The firm to be studied in this research is the Williams and Sonoma Company which is a large American retail consumer company which sells furniture, kitchen wares, linen, house wares, gift items and home furnishings. Williams and Sonoma Company operates in the tertiary industry sector. Being a retail company, it means that the company is not a produce but only obtains manufactured goods or ready to consume goods from the manufactures and sells them to customers. For example it sells goods like gift items, kitchen wares, home furnishings and other food specialties.
The company also deals with the provision of services to its customers, for example it operates two call centers which are located at Las Vegas, Nevada and Oklahoma City, Oklahoma.
These call centers are operated with the aim of enhancing the customer relation between the company and its customers. That is the call centers act as customer care centers. By the fact that Williams and Sonoma can trade its shares to the public then it means that the firm is a company.
For example the following shareholders legally owns some of the company’s shares: Rowe Price Associates who own 2. 6%, Westfield Holdings with 3.
2%, AIM Management Group with 2. 5%, Capital Guardian Trust Co. with 3. 8% , American Express with 4. 3% and Massachusetts Financial Services with 2. 6% of the total shares owned by the company. The company has also used merchandising as the segment of the firm. The company sells the products direct to customers through channels or market niche. The company operates around 560 retails shops in United States and Canada and also has other four large distribution centers in Memphis, Tennessee and Olive Branch, Mississippi and other distribution centers in Cranbury, City of Industry, CA and NJ.
The company has around six e-commerce websites for marketing and selling its goods.
The company has around six e-commerce websites for marketing and selling its goods. Being a merchandising company, Williams and Sonoma has intensified the use of market segments in the supply of its retail goods. PART B Cost Behavior and Cost-Volume-Profit (CVP) Cost Behavior Cost behavior is the pattern of change in costs resulting from the change in the activity level or production level. It includes the behavior pattern of variable costs, semi-variable costs and fixed costs.
Cost behavior is an important tool towards decision making as the cost behavior provides the relevant information to the company which is very important and especially when the company is in the need of expansion. Williams and Sonoma company has heavily used this tool since it has over time broken down its costs by behavior. The fixed costs of the company include payroll salaries since the company had over 26,000 employees by January 2010 with 6,100 permanent employees, advertising costs, rates, utilities, depreciation and public relation costs.
The semi-variable costs incurred by Williams and Sonoma include the telephone charges while the variable costs include workers wages and lighting and heating charges. Cost-Volume-Profit (CVP) The cost-volume-profit tool has been used by Williams and Sonoma in determining the break-even point. A cost-volume-profit chart is also called a break-even chart. A break-even chart is the graph which shows profit or loss at different levels of productivity within a limited range. A break even point occurs at the level at which sales revenue of a company equals the total cost i. e. TC=TR (Warren. C. et. al 2008).
Williams and Sonoma company determines its break even point through the use of cost-volume-profit tool. In the 2009 fiscal year, the company did not break even. This is because the company noted a decline in the total revenue with a percentage of 18% from $819, 621, 000 to $672,114,000 which was as a result of change in the economic activities. This means that the company’s total cost was more than the total revenue and hence it did not break even. The total revenues in the second quarter of the 2009 fiscal years also decreased with a rate of 13. 6% compared to the one experienced in the 2008 fiscal year.
Decision making concepts Cost-volume-profit and cost behavior tools have been used in Williams and Sonoma Company for decision making. Cost behavior is an important tool towards decision making as the cost behavior provides the relevant information to the company which is very important and especially when the company is in the need of expansion (Plunkett. J. W. 2008). Changes in costs resulting from changes in activities have enabled the management of Williams and Sonoma to be able break down its costs by behavior which makes it easy to monitor the cost change.
Costs like the variable costs which always show a significant change with change in any activity are clearly monitored. Williams and Sonoma Company clearly monitored these costs and that is why it ended up retrenching its workers from 26,000 to 6,100 so as to reduce salary costs. Retrenching workers was a decision taken by the management and this means that the managers used cost behavior in the decision process. Cost-volume-profit is also another important aspect in decision making. By use of this tool, the company has been able to determine its profits or loss for each financial year.
