Introduction
This report is aimed at analyzing red rhino’s environment in terms of its strengths, weaknesses and to see how it can use them to take advantage of the opportunities that are offered by the environment. Red Rhino crushers began from a business by two men called, Tiger Sales & Marketing (TSM), which manufactured concrete batching plant. The business continuously improved their machines from big machines to small portable ones. But as they did this, they ran into financial trouble and they were rescued. In 2002 by Heathway, a fibre-optic business which purchased a licence to manufacture the TMC machines in return for a royalty. The sales did not go as expected and Heathway withdrew from the deal and so the b business was back to TSM technologies in 2004 and this is when Red Rhino crushers limited was formed. Red rhino is a manufacturer and designer of portable and mobile crushing equipment. The equipment also does recycle old material so that they can be used again. Red rhino brand has since been bought Winfield Engineering Ltd at the beginning of March 2009.
Macro and Competitive Environment Analysis
Pestle Analysis
Political environment
Political environment is about the direction and stability of political factors (Boddy, 2005).
It defines the legal and regulatory parameters within which firms must operate. Environmental conservation are some of the major regulations and red rhinos is doing it by providing for recycling and hence reducing the waste going into the environment.
Economic environment
The economic situation in the world is improving from the resent downfall and therefore all businesses work hard to make profits and avoid loses. At the same time people work to get money to be able to fulfil their needs. Although there has been a recession, the economy is beginning to return to a good state and so people are beginning to invest again. Building and construction industry is one which is usually very busy and with a lot of business and since red rhinos offer an opportunity to recycle the materials, it is cost effective and therefore has a competitive advantage since people are seeking to bear the lowest they can for the best.
Cultural environment
There is a lot of cultural change in the business sector that now believes in the innovation and technological change. There is a lot of organisations culture that is embracing the technological change. People are also concerned about conserving the environment by avoiding a lot of waste and this goes well because the red rhinos provide an opportunity for their customers to recycle their and re use them and this makes them have a competitive advantage in their industry.
Technological environment
The technology environment is very dynamic and it keeps changing every day with people coming up with new innovations. This is going well with the red rhino since they have been continuously improving their machines by asking for suggestions from their customers.
Ecological environment
This is how a company relates to the environment and I would say that the red rhinos are doing a good job at it because they help people to recycle their material and so they avoid wastage (Anon, n. d).
Demographics environment
These are the characteristics of the environment in terms of the age of the potential customers, the distribution of the potential customers, and income of the potential customers.
Five Force Analysis
The porters five forces are a tool used to analyze an industry in which a company is operating in.
The five are:
- How intense the rivalry is among the firms offering the same product;
- How easy it is for new players to enter the industry;
- The availability of products in the industry which can satisfy the same need;
- The ability of suppliers to choose who to sell their products to; and
- The ability of consumers to choose who to buy from, and at what price.
How intense the rivalry is among the firms offering the same product
This refers to how serious the rivalry is among the firms in the same industry, that is, the kind of strategies they can adopt, and how far they can go to beat the competition. In some industries for instance, some players may even offer the products at prices that are lower than the production costs, just to gain customer loyalty. In others, the players don’t worry much about their competitors, they even agree with the competitors on the price to charge and the quality of product to offer. From the case study, red rhinos do not have key competitors in the United Kingdom, although it has rivals from Germany and other countries. Rhinos are at the top of their competition due to their continuous improvement of their machines.
Ease of entry into the industry by new players
In some industries, there are barriers which make it very difficult for a new player to get into the industry. In others, new players are free to enter without any barrier (Blythe, 2008).
The industry in which red rhinos operates though lucrative is very hard for new entrants to come in because of the cost that is to be incurred to start the designing and to purchase the material.But with the continuous technology dynamism, there is still a little threat of new technology which could be innovated to outdo the current machines.
Threat of substitutes
This refers to the availability of products in the industry which can satisfy the same need, that is, products that can be used in place of the organisation’s product (Brassington, & Pettitt, 2007).
In some industries, there is a wide range of competing products that can satisfy the same need, from which consumers can choose while in others, there are very few alternatives if any, to choose from. Presence of substitutes can reduce the profitability of an organisation and even make an organisation fall of business. Red rhinos machines have unique features which allow for recycling, portability, mobility makes it preferred by the customers and so there is no big threat from substitutes.although innovation is continuous but I do not see any loop holes that can allow for substitution.
The bargaining power of suppliers
This refers to the ability of suppliers to choose who to sell their products to. In some industries, suppliers can decide not to supply some of the players with their products. In others, suppliers are willing to supply anybody who wants the products, so long as they can pay. Suppliers are part of the stakeholders of a business and therefore the business is dependent on them. The company buys its components from suppliers and the material being very specific, it is very easy for the suppliers to take advantage of them and also because they do not keep good record it is very easy for the supplier to have the bargaining power and they will not be able to notice it.
