Harvard Case - Scarpe Italiane, S.p.A.
"Scarpe Italiane, S.p.A." Harvard business case study is written by David W. Young. It deals with the challenges in the field of Accounting. The case study is 3 page(s) long and it was first published on : Jan 24, 2014
At Fern Fort University, we recommend Scarpe Italiane, S.p.A. implement a comprehensive strategic plan to address its declining profitability and market share. This plan should focus on leveraging its core competencies in Italian craftsmanship and design, while simultaneously adapting to the evolving global footwear market. This will involve a combination of operational improvements, strategic partnerships, and a targeted expansion into new markets.
2. Background
Scarpe Italiane, S.p.A. is a family-owned Italian footwear manufacturer facing declining profitability and market share. The company's traditional focus on high-quality, handcrafted leather shoes has been challenged by the rise of global competitors offering lower-priced footwear and a wider range of styles. The company's current strategy of relying on its brand reputation and traditional manufacturing processes is no longer sufficient to maintain its competitive edge.
The main protagonists of the case study are the three brothers, Marco, Luca, and Paolo, who represent the third generation of the family to lead the company. They are facing the challenge of balancing their desire to preserve the family legacy with the need to adapt to the changing market conditions.
3. Analysis of the Case Study
To analyze Scarpe Italiane's situation, we can utilize the SWOT framework:
Strengths:
- Strong brand reputation: Scarpe Italiane enjoys a strong reputation for quality and craftsmanship, built over generations.
- Experienced workforce: The company boasts skilled artisans with deep knowledge of traditional footwear manufacturing.
- Unique product offerings: Scarpe Italiane's handcrafted leather shoes offer a distinct quality and style that differentiates them from mass-produced competitors.
Weaknesses:
- High production costs: Traditional manufacturing methods are labor-intensive and contribute to higher production costs compared to competitors.
- Limited product variety: Scarpe Italiane's product range is relatively narrow, limiting its appeal to a wider customer base.
- Lack of marketing and distribution channels: The company relies heavily on its existing network of independent retailers, which limits its reach and market penetration.
Opportunities:
- Growing global demand for luxury goods: The global market for luxury goods, including footwear, is experiencing steady growth.
- Emerging markets: New markets, particularly in Asia, offer significant potential for expansion.
- E-commerce platform: Utilizing online platforms can expand reach, reduce distribution costs, and connect directly with customers.
Threats:
- Intense competition: The global footwear market is highly competitive, with many players offering lower-priced alternatives.
- Economic fluctuations: Global economic downturns can impact consumer spending on luxury goods, including footwear.
- Shifting consumer preferences: Consumers are increasingly seeking sustainable and ethical products, which Scarpe Italiane needs to address.
4. Recommendations
To address the challenges and capitalize on the opportunities, Scarpe Italiane should implement the following recommendations:
1. Operational Efficiency and Cost Optimization:
- Implement Activity-Based Costing (ABC): This will provide a more accurate understanding of the true cost of producing each product line, allowing for better pricing decisions and cost reduction strategies.
- Optimize manufacturing processes: Invest in new technologies and automation to improve efficiency and reduce labor costs while maintaining quality.
- Negotiate better terms with suppliers: Explore alternative suppliers and negotiate favorable pricing for raw materials and components.
- Streamline inventory management: Implement efficient inventory control systems to reduce waste and holding costs.
2. Strategic Partnerships and Market Expansion:
- Form strategic partnerships: Collaborate with established retailers and distributors to expand reach and access new markets.
- Develop a robust e-commerce platform: Create an online store to reach a wider customer base and offer direct-to-consumer sales.
- Target new markets: Explore opportunities in emerging markets with growing demand for luxury goods, such as China and India.
- Develop a multi-channel distribution strategy: Combine online and offline channels to reach a broader customer base.
3. Product Innovation and Diversification:
- Expand product line: Introduce new product lines and styles to appeal to a wider customer base, including casual footwear, sportswear, and accessories.
- Focus on sustainability: Develop and promote sustainable and ethical footwear options, leveraging the company's heritage of craftsmanship.
- Invest in research and development: Explore new materials, technologies, and design trends to stay ahead of the competition.
4. Marketing and Brand Management:
- Develop a targeted marketing strategy: Identify key customer segments and tailor marketing campaigns to their specific needs and preferences.
- Leverage social media and digital marketing: Utilize online platforms to engage with customers, build brand awareness, and promote new products.
- Strengthen brand identity: Reinforce Scarpe Italiane's brand values of quality, craftsmanship, and heritage through consistent messaging and visual identity.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations focus on leveraging Scarpe Italiane's strengths in Italian craftsmanship and design while adapting to the changing market environment. They align with the company's mission to produce high-quality, handcrafted footwear.
- External customers and internal clients: The recommendations address the needs of both external customers seeking quality and style and internal clients, including employees and stakeholders, who benefit from a sustainable and profitable business.
- Competitors: The recommendations consider the competitive landscape and aim to differentiate Scarpe Italiane through product innovation, strategic partnerships, and targeted market expansion.
- Attractiveness ' quantitative measures if applicable: The recommendations are expected to improve profitability by reducing costs, increasing revenue, and expanding market share.
Assumptions:
- The global demand for luxury goods will continue to grow.
- Scarpe Italiane can successfully implement operational improvements and cost-reduction strategies.
- The company can secure strategic partnerships with established retailers and distributors.
- Consumers are willing to pay a premium for high-quality, handcrafted footwear.
6. Conclusion
Scarpe Italiane has a strong foundation built on its heritage of craftsmanship and a loyal customer base. By embracing innovation, expanding its product line, and strategically targeting new markets, the company can overcome its current challenges and achieve sustained growth and profitability.
7. Discussion
Alternatives not selected:
- Complete outsourcing of production: While this could reduce costs, it would compromise the company's core competency of Italian craftsmanship and potentially damage its brand reputation.
- Merging with a larger competitor: This could provide access to resources and distribution channels, but it could also lead to a loss of control and compromise the family's legacy.
Risks and key assumptions:
- Economic downturn: A global economic downturn could negatively impact consumer spending on luxury goods.
- Competition: Intense competition from lower-priced competitors could erode market share.
- Implementation challenges: Implementing the recommended changes will require significant investment and commitment from management and employees.
8. Next Steps
- Develop a detailed implementation plan: Define specific actions, timelines, and resource allocation for each recommendation.
- Secure funding: Identify funding sources for investments in new technologies, marketing campaigns, and market expansion.
- Communicate the strategy: Clearly communicate the strategic vision to employees, stakeholders, and customers.
- Monitor progress and adjust as needed: Regularly track performance indicators and make adjustments to the strategy based on market conditions and feedback.
By taking these steps, Scarpe Italiane can successfully navigate the challenges of the global footwear market and secure its future as a leading producer of high-quality, handcrafted footwear.
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Case Description
This is a case on ABC but with a tricky differential cost decision of the keep/discontinue variety embedded in it. Students need to work with manufacturing overhead allocation, ABC, overhead variances, and variable costing. They also need to see the big picture, which includes a new product line that, while covering its manufacturing overhead, is contributing only about $5,000 to $58,000 of selling, general, and administrative costs.
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