Harvard Case - Wilkerson Co.
"Wilkerson Co." Harvard business case study is written by Robert S. Kaplan. It deals with the challenges in the field of Accounting. The case study is 4 page(s) long and it was first published on : Mar 7, 2001
At Fern Fort University, we recommend that Wilkerson Co. implement a comprehensive strategy focused on streamlining operations, improving cost management, and leveraging its existing strengths to achieve sustainable profitability. This strategy will involve a combination of operational improvements, financial restructuring, and a renewed focus on customer service and innovation.
2. Background
Wilkerson Co. is a family-owned manufacturing company facing challenges with declining profitability and increasing competition. The company's traditional cost accounting system has become outdated, leading to inaccurate cost allocations and inefficient decision-making. Additionally, the company lacks a clear growth strategy and has not adapted to the changing market landscape.
The main protagonists of the case study are the current management team, led by the CEO, John Wilkerson, and the company's board of directors, who are seeking solutions to improve the company's financial performance.
3. Analysis of the Case Study
This case study can be analyzed through the lens of several frameworks:
a) Financial Analysis:
- Financial Statements Analysis: Wilkerson Co.'s financial statements reveal a declining trend in profitability, with shrinking margins and increasing operating expenses. The company's balance sheet reflects a high level of fixed assets, indicating potential underutilization and inefficient asset management.
- Ratio Analysis: Analyzing key financial ratios, such as profitability ratios (Gross Profit Margin, Operating Profit Margin, Net Profit Margin), liquidity ratios (Current Ratio, Quick Ratio), and efficiency ratios (Inventory Turnover, Asset Turnover), can highlight areas for improvement.
- Cash Flow Analysis: Analyzing the company's cash flow statement reveals a significant cash outflow from operations, indicating a need to improve cash management and working capital efficiency.
b) Operational Analysis:
- Cost Accounting: The current cost accounting system is outdated and fails to accurately allocate costs to products and services. This leads to inaccurate pricing decisions and inefficient resource allocation.
- Activity-Based Costing (ABC): Implementing ABC can provide a more accurate view of costs by tracing them to specific activities and products. This can help identify cost drivers and areas for improvement.
- Manufacturing Processes: Analyzing the company's manufacturing processes can identify opportunities for streamlining operations, reducing waste, and improving efficiency.
c) Strategic Analysis:
- Competitive Analysis: A thorough analysis of Wilkerson Co.'s competitors reveals a competitive landscape with increasing pressure from both domestic and international players.
- Growth Strategy: The company lacks a clear growth strategy and needs to develop a plan to expand its market share and compete effectively.
- Business Model Innovation: Wilkerson Co. should consider exploring new business models, such as expanding into new markets, developing innovative products, or offering value-added services.
4. Recommendations
To address the challenges facing Wilkerson Co., we recommend the following actions:
1. Implement Activity-Based Costing (ABC):
- Timeline: Within 6 months.
- How: Engage a qualified consultant to assist in implementing ABC. This will involve identifying cost drivers, assigning costs to specific activities, and developing a new cost allocation system.
2. Streamline Operations and Improve Efficiency:
- Timeline: Within 12 months.
- How: Conduct a comprehensive operational review to identify areas for improvement, such as reducing waste, optimizing production schedules, and implementing lean manufacturing principles.
3. Develop a Growth Strategy:
- Timeline: Within 6 months.
- How: Conduct market research to identify potential growth opportunities, including new product development, market expansion, and strategic partnerships.
4. Improve Financial Management:
- Timeline: Within 3 months.
- How: Implement a robust budgeting and forecasting system to improve financial planning and control.
5. Enhance Customer Service and Innovation:
- Timeline: On a continuous basis.
- How: Invest in customer relationship management (CRM) systems and implement customer satisfaction surveys to gain valuable insights. Foster a culture of innovation by encouraging employee ideas and investing in research and development.
5. Basis of Recommendations
These recommendations are based on the following:
- Core Competencies and Consistency with Mission: The recommendations align with Wilkerson Co.'s core competencies in manufacturing and its mission to provide high-quality products.
- External Customers and Internal Clients: The recommendations focus on improving customer service and employee engagement, which are crucial for long-term success.
- Competitors: The recommendations address the competitive landscape by focusing on cost reduction, efficiency improvements, and innovation.
- Attractiveness: The recommendations are expected to improve profitability, increase market share, and enhance the company's long-term sustainability.
6. Conclusion
By implementing these recommendations, Wilkerson Co. can achieve sustainable profitability, improve its competitive position, and ensure its long-term success. This comprehensive strategy will require a commitment from the management team, the board of directors, and all employees to drive change and achieve the desired results.
7. Discussion
Alternatives:
- Mergers and Acquisitions: Wilkerson Co. could consider acquiring a competitor or merging with another company to gain market share and access new technologies. However, this approach carries significant risks and requires careful due diligence.
- Divesting Non-Core Businesses: Wilkerson Co. could divest non-core businesses to focus resources on its core competencies. This could free up capital for investment in growth initiatives.
Risks and Key Assumptions:
- Implementation Challenges: Implementing these recommendations will require significant effort and commitment from all stakeholders.
- Market Volatility: The recommendations assume a stable market environment. Significant economic downturns could impact the company's performance.
- Technological Advancements: The recommendations assume that the company can adapt to rapid technological changes and maintain its competitive edge.
8. Next Steps
- Develop a detailed implementation plan: This plan should outline specific tasks, timelines, and resource requirements for each recommendation.
- Secure buy-in from key stakeholders: The management team and board of directors must be fully committed to the implementation of the strategy.
- Monitor progress and make adjustments: Regularly monitor the progress of the implementation and make adjustments as needed to ensure success.
By taking these steps, Wilkerson Co. can transform its business and achieve its long-term goals.
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Case Description
The president of Wilkerson, faced with declining profits, is struggling to understand why the company is encountering severe price competition on one product line while able to raise prices without competitive response on another product line. The controller proposes that the company develop an activity-based cost model to understand better the different demands that each product line makes on the organization's indirect and support resources. A rewritten version of an earlier case.
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