The company was able to close down some of its retails stores because they were unprofitable. This means that Williams and Sonoma had used Cost-volume-profit to determine the performance level of the store. Closing of a retail store is a decision made by the managers. It was also through the use of Cost-volume-profit that the company evaluated its performance which led to the expansion of its retail outlets to around 627 stores in 44 states. It very clear that Williams and Sonoma Company has used Cost-volume-profit and cost behavior tools in the decision making process.
Recommendations Since Williams and Sonoma Company deals with more than one product, it should not use a simple break even chart rather it should use a multiproduct break even chart to be able to determine the profitability of each product. This is because the company seems to use simple break-even charts. I would also advise the company to have a multiproduct break-even chart for each outlet as this will enable it to evaluate the profitability of the products at that retail store together with the general profitability of the outlet or store. PART C ABC Costing
Being a merchandise company, Williams and Sonoma company has intensified the use of ABC costing as its cost system (Warren. C. et. al 2008). Activity-based costing (ABC) is a method of costing which identifies activities in an organization after which it assigns the cost of each of the activities to all services and products according to each of the activities actual consumption. The actual consumption is the cost of purchasing the products. The company assigns cost or price to a product depending on the costs incurred in the purchase and delivery of the products. The costs may be direct or indirect costs.
By using this model, companies are in a position to estimate the costs of each product and services and hence being able to identify the unprofitable products (Plunkett. J. W. 2008). It also enables the company to eliminate the unprofitable products together with lowering the prices of all the products which are overpriced. For example Williams and Sonoma Company deals with the supply of various products which need to be assigned costs by the company management. Being a company with many retail shops, the use of ABC costing has enabled it to evaluate and determine the most profitable products and the most profitable market segments.
. Due to its ability to help managers to understand the product and also to determine the profitability of different products, ABC costing is a good method for pricing, identification and measuring the improvement of any company initiative. A weighted average method is used to state the merchandise inventory and if the value of the inventory is marked down below cost, Williams and Sonoma Company uses the current and even the anticipated demand, age of merchandise, fashion trends and customer preferences to assign costs to their products.
The company also adjusts the value of the inventory periodically so as to reflect the changing market trends or conditions. Through this method, Williams and Sonoma Company is able to allocate costs to products and services which it sells to its customers. The use of ABC costing by Williams and Sonoma Company has facilitated its marketing mix which includes price, place, product and promotion. The direct to customer operation used by Williams and Sonoma has built strong brand awareness among the customers since the operation acts as an advertising vehicle.
They have also used direct mail catalogs and the internet as means of testing the market acceptance of their new products and new brands and these acts as methods of promoting its products. By use of ABC analysis the company has been able to identify different places to market its products and as a result it has opened retail outlets in around 44 states. Some of the retail segments include Williams-Sonoma, Pottery Barn, West Elm, Pottery Barn Kids and Williams –Sonoma Home. From the annual report of this company, it shows that this retails segments are very profitable and also as a billboards for advertising the companies products.
It is through the use of this cost system that Williams and Sonoma company has been able to answer the markets in need of a better quality product but at competitive prices. With ABC analysis, the company has been able to determine the cost of serving a customer and through deduction of the product cost and the cost of serving the customers or the market segments; the firm is has used this costing method to evaluate the productivity of each market segment and it is by this method that the company has been able o evaluate different market and hence opening retails outlets in them (Plunkett.
J. W. 2008). Through ABC, Williams and Sonoma company has been able to improve its efficiency together with reducing the cost or price of its products without compromising with the customers value. Recommendations Since the company has many outlets and numerous foreign and domestic manufacturers who supply goods to the company, I would advise it to introduce cost allocations as a method of assigning cost. In this method cost of transport and purchase will be allocated to each outlet in the world.
This will reduce the cost to be bore by the main outlet and as a result the costs or the product prices will reduce. Cost sharing will lead to low cost to be absorbed by each outlet and hence low price of the products which will lead to high customer attraction. PART D Budgeting process The process of budgeting begins the development of planned assumptions and ends with a load of the final budget (Warren. C. et. al 2008). Williams and Sonoma Company uses operational budget in its budgeting process.
