TC Management Consulting
CanGo Final Report
Jerry Rhoton
Beth Patrick
Julio Onesto
Daniele O’Leary Reed
Felecia Moore
DeVry University
Senior Project SPRB10 – Section
BUSN460
Robert Armbrust
June 13, 2010
CanGo Final Report
2 Executive Summary
There is a direct correlation between CanGo’s ultimate success and its ability to do things
well. In order to survive in today’s highly competitive, rapidly emerging global economy, it is
imperative that CanGo streamline, thus improve, its current business practices. CanGo’s ability
to do things well is contingent upon the appropriateness of its strategic management process and
its ability to attract and retain top talent. Stated differently, CanGo must increase efforts to
employ the best people so as to ensure the best business practices. The content in this report is
intended to provide recommended solutions to problems encountered as a result of rapid business
growth.
Financial Analysis
CanGo’s financial position was measured against Apple Inc. and Amazon.com Inc., all
belonging to the Music, Video, Book and Entertainment Retail Industry (see Appendix A). The
ratios used to weigh and evaluate the operating performance of CanGo will provide some insight
as to how effectively the business is being operated.
Profitability
Profitability ratios indicate the firm’s ability to generate earnings compared to its
expenses and other relevant costs (Block and Hirt, 2008). At the end of 2009, CanGo’s profit
margin showed the company earned 10.7 cents per each dollar of sales. Not quite as high as
Apple at 21.1 cents, but better than Amazon at 3.8 cents. CanGo’s return on assets percentage of
2.33 indicates that the company is unable to use its assets to generate a profit comparably to its
competitors. The return on equity stands at 3.89%, which reveals that CanGo is unable to use
investor’s money to generate a profit.
CanGo Final Report
3 Efficiency
Efficiency ratios evaluate how well the company manages its assets. The higher the
accounts receivable turnover, the faster the business is collecting receivables and the more cash
the company generally has on hand (Missouri SB & TD, 2010). CanGo fails to collect efficiently
from customers with a turnover of 1.59 and a collection period of 229 days. The accounts
payable turnover shows how well the company is able to repay its creditors (Missouri SB & TD,
2010). CanGo’s turnover is .41 compared to Apple’s 2.72 and Amazon’s 2.58. It takes CanGo
892 days to pay its creditors in contrast to Apple and Amazon’s ability to pay in less than 150
days. The inventory ratio shows how many times a company's inventory is sold and replaced
over a period of time (Block and Hirt, 2008). CanGo’s ratio of 1.6 compared to Apple’s 94.3 and
Amazon’s 11.29 is quite low.
The fixed asset turnover ratio indicates how well the business is using its fixed assets to
generate sales. A high ratio indicates a business has less money tied up in fixed assets for each
dollar of sales revenue (Block and Hirt, 2008). CanGo’s ratio of 8.0 is quite low compared to
Apple’s 14.52 and Amazon’s 19.0. This ratio coupled with CanGo’s total assets turnover of .22
times might indicate CanGo is over-invested in plant, equipment, or other fixed assets.
Liquidity
The liquidity ratios determine how well a company is able to use its short-term assets to
pay its short-term liabilities. The higher the current ratio, the more capable the company is of
paying its obligations (Missouri SB & TD, 2010). CanGo’s current ratio stands at 1.71 and quick
ratio at .86 which suggests the company will be able to pay off its obligations only if CanGo is
able to quickly turn their inventory into cash. In the event that short-term obligations need to be
CanGo Final Report
4 paid off immediately, CanGo could run into liquidity problems if the company could not use
inventory.
Debt Utilization
Debt-to-Total assets show to what degree a firm’s assets are financed through debt.
Preferably, a company should be at 50 percent or less (Block and Hirt, 2008). CanGo meets this
expectation at 40.23 percent which is in the middle of the pack between Apple’s 33.08% and
Amazon’s 61.94%. In the event CanGo would need to invest in capital, the company would most
likely be able to get a loan.
Competitive Analysis
CanGo is one of the fastest growing firms in the Music, Video, Book and Entertainment
Retail Industry. To illustrate, CanGo’s financial statements reveal that sales revenue for fiscal
year ending December 31, 2009 was $51 million, up 495% from fiscal year ending December 31,
2008 when sales revenue was $10.3 million. Nevertheless, CanGo must contend with equally
successful firms as well as firms that possess significantly greater portions of the industry’s
market share. Other firms competing for market share (whether directly or indirectly) in the
Music, Video, Book and Entertainment Retail Industry include, but are not limited to,
Amazon.com, Inc., Apple Inc., Buy.com, Inc., CompUSA Inc., eMusic.com, and Wal-Mart
Stores, Inc. (Hoovers). Amazon.com, Inc. and Apple Inc. are among CanGo’s chief competitors.
