Strategic Audit Presentation Full
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Transcript of Strategic Audit Presentation Full
STRATEGIC AUDITAhmed Awan, Alamin Ahmed, Dinesh Kandasamy, Ella Niyokindi
MBA 690 – Strategic Management
Spring 2015
Huether School of Business
AGENDA
Profile & History
Current Situation
Corporate Governance
External Environment
Internal Environment
SWOT Analysis
Problem
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
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)
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%
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
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
CURRENT SITUATIONStrategic Posture
Business strategy: Build and grow (organic growth)
Differentiation (quality-100% natural chicken)
Financial strategy Clean balance sheet
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
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
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
EXTERNAL ENVIRONMENT
Natural Physical Environment: Sustainability Issues
Societal Environment Economic
Technological
Political-Legal
Sociocultural
Task environment
Opportunities and Threats (SWOT)
EXTERNAL ENVIRONMENTNatural Physical Environment
Global warming and climate changes
Weather-related events (Tornadoes, Droughts)
Geography (Texas)
The variety of energy alternatives available
Global implications?
EXTERNAL ENVIRONEMNTEconomic
GDP (Gross Domestic Product) trends
Improving Job market
Consumer spending
Oil and Gas prices
Inflation Rates
Global economy
Energy alternatives
EXTERNAL ENVIRONMENTTechnological
Advancement
Conservation efforts
Efficiency
Excellent facilities
Lab tested chicken production
EXTERNAL ENVIRONMENTPolitical-Legal
Stability of government
Special incentives
Legal objections
US Ethanol program – Rising feed prices
Immigration laws – Availability of hourly employees
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
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
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
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
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
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
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.
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
INTERNAL ENVIRONMENT
Corporate Structure
Corporate Culture
Corporate Resources Marketing
Finance
R&D
Operations
Information Technology
HR Management
Strengths and Weaknesses (SWOT)
INTERNAL ENVIRONMENTCorporate Structure
Corporate
Production Processing Foods
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
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
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
INTERNAL ENVIRONMENTFinance
INTERNAL ENVIRONMENTFinance
INTERNAL ENVIRONMENTFinance
INTERNAL ENVIRONMENTResearch and Development
No research and development
Reason Competitive advantage based on patent cannot be sustained
Increases Selling General & Administrative expenses
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
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
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
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
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
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
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.
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
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
RECOMMENDED STRATEGIESShort-Term
No-change
Excellent performance
No immediate threats
Recover capital investment costs
Continue operational and financial strategies
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
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
Q? & A!