2 Strategic Management Shan Foods Private Limited

STRATEGIC MANAGEMENT
Term Project Shan Foods Page i of 43

Term Project Shan Foods Page ii of 43


TERM PROJECT

SUBMITTED TO:
MR.JAVAID AHMED

COMPANY
SHAN FOOD (PVT) LTD

GROUP MEMBERS

ADEEL AMIR SIDDIQUI [11262]
JUNAID KELKER [8956]
FAIZAN ALI [8804]
AAFAQ ARIF [8936]

Term Project Shan Foods Page iii of 43

Letter of Acknowledgement

Institute of Business Management
Korangi Creek, Karachi-75190, Pakistan
UAN (9221)111-002-004, Fax: (9221) 509-0968
Http://www.iobm.edu.pk

April 16, 2012

Dear Reader,
This report has been a great learning experience as it provided us with the opportunity to help
apply the concepts been taught throughout the semester.
We would like to take this opportunity to thank our instructor Mr. Javaid Ahmed who made this
report possible by providing his unconditional guidance and cooperation throughout the
semester.
We would also like to thank our family and friends who were always there to support us.
Without them and so many other things this report would not have been possible.

Sincerely,

FAIZAN ALI [8804]
AAFAQ ARIF [8936]

Term Project Shan Foods Page iv of 43

Letter of Transmittal

Institute of Business Management
Korangi Creek, Karachi-75190, Pakistan
UAN (9221)111-002-004, Fax: (9221) 509-0968
Http://www.iobm.edu.pk

April 16, 2012

Dear Sir,
This is the term report of Strategic Management course which was assigned to us by you.
The objective of this report is the Strategic analysis of Shan Foods in Pakistan.
The report has been completed after the perpetual hard work, determination and devotion of past
few weeks.
If you have any additional questions, we would be pleased to answer them.

Sincerely yours,

FAIZAN ALI [8804]
AAFAQ ARIF [8936]

