Analysis: Expansion On Product Offering

ANALYSIS
Expansion on product offering

Diversifying products means increase effort towards advertising and capital
expenditures. Due to the highest growth rate on spice industry in Pakistan, advertising
plays vital role in the globally-competitive market. Since Rawayeti acquires good
position in the industry through the use of cost leadership strategy, it will help them build
their branding in high competitive environment. If this strategy will be applied to
Rawayeti, it is certain that new market opportunities will be opened and increase in
revenues is probable. At this time, water crisis have already been happening since
2014. This means that people doesn’t want to spend much time being outside whenever
they look for basic sustenance. This can serve as an opportunity in benefit of Rawayeti,
in building good customer relationship by offering some water to them. If this marketing
strategy will work, it can actually lead to competitive advantage and profitability.
But the decision criteria for this one will include the announcement of the Federal
Budget last 2017 regarding on the increase on minimum wage for unskilled workers.
The raise on the amount of Rs. 14,000 to Rs. 15,000 per month will add strain on
employees that may cause them to walk out or go on strike. Based on the vertical
analysis conducted by the researchers, it shows that only 1.43% of total income was
accounted to payroll expenses (see exhibit 1). The reason for this finding is the high
reliance of the company to the employee performance rather than proper management
or supervision. In conclusion, product diversification offers high risk high reward for the
company because of increase in profitability and the risk of employee leaving the firm.
Based on the studies gathered by researchers, proper control and delegation is

needed to ensure employee retention. The centralized management of Rawayeti is the
reason for the hindrance on growth opportunities for the company. In line with this
statement, the researchers suggest that the company must adhere on the payment of
minimum wages for their lower staffs. Also, they must take some time to address the
crisis of delegation that the company is currently facing.
Delegation in management
Transitioning to formal and decentralized management can help Rawayeti in
improved performance management system and rewarding system. Implementing this
will help in balancing the risk and reward that the company might take. Compared to the
product diversification option, this is much suitable for Rawayeti. Based on the graph of
28 global machinery companies and their performance over five years (see exhibit 2),
100% of decentralized companies had positive market-cap growth, while only 33% of
the non-decentralized companies experienced the same (Lauren, 2020).
In decentralizing management, it requires additional cost for implementing and
payroll. For instance, the analysis shows that the company has high cost of goods sold
which greatly affects the net income and may result in lower margins (see exhibit 3). But
based on the net income of its indirect competitor, which is the National, it obtains a net
profit margin of 5.87% (see exhibit 4). This means that the low payroll expenses
contributed on the high net profit margin of Rawayeti. But this implies employee
dissatisfaction and inefficiencies on work.
Improved performance management system implies higher job satisfaction on

staffs and management which indicates stability on the product quality. Through
formalizing overall core, policies and procedures of the company, it also provides
detailed human resource practices. With this, it can develop strategies in order to have
good relationship with the employees that will result in better performance on the
operations.
It is quite understandable that there’s hesitation on the part of the Rawayeti in

terms of changing the appearance of its management. Upon implementing
decentralization, it is certain that most of expenses will fall under the operations. But if
Rawayeti will focus on devising a proper delegation and formalization, it might lead to
improvements in cost controls, productivity and better management. Hence, affecting
the decrease in the percentage of cost of goods sold resulting in a larger gross profit
and an increase in net operating profit.
Based on these findings, the researchers conclude that before going for its long-
term goals, Rawayeti must first focus on decentralizing its management. Of course,
there are certain risks or scenario that can’t be avoided during the implementation of
this process such as employee rejection or lower control. This can be added by the fact
that Rawayeti is a family business and transitioning to decentralization might impose
some risks to the firm.
Decentralization in a family-owned business and reducing employee

