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Contemporary Management Accounting

GCSA Report Coles Group Limited

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Contemporary Management Accounting

Executive Summary This report was produced in response to the request made by Coles Group Limited management to design a Balance Scored to measure the performance of the company and recommend a contemporary management technique to be incorporated into the management accounting system. Secondary research was done to create a PEST and SWOT analysis. The PEST analysis (section 3.1) gives an analysis of the factors in the supermarket industry as a whole. This was used to carry out a SWOT analysis (section 3.2), which provides information about the factors facing Coles as a company. The SWOT analysis was used to identify the Critical Success Factors. Critical Success Factors were used to design and create a Balance Scorecard. The Balanced Scorecard outlines the objectives of Coles needed to achieve their vision and purpose. The recommended contemporary accounting technique is a Customer Relationship Management system. This was decided based on the objectives outlined in the Balanced Scorecard design. The Customer Relationship Management system allows the company to cater to the needs of the customers as it tracks customer behaviour. This allows the improvement of business performance, marketing, online services and increase profits.

The information in this report was obtained from journals, articles, databases and organization websites. Due to the use of company reports and the company website, the findings and objectives in the report may be favorable to the company and bias.

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Contemporary Management Accounting

Table of Contents Executive Summary..................................................................................................................................... 2 1.

Introduction.......................................................................................................................................... 4

2.

Research and Investigation Process................................................................................................... 4

3.

Findings and Recommendation........................................................................................................... 4

Part A: Performance Measurement and Management.................................................................................4 3.1 PEST Analysis....................................................................................................................................... 4 3.2 SWOT Analysis........................................................................................................................................................................................... 6 3.3 Critical Success Factors (CSFs) and Strategic Objectives........................................................................................................7 3.4 Balanced Scorecard (BSC) design recommendation................................................................................................................ 8 3.5 Explanation of BSC design and Strategy Map............................................................................................................................. 9 PART B: Contemporary Accounting Technique..........................................................................................10 3.6 Recommended technique................................................................................................................................................................... 10 3.7 Reasons for Recommendation of Technique.............................................................................................................................. 10 3.8 Potential Issues with Implementation and Integration into MAS....................................................................................11 4. Conclusion............................................................................................................................................. 11 5. References............................................................................................................................................ 12 6. Appendix A: The CRM Capabilities........................................................................................................13

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Contemporary Management Accounting

1. Introduction Coles Group Limited is an Australian retail company involved in the supermarket, financial services and hotel industry. It is famously known for its involvement in the supermarket industry and it holds 29% of the market share. It recently underwent a demerger from Wesfarmers, which has resulted in the reduced industry-related profit over the period. This report highlights the key objectives Coles Group Limited needs to achieve to improve and be competitive in the supermarket industry. These objectives will assist in achieving the Coles vision of becoming the most trusted retailer in Australia and grow long-term shareholder value and their purpose of sustainably feeding Australia (Coles Group).

2. Research and Investigation Process The process of research and investigation were conducted with the cooperation of each member in order to provide an understanding of PEST analysis and SWOT analysis. The information and articles were collected from different sites and sources in order to support the research. The analyses are used to generate the CSFs, and design recommendations regarding acceptable contemporary accounting techniques and strategy.

3. Findings and Recommendation Part A: Performance Measurement and Management 3.1 PEST Analysis a.

Political factor: impacts the profitability or chances of the company. It may affect not only

the host country but also other countries that engage in trade activities with Coles. Factor that affect Coles: -

The political stability of Australia

-

Integrity of the politicians

-

Law that country enforces such as contract law (what is permitted and prohibited)

-

Trade barriers could be a protection, or it can be harmful to the company, in terms of export and import of goods

-

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Taxation system

Contemporary Management Accounting b.

Economic factor: such as inflation rate, foreign exchange rate, interest rate, GDP and current stage of economic cycle can affect the aggregate demand and aggregate investment of the company. -

Economic system that currently operates can affect Coles. Coles is in a perfect competition environment as it competes with Woolworths and Aldi.

-

Rate of GDP growth impacts the growth of Coles. Higher GDP means a higher standard of living, so more customers for Coles.

-

Interest rate of the country affects loans and investments.

