Their traditional strategy was to offer clients with low cost products with reasonable short production time. However, due to incurring problems in relation to clients preferring products from competitors and the decline in profits and market share, Rob English the owner of the business decided to implement a new strategy. The purpose of this report was to identify whether it is beneficial for Blue Moon’s to change its cost strategy to a differentiate strategy.
The report details and list the strategically change the owner has considered undertaking to address the issue and the tools/techniques it should consider to include in its revised Management Accounting System. Analysis suggest that if Blue Moon’s transforms to a strategy which differentiates its product with other competitors, than the business will gain a handful of key success factors; more attraction by customers due to the quality and uniqueness of the product, may result in high profit and market share.
It is suggested, that Blue moon should also consider the drawbacks in making this hang. Rob English should question how this alteration might impact on the financial position of the business, staff satisfaction, staff turnover. In conclusion, it is crucial to make this change sooner than later because it had been stated that the owner is Worried’ about its financial position and it had been noted that customer preference is changing due to the economic crisis and competitors.
It seems that that the advantages of altering to a new strategy outweigh the disadvantages. Table of Contents Executive Summary 2 1. Introduction 4 2. Blue Moon, Pity Ltd. Ewe business strategy 4 2. 1 The Business Mission of Blue Moon, Pity Ltd. 4 2. 2 The Competitive advantage of Blue Mood, Pity Ltd. 5 Key Success Factors Blue Moon’s Key Success Factors 5 4. Blue Moons Pity Ltd. New Management Accounting System 6 4. 1 Strategic Planning 6 4. 2 Capital Budgeting 7 4. 3 Target Costing / Cost-plus pricing 7 4. 4 Variances and Budgeting 7 4. Overhead Cost allocation 7 5. Conclusion 8 References 9 1. Introduction “Blue Moon, Pity Ltd. Was a boat business, “offering its customers recreational products at a low cost with short production time. However, the firm owner Rob English who is also a yacht broker and a nuclear submarine construction planner has decided to adopt a new strategy which is immensely different to the businesses traditional cost strategy. The new strategy is to enhance the quality of the product and sell it at a higher price to the smaller portion of the market share.
The purpose of this report is to provide information to the client about; I) the new strategy that is going to be implemented it) the key success factors of this strategy iii) and new techniques in MASS. 2. Blue Moon, Pity Ltd. Ewe business strategy This section outlines the new business strategy which Blue Moon is deciding or has decided to implement into their business. The strategy is the plans to achieve the organizations goals and objectives. Hence, the strategy of Blue Moon depends on the two new features; its missions and its competitive advantage.
Each of these features is discussed below. 2. 1 The Business Mission of Blue Moon, Pity Ltd. Blue Moon’s, new mission is to build and upgrade the business. This mission implies an ‘objective of increased market share, even at the expense of short term earnings ND cash flow (Irwin, 2003). The Business mission states what the overall ‘objective’ of the organization; The main four business unit mission as stated in Boston Consulting Group model consist of; build, hold, harvest and divest(luring, 2003) .
Blue Moon, Pity Ltd is aiming to get the attention of the higher end of the recreational market, which presently NAS only a small potential market snare. Even though the segment tot the market share is small, it is substantially profitable. Blue moons are planning on decreasing the range of sailing boats and earn profit through high prices. It is commended that Blue Moon should not pursue in this mission if it has doubts about the going concern assumption. 2. 2 The Competitive advantage of Blue Mood, Pity Ltd.
Blue Moon’s primarily competitive advantage is to differentiate its product with the products offered by the competitors. Differentiation is defined as ‘creating something that is perceived by customers as unique’ (Irwin, 2003). Reflecting this back to the case, Blue Moon states that it would differentiate its product by providing its clients high performance sailboats with a more ‘innovative, sophisticated and high quality period boat along with excellent and expert customer service’; This differentiate is offered to client who are experienced sailors.
Blue moon has planned to differentiate its product by implementing some changes these include; I)) training employees it)) preferring expensive fiberglass manufacturers iii ))investing more time and money into aggressively signing independent yacht dealers iv))advanced equipment is used within the organization providing clients with updated products. The reasoning why there is a change in the competitive advantage is because there was a significant racket opportunity for high performance sailboats; willing to pay for these attributes.
However, differentiation also comes with greater uncertainty due to the difficult to improving the product regularly and assurance from the customer. 3. The section gives a general explanation of Key Success Factors which is abbreviated as SF. It also identifies a list of Blue Moon’s new key success factors. 3. 1 Blue Moon’s Key Success Factors Key Success factors are defined as ‘series of facts that is essential in order to accomplish one or more desirable business goals’. Reflecting this back to the case duty, Blue Moon has several Key Success factors after adopting the new strategy.
