Body Glove Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Body Glove Case Study Solution

Questions:

For what purposes does Body Glove use its budgeting system? Which purposes are emphasized?
Trace the steps in the development of the budget at Body Glove. What are the key events that relate to the timing of the steps in the budgeting process?
The case says that Body Glove never prepared a budget prior to fiscal year How can a company like Body Glove function effectively without a budget, or can it?
What changes to Body Glove’s budgeting and review process would you recommend, if any?
If Body Glove continues to grow and, perhaps, diversifies, what changes will have to be made to the budgeting and review processes?

Facts

In 1953, two brothers Bob and Bill Meistrell established Dive ‘n Surf. It is a retail store which sells water sports products in Hermosa Beach, California. In the same year, these two brothers developed a wet suit using neoprene.This wet suit used to fit with the body like a glove, therefore, they start manufacturing this under the name of Body Glove.

In the first 30 years, the Body Glove division develops a small but loyal customer base in the state of California. During this period there was low competition in the market, the demand for the product was low and the management of the company was a very effective one, therefore,and hence company did not make the budget in those days.

After 1991, when the market of wet suit became a competitive one and the demand for the wet suit increased drastically then many problems started to arise for Body Glove. Body Glove faced the inventory problem and was unable to determine the actual demand of its products and hence in result,it produced more wet suits than the demand which jeopardized the position of the company.

Furthermore, the switching cost in this market is very low therefore, the bargaining power of customer is high along with this the management of the company has been changed therefore it doesn’t have that level of expertise which was held by the previous management. Moreover, in 1991, the performance of the company deteriorated which increased concern of the management towards the budgeting system.

Analysis

Budgeting system is defined as the system which describes the pattern that how money should be spent in the company in both long and short term. This enables the company to obtain its desire goals and helps the company to enhance its growth. However, the main objective of the budgeting system is to enable the company to coordinate and allocate resources and make planning for operations.(Greenhouse, 1996)

There are many factors which emphasized Body Glove to maintain a budget as after 1990, there was a change in the management of the company and the new management team is not as experienced as the old therefore, it needs a complete instruction about what is required by the company. Furthermore, as the switching cost is lower in the market, therefore, this increases the threat of substitutes and bargaining power of buyer.To mitigate these forces company has to cut down its cost which can be done after comparing the actual results with the budget and then identifying the discrepancies. Along with this, as the market becomes more competitive therefore, Body Glove has to expand itself according to the market.For the expansion Body Glove needs finance and it is a fact that finance provider needs fore casted data hence to obtain finance Body Glove has to prepare budgeted data.

Generally, there are ten border steps in the development of the budget these are Strategic Plan, Business Goal, Revenue projection, Variable cost projection, Annual expenses, Targeted profit Margin, Board approval, Budget review and dealing with budget variance. (Lotich, 2016)

O’Neil is the largest player in the market and Body Glove is at second number. Body Glove intends to become number one, therefore,the company should develop a plan (Strategic Plan) at the start of the year so that it can manage its operations effectively. Furthermore, as the company operates on seasonal basis, therefore, a business plan should be developed before the starting of the season. Company should also develop revenue, variable cost, annual expense and targeted profit margin budget at the start of fall and spring seasons so that it can effectively take actions to achieve this goal and ultimately the objective of becoming number 1. Furthermore, before implementing the budget company should approve it from the board so that it can be ascertained either the budget is achievable or not. Lastly, company should compare the actual result with the budget after the end of the season so that it can identify the areas which need improvements and in the next budget, company should incorporate these changes.

Body Glove Harvard Case Solution & Analysis

Before the fiscal year 1990, the competition in the wet suit market was as table one as most of the people did not engage themselves in water sports which uses products sold by Body Glove or if they engage then they use one suit in different sports, therefore, the growth in that market is as table one. Before 1991, Body Glove had an experienced management team and also competed on the basis of fashion which made it unique in the market. Therefore, in that era,it performed effectively without preparing any budget.................

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