- 20 Marks
Question
The existing business of MOOJ Ltd. is very profitable, with forecasts for the next year
showing that this trend of profitability will continue.
MOOJ Limited manufactures all of its own clothes, and then sells these direct to the
public through 105 branches located around Nigeria. The branches are not run as profit
centres; prices are set centrally for the clothes and the costs of each branch are
monitored at the Head Office. Surprisingly, there is no minimum or maximum turnover
requirement for each branch. In the company‟s view, this enables staff to focus on
customer service without the concern of meeting a profit figure. The strategy obviously
works well, given the company‟s results.
The existing Information Technology (IT) infrastructure is based around each shop
maintaining its own inventory records. There is no Wide Area Network (WAN) and Head
Office has few integrated systems.
The Directors recognise that the current IT infrastructure of MOOJ Limited is inadequate
for Internet trading.
The Board of MOOJ Limited is currently discussing whether or not to start selling clothes
on the Internet.
Required:
Identify and discuss the strategic and performance management issues that the Board of
MOOJ Limited will have to address prior to a decision being taken regarding trading on
the Internet.
Answer
The Board of MOOJ Limited should consider the following strategic and performance management issues before deciding on internet trading:
- Set-Up Cost: Establishing an e-commerce platform with secure payment systems (credit card, debit card, Interswitch, PayPal) can be expensive. Despite MOOJ Ltd.’s profitability, a comprehensive Cost-Benefit Analysis (CBA) is essential to assess the viability of such an investment.
- Type of Business: Selling clothing online poses unique challenges. Unlike technology products, clothing requires more detailed descriptions and visual representations, which often fail to fully satisfy online buyers. Consequently, MOOJ Ltd. should expect a higher rate of product returns, impacting overall profitability. The absence of turnover requirements for branches indicates a customer-focused approach that may need adjustment for online sales.
- Ongoing Operating Costs: A website demands frequent updates and customer engagement through promotional offers to maintain relevance. This ongoing cost adds to the operational expenses of MOOJ Ltd., requiring robust budgeting and IT support to keep the platform attractive to customers.
- System Establishment Time: Launching a successful online platform is time-intensive, requiring coordinated efforts across inventory management, customer service, and marketing. MOOJ Ltd. lacks a WAN and integrated systems, which could delay effective implementation and impact operational efficiency.
- Inadequate In-House Skills: MOOJ Ltd. may not have IT staff skilled in maintaining an e-commerce site. Training or hiring specialized personnel is necessary to handle the technical demands, ensuring optimal functionality and security of the online platform.
- Security: Online transactions are vulnerable to hacking and data breaches. MOOJ Ltd. must invest in encrypted, password-protected systems to safeguard customer information, building trust in its online store.
- Dynamic Environment: The internet is a rapidly evolving landscape; MOOJ Ltd. must stay updated with technological advancements and trends to remain competitive. Failure to adapt could result in loss of market relevance.
- User Interface: The e-commerce platform should be user-friendly, ensuring ease of navigation and positive customer experience. Complex interfaces can drive potential customers away.
- Ethics and Corporate Image: Online retailing relies on trust. MOOJ Ltd. must emphasize ethical practices, maintain a reliable corporate image, and establish clear policies for returns and replacements of defective products to build customer loyalty.
- Ease of Shopping: Internet shopping is convenient, likely attracting more customers. By offering easy-to-navigate and secure online shopping, MOOJ Ltd. could potentially boost its customer base and broaden its market reach.
- Tags: Corporate Image, E-commerce, Internet Security, IT infrastructure, Strategic Planning
- Level: Level 2
- Topic: Strategic Management Accounting
- Series: NOV 2015
- Uploader: Kwame Aikins