Apple Inc, in particular, competes directly with CanGo. Like CanGo, Apple Inc. targets
Generation Y consumers. This generation:
…exerts influence on music, sports, computers, video games, and especially cell phones.
Generation Y views wireless communication as a lifeline to friend and family and has
CanGo Final Report
5 been the first to use web-enabled mobile phones to stream video, send and receive
messages, play games, and access e-mail. (Kerin, Hartley, and Rudelius, 2009, p. 74).
Apple successfully adapts its product and service features so as to appeal to this “wireless
communications” generation. Its Web-based iTunes store, for instance, allows Apple’s target
market to download music, videos, books and other media to their Apple products (e.g., iPods,
iPads, and iPhones). CanGo must remain aware of its target market’s preferences while
monitoring the apparent mobile devices trend. In analyzing Apple and other competing firms, TC
Management Consultants found that, relative to its competitors, CanGo occupies a very small
position in the Music, Video, Book and Entertainment Retail Industry.
Market Analysis
The CanGo Company experienced substantial growth in 2009 developing into a $51
million dollar business. This makes it strategically important to analyze the challenges CanGo
will encounter with book sales and MP3 sales in 2010 as well as their new $30 million venture
into Online gaming. The market analysis will examine CanGo’s position in the book, MP3, and
gaming industry.
Strengths
• Rapid books sales - $7 Million to $15 Million from 2008 to 2009
• Strong sales in online gaming division - $25 Million in revenue for 2009
• Secure sales in MP3/CD/DVD department - $8 Million in revenue for 2009
• Knowledgeable of target market – Generation X and Y
Weaknesses
• No clear mission or vision for CanGo – Where do they stand in the current market?
• Absence of strategic, tactical, and operational planning = No competitive advantage
CanGo Final Report
6 • Lack of cohesion between departments – Decisions are made without support and input
from departments affected by those decisions
• Undeveloped skills among senior staff members and employees
• Unaware of positioning against competitors
Opportunities
• Substantial market in books – Estimated $23.9 Billion in net book sales and $2.6 Billion
for adult book sales in 2009 (AAP, 2009)
• Expand product mix with electronic readers – E-book sales increased by 176% in 2009
(AAP, 2009)
• Demand for On-the-Go entertainment
• Demand for MP3 players in U.S. poised to grow at a steady rate of 50% a year – More
profitable than TV’s, VCR’s or DVD players (Menta, 2004)
• Online gaming market is significant
Threats
•
Hardcopy book market sales fell 1.8% in 2009 (AAP, 2009)
•
Online Gaming difficult to design, build, test, and support = costly ongoing investment
•
Tough competition in MP3 division – Apple, Microsoft, Creative, and Sony
•
Apple’s customer loyalty makes it difficult to gain market share in MP3 division
Recommendations
Immediate
It is our recommendation that CanGo analyze their finances quarterly and yearly to
monitor setbacks and improvements. Use financial ratios to determine where improvements can
be made within the organization and to benchmark where CanGo stands against competitors.
CanGo Final Report
7 TCM also recommends that CanGo use financial data to carefully make investment decisions in
the future.
Short-Term -- Strategic Implications
CanGo must take the first step by converting the shifting sand foundation, upon which
CanGo was built and now stands, to a solid, cohesive entity rebuilt on solid ground – personified
by effective leadership and solid performance. CanGo must make the necessary process changes
to solidify their structure throughout the organization. The days of Band-Aid fixes, perpetual
lack of leadership/strategic forethought and pandemic excuses currently plaguing every
department is over. TC Management strongly recommends CanGo invest in making necessary
change by not only following but also committing and adhering to the “Criteria for Performance
Excellence” as developed by The Malcolm Baldridge National Quality Award. This platform is
NOT a bandage; it is a viable and vital, long-term commitment and methodology to succeed by
using effective, well-known and proven criteria to ensure CanGo a position as a leader in their
current markets, as well as any market they venture.
We do not expect CanGo to actually pursue the well-known and highly revered Baldridge
award, at least at this time, but to focus on process improvements set forth within it – throughout
the entire organization. These criteria/guidelines will provide “a valuable framework,” which
will assist CanGo by engaging their workforce in not only measuring performance, but also
determining which methods to put in place in order to improve communication, productivity,
efficiency and effectiveness throughout the organization in order to reach strategic, well-planned
goals. CanGo must use this valuable program to move beyond infancy to eliminate their current
react mode by having policies, procedures and standards already in place to prevent problems
CanGo Final Report
8 from occurring in the first place. The criteria begins with leadership and an “Organizational
Profile” and are subsequently “embodied in seven categories:”
1. Leadership
2. Strategic Planning
3. Customer Focus
4. Measurement, Analysis, and Knowledge Management
5. Workforce Focus
6. Process Management
7. Results (Baldridge National Quality Program: Criteria for Performance
Excellence, 2009)
Figure 1: Baldridge National Quality Program: Criteria for Performance Excellence,
2009. (See Appendix B for overview)
CanGo Final Report
9 We realize the enormity of this first step, but the problems at hand necessitate a
commitment to enormous change that attains sustainable results, otherwise, competitors will
quickly catch up and pilfer CanGo’s current customer base, leaving CanGo with nowhere to go
but out of business. This economy slows for no one; without drastic measures, CanGo’s legacy
of mismanagement and company-wide lack of structure will leave them in the dust of
competitors who secured their foundation and are eager to quickly play catch-up in order to steal
market share.