-

Financial market operation

-

Exchange rate impact the profitability engaged in international trade. Stable currency encourages more international investors.

-

Level of unemployment. High level of unemployment means more supply of job, lead to lower wages, lower cost for Coles.

c.

Social factor: reflection from society that Coles operates in such as culture, beliefs, attitudes and values of the majority of people as a community. Important for both operation and marketing aspects of Coles. Need to understand the lifestyle of customers, level of education and belief in a society. Factors that should be considered: -

The demographic of population, e.g. cosmetic target more on women

-

Class distribution, for example, if there are more upper class then the more expensive items are sold as well as relatively cheaper items. Household income determines the type of items bought by customers.

-

Educational background

-

Health standards such as reaction of customers to harassment claims and environmental protection. Coles has contributed to the use of less plastic by charging for single use plastic bags and encouraging customers to bring their own reusable shopping bags.

d.

Technological factor: is important for providing constantly and consistently innovate products to maximize profit as well as be a market leader. Factors that influence Coles:

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-

Technology development made by competitors.

-

How fast the technology can diffuse to the competitors

-

How much improvement can be made/ transform what a product initially offers

-

Impact of technology costs

Contemporary Management Accounting

3.2 SWOT Analysis

Code S1

S2

Strengths ●

●

Code

Effective pricing strategies with

W1

Weaknesses ●

Persistent problems from suppliers.

frequent discount and promotional

The drought affecting farmers affects

offers

Coles products.

Consist of different level of generic

W2

●

The company operates on lower

brand to target specific type of buyer. S3

●

Sustainability and environmentally

margin compared to competitors. W3

●

Not defined positioning and selling

friendly S4

●

Online and delivery service

proposition. W4

●

Lack of investment in new technologies.

S5

●

Has almost 2500 stores and employ

W5

●

Limited success outside core

over 115,000 people. S6

●

business.

Good Returns on Capital expenditure (Fern Fort University)

S7

●

Strong free cash flow (Fern Fort University)

S8

●

High level of customer satisfaction (Fern Fort University)

Code O1

Opportunities ●

Sponsorship and marketing can help

Code T1

Threats ●

boost business.

Competition in the industry has led the food prices to drop drastically to low margin

O2

●

To seize greater control of the supply

T2

●

chain (private label strategy)

Consumers might get confused with generic brands due to lack of a clear distinctive communication

O3

●

Expand geographically to reach out new regions globally

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T3

●

Increase in smaller business competitors

Contemporary Management Accounting

O4

●

Growth opportunity in liquor market. T4

●

Market is evolving as there are new business models and ideas.

O5

●

New advanced technologies allow Coles to practice differentiated pricing strategy. (Fern Fort University)

3.3 Critical Success Factors (CSFs) and Strategic Objectives Critical Success Factors of Coles derived from the SWOT analysis

SWOT

Critical Success Factors (CSFs)

BSC Perspective

S1, W2, T1

Increase profit margin

Finance - 1

S6

Improve new revenue streams

Finance - 2

T2, S2

Using private label brand to specify their own

Customer - 1

Code

products and variety of options S8

Active strong relationship management and good

Customer - 2

brand equity S1, S4,

Maintaining the online service and seeking new

W4,O5

advanced technology

O1, T4

Improving marketing and business performance

Internal business process - 2

O2, O4, W5

Assist business growth

Internal business process - 3

S3, O3

Maintain the business brand extension globally

Learning & growth - 1

S5

Maintain the growth of business

Learning & growth - 2

T4, O1, O2

Using new business ideas and new marketing

Learning & growth - 3

strategies

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Internal business process - 1

Contemporary Management Accounting

3.4 Balanced Scorecard (BSC) design recommendation Balanced scorecard includes lead and lag measures linked from the previous Critical Success Factors

