DigiMaxCon (A): The Case of the Shrinking Margins
Patrick Wiseman
Boise State University
GenBus 450-001
DMC needs to identify their main business problems and develop a new strategy along with procedures to address it. Although DMC had grown into a multi-billion dollar company and regularly ranks in the top of the industry, gross margins have decreased steadily between 2010 and 2012. Depicted the Table 1 below, margins ranged from a net income loss of $2.6 billion in 2010, $1.7 billion in 2011, down to just $940 million.
Table 1: Simplified Income Statement Summary
2012 2011 2010 2009 2008
(in millions)
Net sales $ 8,050 $ 8,500 $ 8,200 $ 4,500 $ 5,200
Gross margin 940
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They know that growth is lacking and that in order to survive, DMC must alter course now. Senior leadership needs to determine which market segment to pursue, and how this strategy may or may not affect other areas of the company including, but not limited to: Human Resources, Manufacturing and Distribution. Senior leadership must also be aware that any change in strategy will influence I.T. also. While IT is a broad-minded team willing to offer up technical solutions to advance product development and sales, their budget, as well as other departments has been inhibited over the course of current recession and the inconsistency of returns to the company.
Finance and accounting continue to be apprehensive about cash flow demands and financial activity for major company endeavors. HR understands that any change can have substantial impact, especially on morale. DMC is also dealing with the ever-changing nature in the electronics industry. Responding to market forces has always been difficult due to the nature of the product and large investments required for advancement in technologies. Rising development costs and decreasing margins become immediate priorities. Innovation is not an option, rather it is a requirement for preserving a competitive advantage. Growing market share is a slow process that happens to companies who adapt quickly.
DMC needs new or revised strategies in order to obtain positive results while
Strategic Issue: Throughout the case, it becomes clear that competition may be hindering your product from leading the market. A limited amount of compact company resources and the constant technological advancements may prevent the company from performing to the best of its capabilities. In order to address this issue, we recommend that you investigate our recommendations to increase market share by implementing the strategies that will be discussed in this memorandum.
Places have the ability to trigger memories from one’s childhood and experiences. In the excerpt, “In Praise of Margins,” by Ian Frazier, the author argues that marginal places and activities are necessary for our lives because they grant us the opportunity to use our imaginations to have fun without fearing judgment from others. According to Fraizer, these places lack a purpose and don’t need to have an economic value nor need to be productive to be considered valuable. Marginal places are simply a place for you and/or your friends to reminisce all of your memories and reflect back on who you were and how you’ve become who you are now. These marginals are considered to be any place or activity that serve an unintentional purpose. Typically, they originate from childhood adventures such as running around the woods, providing an unintended consequence of a sense of exploration. Through my personal experiences, all of our marginal places and activities change as we age throughout our lives due to societal expectations, but they remain significant because they inspire creativity and allow us to be ourselves.
We evaluated our company’s position in the industry, and found ourselves in an excellent starting position to further develop our products and match them to the industry’s needs. Our market share is adequate and we can advance further with our strategy improve and reposition our products in the coming years. We have underutilized capacity, which we intend to improve, while increasing automation to reduce costs. We have plans to improve our promotion to improve product awareness and with the appropriate product lines we will increase price to improve margins and better align our high-end product image. Our current financial position is optimistic, showing our leverage (Assets/Equity) at 2.0, when our goal is to maintain 1.5-2.0 overall. By utilizing the analysis tools we are learning what elements are driving demand, how to effectively tailor our products through R&D, how best to adjust our marketing and pricing, while lowering input costs, in order to improve margins and to ensure our stakeholders are all satisfied.
It is late spring and time for the DMC management team to begin the planning cycle for the next fiscal year. While CEO Tom Grant has always preferred the tried and true business strategies from Michael Porter (cost leadership, differentiation and market focus), he knows the executive team needs to be creative to set the path for the future of the company during the new planning cycle. In this highly competitive global market, DMC will face many challenges in choosing a strategic plan for the next five years. The current strategic plan includes a goal of increasing electronic component sales while establishing a more stable sales pattern and margins, but this goal is not going well. Grant
My recommendation is for the company to stay focused on its main competitive advantage of supplying a
The President of AMT believes that sales will continue to grow at the same rate. Therefore, his goal is to maintain its current market position and to aggressively enter new markets. In addition, he wants to maintain its competitive position by utilizing the
Best Buy, like many other companies caught in the global downturn, has all the signs of a small slowdown in both Net Income and Earnings per Share. Although still slight, over the past three years coming down from a high of in 2010, the steady decline in income and the increasing rise of Operating Expenses denote an area that needs to be addressed. (Best Buy Financials)
An unfavorably decreasing net profit margin (NPM) highlights management 's lack of effective cost control and service pricing. Management should carefully examine NPM, looking for ways to favorably adjust net income and total revenues, possibly by decreasing costs and restructuring SSB 's pricing of services.
The gross profit margin for CC is right around the industry average. Although the numbers seems to be decent, the costs of goods sold are too high. Next, looking at the operating profit margin, the numbers don’t look as great as they should. The numbers are low compared to the industry average in years 2001, 2004, and 2005. This may indicate that CC should look into their prices and costs. In 2001 the net profit margin was very low compared to the industry average. I am assuming this is due to the major expansion. It is also important to look more deeply into the numbers though because the net profit margin is lower compared to the industry average in all of the years. Once again CC should look into their costs and how efficient they are converting sales into actual profit.
Premier Investment’s Gross Profit Margin has increased slightly from 59.09% in 2010 to 59.51% in 2011. The increase is not huge, but the margin is pretty good, and it reflects that the company keeps the cost under control. On the other hand, the Gross Profit Margin for David Jones has decreased from 39.73% in 2010 to 39.11% in 2011. This decrease is not very huge, but the overall figure reflects not a very profitable condition. These margins are well below the profitability of Premier Investments. This means that David Jones has a relatively poor cost control.
transformed the division 's ability to create "16 productized solutions" and to engage new and old
As Mr. Grant, CEO of DMC has realized, the current growth strategy of the company is insufficient. DMC needs to identify their primary business problems and prepare a new or revised strategy with alternative tactics to address it.
1. Context: In early September’08 Giant consumer Products, Inc. (GCP) realized that Frozen food division, which had been growing at 2.8% (compounded annual growth) rate since 2003 to 2007 and accounted for almost 33% of GCP’s overall business volume, is not doing well now. The sales as well revenue volume is around 3.9% behind the target. Most specifically marketing margin (key parameter for GCP business) was also under plan by 4.1%. GCP had been doing well in wall-street but performance of past couple of quarters has increased the worries of GCP i.e. whether GCP will able to maintain its profitable growth.
New products are the lifeblood of any company, fueling its survival and growth in the long run. But the development and introduction of new products that will ultimately be profitable is fraught with the risks of heavy up-front expenditures and uncertain future payoffs. A daunting combination of stagnating sales in mature markets, rising costs, and a focus on short term earnings leaves management in a very uneasy position.
The industries worst records are the debtors due to the 30.43 outstanding days’ worth of sales. This means that revenues are not being collected effectively and efficiently. (Reserved, 2015)