SWOT Analysis Carvel Corporation

SWOT Analysis Carvel Corporation 1) Analysing Your Business The basic design school model most closely associated with the name of Andrews is a prescriptive conception. It is intended as a practical guide for dealing with a complex environment in which there are external as well as internal contexts relevant to the enterprise. The approach is best encapsulated in the SWOT model (Strengths, Weaknesses, Opportunities, Threats), probably the most commonly applied method in strategy making. It is often reproduced in à ¯Ã‚ ¬Ã¢â‚¬Å¡ow charts which separate out the key steps in strategy making. SWOT analysis is a technique specifically designed to help with the identification of suitable business strategies for an organization to follow. It involves specifying and relating together organizational strengths and weaknesses and environmental opportunities and threats. In practice this is often an activity that is not carried out well. It is all too easy, having identified all the important points, not to know what to do with the data generated. Many organizations evaluate opportunities utilizing an analysis framework referred to as a SWOT. SWOT is an acronym for strengths, weakness, opportunities, and threats. The ultimate goal of a SWOT analysis includes, on one hand, the matching of vital operational strengths with major environmental opportunities. On the other hand, it provides a basis for improving weaknesses or at least minimizing them and avoiding or managing environmental threats to operations. Ideally, a SWOT study helps identify a distinctive competence, something the organization does exceptionally well. There is one format for evaluating internal strengths and weaknesses in light of external opportunities by considering the application of major organizational resources. Each factor-capacity, personnel, marketing, finance, and management-is rated in relation to an opportunity on a quantitative basis. This approach is used to analyze resources as strengths or weaknesses in relation to opportunities in the organiza tions environment. For each strength and weakness identified, strategy implications are drawn. Analysis of strengths and weaknesses flows logically from the identification of the resources relative to the opportunity. From the information gathered from the external analysis, we seek to establish which influences represent opportunities, and which are, or might develop into, threats. When these are considered alongside the internal strengths and weaknesses, we are able to construct a swot statement. A swot statement is a summary of the internal and external analyses. The swot factors are not strategies; they are observations resulting from the previous analyses. The strengths and weaknesses are based on the internal analysis of an organization and the opportunities and threats are based on the analysis of the environment which is external to the organization. One key distinguishing characteristic between the strengths and weaknesses on the one hand and the opportunities and threats on the other is the degree of control that managers may have. With the internal strengths and weaknesses managers can often exert control whereas with regard to the opportunities and threats, managers are less likely to be able to control such factors. If for example the organization has strong balance sheet strength) this will have resulted from managerial decisions. If, instead the organization is seen as being over-staffed (a weakness), managers can address the issue through reducing staff numbers. Conversely, by way of example, changing government policies, product changes by competitors or a war breaking out (all of, which might produce opportunities or threats to an individual organization depending on the circumstances) are beyond the control of managers. The SWOT represents a position statement stating where the organization is at the time of the analysis in relation to its environment. It is not the strategy itself and should not involve making statements about what should be done next. Instead it provides a firm platform for planning for the future of the organization, i.e. formulating the strategy which is the next stage in the strategic process. In presenting the SWOT a number of rules should be followed: Too much detail should be avoided so that the key points can be clearly seen. Keep each point short and to the point so that an overview can quickly be gained. The detailed justifications for the points presented in the table should be presented separately. Many of the points presented in the SWOT may be relative rather than absolute and consequently a matter of some judgement. Thus it is difficult to say at exactly what level a high level of financial gearing becomes a weakness or a share of a particular market becomes strength. The SWOT should not concentrate solely on hard facts (such as financial measures or market growth statistics) that can be measured or proved. Softer factors such as organizational culture or the leadership skills exhibited by managers may be more difficult to measure but they are nevertheless important for organizational performance. The analysis should prioritise and combine points. The most important points should be shown first and points that are not key or strategic in nature should be excluded. In some cases it may be necessary to combine smaller points to make one large overarching point. For