MBA - Corporate Finance

Part 1

The aim of the company was to be a leader in producing the most modern and comfortable footwear in the world for both leisure and work.  During the 1999- 2003 period, ECCO performance largely stagnated in terms of decreasing operating margins and also productivity. This is indicated by a decline in operating margin in 2000 by 15 % to around 5 % by 2002. The stagnation could be attributed to lack of good marketing strategy that would ensure that products delivered served the interest and expectations of customers at this time , with the firm  just following the trend in the market and not engaging in active research and customer oriented production. However, the company had managed to stay ahead of its competitors in terms of footwear quality and market performance which could be attributed to over 40 years of constant high quality and improved craftsmanship.  The firm was therefore, able to sustain its commitment to design and comfort and shoes that were perfect fit to the clients. Despite the stagnation, the company was able to beat its competitors in the market due to innovation in technological production.

There was a rise in the level of company debts which increased by DKK 1 billion from 1 billion to billion and this resulted from efforts to expand and also inventories. This is what made the company to adopt some-measures to arrest the situation as shown by the decision to launch strategic initiatives strategic initiatives aimed at streamlining logistics, placing focus on production of modern shoes and enhancing the monitoring of market trends. After adoption of the new strategy to internationalize production and marketing of the products, the firm experienced a turnaround in 2004.  In that year a just a joke in the firm was able to add 300,000  pairs into the sales through sponsoring some international offers like Thomas  and Colin Montgomerie , and other endorsements in United States. The performance of the firm was better than previous year in 2004, where the firm management to export over 90 % of entire production with major exporting markets being Germany, United States and Japan. The investment in expansion efforts are shown to have borne fruits for the company as shown in the consolidated statements that revenues jumped from 3,169 DKK million in 2003 to 3,394 DKK million in 2004.  This was move away from the stagnation in growth that had been experienced between 1999 and 2003. The return on equity ration also improved from 6.5 to 15.2, solvency ratio from 14.1 and 34.1

ECCO faced a very competitive market environment especially for the lifestyle foot ware. This is because the market is susceptible to constant changes in market environment and fierce competition had led to much investment in new technologies and optimization of costs. The firm had to compete with other firms that are finically strong such s Reebok and Nike and the entrance of ECCO into athletic shoes like golf brought about new competitors.

The recommendation for the firm to beat such competition is to place its production facilities in ereas where it is possible to optimize cost. Hence, the action plan involves an establishment of production and distribution centers countries such as China where it would take advantage of cheap production cost and large market. Such a distribution center will reduce cost and time used in transportation.

Part 2

Cost optimization; improve customer quality, market expansion

Balanced score card

Perspective	Objective	Performance measures
Increased innovation	High quality products Cost optimization	Product popularity Reduced overall costs
Exceed customer expectation	Customer satisfaction Customer loyalty	Demand level Customer retention
Market expansion	Increased market share Increased sales	Export levels Order levels
Learning and growth	Recruit staff Quality staff	Employee retention Customer care quality

 

 

 

 

 

 

 

 

 

 

Strategy map

 

 

Focusing on branding and marketing places the focus of the firm on brand building which is likely to set very high expectations among the mangers. The balanced Scorecard is likely to place more focus on how to beat the competitors and this is likely to lead to less concentration on cost optimization and hence high profitability. Since branding and marketing efforts are important in gaining competitive advantage over the rivals, the objectives may shift to customer focus.

Part 3

Activity Based Cost – can be used by the firm to improve profitability by changing the demand for products that a firm sells to client given that the strategy can increase efficiency of those activities related to production.  This relates to reduced reduction of costs and tendency to improve prices and even phase-out those products that are seen to relative make loss (DRURY, 2013).

Quality management as a strategy can be used to identify those costs that relates to production of poor quality products. The firm can identify internal failure costs relating to defects in products received by customers and  even the cost that are associated with efforts to keeps such failure at  a minimum (DRURY, 2013).

Target costing can be used to incorporate the requirements of the customers such as cost, quality and time in process decisions and products and even guide the analysis of cost. ECCO can ensure that functionality and features that are built into any product are greater than cost of offering them (DRURY, 2013).

References

DRURY, C. M. (2013). Management and cost accounting. Springer. 749