Strategic Alternatives and Financial Analysis Recommendations for Keurig
The purpose of this assignment is to assess how potential value-enhancing strategies may pose risk to a firm.
Review your instructor's feedback on the Strategic Alternatives Assessment and the Financial Analysis assignments. Use that feedback to guide your analysis of the strategies that you believe will provide the most significant opportunities for your firm to manage risk and add value.
Keep in mind that increasing value for the firm does not necessarily mean expanding the business. Acquiring other firms, conducting research and development, or introducing new products and services might fall under the umbrella of value enhancement, while in other cases it may mean downsizing, rightsizing, or even refining the products and services the firm offers.
In a paper of approximately 1,500 words, revisit the strategic alternatives and financial analysis recommendations that offer the greatest opportunities to add value to your firm and assess the risks of each. Use the information you have learned about your company's business model, industry, competition, and target market in conjunction with the feedback you received on your work in the previous two topics to assist you in addressing the following.
1. In the Strategic Alternatives Assessment, you evaluated potential growth opportunities and strategies for your firm, using a SWOT analysis to assess the advantages and disadvantages of each. Recapitulate your findings here in conjunction with any instructor feedback received, identifying how you determined your proposed strategic alternative(s) and calculated potential inhibitors to each. Expand upon your initial proposed alternatives to include financial considerations.
2. Throughout the course, you have developed and submitted reports for your firm based on information that you and your CLC group have acquired and assessed. However, it is equally important to consider what other information, had you been able to locate it, would have been of value in formulating recommendations. What information are you lacking that might assist you and your team in developing and suggesting value-enhancing strategic alternatives? What information are you lacking that would assist you and your team in better assessing and managing possible risks of the proposed alternatives?
3. When it comes to making strategic recommendations to management, financial considerations weigh significantly on the feasibility and viability of the available options. Revisit the Financial Analysis assignment and, with the incorporation of any instructor feedback received, reiterate your findings on the financial condition and performance of the firm respective to the risks and benefits of forming a strategic alliance, profitability ratios, and possible value-enhancing strategies.
4. Given your instructor's feedback and considering how the financial markets have changed since you submitted your Financial Analysis assignment, how would you refine or update your assessment of the organization's current performance and financial strategies?
5. How would you use a decision matrix to determine the risks of your suggested strategic alternative and the potential financial implications for your company of pursuing this alternative? Is the decision matrix an effective tool for predicting risk? Why or why not? How does the application of the decision matrix alter what you previously chose as the most advantageous strategy?
6. Utilizing a risk matrix, identify a minimum of 10 unique risks associated with the strategic alternative you believe will provide the most significant opportunity for your firm to add value. Choose two or three of the most critical risks and discuss their potential impacts on your selected alternative.
Submit your risk matrix with your written response.
Assessing and Managing Risks
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Assessing and Managing Risks
Strategic Alternatives
Three potential strategic alternatives that Keurig should consider are product development, acquisition, and market penetration.
Product Development: As a strategic alternative, product development is an internal approach to growth that would require Keurig to come up with a new product to serve its existing market. The approach would allow the company to adapt to changing customer trends. New products will ensure that Keurig remains relevant in the market and allow the capture of a larger customer base. On the other hand, product development is a risky and expensive endeavor as there is a likelihood that the target customers may fail to take up the new product. Product development as an option was supported by the financial analysis given the indication that the company currently has a profit margin of 16.92 percent. The introduction of new products can allow Keurig to enhance its profit margin especially if the product development allows the company to serve a niche market where it can price the product at a premium.
Market Penetration: Keurig can enhance its growth by pursuing market penetration, through various approaches that allow the company to reach more customers in its existing market. The strategy involves low risk for the company given that Keurig can leverage its existing relationships and process to enhance its market penetration. The most ideal strategy would be enhancing the marketing efforts. On the other hand, the pursuit of market penetration increases the likelihood that Keurig can lead to a pricing war, especially in a saturated market. The inventory turnover ratio indicates that the company should invest more in pursuing market penetration to enhance its ability to generate sales from its operations.
Acquisition: Keurig is an external growth strategy that involves the company acquiring assets that would enhance its market share or core competencies. The strength of the approach is that it adds value to the company by enhancing its market share or allowing it to access new markets. In addition, the pursuit of acquisition allows the company to grow at a significantly fast rate given that it acquires established markets and resources. On the other hand, the approach has its weaknesses in the sense that the acquisition of a wrong target can lead to the underperformance of the company. The likelihood of overspending on an unproductive company is highly likely with the use of acquisition. The financial analysis supports the pursuit of acquisition strategy in the sense that Keurig intends to pursue inorganic options to drive shareholder value as indicated by the management’s decision to expand its capital allocation strategy to fund acquisitions (Keurig, 2021, p.38).
Information Deficit
While the SWOT analysis allowed the development of strategic alternatives, an extensive external analysis would have allowed the development of more comprehensive strategic alternatives for Keurig to pursue. SWOT analysis only allowed the scanning of opportunities and threats that are available for Keurig in the external environment, but does not allow for the extensive examination of the industry and competitive landscape. Keurig operates in a highly competitive industry with low margins, making it essential to have a clear picture of the competitive positioning of Keurig in the industry. A comprehensive external analysis would have also allowed the description of the political, technological, and environmental landscape within which Keurig operates, and their potential influence on the success of the potential strategic alternatives.
Financial Analysis
The extent to which the management will consider the pursuit of strategic alternatives depends on their financial viability. Of concern to the management is the company’s net profit margin. Notably, a profit margin of 16.92 percent as reported by the company can be considered to be low. While a net profit margin of 16.2 is acceptable, it is still low compared to the profit margin reported by some of its peers in the industry. A low-profit margin may indicate that the company gains minimal benefits from its operations and raise the likelihood of incurring losses. The net profit margin is an indicator of the levels of cost efficiency that an organization achieves, but may at times be an indicator of periodic profitability (Osazefua Imhanzenobe, 2020). Therefore, it was essential for the management to consider the potential strategic approaches that will boost the company’s net profit margin.
To this end, the use of acquisition and product development as a potential strategy would allow for the improvement of a net profit margin if implemented properly. Product development is a key tool that organizations can use to increase revenue, reduce costs, differentiate themselves from competitors, and ultimately boost the net profit margin. Notably, product development can lead to cost savings, such as through the use of new technologies or more efficient production processes, contributing to a reduction in production costs and an increase in net profit margin. In the current case, it is hoped that Keurig can develop new and differentiated products that will enable it to charge higher prices, which can also increase the net profit margin. Keurig can also use the development of new products to expand its product lines. An expanded product line will allow Keurig to differentiate itself from competitors, and gain a competitive advantage in the market.
In the same vein, a well-executed acquisition can provide a company with the resources, capabilities, and market access it needs to increase revenue, reduce costs, and ultimately enhance its net profit margins. By acquiring another company, Keurig can gain access to the acquired company's resources, such as production facilities, distribution networks, and technology, which can lead to cost savings and an increase in net profit margin. The net profit margin can be boos...