Organizational strategic plan for CanGo

Executive Summary

This three year strategic and marketing plan will serve to assist CanGo in increasing the bottom line, through decreasing cost and potential entry into new markets. Currently CanGo has a 1.5% market share of the current $32 billion a year ecommerce market. If CanGo were to increase its market share by only one percentage point this would double revenues and increase capability of future and current investments. The deployment of the strategic and marketing plan will focus on solidifying the structural foundation of the organization, concentrating on the stratification of departments and recognition of the skills required to propel CanGo forward in achieving this goal.

An analysis of the current ecommerce industry, along with financial analysis, will pinpoint how funds are currently allocated and therefore can be used in order to gain market share with a proper strategy and timeline for which preparation for monetary gain and investment will occur. A well designed strategy geared toward decreasing cost, while gaining new market entry, will be to the best advantage for CanGo and its future profitability.

The 5D Consulting Group would like to show CanGo how an entry into the M-Commerce (mobile commerce) market can increase market share while significantly decreasing cost of shipping and handling through the offering of instantly downloadable books, games and music to mobile devices. This plan will also show CanGo how it can improve upon company logistics through the procurement of additional resources that will assist in managing further expansion in the Ecommerce Industry.

SWOT Analysis

The following is the SWOT analysis that was used as a basis for our recommendations for CanGo. It will serve as a guide to formulate and develop a strategic management plan. It assists in identifying the areas of the business that are working well and the areas of the business that need improvement. Taken together, they allow targeted action to facilitate future success at CanGo.

Strengths

CanGo is a very successful small business with markets into books, magazines, music, movies, and recently online gaming. The recent acquisition of a substantial inventory of online games from Webjouster (CanGo intranet, 2009) has given CanGo a competitive advantage as well as a cost-savings for bulk buying. This has allowed CanGo to enter the online gaming industry relatively quickly. They have become one of the fastest growing online retailers, which is a major feat for a small business. They’ve even drawn the attention of international consumers, namely in Japan, which shows their potential to be one of the leaders in e-retail and online gaming.

One of their major strengths is their philosophy of “operating as if they are the customer.” This gives them a major advantage because they are able to more closely understand the customers’ needs and wants. CanGo also has strength in the added value of its employees. They all seem to have a great interest in the company. Employees at CanGo have a good sense of responsibility and care about the company’s overall well being. Furthermore, they have an intuitive feel of the market and know that they want to move forward growing the company and increasing performance.

Weaknesses

CanGo’s major weakness lies in their lack of planning. Online retail is extremely competitive. Not having any plans or direction for the company could be disastrous. CanGo needs strategic planning which would help them plan what to do in general and in the case of an emergency. Additionally, having a mission statement and vision statement lets employees, investors, and consumers know what the direction of the company is as well as why the company is in existence. When going up against e-retail giants, CanGo needs to have those minimum requirements addressed.

Another weakness is CanGo’s inability to work together as a team. Each team member has a designated task for a reason. Members of the upper management need to be consulted before making any major decisions. This would help ensure CanGo isn’t taking on plans they can’t afford to take. For example, consulting the Director of Accounting before venturing into online gaming would have warned them they were in the red. Additionally, upper management should work better with team members. More detail and better instruction needs to be given to employees concerning specific tasks. Giving tasks without direction will just cause more back and forth between employees and upper management. They also lack a coherent and meaningful way to review employees’ performance so that problems can be addressed promptly.

On the technical side, the company must realize that it needs to modernize itself through means of bar code reading, upgrading of its website and internal phone system, and implementation of an automated storage and retrieval system (ASRS). Also, CanGo as a company is uncertain of its direction and how to proceed with its rapid success; especially recently into the Japanese market. There is finally a general lack of understanding of how ideas at CanGo can be formulated, evaluated, and transformed into productive action.

Opportunities

CanGo’s opportunities lie in its ability to improve efficiency by implementing an ASRS, as doing so would provide a positive rate of return on invested capital. Other opportunities lie in the Japanese market and an excellent move would be to partner with a Japanese firm to continue their growth there. They also have an opportunity to further continue into the online gaming industry, as it has seen rapid growth which CanGo is intent to capitalize on. The online gaming industry is the economic sector involved with the development, marketing and sale of video and computer games. The gaming industry has been growing exponentially in recent years and is expected to leap-frog in the future. CanGo’s entrance into this area allows the company to sell their products to a global market. Also, there has been interest in CanGo from public investors with simultaneous recognition of CEO Barrett as Business Person of the Year, which again presents an opportunity for CanGo.

Threats

CanGo’s major threat is from larger, more established competitors such as Amazon and eBay who already have a foothold in the multimedia marketplace. If CanGo becomes too debt burdened by its venture into online gaming or due to poor implementation of an ASRS, they could become unable to compete even if they address all other problems. Further threatening CanGo is its manual order fulfillment process and the substantial inventory recently acquired, which may compound the currently high number of human errors. Other companies have an advantage over CanGo through the use of an ASRS. Another risk to CanGo is its lack of a long-term business strategy with regards to a lack of planning and risk management. Lastly, if CanGo is interested in expansion, it will encounter the threat of an ever increasing complicated and competitor filled international market for goods and services.

