Sample Essay on Case Study Analysis

Case Study Analysis

Situation Analysis

Baker Hardware Ltd is located in Souris, Canada, 48 kilometers south of Brandon. It is located in a town with a small population but with over 500 farms surrounding it. For the past few years, the company has been encouraged by Home Hardware, one of its major largest hardware dealers in Canada, to diversify its operations by integrating building supplies into its assortment of products for sale. However, Mr. Baker, the owner of Baker Hardware, has been reluctant because there is already another lumberyard, which increases the level of competition. Nevertheless, the new line of business is compatible with Baker’s operations and could be successful. Moreover, the only lumberyard in the area is on the verge of being closed owing to unbearable operating costs and losses incurred over the past few years.

Currently, Baker is expected to make a decision based on three available choices as follows: (1) purchase Banner Building Suppliers, (2) expand into building supplies through Home Hardware on his own premises, and (3) maintain current operations and fail to expand into building materials. In case Baker makes a financial commitment and investment, the owner will be required to borrow additional finances at an interest of 8 percent, which to Mr. Baker could be very high. Therefore, having access to finances is a problem to Mr. Baker and is thus one of the reasons why he has been reluctant to expand his operations.

SWOT Analysis                    

StrengthsWeakness
Strong reputation for having operated successfully for many years Products supplied by Home Hardware and Banner building supplies has enjoyed significant sales volumes over the yearsBaker Hardware Ltd is located in a small town with a very small population.                                                                            Decrease in the revenues and income of the local targeted peopleFinancial problems in case of business expansion/capital requirements
Opportunities               Threats
Increase in local population New demand for building materialsA market for the building supply industry Competition from large contractors and supply chains Decrease in the revenues and income of the local targeted peopleFinancial problems in case of business expansion/capital requirements


Problem Statement

Baker Hardware Ltd is faced with the challenge of expanding its operations to sell lumber and building materials. This is in spite of the available market in its town of operation. It is important to note that the only supplier or lumberyard in the town, Banner Building Supplies, is on the verge of closing down its operations indefinitely because of increase in inventories ($95000). In addition, some of the products that Banner has been selling are high compared to those from the large chains competitors in the region. As such, some of building supplies provided by Banner Building do not sell well in Souris. Additionally, it is very unlikely that Banner will compete or has a competitive advantage over the large contractors’ business, which deals with city building center. The single market for Banner is small time contractors and the do-it yourself customer.

On the other hand, Home Hardware, which is a well-established system of dealer-ownership across Canada has advised Baker Hardware Ltd to move its operations to the building supplies. However, Baker is worried about Banner’s existence. Nevertheless, Baker is faced with the financial challenge because although it has been making sales over the years, the profits have been directly proportional. In other words, Baker needs to acquire a loan in case of a financial/capital investment. In either cases, Baker requires financial support if the expansion has to take place.

Alternative

Alternative #1: Acquire Banner Building Supplies

            Baker Hardware Limited can purchase Banner Building Supplies and be the only lumberyard in the town.

Pros:Cons:
Become the sole owner of Banner Building and suppliesOwn independent lumberyardOwn a facility and large space for its operations.Maximize of the current opportunities in the marketAcquire a business, which is already in operations but in debtsIncur financial costs in terms of purchase costs $25,000 and pay debtsAcquire a company with a lot of inventories and financial debtsAcquire a company which has not been making profits since 2005

Alternative #2: Expand into Building Supplies through Home Hardware on his own premises (Franchising)

            As part of business acquisition, Baker Hardware Limited can expand by franchising after accepting the deal to operate through Home Hardware. In this case, Baker Hardware Ltd could expand into the building supplies industry via a franchise.

Pros:Cons:
  Ability to operate in the same premisesOperate business using products supplied by Home Hardware Suppliers Diversify its operations and be able to maximize on the current growth in the home concept growth.Operate under a well reputable organization and a successful brand name  The space required is large and that available to Baker is not adequateIncur financial investments Lack independence as it will be required to operate based on the specification of Home Hardware  

Alternative #3: Maintain Current Operations

            Given the financial position of Baker Hardware Ltd, the organization can opt to maintain its current operations and fail to enter into the building supplies industry. This way, it could strategize on ways revive its operations and increase profits.

Pros:Cons:
No financial requirements and commitments  Concentrate on its single line of operations  Remain uncompetitive in the marketContinue operating a business, which has reached maturity in terms of growth

Recommendations

            Alternative #2 is the most appropriate for Baker Hardware Ltd. Acquisition of Banner Building Supplies is more appropriate and preferred over alternatives 2 and 3 because Baker can easily enjoy independence and be in a position to diversify, in addition to introducing a new business concept. The second alternative requires Baker to use the business model of the franchise and to be supplied with products that Home Hardware deems necessary for the market. Although financial costs are to be incurred in the acquisition of the Banner Building Supplies, the organization can approach a bank or other financial institutions for financial support.

            To fully implement Alternative #2, Baker Hardware Ltd should first acquire financial support, acquire the business, clear debts, or arrange ways to clear the debts and start operations. Such way, Baker Hardware Ltd could counter all the cons associated with the acquisition of Banner Building Suppliers. Baker Hardware Ltd should enhance its strengths to overcome the cons associated with this alternative. Besides, the demand for building materials and the new home concept are attractive ways through which Baker Hardware Limited can maximize its profits.