Reference no: EM133282539

In January 2012, the Board of Directors of the "Universal" Company faced with the challenge of important decisions acceptance, the result of which will influence for company's condition for a long period. There is a situation when without significant changes in the assortment of products it is impossible to preserve the state of the market. The Board of Directors considered several variants of the new strategy and tried to choose the best, which, on the one hand, would allow the company to maintain profitability at the appropriate level, and on the other - would be the most appropriate to the goals and traditions of "Universal". In order to understand better the drama of situation, it is necessary to learn the history of the company.

The "Universal" company has French roots, but English history. The company's founder, Frenchman by birth, moved to Great Britain during the Second World War, where he founded his business in 1950. The first significant extension of his business was when he found the first factory in northwest of England, where he lived during the war. Then, the company developed rapidly, and in the 70's and 80's "Universal" had a stable 15 percent of European market of cleaning products for domestic use. The company focused on temperate innovative products, staying in the range of low and average prices. The success of "Universal" can also be explained by two other important factors. First, an excellent understanding of the needs of its customers (with whom company established friendly relations), secondly, extremely harmonious labor relations within the company.

The market success of "Universal" also reflected on the situation of the company on securities market. Shares of "Universal" listed on the major stock exchanges in Europe: London, Paris, Frankfurt and Amsterdam. The income per share, as well as dividends, steadily increased for the last 10 years. So far, earnings per share is 4 EUR and for dividend - 2 EUR. The research has shown that mainly small investors were the holders of "Universal" shares, and they were interested in stable income combined with moderate growth.

Status of "Universal" in the industry, as well as it's share prices, aroused considerable public interest. Recently, a magazine that is respected in the business and financial circles, published a long article about "Universal", and the cover was decorated with a portrait of Mr. Bernard, Chairman of the Board of Directors. Here are some quotations from an interview with Mr. Bernar:

Question: "Mr. Bernar, we have already established your firm's foundations for success from a technical standpoint, from a standpoint of competitiveness of your products and the state of shares on the Stock Exchange. However, today, as you know, public interest for social role of business is growing. The public reveals more and more interest to the industry's responsibility for regarding consumer and betrays concern about the environment. Is it influence on decisions taken by the "Universal"?

Allan Bernar: "We can see the problem as follows. We have to achieve certain goals while making major decisions. First of all, we are concerned about the welfare of our shareholders in the long term. This means that we are committed to steadily growing income per share and dividend. We are convinced that this approach will increase the market value of our shares. Our commitment to maintain a market share of 15 percent is also closely connected to this aspect. In the nature of our business is absolutely necessary always to achieve success.

In addition to the above goals, there are several others that we have to keep in mind. We are responsible to our customers for the quality of products and their prices. In recent years we have delivered high quality products and thus support the annual increase of prices at the lowest level in the industry.

Similarly, we have a responsibility towards our employees and the community of the regions in which they live. Obviously, this affects the high salary levels, good working conditions and harmonious labor relations. But it also means the need to maintain a high level of employment, the more that we are a main employer in the regions where our factories are located.

It should be noted that "Universal" has factories in Britain, France and Germany. The company implements a policy of dislocations of new factories in agricultural regions, what gives us advantages of low labor costs. Other oldest enterprises based in Britain, housed in traditional industrial areas.

It is also necessary to add that we realize our responsibility for the whole society. Releasing new products, we are continually exceeds all EU standards for such products. Independent Agency for Quality Assurance confirms that the buyer will not find other products on supermarket shelves of Europe, which are more environmentally friendly than products of our company. Naturally, it needs large investments in researches and development in this area.

In conclusion, I can say about our liability to employees. Their work should be rewarded according to their personal successes and achievements, and not only in the form of salaries and bonuses, but also in terms of job security and opportunities for growth and development".

Question: "Mr. Bernar, all that you're saying is really impressive, but at the same time it is difficult to believe that in this world there are such people, who can really consider all aspects you listed above and to take into consideration wide spectrum of different goals which must be achieved".

Allan Bernar: "I understand your distrust, but please pay attention to the fact that the composition of our Supervisory Board are both shareholders and Executive Management. In addition to this, we often invite representatives of consumer associations and unions management for conversations and matching the views. However, in my opinion, the greatest contribution for our capacity to evaluate the results of management decisions in terms of achieving many goals makes by Corporate Group of Strategic Researches. This group was founded in 1975 and since then constantly demonstrated exceptional ability to anticipate changes not only in area of technics, but (that it is important), social and economic trends in the development and conditions of the company's environment. The last report of Corporate Group of Strategic Researches was incredible, Group's team made a significant contribution to the success of the company".

Thus, from the side it looked simply brilliant, but in December 2011 at the meeting of the Board of Directors, Chairman of the Board, Mr. Bernar presented the overview of problems faced by the company and variants of possible solutions. Following detailed discussions during several long meetings of the Board of Directors did not bring any significant changes nither in Mr. Bernar's analysis, nor in proposed solutions. Shortly situation looks as follows:

Variety of analytical studies, performed by the Group of Strategic Researches and independent consulting firms over the last few years, showed the necessity of serious changes in "Universal's" assortment policy in order to continue to compete successfully in the market. The Group of Strategic Researches has developed three alternative strategies for the company. Each variant was suitable for the company, but at the same excluded other variants. Only one variant could be used by the company. Characteristics of possible strategies (?, ? or ?) are presented below:

"?" STRATEGY:

"Universal" should concentrate efforts in the segment of expensive products. Market share will reduce from the existing 15 to a maximum of 10 percent over the next four years (this is inevitable). At the same time, retail prices will increase by 10 percent. On the other side, new products in their properties will exceed all existing EU Standards for 10 percent. Employment level will be unchanged. An important advantage of this variant is the increase of income and dividend for 8 & 4 EUR per share.

"?" STRATEGY:

"Universal" should concentrate efforts in producing the cheapest products from its assortment, The company will forget about frequent updates and aim for higher volumes of production. Market share in this case will increase to 20% over the next four years mainly because prices are have to be keep at the current level. Ecological standards will meet all existing and possible EU norms. Shareholders can expect preservation of existing incomes and dividends. Unfortunately, the implementation of this strategy includes staff reduction: approximately one third of the existing management personnel, including two directors, must be fired. On the other side, number of employees as a whole will increase for 15%, which will reduce existing 7-% unemployment in the region to an unprecedented low level - 2%.

"?" STRATEGY:

"Universal" fundamentally changes the assortment of production and focuses on products elaborated for the first time, closely associated with the movement of "green". The new products and packaging for them should be designed based on this concept. New products have to be 50% better than all the reachable on future EU standards. However, prices for the new products will immediately grow at least for 25%. Besides, the need for additional researches and development will lead to annual growth of prices to 10-15%. However, the market share that belongs to "Universal" will remain at 15%, thanks to the continued interest of buyers to the environmental aspects of offered products. The new assortment will require regular substantial investments in new sophisticated equipment. Automation and new technologies will lead to the increase of the number of middle managers, as well as the promotion and increasing competencies in scope of already employed managers. Thus, the whole number of employees will decrease dramatically, at least for 25%. This will increase unemployment in the local labor market to a socially dangerous level - 15%. Moreover, the need for permanent investment will force the refuse of dividend payments and the company will not be able to provide earning per share more than 2 EUR over the next 5 years.

TASKS:

1. Identify and rang the main goals, which the company is trying to achieve.

2. Choose strategy for the company in general. Prove it perspectiveness by using one of the methods of strategic analysis.

3. Make a plan of measures that will help to implement the chosen strategy.