Industry Analysis: Trends in E-Commerce

E-Commerce according to Internet Moms.Com has become more and more common. The reasons: hectic lifestyle and internet shopping with its convenience saves time. It is predicted that the market will nearly double in size over the next five years. In 2008 the total sales in the global ecommerce industry were nearly $204 billion (Knight, 2008). The United States consumers account for 3.8% of the global industry taking in $32 billion, ranking number eight. Countries that outrank the U.S. in online consumerism are South Korea, Germany, UK, and Japan. South Korea ranks number one with 99% of internet users stating they have shopped online (Nielsen, 2008). In the U.S, ecommerce accounts for 3% of total retail sales revenues. The online gaming sector of ecommerce is coupled with DVD and videos and as a collective it is considered online entertainment. Online gaming accounts for $49 billion of total online sales which covers 24% of total global ecommerce sales, which is shown in Figure I based on the Nielsen Online Global Shopping Report Feb. 2008:

The global ecommerce industry consists of 875 million internet users (Nielsen, 2008) who have made purchases using the internet; 8% of these users consist of 70 million US internet shoppers; 63% of these internet surfers/shoppers are female and they outnumber males 3 to 2. (Internet Based Moms , 2009). People who will most likely shop online according to Internet Based Moms are women and people with children. This source also indicates that an organizations profit can be increased if the product or service can be received electronically, and time and money can be saved if you do not have to keep inventory or ship items. They also recommend that you have someone else keep the inventory or do the shipping for you if at all possible, as well as, offering a substantively unique product or service to attract consumers.

Compared to CanGo’s competitor’s, they currently only occupy 1% of the ecommerce market. With such a small portion of the market, CanGo can be considered part of the small internet company category which currently occupies 83% of the total ecommerce market and consists of thousands of internet businesses. We suggest that CanGo watch their competitors closely in order to create a benchmarking system to gain a competitive advantage and increase their market share. Amazon.com, eBay, and BarnesandNoble.com currently occupy a large portion of the ecommerce market and would be CanGo’s largest competitors.

With sales over $19.1 billion in 2008 (Amazon Annual Report, 2008), Amazon’s current market share is 9% (Figure II). Amazon is an online retailer, that offers a wide range of products, including but not limited to, books, movies, music, games, and digital downloads. They also offer personalized shopping services, web-based credit card payment, and direct shipping to customers. (Bloomberg, 2009) Amazon operates internationally as well, with websites in Canada, China, France, Japan, Germany, and the UK. They have programs that allow people to sell their products on either Amazon sites or their own branded websites. Developers can access technology infrastructure to create any type of business by utilizing Amazon Web Services. Amazon even offers co-branded credit card programs, fulfillment, and other marketing and promotional services, such as online advertising. (Yahoo Finance, 2009)

With sales around $8.5 billion in 2008 (eBay Annual Report 2008), eBay’s current market share is 4% (Figure II). They are one of the world’s largest online market places, with more than 88 million active users globally. They connect various individual buyers and sellers, as well as small businesses through their online market places. In 2008, the total worth of goods sold on eBay was $60 billion, which translates to $2,000 every second. (eBay, 2009)

eBay operates in three segments: Marketplaces, Payments, and Communications. Their Marketplaces segment provides online commerce platforms that enable buyers and sellers to interact and trade with one another. Besides the traditional eBay.com, they offer other platforms such as StubHub, OpusForum, and Shopping.com and various services, such as feedback forum, safe harbor program, and verified rights owner. Their Payments segment offers PayPal and Bill Me Later payment platform, solutions, and services. Lastly, their Communications segment consists of Skype, the Internet communication product, which offers its software in approximately 28 languages. (Yahoo Finance, 2009)

With online sales totaling $466 million (Barnes & Noble Annual Report, 2008), BarnesandNoble.com occupies 3% of the ecommerce market (Figure II). By leveraging the power of the Barnes & Noble brand name, B&N.com offers online customers direct home delivery of millions of books, CDs, DVDs, eBooks and digital download content from its website and from a wide range of platforms, including the iPhone, iPod touch and select BlackBerry® and Motorola Smartphone. (Barnes & Noble Booksellers, 2009) With their numerous warehouses across the United States, they are able to stock over 1 million titles for immediate delivery. Their robust search engine enables customers to locate books by title, author, or keyword in just few seconds, browse pages to sift through hundreds of categories, read descriptions and reviews, and their “See Inside” program lets customers read excerpts from tens of thousands of titles. They even offer editor recommendations and customer reviews on hundreds of thousands of titles. In 2009, they became a leader in eBooks, offering over 1 million titles and launching nook, the world’s most advanced eBook reader, which features groundbreaking technology, a color touch screen and lets readers download books in seconds. (Barnes & Noble, 2009)

Financial Analysis

According to the CanGo’s balance sheet, it appears that they are using much of their short term assets to acquire inventory for the company. CanGo’s plant, property, and equipment are depreciating at a rate of $320,000 per year and have a useable life of 20 years before they are fully depreciated. CanGo’s brand name and goodwill are amortizing at a slower pace, meaning the company’s name will complete amortization in just about 40 years.