Medium/Long-Term -- Marketing Plan
Taking into consideration how important the book division is to CanGo’s success, it is in
the company’s best interest to consider increasing their market share by expansion of their target
audience. Industry sales of children and juvenile books for 2009 were $3.2 billion (AAP, 2009).
Since the staff and employees are X and Y’ers with young families, adding these titles to the
product portfolio is a sound strategic move. The demographics give CanGo insight into the most
popular titles and the capital expenditure for additional space is addressed by the ASRS systems.
While hardcopy book sales declined in 2009, sales of e-books increased. In fact there are
500,000 book titles available for electronic readers and according to the AAP e-book sales
increased by 176% in 2009 and Audio book sales totaled $192 million (AAP, 2009) making the
addition of e-books and Audio books to their portfolio a logical strategic move.
From a strategic standpoint, moderate game players are the “great untapped market
segment of online game players” (Patrovsky, The Market for Online Games, 2003). CanGo has
the opportunity to build a niche that heavily markets to the needs and desires of moderate game
players. This section of the market tends “to spend substantial amounts of time and money on
games” (Patrovsky, The Market for Online Games, 2003)
CanGo Final Report
10 Figure 2: Patrovsky, J. M. (2003, April 4). The Market for Online Games.
Online gaming is a growing market, but CanGo must move forward with much
trepidation and research their market completely and carefully. Moving forward without
answering the following questions will not only threaten their current position in the market, but
also could also eliminate their presence all together and jeopardize the company financially as a
whole. They not only need to know the competition and their stance in the market, but also ask
themselves:
•
What is CanGo selling on the game play side?
•
What is CanGo selling on the in-game community side?
•
Is CanGo covering the socializing element of online game play?
•
Who are we targeting: hardcore, moderate or mass market players?
•
Are CanGo developers experienced in PW games?
•
What are developmental, scaled testing, network operators, and bandwidth and
hardware costs?
•
How long is the developmental phase?
CanGo Final Report
11 •
What is the entire cost from concept to shelf?
•
What is the ROI and in what timeframe?
(Patrovsky, The Market for Online Games, 2003)
Lastly, CanGo must understand and live by one critical and underlying concept of online
gaming: “A PW isn't just a game; it is also a service” (Patrovsky, The Market for Online Games,
2003). Anything less will surely cause this division of CanGo to crumble before it ever reaches
its potential.
The MP3 field is a very competitive market dominated by few. We recommend CanGo
form a strategic alliance with its competitors. Instead of competing with the major players in the
MP3 market, CanGo can become the retailer for its competitor’s products. CanGo can work with
the four dominating MP3 providers, Apple, Microsoft, Creative, and Sony and sell their products
through their e-commerce forum. This turns CanGo’s position in the MP3 market from
competitor (with Apple, Microsoft, Creative, and Sony) to retailer for their competitors’
products. Conclusion CanGo, despite its overall perpetual lack of management skills, strategic planning and
chaotic atmosphere, is a growing company. To continue this growth pattern, CanGo must
commit to not just change but complete reform as they move forward. Opportunities abound, but
CanGo must stay methodically focused on each task at hand. The success of each step depends
on many elements, one of which is their ability to be flexible and committed throughout the
process and through all implementations.
CanGo Final Report
12 References Active Learning Technologies. (Producer). (2002). Concepts of Strategic Management [Web].
Available from DeVry University.
Amazon.com Inc., (2010) Key statistics. Retrieved May 25, 2010 from Yahoo! Finance web site:
http://finance.yahoo.com/q/ks?s=AMZN+Key+Statistics
Apple Inc., (2010) Key statistics. Retrieved May 25, 2010 from Yahoo! Finance web site:
http://finance.yahoo.com/q/ks?s=AAPL+Key+Statistics
Baldridge National Quality Program: Criteria for Performance Excellence. (2009). Retrieved
May 20, 2010 from National Institute of Standards and Technology:
http://www.baldrige.nist.gov/PDF_files/2009_2010_Business_Nonprofit_Criteria.pdf
Block, S., & Hirt, G. (2008). Foundations of financial management. New York, NY:
Irwin/McGraw-Hill.
