Harvard Case - Treasure Trophy Company
"Treasure Trophy Company" Harvard business case study is written by Elizabeth M.A. Grasby, J.D. Folliott, Omar Bolli. It deals with the challenges in the field of Accounting. The case study is 5 page(s) long and it was first published on : Aug 15, 2014
At Fern Fort University, we recommend that Treasure Trophy Company (TTC) implement a comprehensive strategy that addresses its financial performance, operational efficiency, and growth potential. This strategy will involve a combination of cost optimization, process improvement, and strategic investments, ultimately leading to increased profitability and a more sustainable future for the company.
2. Background
Treasure Trophy Company is a family-owned business specializing in the production and sale of custom trophies and awards. The company has experienced declining profitability in recent years, facing increasing competition and rising costs. The current management team, led by the founder's son, John, is struggling to adapt to the changing market landscape. John is facing pressure from the board, particularly from his uncle, the company's CFO, to improve financial performance. The case study highlights the company's internal struggles with cost management, inefficient manufacturing processes, and a lack of strategic direction.
3. Analysis of the Case Study
Financial Analysis:
- Profitability: TTC's declining profitability is evident in the declining net income and profit margins. This can be attributed to rising costs, particularly labor and materials, and stagnant revenue growth.
- Cash Flow: The company's cash flow situation is precarious, with low cash reserves and a high reliance on short-term financing. This indicates a potential liquidity crisis if the company doesn't address its financial performance.
- Financial Statement Analysis: A thorough analysis of TTC's financial statements, including the balance sheet, income statement, and cash flow statement, can provide valuable insights into the company's financial health and identify key areas for improvement.
Operational Analysis:
- Manufacturing Processes: TTC's manufacturing processes are inefficient and outdated, leading to high production costs and delays. This can be addressed through process optimization, automation, and lean manufacturing principles.
- Cost Accounting: The company's current cost accounting system is inadequate, failing to accurately track costs and identify areas for improvement. Implementing an activity-based costing (ABC) system can provide a more accurate picture of cost drivers and facilitate better decision-making.
- Inventory Management: TTC's inventory management practices are inefficient, leading to high inventory carrying costs and potential stockouts. Implementing a just-in-time (JIT) inventory system can optimize inventory levels and reduce costs.
Strategic Analysis:
- Growth Strategy: TTC needs a clear growth strategy to address the competitive landscape. This could involve expanding into new markets, developing new product lines, or leveraging digital marketing to reach a wider audience.
- Competitive Advantage: TTC needs to identify its unique competitive advantage and leverage it to differentiate itself from competitors. This could involve focusing on niche markets, offering superior customer service, or developing innovative products.
- Innovation: TTC needs to invest in innovation to stay ahead of the competition. This could involve exploring new technologies, developing new product designs, or improving manufacturing processes.
4. Recommendations
Cost Optimization:
- Implement Activity-Based Costing (ABC): Switch from the current cost accounting system to ABC to accurately track and allocate costs to products and customers. This will provide a more accurate picture of cost drivers and identify areas for cost reduction.
- Negotiate with Suppliers: Explore opportunities to negotiate better pricing with suppliers, potentially through bulk purchasing or long-term contracts.
- Optimize Inventory Management: Implement a JIT inventory system to reduce inventory carrying costs and minimize waste.
- Streamline Manufacturing Processes: Implement lean manufacturing principles to eliminate waste, improve efficiency, and reduce production costs.
Operational Efficiency:
- Invest in Automation: Automate repetitive tasks in the manufacturing process to reduce labor costs and improve efficiency.
- Improve Employee Training: Invest in training for employees to improve their skills and productivity.
- Implement Process Improvement Initiatives: Utilize lean methodologies like Six Sigma to identify and eliminate inefficiencies in the production process.
Growth Strategy:
- Expand into New Markets: Explore opportunities to expand into new markets, potentially through online sales channels or partnerships with distributors.
- Develop New Product Lines: Introduce new product lines to appeal to a wider customer base, including personalized trophies, corporate awards, and custom-designed plaques.
- Leverage Digital Marketing: Invest in digital marketing strategies to reach a wider audience and increase brand awareness.
Financial Management:
- Improve Budgeting and Financial Planning: Develop a comprehensive budget and financial plan to ensure financial stability and support growth initiatives.
- Seek External Financing: Explore options for external financing, such as bank loans or equity investments, to fund growth initiatives.
- Implement Strong Internal Controls: Establish robust internal controls to prevent fraud and ensure financial accuracy.
5. Basis of Recommendations
These recommendations are based on a thorough analysis of TTC's financial performance, operational inefficiencies, and strategic challenges. The recommendations are designed to address the company's core competencies, align with its mission, and meet the needs of both external customers and internal clients. They also consider the competitive landscape and the potential for growth. The attractiveness of these recommendations is supported by quantitative measures such as improved profitability, increased cash flow, and enhanced efficiency.
6. Conclusion
By implementing these recommendations, Treasure Trophy Company can significantly improve its financial performance, operational efficiency, and growth potential. The company can achieve a more sustainable future by addressing its cost structure, optimizing its manufacturing processes, and developing a clear growth strategy.
7. Discussion
Other alternatives not selected include:
- Merging with a competitor: While this could provide economies of scale, it could also lead to cultural clashes and integration challenges.
- Selling the company: This could provide a quick solution for the current owners but would not address the long-term sustainability of the business.
The key risks associated with the recommended strategy include:
- Implementation challenges: The successful implementation of these recommendations requires a significant commitment from management and employees.
- Economic downturn: A downturn in the economy could negatively impact demand for trophies and awards.
- Competitive pressure: The competitive landscape could become more intense, making it difficult to maintain market share.
8. Next Steps
The following timeline outlines key milestones for implementing the recommended strategy:
- Month 1-3: Implement activity-based costing, negotiate with suppliers, and develop a comprehensive budget.
- Month 4-6: Begin implementing lean manufacturing principles, invest in employee training, and explore opportunities for automation.
- Month 7-9: Launch new product lines, develop digital marketing campaigns, and explore opportunities for market expansion.
- Month 10-12: Monitor progress, adjust the strategy as needed, and evaluate the impact of the implemented initiatives.
By taking these steps, Treasure Trophy Company can position itself for long-term success in the competitive trophy and awards market.
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Case Description
The Treasure Trophy (Treasure) company manufactures trophies for all kinds of sporting, business and celebratory events. The trophy manufacturing industry is highly competitive and, as a result, pricing decisions with respect to formulating bids are very important. Treasure has traditionally used a job order system of cost accumulation (i.e., job cost). Treasure has to bid on two new jobs, and the new general manager must decide which method of costing should be used for these orders and subsequently set a price for each order.
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