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Strategic Audit Presentation Full

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STRATEGIC AUDIT Ahmed Awan, Alamin Ahmed, Dinesh Kandasamy, Ella Niyokindi MBA 690 – Strategic Management Spring 2015 Huether School of Business
Transcript
Page 1: Strategic Audit Presentation Full

STRATEGIC AUDITAhmed Awan, Alamin Ahmed, Dinesh Kandasamy, Ella Niyokindi

MBA 690 – Strategic Management

Spring 2015

Huether School of Business

Page 2: Strategic Audit Presentation Full

AGENDA

Profile & History

Current Situation

Corporate Governance

External Environment

Internal Environment

SWOT Analysis

Problem

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PROFILE

Fully integrated poultry processing company

Headquarter in Laurel, Mississippi

3rd largest poultry producer

Over 11,000 employees, 5 states, 13 cities

Over 800 growers, 11 plants, 9 hatcheries, 8 feed mills, 3 divisions

Ice-pack, chill pack, bulk pack, frozen chicken – whole, cut, boneless, skinless, prepared

Retailers, food services, restaurants, distributors

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HISTORY

1947 – small town farm supply business (D. R. Sanderson)

1955 – Sanderson Farms, Inc.

1987 – public offering

Till 1997 – expansion (plants in Louisiana, Mississippi, Texas)

2005 – Georgia plant (1.25M/week)

2007 – Texas (1.25M/week), focus on retail and big bird deboning and move away from small bird market

2011 – Kinston, NC (1.25M/week)

2013 – Palestine, Texas (1.25M/week)

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CURRENT SITUATIONPerformance

NPM: 6.23% 10.03%

ROE: 26.87% 34.72%

ROA: 18.25% 27.35%

ROI: 23.26% 33.66%

First half 2014: 27%

Second half: 17.5%

Overall: 7%

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CURRENT SITUATIONStrategic Posture – Mission, Values Mission: “…maximize stockholder value…successful producer and

marketer of high quality food products and providing superior services to the food industry”

Not the biggest but the best (top 10%)

Values: 100% natural chicken

Animal Health

Animal Welfare

Food Safety

Commitment: fresh approach, honesty, integrity and innovation, unparalleled growth, quality products and responsiveness to customer needs

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CURRENT SITUATIONStrategic Posture – Vision, Principles Vision:

" Sanderson Farms is special. We are a successful, growing, publicly held company, respected in the communities in which we live and the industries of which we are a part.

Our dedicated team of caring individuals treats all persons with absolute respect and integrity. People in our organization are devoted to the success of their associates in fulfilling their chosen potential in all aspects of life.

Our primary responsibility is to maximize shareholder value. Our hallmarks are quality products, responsiveness to customer needs, superior achievement, prudent growth and successful people.”

Guiding Principles: Successful people

Prudent growth

Superior achievement

Quality products and responsiveness to customer needs

Respected in the community and in the industry

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CURRENT SITUATIONStrategic Posture

Business strategy: Build and grow (organic growth)

Differentiation (quality-100% natural chicken)

Financial strategy Clean balance sheet

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CORPORATE GOVERNANCEBoard of Directors

Joe F. Sanderson, Jr. Chairman since 1998

CEO since 1989

Tenure since 1969

Internal Directors Lampkin Butts (COO)

Michael D. Cockrell (CFO, Treasurer)

10 Independent Directors Diverse board – finance, banking, investment, sales, law, education,

manufacturing, communication, real estate

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CORPORATE GOVERNANCEBoard of Directors

Posses substantial knowledge about the business

Policy Majority has to be independent

Elected by shareholders

Lead Independent Director if Chairman is CEO

Actively involved in strategy planning and setting standards

Committees and Charters Audit

Compensation

Nominating and governance

Code of ethics, corporate code of conduct, by-laws and corporate governance principles

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CORPORATE GOVERNANCETop Management

CEO, COO, CFO

Timothy F. Rigney - CAO and Secretary

Over 20 years with the company

Lot of experience in the industry

Involved in strategy formulation

Most executives own shares

Separate Directors for each division and department

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EXTERNAL ENVIRONMENT

Natural Physical Environment: Sustainability Issues

Societal Environment Economic

Technological

Political-Legal

Sociocultural

Task environment

Opportunities and Threats (SWOT)

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EXTERNAL ENVIRONMENTNatural Physical Environment

Global warming and climate changes

Weather-related events (Tornadoes, Droughts)

Geography (Texas)

The variety of energy alternatives available

Global implications?