The company seems to identify all expenses together all income sources. The budget period is established depending on the fiscal period of the year and the budget procedures are then laid down. After that the income identified is allocated for expenses and then a flexible budget is prepared. The efficiency of the flexible budget is then monitored and the reassessed to compare it with the approved income and expenditure earned during the fiscal year. Williams and Sonoma Company budgeting process follows the responsibility concept.
Responsibility concept in budgeting explains or gives an overview on those responsible for reviewing any budget. That is, the person is responsible for designing the final budget. This is because the managers submit their proposed operational budgets to the budget analyst for review. The analyst then examines the proposed budget for completeness, accuracy, and conformance with the procedures and regulations and conformance objectives of the company (Warren. C. et. al 2008). The employees of Williams and Sonoma Company have a negative view towards the budgeting process of the company.
The budgeting process does not put the views of the employees into consideration rather the views of the top management and as a result the company employees view the process as biased and inconsiderate. Most of the company employees say that the budgeting process is done with the management in mind, that is to suit the managers and not for the majority of the company stakeholders. Williams and Sonoma Company also uses a flexible budget which is designed at the beginning of a financial year depending on the income as at that time.
For example the company expected to have an increase in net revenue from 22% to 15% in the 2009 fiscal year as compared to the 2008 fiscal year. I would recommend the management of Williams and Sonoma to include its employees, that is some employee representatives if not all of them as through this the employees will feel acknowledged and their voice heard in the company. I would also advise the company managers to monitor budgets so as to be in a position of noticing variances hence making the appropriate adjustments.
Williams and Sonoma Company operated through five retail store concepts by the year 2009 with 627 stores in 44 states. It operates under the direct to customer segment which sells similar products through their seven direct mail catalog which include Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Bed and Bath, Pbteen, West Elm and Williams-Sonoma Home and six e-commerce websites which includes wiiliams-sonoma. com, potterybarn. com, potterybarnkids. com, pbteen. com, westelm. com and wshome. com.
The direct-to-customer channel has over the past years has been strengthened by the introduction of the e-commerce websites in all of their core brands. The company deals with specialty products for the home which include Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Bed and Bath, Pbteen, West Elm and Williams-Sonoma Home. The company is organized into a channel of supply chains all over the world and it buys its merchandise from numerous foreign and domestic manufactures and importers. The company is also run by a number of shareholders who include Rowe Price Associates who own 2.
6%, Westfield Holdings with 3. 2%, AIM Management Group with 2. 5%, Capital Guardian Trust Co. with 3. 8%, American Express with 4. 3% and Massachusetts Financial Services with 2. 6% of the total shares owned by the company. PART E Cost, Profit, and Investment Center Decision making Centralization of decision making means that decision are made from the top authority while decentralization of decision making means that all stakeholders of the company are given a chance to give their opinion which contributes to effective decision making.
In decentralized decision making democracy exists and the voice of the subordinates is listened unlike in centralization where autocracy exists and the subordinates only do what the top authorities say. Decision making in Williams and Sonoma Company is centralized. It is the management and shareholders of the company that makes decision concerning anything in the company. The management does the strategic advancement in distribution, transportation and global sourcing to ensure that the supply chains well improved (Warren. C. et. al 2008).
It also the company’s management who determine the price to be assigned to their products depending on the products cost. It is also the management who decides on the budgetary process of the company. In the 2009 fiscal year, the management found out that the future potential of their products was at stake and as a result the management started working on a plan to restructure all the unprofitable segments belonging to the company. This shows that the management of the company is responsible for planning and coordinating activities in the company.
It is also the work of the management of Williams and Sonoma to conduct market research concerning customer preferences and tastes, market changes and the need for a new quality product in the market so that it may know how to meet the market needs. Evaluation of performance During the evaluation of any company, it is important that to look out for company users like directors, owners, customers and employees. Different methods can be used to evaluate the performance of a company, they include: financial statement analysis and use of balanced score card.
Analyzing financial statements is the most effective and objective method of evaluating a company’s financial performance (Plunkett. J. W. 2008). It involves the assessment of profitability, leverage, solvency and operational efficiency of the company. The use of financial ratios is an effective tool of analysis. The ratios include liquidity ratios, leverage ratios, efficiency ratios and profitability ratios. The liquidity ratios include the current ratio and the quick ratio.
