standardize service offerings, invest in new technology, and provide employee training.
- Month 9-12: Develop new services and technologies, implement performance-based incentives, and foster a culture of collaboration.
Key Milestones:
- Month 3: Complete implementation of the new cost accounting system.
- Month 6: Hire a CFO and implement a new financial reporting system.
- Month 9: Complete standardization of service offerings and technology adoption.
- Month 12: Launch new services and technologies, and establish a formal performance management system.
By following these recommendations and milestones, CRI can successfully navigate its current challenges and position itself for sustainable growth and profitability in the market research industry.
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Case Description
Custom Research is considering terminating service to many clients to eliminate unprofitable work and concentrate on the more profitable client projects.
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