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EXTERNAL ENVIRONEMNTEconomic

GDP (Gross Domestic Product) trends

Improving Job market

Consumer spending

Oil and Gas prices

Inflation Rates

Global economy

Energy alternatives

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EXTERNAL ENVIRONMENTTechnological

Advancement

Conservation efforts

Efficiency

Excellent facilities

Lab tested chicken production

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EXTERNAL ENVIRONMENTPolitical-Legal

Stability of government

Special incentives

Legal objections

US Ethanol program – Rising feed prices

Immigration laws – Availability of hourly employees

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EXTERNAL ENVIRONMENTSociocultural

Unknown forces?

Demographic trends (Baby Boomers)

Lifestyle changes

Healthy eating habits

Regional shifts in population

Consumer activism (Positive or Negative) Environmental concerns

Food labeling

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EXTERNAL ENVIRONMENTTask

Industry Poultry

Concentrated (~40 vertically integrated firms) and matured

US poultry market is largest in the world

Competing with - beef and pork industries

Chicken is commodity

Global chicken industry is growing

Competitive factors Price

Product quality

Brand identification

Breadth of product line

Customer service

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EXTERNAL ENVIRONMENTTask

Sanderson Farms, Inc. Differentiation through quality (100% natural chicken)

Competitors – Tyson Foods and Pilgrim’s Pride

Retail and big bird deboning markets

New plants in Kinston, NC and Palestine, TX

Export dark meat to Russia, China, Mexico

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EXTERNAL ENVIRONMENTTask – Six forces

Threat of New Entrants: Low High entry barrier - Economies of scale, expertise in chicken

processing, vertical integration, establishing relations with suppliers and customers

Bargaining power of buyers: Low Prices are determined by the market

Large number of buyers

Customer loyalty to Sanderson brand

Threat of substitute products: Low Red meat – expensive, unhealthy

Seafood – expensive

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EXTERNAL ENVIRONMENTTask – Six forces

Bargaining power of suppliers: Low Large number of suppliers – feed grains, pullets, cockerels, cooking

and packaging materials

Market determines grain prices

Rivalry among competing firms: High Market is matured with few major players

No price war, competition based on quality, service, value added products

Relative power of governments: High Tight regulations – USDA, FDA – Food safety, Environment, Labor, etc.,

Import and Export trade restrictions

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EXTERNAL ENVIRONMENTTask – Six forces

Sanderson Farms

Threat of New Entrants

LOW

Bargaining Power of Buyers LOW

Threat of Substitute Products

LOW

Bargaining Power of

Suppliers LOW

Rivalry among

Competing firms HIGH

Relative Power of

Governments HIGH

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EXTERNAL ENVIRONMENTExternal Factor Analysis Summary

External Factors Weight Rating Weighted Score Weighted Comments

OPPORTUNITIES  

Demographic favor for poultry meat 0.1 5 0.5 Increase risks of illness, tied with consumption of red meat, led people to eat more chicken.

Geographical opportunity to expand 0.05 4 0.2 Most of SAFM production facilities are in the south; where generally price of a land is relatively cheap compare to other locations in the country.

Numerous energy source/potential 0.05 2 0.1 SAFM could lower its energy costs significantly if the plan for renewal energy standard is put into place.

GDP growth 0.05 2 0.1 Rising inflation rate leads to lower gasoline price; allowing SAFM to run their daily activities while increasing company net profits.

Technological advancement/Better efficiency 0.05 2 0.1 SAFM is using innovative technologies to continue reducing the dependency of groundwater.

