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Strategic Management

04-75-498-03

Case Analysis: Cervus Equipment

Submitted to Professor: Huanglin Wang

Completed by Group 1

9th November 2015


Cervus Equipment needs to come up with a new strategy to commit to their 2020 goals of
growth. The company implements a Differentiation Strategy.

External Analysis: PESTEL

Political: Free trade between countries would have a positive impact on the company as
they can easily trade internationally. The taxes on heavy equipment would be a burden on
the company. Commodity trade is also an important factor.
Economical: the Interest rate is a very important factor to consider, as farmers would
need to purchase machinery and equipment for their operations. Thus they would need
financing, if interest rates were to be high, that would discourage farmers from
purchasing new machines. For a company that plans to expand operations into
international markets, the currency exchange rates play a big role, as fluctuations in the
exchange rates could have an adverse effect on profits.
Social: The coming generation is more business oriented thus this would lead them to
open more companies. Furthermore, family farms are almost extinct with a very limited
number, this opens up a door and creates an opportunity for big businesses to scope up
and grow operations.
Technological: Farmers are now turning to use more advanced equipment and
technology. In other words, farmers are using advances in farming equipment to their
advantage, this creating competitive advantage. Such advances relate to Agricultural
Science (Machines, equipment, corps).
Environmental: Drought has been affecting the yields of a crop that would have an
effect on equipment sales. Also, the use of biofuel gasoline has a positive impact on the
environment.
Legal: It is important to mention that the Free Trade Agreement also affects the legal
part. Furthermore, dealings with John Deer and the Peterbilt brands have legal issues.
Last, the Canadian Wheat Board regulations would have an impact too.
Overall, the external analysis performed tells us that Cervus Equipment has a good
operating environment. In our opinion, the management of Cervus should grab these attractive
opportunities to grow both domestic and international.

External Analysis: Porters Five Forces Model:


The threat of new entry (Low): This type of business requires a huge amount of capital
to start with. Thus, this will create an entry barrier to companies. However it is important
to mention that profitable industries attract new entrants, but with the large capital
requirement, good supplier relations, and legal barriers the threat of entry is almost
paralyzed.
The threat of Substitute (Low): The industry deals with highly sophisticated technology
that is developing constantly. This will not be easy to penetrate.
Rivalry (High): It is extremely competitive with two main competitors; Titan Machinery
and Rocky Mountain Equipment. However, Titan Machinery operates only in the United
States. Although it has a good market share over there, it doesn't have any plans to
operate in Canada. With regards to Rocky Mountain Equipment, with their large sales of
1 billion dollars, but the market analysis indicated that they are not outperforming
Cervus.
Supplier Power (Low): As Cervus has a huge market share, this means that supplier
power would be low. Furthermore, since Cervus wants to access international markets,
suppliers would want to sell their end products in new markets. This even lowers the
supplier power more.
Buyer Power (Low): Cervus is a quality brand name that people come looking for. This
means that customers have low buyer power. Furthermore, customers have the high
demand for this product, as an efficient farming that is productive needs efficient
equipment like the ones Cervus offers. Also, the switching cost can be high, which would
lower buyer power.
Overall all the industry is an attractive one for it is very profitable, as per the analysis the only
barrier is the entrance barrier that scores high. Otherwise, all factors score low.
Internal Analysis: VRINE:

Cervus Valuable Rare Inimitable Non-Substitutable Exploitable


Dealer network Yes Yes Yes Yes Yes
(brand)
Supply Network Yes Yes Yes Yes Yes
(John Deer)
Customer Yes Yes ? Yes Yes
Relationship
Mgmt

