Chan Chicken Farms (CCF)
Ed is Chief Executive Officer (CEO) of Chan Chicken Farms (CCF). This company was set up
35 years ago as a family business selling chickens produced on the family farm. The familyquickly expanded the business by buying other chicken farms and setting up a meat processingfactory. The business was listed on the country’s Stock Exchange five years ago and a newmanagement team appointed. Ed and his fellow directors quickly established the public limitedcompany’s primary objective to be ‘maximizing shareholder value’. This was to be achieved by alow cost strategy and extending the company’s product portfolio.
Cutting costs
Ed’s first decision, after he was made CEO, was to insist that CCF stopped using traditionalmethods of raising organic chickens allowed to roam freely outdoors and focus instead onchickens kept indoors with very little space. This has resulted in lower costs of chicken meatwhich is the major input for CCF’s meat processing factory. Within the factory, training wasalso reduced – even for skilled positions such as machine maintenance employees and foodhealth inspectors. Wage rates were reduced and team working abandoned in favor of traditionalflow production. Some full time workers were replaced by workers on temporary and part timecontracts. As a result of these changes, labor productivity had fallen. At times, due to the costcuts, not enough workers were recruited to deal with peak demand levels during festival periods.
All of these changes had led to quality and supply problems which damaged CCF’s excellentreputation with consumers and food retailers. There have been two outbreaks of food poisoningcaused by CCF products that had not been cooked thoroughly. Today’s Business Recordernewspaper headline did not make good reading for Ed: ‘Health scares linked to CCF’s products’.
The Operations Director warned the Board two years ago that unit costs had not fallen asmuch as expected so the planned price reductions would not be possible. He had added: ‘Ourcompetitiveness in the market depends not just on prices but also our brand image and the typeof publicity we receive. At present, we are losing competitiveness compared to our rivals’.
Extending the product portfolio
Under the ownership of the original family, CCF sold chicken through market stalls and to majorfood retailers. The meat processing factory produced chicken based products such as pies,curries and burgers. These were sold, fresh and frozen, under the CCF brand name. The currentteam of directors has increased the product range of CCF branded goods. The productionof many other meat based products such as stews and pasta dishes is now outsourced andbought-in from suppliers before being packaged at the CCF factory and sold under the CCFbrand. ‘We can now appeal to many different market segments and we have new products beingintroduced regularly to replace ones with falling sales, such as burgers’ the Marketing Directorsaid in a recent interview with the Business Recorder. She admitted during the interview that,because of the product portfolio strategy, there might be increased storage costs and a need tospread the limited marketing budget across a wide range of different products.
Location decision
CCF’s Board has decided to relocate production of their chicken based products to a newfactory. The existing factory is old and equipment often fails. It is poorly located for transportof products to retailers. Two potential sites, P and Q, have been identified for the new meatprocessing factory. The Operations Director has a preference for Location Q as his family has ahome nearby. He has produced the data in Table 1 for presentation at the next Board meeting.‘Producing our food products from a modern and technologically advanced factory shouldallow the company to pursue its low cost strategy successfully’ he reported to the Board. TheFinance Director plans to finance the new factory from the sale of the existing site and otherinternal sources such as reducing this year’s proposed dividend payout. Ed believes that thiswould cause anger amongst shareholders who received a dividend yield of 4% last year. Inaddition, many of them are very unhappy about the bad publicity the company has received.‘I think we should borrow the additional capital required while interest rates are low’ he told theFinance Director.
Managing human resources effectively
Bella was appointed last month as the new Human Resources Director. ‘The company mustlearn from past mistakes’ she told fellow directors at the first Board meeting she attended. ‘Mydepartment accepts some of the responsibility for the quality and supply problems at the meatprocessing factory which, I think, mainly resulted from inadequate workforce planning by mypredecessor. Once the location for a new factory has been decided, I will prepare a detailedworkforce plan which will ensure that previous mistakes when dealing with employees are notrepeated. The effective management of human resources within CCF will help the companyachieve its primary objective.’
Strategies for a new direction for CCF
Ed is determined to look beyond the current problems faced by the business and focus onfuture strategies. At the next Annual General Meeting (AGM) he wants to take shareholders’attention away from CCF’s bad publicity and outline two possible strategic directions CCF couldtake. He has commissioned a SWOT and PEST analysis and, although he will not make thispublic at the AGM, he believes that these analytical techniques will help the Board recognize theappropriateness of the two strategies he is proposing (see Appendix 2 and Appendix 3).
Ed’s two possible strategies for a new direction for CCF are:
A. Take over a large food retailing company to provide guaranteed outlets for CCF’s productrange
B. Open a chicken farm in a neighbouring nation, country Y, to supply that market for the firsttime.
Questions:
a) Recommend which of the two sites CCF should choose for its new meat processingfactory. Justifyyour answer with an analysis of the data in Table 1 and other relevant information.
b) Discuss the importance to CCF of corporate social responsibility when aiming to maximize shareholder value.
c) Discuss the extent to which workforce planning for the new factory could ensure effectivemanagement of human resources.
d) Evaluate the usefulness of SWOT and PEST techniques to CCF’s directors when undertakingstrategic analysis before deciding on the future direction for the business.
e) Evaluate how the directors of CCF could ensure that future strategic changes are implementedsuccessfully.