BSC Perspective

BSC Objectives

Lead Measures

Lag Measures

Finance - 1

Increase profit margin

Quantity of private label

Percentage change in

products stocked

profits during the time

Increase share capital

High assets turnover

Improve on brand

Volume of advertising

Net Promoter Score

performance

cost

(NPS) for Coles

Finance - 2

Improve new revenue streams

Customer - 1

subsidiary brands Customer - 2

Improve relationship

Good feedback on

Customer satisfaction

management and good

services and products

survey

brand equity Internal business

Maintaining the online

Increase of online

Change in customer

process - 1

service and seeking

buyers

service satisfaction

new advanced technology Internal business

Improve marketing and

Increase business

Change in business and

process - 2

business performance

facilities and resources

financial performance

Internal business

Improve business

Increase business

Change in timeliness

process - 3

channels

distribution and retails

Learning & growth - 1

Improve to achieve

Extension of products to

Level of customers

business goals

meet customers' needs.

satisfaction

Developing the

Extension of the brand

Level of popularity

business name

and outlet

Business development

Gain of business benefit

Level of business

and research

and outcome

performance

Learning & growth - 2

Learning & growth - 3

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Contemporary Management Accounting

3.5 Explanation of BSC design and Strategy Map Coles vision is to become the most trusted retailer in Australia and grow long-term shareholder value (Coles Group 2012). Coles aim to provide food to customers with healthy purpose, making jobs for employees, and help supplier to make a positive transformation within right strategy (Coles Group 2012).

PART B: Contemporary Accounting Technique 3.6 Recommended technique The recommended contemporary management accounting technique for Coles is the Customer Relationship Management (CRM) system. This is a system for collecting and managing customer

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Contemporary Management Accounting information, and the interactions a business has with its customers, suppliers, sales leads or other businesses. The system collects data on customer behaviour and is used to establish strong customer relations. It moves away from a product-focused approach to a customer-focused approach. The information collected is available to all departments of the company, therefore they can collaborate and increase productivity.

3.7 Reasons for Recommendation of Technique The CRM system is accessible to all departments of the business; therefore, it assists in accomplishing the BSC objectives outlined in 3.4. The CRM system gathers data about customer behaviour; therefore, the company can track customer purchases to determine popular items. This allows the company to make use of tools such as sales force automation, forecasting and lead management to help increase sales. Successful implementation of CRM can help firms achieve a 270% increase in business profits and this is shown by empirical studies that have been carried out (Ryals cited in Wang and Feng 2012). There was also an increase stock price, customer loyalty and customer satisfaction. A study by Wang and Feng (2012) has shown that CRM capabilities can contribute to superior business performance. The CRM system has many components and antecedents working together to establish and enhance business performances. The diagram in Appendix A shows how this works. Marketing can be improved by CRM as it enables highly targeted marketing to reach specific types of customers for specific products. It can also help determine the most effective marketing strategy. This is because the CRM system stores massive amounts of customer data, which include buying behaviour, social media use by customers and online service. Research has shown that strong marketing capabilities can result in high business performance (Day, Srivastava et al, Krasnikov and Jayachandran, Vorhies and Morgan cited in Wang and Feng 2012). Customer feedback can be taken to improve customer relationships. In addition, the system can store and follow up on customer leads, which helps to find new customers. Finding new customers can help improve revenue as new customers results in an increase in sales.

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Contemporary Management Accounting

3.8 Potential Issues with Implementation and Integration into MAS CRM has been widely embraced by business and it is gaining traction. However, improper implementation can cause issues and they are business which has failed CRM initiatives. The first issue with the implementation of the CRM system will be the employees. Coles will need to train and educate employees on all levels of the organization about the CRM system before implementing it. This is because the CRM systems are integrated into all the departments and there needs to be effective communication in order for the system to be used. The CRM system requires appropriate business processes and integrated systems (Bull 2003). Another issue with the implementation of CRM is at the top management level. Research has shown that if top management views CRM as critical to the organization, the higher is its association with the perceived success of CRM initiatives (Bohling, Bowman, LaValle, Mittal et al 2006). Top management needs to be seen as actively involved in the implementation of the system in order for lower level management to effectively implement it as well. Therefore, effective leadership is required to implement CRM successfully. Girishankar (cited in Bull 2003) states that organizations should take a holistic approach when implementing CRM. A holistic approach can help organizations to coordinate and effectively maintain the growth of communication channels while using CRM (Bull 2003). Effective contingency strategies and evaluation within the CRM strategies can also help maintain the CRM implementation.

4. Conclusion In summary, this report gives information that will help Coles Group Limited to improve on its key objectives and values. The PEST and SWOT analysis...