example, if a SWOT is partly based on a financial analysis of an organization which indicates a strong financial position, the SWOT should not have individual points on high level of profitability, low gearing, adequate liquidity, etc., for to do so would confuse the presentation. The point presented in the SWOT should be that is that the organization has a strong financial position. The justification for making such a point would be provided by the assessments relating to profitability, gearing liquidity and so on. The process sometimes involves an additional stage of condensing the strengths, weaknesses; opportunities and threats (SWOT) into a survey of the key issues. These are the most pressing or most important elements of the SWOT statement those which require the most urgent action or which the strategy should be particularly designed to address. Once we have established the organizations internal strengths and weaknesses, and its external opportunities and threats, the challenge becomes to select a strategy that will address the weaknesses and threats whilst at the same time, will build upon its strengths and exploit its opportunities. It is important to understand that a detailed internal and external analysis is a necessary pre-requisite for the SWOT information it emerges from the internal and external analyses. The second stage in the strategic process involves taking the important information gathered from the strategic analysis and using it to make an intelligent and informed selection of the most appropriate course of action for the future. It is at this stage that we come to appreciate the importance of the strategic analysis. If we have gained insufficient or flawed information from the analysis, then we cannot be sure that the strategy selection we make will be the right one. Selection therefore begins with an examination of the strategic analysis. Once we are acquainted with it, we normally generate a list of the options open to the organization, paying particular attention to how each option will address the key issues. After this, we evaluate each option using a number of criteria. Finally, the most appropriate strategic option is selected. A strategy is a plan that integrates an organizations major goals, policies, decisions and sequences of action into a cohesive whole. It can ap ply at all levels in an organization and pertain to any of the functional areas of management. Thus there may be production, financial, marketing, personnel and corporate strategies, just to name a few. If we look specifically at marketing then there may be pricing, product, promotion, distribution, marketing research, sales, advertising, merchandising, etc. strategies. Strategy is concerned with effectiveness rather than efficiency and is the process of analysing the environment and designing the fit between the organization, its resources and objectives and the environment. The strategic process refers to the manner in which strategy is formulated. There are several approaches. First, the rational approach, making use of tools such as SWOT analysis and portfolio models. Second, the flexible approach, which employs multiple scenario planning. The creative approach reflects the use of imagination in planning. The behavioural approach reflects the influence of power, politics and personalities. And finally, the incremental approach is based on small adjustments or changes to previously successful strategies. 2. COMPANY HISTORY Carvel Corporation had one of the oldest and most endearing histories of all the ice cream companies in the U.S. In 1934 Tom Carvel, a Greek immigrant, parlayed a flat tire on his ice cream truck into what would become a multimillion dollar franchise business. As the story had it, after a flat tire forced Tom Carvel into an abandoned parking lot one summer afternoon in 1934, Mr. Carvel quickly realized he could sell far more product in a stationary location than he ever could in the streets of Hartsdale, NY. Mr. Carvel soon borrowed $100 and opened the first Carvel Ice Cream store. Mr. Carvel used a combination of fresh ice cream and innovative products and manufacturing techniques to establish himself as the local, family-oriented ice cream parlor in the New York City area. In 1947, Mr. Carvel franchised his first store and proceeded to become one of the pioneers in fast food franchising. In fact, it was only after Tom Carvel refused his partnership offer that Ray Kroc used Mr. Carvels store design as the model for his McDonalds chain. Throughout the 1960s and 70s, the gravely voiced Mr. Carvel used his folksy and savvy style to dominate the greater New York area. By standardizing procedures and providing franchisees with exclusive product designs and marketing material, Mr. Carvel expanded all along the East Coast. By the early 1980s, there were over 800 Carvel stores in operation along the East Coast and in some Midwestern states such as Ohio and Wisconsin. Included in the company chain were over 40 stores in California. However, by the mid 1980s, the recess ion and the strain on Tom Carvel to manage his business began to take its effect on the franchise. Sales and quality control began to decline, and events forced Mr. Carvel to consider changes. In 1989, at age 88, faced with diminishing sales and increasing store closures, Tom Carvel reluctantly sold his company to Investcorp, aBahrainian-based investment banking group. The Investcorp