When the ratio is high then it means that the liquidity position of that company is stronger hence high performance. Leverage ratios include debt to equity and debt to assets. They determine or evaluate the company’s ability to pay its debts off. If the ratios are higher then it means that the business is at a high risk and hence low performance. Efficiency ratios include the sales per revenue and fixed asset turnover (Plunkett. J. W. 2008). They measure the ability of a company to turn its fixed assets into sales.
When the sales per employee ratio are high then the company is in a better position. Profitability ratios include the return on equity and return on assets and they measure how much an amount of money invested in the assets is able to create money in sales. When the percentage is high then the company is in a better position. With the use of these ratios a manager is able to have an insight of the financial performance of the company which will help him to compare with peer industries and as a result he will be able to determine the weaknesses and strengths of the company.
A balanced score card can also be used. A balanced score card is a tool used in evaluating business performance together the productivity of an organization. It is a traditional method which compares expenses and profits. It is an easy method and needs one to enter creation values which depend on the KPIs to be measured (Warren. C. et. al 2008). To get a proper performance report, the following factors should be taken care of: financial facts sand figures should be considered, the customer perspective as it is essential in evaluating performance.
For example company’s which make huge profits with their customers not being well entertained are likely to suffer from a reduced retention rate. Internal process perspective is another factor which enables the manager to focus on the internal procedures of the company so as to be able to meet the requirements of the customers (Plunkett. J. W. 2008). The last factor is the learning and growth perspective which helps one to focus on how the company is improving in its innovative skills. Considering these factors will enable the manger to be in a position of evaluating the company’s performance.
Managers would therefore use the balanced score card to get a more realistic and actual results concerning the performance of the company. Handsome profits made by a company are not enough for mangers to make allegations that the company is in progress but the company success should be monitored in the short run. A balanced score card can be used as a business metrics to measure the loyalty of employees towards the management of the company and the company climate and even the core principles of the company.
A balanced score card can also be used to measure the level of employee satisfaction and motivation as these can offer a solution to existing problems in the company (Warren. C. et. al 2008). Lack of employee satisfaction and motivation can lead to a low performance in the side of the employees and therefore a balanced score card will enable the mangers to evaluate the company’s performance. Decision making and evaluation concepts Evaluation can be defined to as a systematic process which organizations use to obtain information on the effectiveness and impacts of its activities and seek how it can improve on the activities (Plunkett.
J. W. 2008). Williams and Sonoma company has used evaluation concepts in the evaluation of the company performance. For example the company has used both formative and summative evaluation methods in its evaluation. Summative evaluation is where data is collected and analyzed at some specific break pints or at the end of a program. It was through the summative evaluation in which the company used the financial accounts reported on each year to evaluate its performance. On evaluation, the company found out that its performance was on an increasing lane and this led to the opening of 627 stores in 44 states by February1, 2009.
Formative evaluation is where data is collected in the course of a program and then it is analyzed and interpreted. It is mostly used to evaluate whether a program is working (Warren. C. et. al 2008). Williams and Sonoma Company has widely used this concept in its evaluation and especially in very critical matters which change often like market needs and change in consumer confidence. In the 2008 annual report, the company reported that it had evaluated consumer confidence and noticed that the consumer spending had deteriorated significantly and could remain depressed for an extended period of time.
To come up with this conclusion, the management had conducted a market study during the financial year and noted that there were changes in disposable income which led to unemployment and as a result low consumption. The company had also performed a market analysis to determine the best methods of customer relationship management and through the data which was collected that the business came up with market niche and e-commerce websites as the methods of selling goods to its customers. Therefore the company was able to maintain six merchandising concepts and six e-commerce websites.
A market research was also conducted in the course of 2007 and the company found the need of new brands in the market and this led to the launching of the new brands like West Elm, PBteen and Williams-Sonoma Home. Williams and Sonoma company has also used the concepts of decision making. For example for a decision to be complete it must be accompanied by actions. The company managers have been doing or conducting market research to obtain data concerning market changes and consumer preference.
After a research the researcher comes up with many choices in which he should choose the best for implementation. Implementing a choice is the action taken during decision making. The impacts of e-commerce led to the launching of the companies new brands like West Elm, PBteen and Williams-Sonoma Home. In decision making the problem must first be analyzed after which the information gathered will be used for decision making. For example in 2009, the company faced a reduction in net sales due to changes in market conditions which led to low consumption of its products.