CanGo. (n.d.). Financial Information. Retrieved from
http://www.devryu.net/ec/Courses/13775/CRS-DVUO2148869/Flash/BUSN460/CanGo_Intranet/htm/financialinfo.html
Hoovers.Com. (2010). Music, Video, Book & Entertainment Retail Industry. Retrieved on May
24, 2010, from http://www.hoovers.com/industry/music,-video,-book-&-entertainmentretail/companies/--HICID__1542,Page__1--/free-ind-companies.xhtml
Kerin, R. A., Hartley, S. W., & Rudelius, W. (2009). Marketing. (9th ed.) New York: McGrawHill Irwin
Menta, R. (2004, September 21). MP3 Portable Market to Hit $52B by 2008. Retrieved on May
6, 2010 from http://www.mp3newswire.net/stories/2004/mp3boom.html
Missouri SB&TD. (2010). Financial ratios. Retrieved May 27, 2010 from
CanGo Final Report
13 http://www.missouribusiness.net/sbtdc/docs/financial_ratios.asp
Patrovsky, J. M. (2003, April 4). The Market for Online Games. Retrieved May 20, 2010, from
Peachpit: http://www.peachpit.com/articles/article.aspx?p=31444
The Association of American Publishers (AAP). (2009).
http://www.publishers.org/main/IndustryStats/indStats_02.htm
CanGo Final Report
14 Appendix A
Profit Ratios
Profit Margin
Return on Assets
Return on Equity
Efficiency ratios
Accounts Receivable Turnover
Accounts Receivable Collection Period
Accounts Payable Turnover
Days Payable
Inventory Turnover
Fixed asset Turnover
Total asset Turnover
Liquidity Ratios
Current Ratio
Quick Ratio
Debt utilization ratios
Debt to Total Assets
CanGo
Apple
Amazon
10.76%
2.33%
3.89%
21.15%
18.72%
33.97%
3.83%
8.74%
23.99%
1.59
229
.41
892
1.60x
8.00x
0.22x
9.54
38
2.72
134
94.30x
14.52x
0.90x
19.45
19
2.58
142
11.29x
19.00x
1.77x
1.71
0.86
2.64
2.70
1.53
1.04
40.23%
33.08%
61.94%
Apple Inc. and Amazon.com financial information retrieved from Yahoo! Finance
*All calculations were generated using the annual financial reports for 2009
CanGo Final Report
15 Appendix B
Excerpt from: Baldridge National Quality Program: Criteria for Performance Excellence,
2009-2010
(Reference: Page 1) Criteria for Performance Excellence Framework
The requirements of the Criteria for Performance Excellence are embodied in seven Categories, as
follows:
1. Leadership
2. Strategic Planning
3. Customer Focus
4. Measurement, Analysis, and
Knowledge Management
5. Workforce Focus
6. Process Management
7. Results
The figure on page iv (Figure ___) provides the framework connecting and integrating the Categories.
From top to bottom, the framework has the following basic elements.
Organizational Profile
Your Organizational Profile (top of figure) sets the context for the way your organization operates. Your
environment, key working relationships, and strategic challenges and advantages serve as an
overarching guide for your organizational performance management system.
System Operations
The system operations are composed of the six Baldridge Categories in the center of the figure that
define your operations and the results you achieve.
Leadership (Category 1), Strategic Planning (Category 2), and Customer Focus Category 3) represent
the leadership triad. These categories are placed together to emphasize the importance of a leadership
focus on strategy and customers. Senior leaders set your organizational direction and seek future
opportunities for your organization.
Workforce Focus (Category 5), Process Management (Category 6), and Results (Category 7) represent
the results triad. Your organization’s workforce and key processes accomplish the work of the
organization that yields your overall performance results.
All actions point toward Results—a composite of product, customer, market and financial, and internal
operational performance results, including workforce, leadership, governance, and societal responsibility
results.
CanGo Final Report
16 Appendix B (Continued)
The horizontal arrow in the center of the framework links the leadership triad to the results triad, a
linkage critical to organizational success. Furthermore, the arrow indicates the central relationship
between Leadership (Category 1) and Results (Category 7). The two-headed arrows indicate the
importance of feedback in an effective performance management system.
System Foundation
Measurement, Analysis, and Knowledge Management (Category 4) are critical to the effective
management of your organization and to a fact-based, knowledge-driven system for improving
performance and competitiveness. Measurement, analysis, and knowledge management serve as a
foundation for the performance management system.
Criteria Structure
The seven Criteria Categories shown in the figure are subdivided into Items and Areas to Address.
Items
There are 18 Items, each focusing on a major requirement. Item titles and point values are given on page
3. The Item format is shown on page 30.
Areas to Address
Items consist of one or more Areas to Address (Areas).
Organizations should address their responses to the specific requirements of these Areas.
(Baldridge National Quality Program: Criteria for Performance Excellence, 2009)