The bargaining power of buyers
This refers to the ability of consumers to choose who to buy from, and at what price. In some industries, the customers have no say, and have to buy what they are offered at the price set by the sellers. In others, the customers dictate the price of the product. The construction industry is very large and therefore there are so many customers and a high demand for the machines therefore it is not easy for the customers to have a bargaining power because there is high demand for the machines from red rhino due to the unique features it offers.
Swot Analysis
Strengths
Knowledge & intellectual property
Red rhinos have good knowledge which they use to make their unique designs. This helps them to differentiate their machines from their competitors and to give their customer some unique service like the recycling capability.
Effective and well tested designs
Their designs have also proved to be effective and this easily satisfies their customers giving them customer loyalty and trust which is a key to a companies success in business.
Weakness
Poor protection of intellectual property
From the case study, designs and ideas of red rhinos have not been patented or given any kind of security. This posses a very big threat because they can easily be used by others. This is very dangerous for the business because they can easily lose their customers to the other people.
Lack of enough expertise
From the case, the design knowledge all comes from one person and therefore if the person runs out of ideas or something happens to him then the company can no longer design their machines.
Poor financial management
Red rhino has always faced problems because of poor financial management. They concentrate on sales and volume of production but not on the cost and returns and even salaries. This is a weakness that is very dangerous because without enough finances the company cannot be able tom meet the needs of the customer and they will run out of business.
Opportunities
Big customer base
Red Rhino has an opportunity to have the biggest market base in its industry due to the unique designs and the capabilities. Their designs give the customers unique services and they have also been seen to be very efficient which also offers a chance for customer loyalty and also to attract new customers (Higher education entrepreneurship group, 2010).
Threats
Designs being copied
They face a threat of their designs being copied and use by other companies and this is because they have not put any kind of security on their designs and this can easily get them out of business (Environmental expert.com 2010).
Obsolescence
Since they depend on one individual for their designs, they are at risk of being obsolete since the technology industry is very dynamic and the one man can easily run out of designs or anything can happen to him and they will be unable to make any new designs.
Management Accounting Analysis & Comments
Flexed Budget
The original budget was adjusted using the actual units sold which were 66 units instead of the 75 units that were budgeted for (Hanson, 2006).
Report on the findings of variance analysis
From the variance analysis, it is evident that all revenue and expenditure had significant variances, except the fixed production overhead which did not have a variance. It has also been noted that all the variances were unfavourable (Drury, 2004).
The unfavourable variances mean that:
- the quantity sold was less than the budgeted quantity;
- the product was sold at a lower price than the budgeted price;
- the direct material used to produce one unit of the product was more than the budgeted direct material per unit (Atrill & McLaney, 2009);
- the direct material was purchased at a higher price than the budgeted price per unit;
- the direct labour hours spent on each unit was more than the budgeted direct labour hours per unit;
- the wage rate paid for direct labour was higher than the budgeted direct labour rate per hour; and
- The amount spent on selling and administration overhead was more than the amount budgeted for selling and administration overhead (Irons, 2010).
All these variances led to the actual profit being less than the budgeted profit.
Recommendations
Innovation
Innovation is the key to remain unique in the design of their machines and to provide customer satisfaction and also to be able to differentiate their machines from their competitors. They should also train their employees on the designs so as to be able to get ideas from many employees and not just one person.
Cost differentiation
Red Rhinos have a problem with their finances and therefore they should be able to work on their cost effectiveness by ensuring that they incur the lowest costs and still produce quality and this way they will be able to make profit in order to help them get profit margins and still meet the demand s of the customers.
Training and development
In order to meet the customer demands they should train their employees and also add on more employees who can do the designs in order to keep up with the demand because depending on one person delays the production of new machines. If they can have more designers and then it will be easy to meet the demands
Realistic forecasting
Based on the analysis, it seems that the budgeted figures were unrealistic, given the pattern and magnitude of the variances. I would therefore recommend that the budgeting team be more realistic on their forecasts.
References
Anon (n. d). Material change for a better environment. Web.
Atrill, P. & McLaney, E. (2009) Management accounting for decision makers. Harlow, England: Financial Times/Prentice Hall.
Blythe, J. (2008). Essentials of Marketing. Harlow, England: Prentice Hall.
Boddy, D. (2005). Management: An Introduction. Harlow, England: Financial Times/ Prentice Hall.
Brassington, F., & Pettitt, S. (2007). Essentials of marketing. Harlow, England: Prentice Hall Financial Times.
Drury C. (2004). Management and Cost Accounting. Florence: Cengage Learning Business Press.
Environmental expert.com (2010). Red Rhino Crushers (UK) Ltd. Web.
Hanson, D., 2006. Management Accounting. Ohio: South Western College Publishing.
Higher education entrepreneurship group (2010). Teaching case study: Red Rhino Crushers Ltd. Web.
Irons, A. (2010). Comparing budgeting techniques. Web.