These problems were then followed by a decision from the managers which saw more than 18,000 employers retrenched so as to minimize costs. Also a decision was made to close down all the retail shops which did not show any expected signs of profitability. In this case a problem was identified which is the reduced consumption of the goods and the market analysis gave an information that the reduced consumption was as a result of changes in market conditions and hence the decision. Use of a balanced scorecard Williams and Sonoma company does not use a balanced score card in evaluating its performance.
The company seems to use financial statement evaluation, customer preference and test evaluation, market evaluation and brand evaluation to determine its performance. If any of the company’s retail stores is found be underperforming in terms low revenues, it is closed. Low revenue in any of the retails stores can be as a result of change in consumer preferences and tastes, changes in the market conditions or a brand which is poor or facing a stiff competition. Recommendations I would advise Williams and Sonoma Company to consider the use of a balanced score card in the evaluation of its performance.
By use of this card, the company will be in a position to evaluate the level of motivation and loyalty to the company as it is through the employee’s loyalty that they will be able to perform as noted by (Warren. C. et. al 2008). A company’s performance should be determined from the relevant stakeholders and shareholders. Use of a balanced scorecard will enable the mangers to evaluate the performance of all the stakeholders since they all contribute to the company performance. Williams and Sonoma Company only seems to use the financial reports as methods of evaluation without using the financial ratios.
To monitor the progress of the company, the managers need to use the financial ratios as they will be able to determine the liquidity of the company, the ability to pay off its debts and other company abilities and this is the best method of analyzing the company performance. Similarly, I would also advise the managers of Williams and Sonoma to change from the autocracy way of leadership to a democratic way. In democratic leadership the voice of the subordinates is very important in all activities of the company and especially in the implementation of polices and decision making.
When subordinates are listened to, they feel very important in the company which acts as a source of motivation and positive attitudes to the workers (Warren. C. et. al 2008). Well motivated and positive attitude workers tend to perform above average. Decision making is an important thing in all organizations and it can have a negative or positive impact on the company. Therefore, I would advise the managers of Williams and Sonoma to be careful in decision making as some of the decision form the top authority which is not favorable may have a negative impact on the performance of the company employees.
Part F Decision-Making Policies Relevant financial information can be used in decision making. The management of Williams and Sonoma Company is responsible for decision making. It is the company of Williams and Sonoma that the subordinates will have to obey the decisions made by the management. It is the company’s policy that the management should review the financial information so as to make any decision concerning the nest move of action.
It is also the company policy that the financial information used for decision making should be relevant and should also have adhered to the accounting standards. It is also a policy in Williams and Sonoma company regarding financial information decision making that the decisions made from a reported financial account should be for the good of the company or for the purpose of company progress and not for personal gains. The company’s policies regarding decision making follows the concepts discussed in this course.
It was through the use of the company financial information that the management of Williams and Sonoma were able to make decisions about how to increase sales, methods of reducing costs, how to increase the profits of the company, sources of finance and when to purchase the merchandise. Recommendations I think the fact that decision making in Williams and Sonoma Company is left in the hands of the management is not a prudent idea. The finance department having prepared the financial accounts should also be involved in decision making as they will be able interpret any difficult financial element in the books.
Also all the departments in the company should be involved in decision making simply because any decision will be of impact to all the company departments. Policies to guide decision making in any firm or company should formulated in such a way that all the stakeholders are involved even if not for the final decision but for them to give choices or answers to the problem at hand. By doing, the decision makers will have many and varied alternatives to choose from. Decisions made from financial information can be very detrimental to the company if not clearly thought for.
That is any decision leading to reduction of sales, costs or retrenchment of workers can be of great effect to the company and especially in the long run. I would therefore advise the management of Williams and Sonoma to be very prudent in their decision making to avoid severe impacts in future. References Carl S. Warren, James M. Reeve, Jonathan Duchac, (2008). Financial and Managerial Accounting. Cengage Learning. Jack W. Plunkett, (2008). Plunkett’s Retail Industry Almanac (E-Book): Retail Industry Market Research, Statistics, Trends and Leading Companies. Plunkett Research, Ltd.
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