CanGo currently has $57,400,000 worth of debt that needs to be paid within the next 24 years. They currently have $12 million available for investment and their total sales revenues generated $51 million. CanGo lost about 1% of this amount in sales returns, which is in contrast to the previous year when the loss was 3% of the total revenues. This demonstrates improvement in processes. CanGo made $41 million dollars worth of profit and used this money to cover operating expenses. Since the merger, they have increased business but they have also increased the amount of debt they are carrying.

Profitability Ratios include Operating Profit Margin, Net Profit Margin, Return on Assets and Return on Equity (Figure III). These values are positive for CanGo and give a green light for potential investors. Investors may also take into account liquidity ratios which demonstrate the efficiency for the company to cover its debts as they become due. CanGo’s Net Profit Margin of 10.80% (Figure III) is high indicating a change in strategy from previous years. This also indicates a higher risk which is justifiable in order to generate a higher profit.

CanGo needs to pay attention to its allocation of assets because this is where profitability ratios are used. Quick Ratio excludes inventory which brings the ratio down a few points but is still remains high for this industry. Their Current Ratio of 5.39 is high – the current Ratio is 2.27 without including its marketable securities as current assets. The Current Ratio results from dividing Current Assets by Current Liabilities. An optimum ratio approach will be 1; a negative number can indicate CanGo’s difficulties meeting its short-term obligations. Opposite to this, a Current Ratio being greater than 1 shows inefficient use of funds. Current Inventory Turnover measures how many times CanGo turns its inventory into profit; again an optimal value is 1. CanGo being at .28 is still good because is not a negative number.

CanGo is doing better than Barnes & Noble in regards to Return on Assets (ROA) (Figure IV), meaning that they are using their assets more efficiently. Return on Equity (ROE) accounts for dividends paid to common stock holders but after dividends to preferred stock, Amazon, Barnes & Noble and eBay pay their stockholder’s a higher return for their dividends than CanGo, shareholder’s equity does not include preferred shares.

CanGo is almost at eBay’s level when it comes to Operating Profit Margin. It is best to look at the change in operating margin over time and to comparethe company’s yearly or quarterlystatement to those of its competitors. Ifa company’s margin is increasing, it is earning more per dollar of sales. Current Ratio and Quick Ratio are very high for CanGo compared to its competitors. This shows that these other companies are using their funds more efficiently to create a profit and CanGo is not.

Implementation Plan

In year one, the 3% loss in accounts receivables should be offset through acquisition of a check and verification system. Subscription costs are reasonable and will reduce loss by more than 30% resulting in an increase in liquid assets (Figure V). Supplier inventory cost can be reduced by utilizing an E-retailer service for downloadable e-book, music, and gaming inventory. CanGo could also establish a relationship with the current supplier to contract 3% royalties on all customers that are redirected to the supplier for tangible purchases. This will decrease inventory cost by 42% (Figure V) resulting in a large amount of savings for company operations.

In year two, CanGo’s realization for investment potential should increase. Acquisitions and Procurement from the previous year should have increased revenues and decreased inventory cost. Also, a market for instant downloadable games and products should have been realized. This will be the perfect time for CanGo to re-authorize 20 million shares of common stock at a two for one increasing investors for the short term, fueling investment income.

In the latter part of year two and the beginning of year 3, CanGo should see a solid increase in gross profit and continuing operations income (Figure V). They should begin to restructure the organization. This organizational augmentation should include a project management and information technology department, with the inclusion of sub-contractors, advisors and consultants. A matrix model should be used so that experienced employees can head experienced staff in specified departments. This will capitalize and structure the talents and knowledge of the staff that are currently a part of CanGo. This structure will renew confidence in current employees, initiate and instill responsibility, build trust, enhance decision making capability, and assist in the realization of CanGo’s overall goals, values, and mission.

Finally during years three and four, new market penetration and proper allocation of funds should be CanGo’s focus. CanGo by this time should have experienced growth in the current ecommerce market, with a noticeable ability to enter the mobile-commerce (m-commerce) market, of palm pilots, cell phones, and PDA’s (Figure VI). Acquisitions will have helped CanGo realize this market and the well established information technology department will assist in integrating and researching the software needed to compete. Additional profits and savings should be strategically used to re-invest in assisting the company in gaining a competitive advantage.

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