These include the quality of the production, quality of design, customer service, and marketing (Moran, 2013). A sophisticated product will be offered to customers, where advanced equipment and machinery will be purchased, new high technological fiberglass will be inputted to ‘create a faster, lighter and more unfavorable sailing boat’. Employees will be hired or trained to enhance expertise in creating and producing. Before the consideration of the new strategy, low cost and short reduction time were the key success factors which isn’t the case now; Innovation and Sophistication play a huge role as the key success factors now.
It is also stated in the case study that distribution employees will spend greater time and commercial skills in getting the interest of the clients; Hence business will ‘undertake a significant marketing and advertising campaign’ to communicate to the dealers and the new customers. The Key Success Factors are admirable from customers’ prospects however, in order to provide this to the client an immense amount of investment is required. In order for the business to gain, it is advised that Blue Moons try balancing the factors of the quality of the product and the cost of the product. . Blue Moons Pity Ltd. New Management Accounting System This section provides the tools and techniques that should be included in Blue Moons new Management Accounting System. 4. 1 Strategic Planning Strategic planning is a pivotal tool to deciding whether you have an effective competitive advantage within the market; It is recommended that Blue Moon’s should consider the three valuable tools SOOT analysis, Porter’s Five forces model and Value Hahn analysis when deciding to adopt the new strategy and whether he should build the business.
Porter’s Five forces model can determine the level of competition in the industry (Moran, 2013); In regards to the blue Moons case ‘a number of competitors had entered the segment, offering consumers personalized boats at a lower price and shorter production time and the ability to place their order on-line’. The value chain deals with an analysis on the internal environment and can be adopted to identify the activities in the value chain.
Referring back to the case, the activities in striation, accounting, creative, production department is thoroughly analyses to increase value of the sailing boats, reduce cost and asset. Referring back to the case, the strengths of the new strategy will be the key success factors as discussed above; ‘ability to design and produce a smaller range of innovative and high quality boats and to provide excellent customer service’. Whereas the threats and weaknesses of adopting the new strategy is how the stakeholders react to this new change, cost and time.
Thus, will the staff show the willpower to improve and enhance the business ND also is there is a possibility of customers loyalty in the long run. We should at all times consider the competitors as a threat and also whether the business is able to receive funds from lenders and also know for certain that they would be able to receive their supplies on a timely basis. 4. 2 Capital Budgeting Capital budgeting should be taken into consideration, in order to know whether it is worth investing into the ‘advanced machinery and equipment’ and in the overall project.
This is used to ‘determine which projects will yield the most return over an applicable period of time’ (Overtake,2013). 4. Target Costing / Cost-plus pricing It is recommended to pursue in cost plus pricing which is ideal if you are struggling to determine a price. Even though customers want a reasonable price, it is stated in the case that they are willing to pay for the additional attributes. Cost plus pricing is a more simple method which adds all the cost of producing a product and attaches a mark up for its profit and selling price.
However, it is difficult to determine which cost should be included (Palaver, 2013). 4. 4 Variances and Budgeting Budget is how a ‘business plans for future production cycles’ and variance compares he actual and budgeted results to see how the business is progressing (Mac Grab Hill, 2006). It is not advisable to do a variance report because Blue Moons are deciding to enhance their business and alter its product. However, the business may make a prediction and assumption of what they are anticipating in the near future in regards to the new products.
This will motivate the staff and the business to achieve their short term goals. Hence budgeting is useful for a 6 – 12 month reporting (Overtake,2013). 4. 5 Overhead Cost allocation As creative and production department become more time-consuming, expensive, ND detailed’ so does the changes in the Job costing in the accounting department. It is stated that the accounting department is ‘considering multiple indirect cost and allocation bases for the manufacturing overhead’ rather than using a ‘single allocation base . It is suggested that Blue Moons should use multiple cost pools in order for the cost allocation to be more reliable and free of error. ” 5. Conclusion The main question considered in this study is whether altering to a significantly different strategy will be beneficial for the business, Blue Moons Pity Ltd. Based on the preceding analysis, it can be said that building and improving the business is likely to be a sound investment.
One of the main reasons why this alteration is needed is because of the financial position of the business; shift in customer demand and also because of the number of competitors. There should be a high probability that the end product will satisfy the customer. However the business should also consider the difficulties in considering this change; Is it worth the risk to invest a large amount of money into this plan; property, machinery. The business doesn’t have financial strength, so who would be able to fund them Staff may be terminated, trained or additional employees may be hired; this may create staff dissatisfaction which will result in staff working inefficiently due to the change Differentiating a product also comes with uncertainty in the long run. It is recommended that he should adopt the new strategy in his business in order to survive but it is also suggested to consider the limitation and to pay an immense amount of energy on the difficulties in order to succeed in the long run.