USDA chicken consumption 0.1 2 0.2 Consumption of chicken has increase by 2% since 2014

Increasing global demand 0.1 1 0.1 High global demand of poultry, facilitate the company to operate globally

Brand Awareness 0.1 5 0.5 Sanderson continues to focus on product differentiation in relation to its competitors and its campaign on 100% natural chicken.

Suppliers raw material 0.1 3 0.3 Commodity products have numerous suppliers and they must adhere to the market price

New Facility Plant Processing 0.05 3 0.15 New plant is projected to increase SAFM total production capacity and increase market share.

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EXTERNAL ENVIRONMENTExternal Factor Analysis Summary

External Factors Weight Rating Weighted Score Weighted Comments

THREATS  

Environmental condition 0.05 3 0.15High prices for feed due to drought or any disease outbreak will affect profitability

Tight Regulations 0.1 4 0.4Can adversely affect operations, which might increase costs and customers might not pay the same price they normally pay.

Poultry price going up 0.05 3 0.15If poultry price continue to increase; we might see shifts in consumers preferences.

USA international operation and political division 0.05 1 0.05 Change in US foreign relations will affect global exports

Totals 1   3  

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INTERNAL ENVIRONMENT

Corporate Structure

Corporate Culture

Corporate Resources Marketing

Finance

R&D

Operations

Information Technology

HR Management

Strengths and Weaknesses (SWOT)

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INTERNAL ENVIRONMENTCorporate Structure

Corporate

Production Processing Foods

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INTERNAL ENVIRONMENTCorporate Culture

Strong Cultural Intensity Hard work, quality, customer service

Honesty, integrity and ethics

Employee training, growth and leadership development

New hire requirement - Cultural fit a must

Strong Cultural Integrity Corporate responsibility council and program

Hierarchically controlled

Organic growth

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INTERNAL ENVIRONMENTMarketing PLACE

south, southeast, southwest, northeast/

retail, big bird deboning

PRICEMarket price,

negotiated with customers

PROMOTIONI Believe, Giving Back, commercials, Social media, coop, quality,

values

POSITIONING100% natural

chicken, superior customer service,

value added products

PROFITHigher margin (big

bird), Higher production pounds

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INTERNAL ENVIRONMENTFinance

Capital expenses for 2014 - funded by cash on hand and from operations

Revolving credit facilities Limit $600M

Yearly capital expenditure limit - $75M, Carry over limit - $15M

Palestine – $155M

Another plant – $140M

In line with its financial strategy: clean balance sheet

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INTERNAL ENVIRONMENTFinance

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INTERNAL ENVIRONMENTFinance

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INTERNAL ENVIRONMENTFinance

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INTERNAL ENVIRONMENTResearch and Development

No research and development

Reason Competitive advantage based on patent cannot be sustained

Increases Selling General & Administrative expenses

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INTERNAL ENVIRONMENTOperations

Vertical integration (Value chain - Hatching to distribution)

Fully automated and standardized machinery

Organic growth Design to specification improves efficiency

Modern environmental policies

Plant site 50 point of interest including contract grower base, sustainable, rail

services, environmental concerns

Quality control Incoming feed grains to final packaging

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INTERNAL ENVIRONMENTInformation Technology

Modern technology used for automation

Beta Raven – software Control room

Monitor all segments of the plant

MTech systems Monitor and schedule feed distribution

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INTERNAL ENVIRONMENTHuman Resources

11, 461 – 1,471 salaried, 9,990 hourly

Diverse disciplines

Intense training programs – 24 months Hands on experience in all areas of business

Principles, values and culture

Job related training programs

5 Advanced training programs for managerial positions

Internships - paid Road shows

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INTERNAL ENVIRONMENTHuman Resources

Quarterly performance review and salaried orientation

Quarterly leadership initiative for effectiveness

Very good benefits package insurance

stock ownership

High employee loyalty – tenure 40+ years

Labor Unions (Hammond, Louisiana and Bryan, Texas) United Food and Commercial Workers international Union

No strike-no lockout agreement

Protests in Hazlehurst, MS for poor working conditions

Lawsuit for hiring undocumented immigrants – Moultrie, GA

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INTERNAL ENVIRONMENTInternal Factor Analysis Summary