resistance
Moving to decentralization is not easy as it involves people and culture shift.
Considering that Rawayeti is a traditional family-owned business, the adjustment will be
challenging. Based on the study conducted by Marvin and Mckevie, it revealed that the
overall management practices in family firms are more centralized than those in non-
family firms. Also, the study highlighted that delegating employment decision maintains
non-family employee morals and dismiss the reputation of being unjust. This means that
although decentralizing would lower the control of top management, it would enable firm
to professionalize their decision making as a mean to overcome potential negatives of
being part of a family firm.
The worst thing that could happen in this process is the rejection of employees to
this idea. With this, there’s a high chance of acquiring lower net profit margin as it may
affect the operation of the organization. But these types of scenarios are inevitable and
uncontrollable. The least thing to do in this situation is to lessen the gravity of the
resistance of employees. As per the case of Rawayeti, it is most likely that the idea will
be unacceptable at the first attempts. But since formalizing human resources would
enable increase on wages, this will secure potential inefficiencies on operations. It is
also the responsibility of the top management to at least set the stage before
implementing any changes to the firm. The main advantage of the decentralization on
Rawayeti is for the benefit of the employees. Aside from increase on wages, this would
change the standardized rewarding system that demotivates employees. With a proper
explanation of the reason and significant benefits on the movement, employees will
potentially increase their commitment to the firm.
Conclusion
Product diversification does not emphasize and address employee satisfaction.
Although it paves the way on growth, it doesn’t ensure stability and sustainability in the
long run. Compared to the expansion which implies high risk, decentralization offers
moderate risk to the company. It also implies gradual but proper growth. With that, the
researchers suggest that in order for the company to achieve growth and success in the
long-run, it must first grow out of the crisis of delegation. It has to be remembered that
employees are one of drivers that can make or break the organization. With good
motivation comes productivity which indicates higher reward for the company. Hence,
Rawayeti can ensure that product quality is not compromised because it addresses
employee concerns. But regarding to the opportunity on new market strategy regarding
water crisis, both of the options are applicable for it. It is just that, decentralizing has
more obvious advantages compared to expansion. Also, it is important that upon
moving to decentralized management, organizations must keep transparency and
strong business governance at their core. It is for the reason that the success of the
business doesn’t only rely on one person’s decision, but rather it requires contribution
on every segment of the organization.
EXHIBIT 1: VERTICAL ANALYSIS ON PAYROLL EXPENSES
Payroll Expenses
Payroll
expenses
1.41%
Total
income
98.59%
*Vertical analysis formula = (Statement line item / Total base figure) X 100
EXHIBIT 2: DECENTRALIZED VS. NON-DECENTRALIZED

EXHIBIT 3: VERTICAL ANALYSIS
RAWAYETI VERTICAL ANALYSIS
Total income 100%
Cost of goods sold 81.85%
Gross Profit 18.15%
Total expenses 5.47%
Net income 12.68%
EXHIBIT 4: NET
Net Profit Margin PROFIT MARGIN
OF NATIONAL
AND RAWAYETI
National
Rawayeti
0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00%

REFERENCES:
Daaboul, M. (n.d.). Family Business Delegation of Authority and Regulations for Both
Family and Non-Family Members. https://intercostos.org/wp-
content/uploads/2018/01/DAABOUL.pdf
Lauren, O. (2020). Making a Case for Decentralized Companies. Industry Week.

https://www.industryweek.com/leadership/article/21145316/is-decentralizing-right-for-
your-company
Murphy, C. (2021). Net Profit Margin. Investopedia.

https://www.investopedia.com/terms/n/net_margin.asp
National Share Food, Share Love. (2017). http://nfoods.com/wp/wp-

content/uploads/2017/09/National-Food-Annual-Report-2016-17.pdf
Vertical Analysis: Definition and Examples. (2021). Indeed.

https://www.indeed.com/career-advice/career-development/vertical-analysis

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ANALYSIS

Expansion on product offering

Based on the studies gathered by researchers, proper control and delegation is

Improved performance management system implies higher job satisfaction on

It is quite understandable that there’s hesitation on the part of the Rawayeti in

Decentralization in a family-owned business and reducing employee

EXHIBIT 2: DECENTRALIZED VS. NON-DECENTRALIZED

RAWAYETI VERTICAL ANALYSIS

Total income 100%

Cost of goods sold 81.85%

Gross Profit 18.15%

Total expenses 5.47%

Net income 12.68%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00%

Lauren, O. (2020). Making a Case for Decentralized Companies. Industry Week.

Murphy, C. (2021). Net Profit Margin. Investopedia.

National Share Food, Share Love. (2017). http://nfoods.com/wp/wp-

Vertical Analysis: Definition and Examples. (2021). Indeed.

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