Term Paper on "Executive Management Anticipated Unanticipated Scenarios"

Term Paper 7 pages (1872 words) Sources: 8 Style: MLA

[EXCERPT] . . . .

Executive Management Anticipated/Unanticipated Scenarios

Executive Management Anticipated Scenarios

The management team at Safeway Co. has to develop and implement the best strategies that ensure the company's future success. But to do this, they have to clearly analyse the future opportunities and the changes that are likely to occur both at microeconomic level as well as at macroeconomic level. The extent to which Safeway will be able to cope with these changes can be revealed by an analysis of the corporation's internal strengths and weaknesses, along with an analysis of the economic environment's opportunities and threats.

SWOT analysis as revealed by the Safeway 2006 Fact Book and the 2006 Annual Report can be concluded in the following table:

Strengths international recognition, expansion and a good reputation;

extremely diversified and specialised product palette;

increasing revenues and profits ($35,822 million in 2004 and $40,185 million in 2006).

Weaknesses decrease of store numbers and retail square feet (1,802 stores in 2004 to 1,761 stores in 2006);

rapidly increasing expenses;

inflexibility and inability to rapidly adapt to changing government regulations increased debts ($5.9 billion in December 2006).

Opportunities increased possibilities for mergers and acquisitions;

increased interest of investors;

increased demand for supermarkets throughout the United States and across the globe

Safeway's focus on organic nutriments was well received by a population who is becoming more and more concerned with that they eat.

Threats the U.S. dollar's devaluation in report to the European Union's currency;

an increase in sales revenues based on inflation rather than the actual quantity of sold items;

rapidly changing trends and consumer expectations;

intense competition on the market;

any changes that might occur on the market and pose difficulties on Safeway.

In order to develop and implement the best operational and organizational strategies, the management at Safeway has to combine the SWOT with the expected changes that are prone to occur in the market. In this order of ideas, three scenarios are possible.

2. Scenario a the first scenario presents the corporation with the most favourable situation. As such, during the following two years, Safeway is expected to significantly increase their sales revenues and profit margins. Below is a table of the expected growth and a comparison with the reference year 2006.

Year/Indicator

Percentage Increase

Sales and Other Revenues

Gross Profit

Operating Profit

Net Income

Diluted earnings per share

Cash capital expenditures

Table 1: Estimate budget for 2007 and 2008 in millions of dollars

The growth and development adherent for 2007 and 2008 will generate an increased interest in the company's shares, several investors desiring to purchase Safeway stocks. During the year 2009, the management board will be reticent to selling a large number of stocks fearing the controlling position a new investor might gain within the company. But the executives will eventually realize that in order to maintain their growing trend and to further on expand, Safeway needs new capital. As such, an auction will be organized.

The auction will not have a public character as it will only be addressed to a restricted number of investors. The starting price for a Safeway share will be of $45, registering a 34.73% increase as compared to the closing price on the New York Stock Exchange on the 9th of October 2007. Winner will be declared the highest bidder and this will most likely be Warren Buffett, the second world's billionaire for 2007, according to the Forbes' ranks.

Following Buffett's acquisition of a large number of Safeway stocks, the company's value will increase significantly, due to a fruitful association with epitome of success Warren Buffett. The transaction value of the Safeway stock on the NYSE will reach the historical peak of $52 per share.

The company's growth will be reflected in all domains, including customer and employee satisfaction. Customers will be presented with higher standards and better quality of the products and services. Employees will be presented with better working conditions and significantly increased wages. Furthermore, with the occasion of Buffett's purchase and capital growth, all employees will receive a substantial bonus consisting of additional salaries. The premiums will be established based on each employee's individual performances, their expertise in their work field and their fidelity to the firm. As such, employees that have been working within Safeway for less than 6 months will receive one additional salary; employees working within Safeway for 7 up to 12 months will receive two salaries, the value of the premium proportionally increasing.

Also due to the association with Warren Buffett, Safeway will be granted easier access to the best trained and qualified executives on the market. The candidates will be tempted to work in a dynamic field alongside with the wealthiest and most successful man after Bill Gates. The candidates increased interest to join Safeway and the company's additional funds will allow the management board to hire the most suitable executives.

A successful strategy that will be implemented for the new managers will regard their salaries. As such, upon hiring, they will receive rather low incomes, but along the time, they will be able to participate to the company's profits. This strategy ensures that the executives' individual goals are unified with the corporations overall goal of growth and development. It also stimulates the managers to raise their performance standards.

3. Scenario B

The second scenario is a pessimistic one in which the company's development and even existence are threatened. The changes in the macroeconomic environment generate exponential increases in the international prices of whole grain and fuel, which produce general unbalance.

The previously initiated Lifestyle Store project, meant to qualitatively and quantitatively expand the Safeway products and services, would be prone to fail. However it had been a success, with 25 new opened Lifestyle stores and the completion of 275 Lifestyle remodels in 2006, its future in the given conditions is uncertain. The changes that are likely to occur on the market would turn the expansion program into a total failure that would cost Safeway $10 million.

Considering that the retail price of whole grain would significantly increase on the international markets, Safeway's activity would be severely affected. In this order of ideas, the supermarket chain would be forced to purchase their grain-based products at increased prices. They would of course charge more from their customers for these products, but this would only lead to a decreased demand and decreased number of customers. As such, even though the supermarkets would charge more for the grain-based products, the additional revenues would have to cover the expenses registered with the purveyors, but should not be as large as to affect the demand. Whichever strategy would be implemented by the management board, the company is likely to register losses.

The second feature of the pessimistic scenario is the exponential increase of fuel prices. This would generate a price increase for all primary products and final goods, as they are all influenced by transportation costs. Furthermore, history has thought us that whenever the international price of petroleum rises, the entire economy is affected, including governments, entrepreneurs and the final customer. Similar to the case of whole grain price increase, the supermarket would increase their retail prices, but the measure would at best cover part of the expenses and would not lead to additional incomes.

In such a context, Safeway would be less focused on growth and development and would emphasize on strategies that insure them a secure profit so that the company is able to maintain their existence on the market. Expansion and development programs would take a setback, moreover after the failure registered with Lifestyle stores.

On a more internal note, Safeway would also be faced with handling employee related problems. Dissatisfied with the price increases in all subsidies, the workers would demand significantly increased salaries. Needless to say such a request would be far from possible in a time when the supermarket chain is struggling to stay on the floating line.

Were this scenario to occur, the company would have to choose from two alternatives: 1) reduce the costs to a minimal level by cutting down on the employees and closing down some of the stores or 2) declaring bankruptcy.

4. Scenario C

The third scenario for the next five years is a more realistic one, without it being excessively optimistic or pessimistic. Based on data retrieved from the Safeway 2006 Annual Report and the international economic environment, the changes that are likely to occur at micro and macroeconomic levels can be structured as follows:

relatively constant USD/Euro exchange rate;

slight increase of the inflation rate, counterbalanced with a slight economic growth, all leading to a sustainable increase of sales revenues;

reasonable increase in the international prices of petroleum, gas, energy and whole grain;

at the company's level, the expectations for the next five years include a constant growth and development rate, similar to the those registered in the years 2004, 2005 and 2006.

Given the previous expectations, the Safeway supermarket chain is likely to maintain their steady growing trend and to embark in new expansion programs. The… READ MORE

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