FBTNW LLP – Management Consultants
FATHIMA BILAL TARIQ NAVEED WAHEED
FOLLOW BUSINESS TEACHER NELSON WAWERU
Enager Industries Inc
Tariq Mehmood Waheed Faizi Naveed Khalid Bilal Khanani Fathima Mohamed
3 Divisions: Consumer products (primarily for kitchen), industrial products (one of a kind tools to customer specification, professional services (consulting services) consumer products - oldest
professional services - newest
Each division was independent
Treated as an investment center (ROI measure) 12% RRR and a 15% ROI for approval of new projects
Ineffective performance evaluation method
o ROI set by the company is not taking into consideration the needs and the differing nature of each of its divisions. o The ineffective rate of return for each division and the desired required rate of return for the acceptance of new projects are not appropriate in accepting new projects that will increase the value of the firm.
Tension among managers President's lack of knowledge about the effects of the performance measure and its implications to each division.
PORTERS 5 FORCES - CONSUMER
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High threat of substitutes as there are several substitutes available such as other stores that offer such products. Other wholesale stores and retail stores offer kitchen products so there are several substitutes. The threat of supplier power is moderate as there is intense competition. The threat of buyer power is high as there are other suppliers of the same product so they have the ability to switch suppliers easily. Intensity of competition is high and is another reason why the supplier power is low.
Given the amount of capital investment needed to enter certain segments in household consumer products, threat of new entrants is medium. Loyalty from customers is important in such an industry as there is intense competition but the company is in a good position in terms of its consumer division.
PORTERS 5 FORCES - INDUSTRIAL
Low threat of substitutes as the products are unique (built upon customer specifications.
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The threat of supplier power is moderate.
The threat of buyer power is moderate as loyalty and brand are important for customers when determining technological products. The intensity of competition is moderate as there are other suppliers of such products and also offer such customization options for customers. The threat of new entrants is moderate as loyalty among brands exists and economies of scale increase the difficulty for new competitors to enter the market. This is a good place for the division to be.
PORTERS 5 FORCES PROFESSIONAL SERVICES
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Low threat of substitutes. The threat of supplier power is low as loyalty is important for users of such services. The threat of buyer power is moderate because of the effects of loyalty and quality services provides The intensity of competition is high as there are several other consulting firms and services available for the people who need them. The threat of new entrants is moderate as it is relatively easy and low cost for opening a consulting business – just need the knowledge. This is a good place for the division to be in.
Professional Services division has an ROI of 14.6% which exceeds the 12% expectation of ROI for each division. The expected ROI creates goal congruence as the divisions are aware of what they are working towards. Investment center approach
Tension among management
The return on investment of the consumer division and the industrial division is lower than the 12% threshold The president does not understand the ROI measure. There is a single ROI percentage - 12% ROI expectations for each of the three independent divisions.