strategy centered on acquiring previously gainful companies whose profitability had diminished in recent years due to recession. Following that strategy, between 1988 and 1992 Investcorp had purchased Macys, Sax Fifth Avenue, Tilecorp, and Carvel. By infusing new capital and bringing in a new management team headed by CEO Steve Fellingham, the former president of Kentucky Fried Chicken, Investcorp focused on growth and revamping Carvels listless image. Management was forced, however, to walk a fine line between creating a new, vibrant image for Carvel and alienating long-time, loyal customers who had grown up with Mr. Carvels occasionally awkward but always folksy style. In 1992, Carvel introduced the Ice Cream Bakery concept to its customers. Under this program, the company continued to offer long-time favourites such as Cookie Puss and Fudgie the Whale, but also introduced a new product line that featured specialty cakes and novelty ice cream treats for special occasions. By focusing on creating Carvel ice cream as a bakery dessert item, Carvel hoped to reduce both the cyclical sale pattern of the company and the perception that an ice cream cake was only for special occasions. To this end, Carvel instituted its current mission statement: Working together, we will make Carvel the leading choice for unique, quality frozen desserts by consistently exceeding customer expectations. In 1993, the company initiated its grocery store program in which Carvel displayed its own dedicated freezers in the bakery departments of supermarkets up and down the East Coast. By 1994, in the face of industry-wide declines, Carvel decided it was time to bring its Ice Cream Bakery to the Peoples Republic. 3. PRODUCT LINE Carvel Corporation offered a wide variety of ice cream products. The companys fundamental product, though, remained its soft serve ice cream and fountain line. Included in this category were: cups and cones shakes floats sundaes hard ice cream-soft ice cream that is frozen in the shock box in tubs so that it can be scooped and served as traditional ice cream. In order to promote the everyday nature of the business, though, management had introduced 4. COMPETITION Carvel Beijing faced a very fragmented market in Beijing. Generally speaking, several domestic and international companies had penetrated the market and achieved moderate brand awareness. However, no brand had yet to break from the pack and establish itself as the market leader in ice cream. The following breakdown describes the most dominant of these fragmented players: Walls was a Holland-based company and one of the market leaders in Europe and Australia. In Beijing, Walls product line was limited to cups, cones, and various other novelty treats. Mainly, their distribution was limited to roughly 3,000 rollhards from which they sold novelty ice creams, namely cups and cones. Walls was also available in several supermarkets. As one of the first western ice creams in Beijing, Walls still enjoyed the benefits of its first mover status. Beijing customers still considered Walls to be the preeminent Western ice cream in Beijing, simply due to breadth and duration of its presence. On average, Walls sold its products for  ¥4, but recently it had raised its prices to  ¥5. It was estimated that Carvel had taken much of its market share from Walls. Buds was a San Francisco-based ice cream company that enjoyed a wide presence and brand awareness in Beijing. Although only a regional brand in the U.S., in China, Buds enjoyed the reputation of being the pre-eminent American brand because it was the first American brand to appear in the PRC. To date, in a country where consumers still prized a companys tradition and longevity, both Baskin Robbins and Carvel had not yet been able to dispel Buds image. Like Walls, Buds did not have any retail store outlets. Instead, Buds sold only from nearly 600 rollhards scattered throughout Beijings markets and supermarkets. Buds only produced cup and cone products, and its prices matched those of Walls. Small cups were  ¥4.2, hard ice cream was  ¥6, and pints sold for  ¥23. Baskin-Robbins represented the most significant long term competition to Carvel Beijing for several reasons. First, Baskin- Robbins was Carvels chief rival in the U.S. and its products enjoyed more national brand awareness than Carvels. Secondly, Baskin- Robbins was the only competitor in Beijing that produced an all ice cream cake and had retail stores in which to promote them. Finally, Baskin-Robbins had a longer and broader presence in Beijing and appeared to have the positioning strategy that Carvel had targeted. Baskin-Robbins presence was mainly limited to its two retail stores. Like Carvel, Baskin- Robbins offered its customers a true ice cream parlor experience. While Carvels cakes were of better quality, Baskin-Robbins relied on its tradition of hard ice cream cones and fountain products to drive sales. Currently, Baskin- Robbins charged  ¥9 for a single scoop ice cream cone and  ¥107 for a cake comparable to Carvels small round. Baskin-Robbins did not have any wholesale outlets at this time. 5. SWOT ANALYSIS (S)trengths Carvel had the best ice cream cake in Beijing and one of the best ice creams. Carvel had received positive reviews from its customers. Training and operations had progressed well and the company was ready to increase production. (W)eaknesses Vaguely defined management roles and objectives