Precision farm Yes ? ? Yes No


capability
Leadership Yes Yes Yes Yes Yes
University

- The dealer network: Cervus has been at the backbone of its operations and is very valuable,
and they can continue exploiting it. It would be extremely hard for a company to duplicate this as
it is very expensive and would take so much time.
- The supply network: Cervuss supplier network is very impressive for John Deer is a very
known and reputable supplier of their products. Having this type of relationship with a great
supplier is very valuable. Cervus will continue to exploit this.
- Customer relationship management: Cervus has proved to be very good at this point since
they deal directly with farmers and keep a good relationship with them. Also Cervus caters to
individual needs in rural areas. Thus, they are profitable in those areas.
- Precision farming: At this time precision farming is valuable, however, any competitor can
come in and imitate or do it.
- Leadership University: This is very valuable as Cervus is ensuring that they have very
talented managers on the long term. When this is exploited to its full potential, it will give
Cervus a competitive advantage. This is hard for companies to copy.
Agricultural industry:
Our world's population is expected to be increasing by 23% at 2025. Hence, the food market will
be growing. The Compound Annual Growth Rate of the agricultural industry is expected (by
MLA) to be 10.7% per year, as well as the main areas in the world that helped with this type of
growth are America (by 8.7%), Europe (by 12.1%), and Asia-Pacific (by 12.1%).
Company performance:
The company was consisted of this breakdown in 2011; 73.2% in the agricultural section and
26.8% in the industrial and commercial section. In 2012, the agricultural section decreased to
65.4% but for the industrial and commercial section has increased to 34.6%. Using the data that
we attained according to the Cervus Equipment revenue breakdown from 2011 and 2012 we can
clearly see that there's a small increase in the industrial and commercial revenue as for a small
decrease in the agricultural revenue.
Goal and forecast:
The companys goal is that they increase their revenue to $2.5 million by 2020, because of that
they must maintain a 16.55% annual revenue growth rate. A good element that can help the
company reach their goal is that they had a revenue growth rate of 34.2% in 2003-2011 and
31.21% in 2012, therefore these elements show that the growth rate would surpass 5% annually
during the next 4 to 8 yearsCriteria:
Customer satisfaction
Retaining good financial performance
Pay attention to international difference
Engage in partnerships and a relationship with OEMS
Develop competitive advantages and good internal management

Alternatives: 1) Developing strategies to increase the competitive advantage as well as


concentrating on the international market and developing diversification strategies.
a) Coping with the changing trends in the market. Which includes the technology, demand,
services and other changes?
b) Inputting more projects and resources in Alberta would be a major objective according to the
construction industry
c) Developing great leaders and managers that accomplish blameless outcomes through Cervus
Leadership University, training and aiming at the situation in the global market.
Advantages:
- Increasing sales by complying with the market demand
- Better results by converging with a niche
- Improving the human capital as well as suppliers and partnership
Disadvantages:
- Higher costs are involved with technology change and quality improvement
- Scheduling training programs is time-consuming

2) Develop strategies to penetrate the global market

a) Coping with the changing trends in the market. Which includes the technology, demand,
services and other changes.

b) Inputting more projects and resources in Alberta would be a major objective according to the
construction industry
c) Specific areas like Asia and Europe will offer openings as the growth rate is higher. At the
same time, still focus on China and India, as they are the major international commercial and
industrial equipment consumption with high demands. Also, Brazil has showed positive long-
term investment yield, therefore, paying attention to the market would be useful.
Advantages:
- Going global means setting a higher competitive business position and being exposed to
more opportunities.
- Future openings in new markets
Disadvantages:
- Barriers occur such as legal, political and government intervention
- Global means differences in consumption and cultural conflicts.

Recommandations:

Based on the conducted financial evaluation, Alternative 1 seems most attractive. The
financial evaluations make it evident that to achieve the necessary growth target by 2020 they
would need a revenue increase of roughly 16.5%. Although the current growth strategy indicates
that they are on a set course to achieve their target of 2.5 billion by 2020; Cervus is putting
themselves at risk by stretching themselves too thin, without the necessary leadership skilled
employees and support structure to substantiate such rapid global growth. The market in Alberta
proves to hold the most potential for growth for Cervus as they can capture the rapid growth in
the region easily with large sectors such as construction, industry and agriculture. They need
very little repositioning to target the market that reduces hardships and lowers the barriers to
entry. Cervus will need very little readjustment to their current strategies to set up shop in
Alberta. Based on these reasons Alternative 1 seems to have the largest impact and long-term
sustainability. This move into Alberta should be the first stage to test the waters for market
growth and give their employees a chance to grow into the role that is set out for them. This also
presents Cervus the opportunity