Internal Factors Weight Rating Weighted Score Comments

STRENGTHS  

Economies of scale 0.2 4 0.8 Third largest company

Skilled employees 0.05 3 0.15 Leadership culture

Financial stability 0.2 5 1 Clean balance sheet

Track record of growth 0.1 3 0.3 Stock prices

Sustainability practices 0.05 2 0.1 Efficient use of resources

WEAKNESSES  

Lawsuit 0.05 1 0.05 Labor union issues

No research and development 0.1 1 0.1 Long term sustainability without innovation is difficult

Limited product diversity 0.2 3 0.6 To gain competitive advantage

Poor Working conditions 0.05 3 0.15 Employee complaints

Total 1   3.25  

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SWOT ANALYSISStrategic Factors Analysis SummaryStrategic Factors Weight Rating Weighted Score

DurationComments

Short Intermediate Long

Financial stability (S) 0.2 5 1   X   Clean balance sheet

Economies of scale (S) 0.1 4 0.4     X Competitive position

Demographic favor for poultry meat (O) 0.2 4 0.8     X Consumer awareness

Increasing global demand (O) 0.1 2 0.2     X Export to developing countries

Limited product diversity (W) 0.1 3 0.3 X     Narrow market segment

No research and development (W) 0.15 1 0.15     X Need innovation to grow

Tight regulations (T) 0.05 4 0.2   X   Increases operating costs

Environmental conditions (T) 0.1 2 0.2 X     Uncertainty

Total 1   3.25        

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Problem Statement

The issue faced by the company is its lack

of breadth in its product line and lack of

innovation due to its objective of being in the

top 10% of the industry that has been already

achieved and is not challenging anymore.

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CURRENT STRATEGIES

Corporate Strategy

Growth

Organic growth

Vertical Integration

Functional Strategy

Operational strategy: Sustainability and cost saving

Marketing strategy: Differentiation

Financial strategy: Clean Balance Sheet

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STRATEGIC ALTERNATIVES

TOWS MATRIX

STRENGTHS (S) WEAKNESSES (W)

·      Financial stability ·      Limited product diversity

·      Economies of scale ·      No research and development

·      Sustainability practices  

OPPORTUNITIES (O)SO STRATEGIES WO STRATEGIES

(Horizontal Integration & Marketing Strategy) (Related Diversification)

·      Demographic favor for chicken meat ·      Expand geographically·      Expand product portfolio to take advantage of demographic favor for chicken and other poultry products.

·      Increasing global demand ·      Increase marketing efforts·      Increase brand awareness by diversifying into related product markets.

·      Brand Awareness    

THREATS (T)ST STRATEGIES WT STRATEGIES

(Operations & Financial Strategy) (Related Diversification & R&D Strategy)

·      Tight regulations·      Implement improved environment sustainability practices.

·      Diversify to counter increasing chicken prices.

·      Natural environmental conditions·      Use financial stability to minimize the impact of adverse natural conditions.

·      Innovate to deal with threats.

·      Poultry price going up    

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RECOMMENDED STRATEGIESShort-Term

No-change

Excellent performance

No immediate threats

Recover capital investment costs

Continue operational and financial strategies

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RECOMMENDED STRATEGIESLong-Term

Related Diversification Overcome narrow product portfolio

Meet environmental threats and reduce risk

Egg & Turkey market

Commonalities in value-chain activities and customers

Inelastic demand for Egg

Acquisition of smaller companies

Marketing Strategy Brand extension

Pull strategy

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IMPLEMENTATION, EVALUATION & CONTROL

Implementation Who?

All the employees are involved due to integration

What?

Programs, action plans, procedure focus on integration

How?

Change in structure from divisional to matrix

Hire analytical portfolio manager and form cross-functional teams

Job enlargement and Job rotation

Reward team work, training, knowledge sharing and problem solving

Assimilation or integration of cultures

Evaluation & Control Steering, Behavior, Output and Input controls

Financial metrics

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Q? & A!


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