hampered definitive marketing policies. Inability to source inputs locally continued to hamper the bottom line. Too many potential customers still did not know of Carvel Beijing. (O)pportunities Carvel was looking into involving the foreign embassy community in its sales promotions as a means of increasing both sales and potential outside business contracts. The approaching summer allowed Carvel to have a seasonal grand opening to reintroduce the brand to first time customers. Wang Mengs offer to use 6,000 New Continent vendcarts offered Carvel the opportunity to increase greatly the brands exposure at minimal cost. (T)hreats The cash flow and sales problems threatened to scuttle the proposed business plan for 1995. The competition, including Wang Meng, were quickly realizing the potential of ice cream cakes in Beijing, and Carvels competitive advantage in this area would be challenged. The dynamic political and economic environment in China presented inherent uncertainty. Beijing residents enjoyed a wide variety of dessert products. Besides ice cream products, there were numerous bakeries that offered a variety of traditional Chinese-designed cakes and pastries. These flour-based cakes were richly designed with traditional Chinese figures and styles and sold on average from  ¥100 to  ¥250 for an ornate wedding cake. Other traditional treats included pastries with a sweetened jelly or fruit paste filling. Chinese also enjoyed various types of traditional dried fruits, and they often ended each meal with a platter of fresh fruit and tea. There were also many styles of Chinese and Western candies. Furthermore, a traditional sweet treat called suan niu nai literally meaning sour milks), a yogurt-like product, was sold throughout the city for  ¥1.5. Chinese of all status enjoyed suan niu nai at all hours of the day, but it was more closely associated with the less affluent segments of society. Finally, the growth of McDonalds, Burger K ing, and Kentucky Fried Chicken had presented Carvel with other possible substitute products. More and more consumers were trying these fast food giants own desserts, such as apple pies, shakes, and their own ice cream cups and sundaes. In short, there were a wide variety of dessert and snack treats from which Chinese consumers could choose. What concerned Phil Fang, though, was that all these alternative treats were cheaper and more widely recognized than his product line. 6. CONCLUSION Having done this analysis, Fang had to plot his strategy for the rest of 1995 and beyond. More important, he had to make some very tough decisions on where he wanted to position Carvel Beijing as it entered its first and, arguably, most important summer in Beijing. Among the most pressing issues he had to face were: how to price the product: competitively or as premium product how to design and position the cakes: as American products or as more traditional Chinese products how to confront the financial problems: with short term or long term policies how to respond to Wangs vendcart proposal how to produce the mix: as the original American mix or as a less sweet mix more appealing to traditional Chinese tastes What complicated these decisions were the problems associated with a multinational joint venture: issues of personality, culture, and the joint venture agreement itself. In the end, though, it was Phil Fang who would have to overcome these challenges and seize upon the unique chance to create the first truly national brand of ice cream in the Peoples Republic of China. A good strategy is designed to fit organizational capability with environmental opportunity. It is best summarized by the SWOT approach and has very close links with the case study approach pioneered by the Harvard Business School. This school sees strategy as based on the classical approach. It is the rational product of a senior manager, usually the chief executive officer, consciously and deliberately à ¯Ã‚ ¬Ã‚ nding a à ¯Ã‚ ¬Ã‚ t between the internal strengths and weaknesses of an enterprise and the external threats and opportunities it faces. A strategy is viewed as an explicit, simple and unique conception. Formulation precedes implementation and is separate from it. There is often a range of options from which the strategy to be implemented is chosen. The one which provides the best à ¯Ã‚ ¬Ã‚ t or best design is chosen. Changes from Macro Environment Many changes from the macro environment have the potential to cripple even the best of strategies and must therefore be wa tched. Managers should note any changes in the environmental factors cited above as conducive to innovation. Potential changes in exchange rates, especially unanticipated large ones, central bank policies that raise interest rates, and taxation laws, along with demographic and sociopolitical changes, all have the potential to impact firm strategies. Managers should examine them carefully for potential threats and opportunities. In particular, they should examine the potential impact of changes in tax policies concerning the Internet. This analysis of a firms current performance, appraisal of its business model, appraisal of its competitors business models, analysis of industry attractiveness, assessment of its macro environment, projection of the evolution of the Internet, and a forecast of its environmental changes is sometimes called a strengths and weaknesses, opportunities, and threats (SWOT) analysis.