Implmentation:

Our recommendation for Cervus is first to move into the market in Alberta and use it as a
testing ground and to acquaint their employees with the methodization and procedures of
entering a new market. To implement such a change, the following phases roughly outline how
they should plan out the process; the use of these phases is to simplify procedures and focus their
resources on ensuring a higher chance of success.
Phase 1: Cervus should focus on consolidating and centralizing core operations to their main
office. This would allow for extensions into other markets just to be shell businesses that focus
primarily on sales. This would allow Cervus to minimize costs and maintain quality control when
dealing with primary business functions such as accounts, marketing, and human resources. It
should take Cervus roughly 6-8 months to implement the change and restructure operations to
manage another region.
Phase 2: Cervus should focus on developing leadership skills, and training employees to be able
to step up to leader roles that they are currently lacking. This training should by done through
CLU but should be restructured a little as well to gear towards moving operations to another
region. This phase should not take much longer than the first, as it can be put into motion almost
in tandem with the first phase, roughly 8-10 months from the inception of the change of strategy.
Phase 3: Once the initial setup is ready and restructured to enter a new region, Cervus should at
first focus on one segment at a time. Our suggestion is to focus on the agricultural sector at first
to establish themselves in the market and get a foothold. This initial period will allow Cervus to
gain a level of comfort in the market, and should set the groundwork for future growth. This
phase would take about 8-12 months as setting up in a new market could take some time.
Phase 4: Considering that Cervus has managed to establish traction in Albertas market, they
should at this point expand into other avenues, meaning industrial and construction. This would
allow Cervus to leverage their already established market presence to spread into other segments.
This could take place as early as eight months into phase three and can then last till maturity.
Phase 5: This phase should begin from the initiation of phase 2, Cervus should set up a
management team analyze successes and failures that they may have faced during their
expansion into Alberta. This would allow them to be stronger and smarter if they choose to
expand to other foreign markets. This phase is an ongoing process and has no fixed timeline.
Phase 6: Conduct careful market research, analyzing the risks and benefits of the different
market choices they have available. It is recommended to choose a smaller market at first rather
than jumping into a large market that would require a large amount of organizational
infrastructure; they should choose which city, in which country provides them the best market to
use as a stepping stone. This phase, should start around the same time as phase 4 or perhaps as
early as phase 3 depending on the resources available to Cervus; and should take about one year
to have a solid market proposal.
Phase 7: After the management at Cervus is confident in their market research they should
initiate the move into the foreign market. They should try and replicate their successes while
moving into Alberta. However, the strategies must be altered according to the host nation, i.e.
culture, demand, and local business norms, amongst other local factors. Over recommendation is,
at this initial foreign venture they should look into an alliance with a local equipment dealer in
the Indian market. The Indian market presents itself as a good market to enter on their virgin
attempt. This alliance would allow them to adjust to the local market easier and learn factors of
change that they were not aware of; this information could be used to identify future markets.

Phase 8: In this last stage Cervus should evaluate all the previous phases and streamline the
process, learning from failures and maximizing returns if they choose to enter other markets
from this point forth. Essentially it becomes a process of rinse and repeat from here on forth.
Contingency Plan

Cervus should be able to use the recommendation and implementation plan to achieve
their target of 2.5 billion in revenue by 2020. If the market takes a downturn in the Canadian
market, or the growth into Alberta as a stepping stone does not meet their aggressive strategies,
Cervus has the option to go directly into a foreign market that is similar to their current market.
If they were to choose to enter another country directly, our suggestion would be England or
Australia, both of which share similarities in culture, and would allow for easier assimilation into
the market. These choices would, however, require a larger amount of capital to get going, if
Cervus deems that the ROI is too slow into these markets for their targeted growth, they can
always try and enter the US market. Though this may seem like a safe decision, it doesn't meet
the same amount of aggressive growth that Cervus may be looking for at this point.

The Equipment Financial Summary of Cervus