Term Project Shan Foods Page v of 43

I
IIN
NNT
TTR
RRO
OOD
DDU
UUC
CCT
TTI
IIO
OON
NN .
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.. 1
11
E
EEX
XXT
TTE
EER
RRN
NNA
AAL
LL A
AAN
NNA
AAL
LLY
YYS
SSI
IIS
SS .
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.. 2
22
P
PPO
OOR
RRT
TTE
EER
RR F
FFI
IIV
VVE
EE F
FFO
OOR
RRC
CCE
EES
SS M
MMO
OOD
DDE
EEL
LL .
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.. 2
22
THREAT OF NEW ENTRANTS ............................................................................................................................... 2
INTERPRETATION ............................................................................................................................................... 3
PEST ON THREAT OF NEW ENTRANTS ................................................................................................................. 3
BARGAINING POWER OF BUYERS ........................................................................................................................ 4
INTERPRETATION ............................................................................................................................................... 5
PEST ON BARGAINING POWER OF BUYERS .......................................................................................................... 5
THREAT OF SUBSTITUTES ................................................................................................................................... 6
INTERPRETATION ............................................................................................................................................... 6
PEST ON THREAT OF SUBSTITUTES ...................................................................................................................... 6
BARGAINING POWER OF SUPPLIERS ................................................................................................................... 7
INTERPRETATION ............................................................................................................................................... 8
PEST ON BARGAINING POWER OF SUPPLIERS ...................................................................................................... 8
DETERMINANTS OF RIVALRY AMONG EXISTING COMPETITION ........................................................................... 9
INTERPRETATION ............................................................................................................................................... 9
PEST ON DETERMINANTS OF RIVALRY AMONG EXISTING COMPETITION ............................................................ 10
OVERALL INDUSTRY RATING ............................................................................................................................. 11
COMPANY SPECIFIC ACTIONS ........................................................................................................................... 11
E
EEX
XXT
TTE
EER
RRN
NNA
AAL
LL F
FFA
AAC
CCT
TTO
OOR
RR E
EEV
VVA
AAL
LLU
UUA
AAT
TTI
IIO
OON
NN .
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.. 1
112
22
INTERPRETATION ............................................................................................................................................. 12
C
CCO
OOM
MMP
PPE
EET
TTI
IIT
TTI
IIV
VVE
EE P
PPR
RRO
OOF
FFI
IIL
LLE
EE M
MMA
AAT
TTR
RRI
IIX
XX .
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113
33
K
KKE
EEY
YY S
SSU
UUC
CCC
CCE
EES
SSS
SS F
FFA
AAC
CCT
TTO
OOR
RRS
SS O
OOF
FF F
FFO
OOO
OOD
DD I
IIN
NND
DDU
UUS
SST
TTR
RRY
YY (
((S
SSP
PPI
IIC
CCE
EES
SS S
SSE
EEC
CCT
TTO
OOR
RR)
)) .
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114
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I
IIN
NNT
TTE
EER
RRN
NNA
AAL
LL A
AAN
NNA
AAL
LLY
YYS
SSI
IIS
SS .
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116
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V
VVA
AAL
LLU
UUE
EE C
CCH
HHA
AAI
IIN
NN A
AAN
NNA
AAL
LLY
YYS
SSI
IIS
SS .
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.. 1
116
66
PRIMARY ACTIVITIES ........................................................................................................................................ 16
DISTRIBUTION .................................................................................................................................................. 17
MARKETING AND SALES ................................................................................................................................... 18
ADVERTISING AND SALES PROMOTION ............................................................................................................. 18
SUPPORT ACTIVITIES ........................................................................................................................................ 19
PRODUCT RESEARCH AND DEVELOPMENT ........................................................................................................ 19
PROCUREMENT ............................................................................................................................................... 20
HUMAN RESOURCES DEPARTMENT .................................................................................................................. 20
TECHNOLOGY DEVELOPMENT .......................................................................................................................... 20
FUTURE ........................................................................................................................................................... 21
C
CCO
OOR
RRE
EE C
CCO
OOM
MMP
PPE
EET
TTE
EEN
NNC
CCI
IIE
EES
SS .
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.. 2
221
11
S
SST
TTR
RRE
EEN
NNG
GGT
TTH
HHS
SS .
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222
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W
WWE
EEA
AAK
KKN
NNE
EES
SSS
SSE
EES
SS .
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223
33
I
IIN
NNT
TTE
EER
RRN
NNA
AAL
LL F
FFA
AAC
CCT
TTO
OOR
RR E
EEV
VVA
AAL
LLU
UUA
AAT
TTI
IIO
OON
NN .
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224
44
INTERPRETATION ............................................................................................................................................. 24
T
TTW
WWO
OOS
SS M
MMA
AAT
TTR
RRI
IIX
XX .
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225
55
Term Project Shan Foods Page vi of 43

S
SSP
PPA
AAC
CCE
EE M
MMA
AAT
TTR
RRI
IIX
XX .
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226
66
COMPANY SPECIFIC ACTIONS ........................................................................................................................... 28
I
II-
--E
EE M
MMA
AAT
TTR
RRI
IIX
XX .
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229
99
INTERPRETATION ............................................................................................................................................. 29
G
GGR
RRA
AAN
NND
DD S
SST
TTR
RRA
AAT
TTE
EEG
GGY
YY M
MMA
AAT
TTR
RRI
IIX
XX .
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.. 3
330
00
INTERPRETATION ............................................................................................................................................. 30
Q
QQS
SSP
PPM
MM M
MMA
AAT
TTR
RRI
IIX
XX .
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331
11
G
GGE
EEN
NNE
EER
RRI
IIC
CC S
SST
TTR
RRA
AAT
TTE
EEG
GGI
IIE
EES
SS .
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Term Project Shan Foods Page 1 of 43

INTRODUCTION

Shan Foods initially started its operations in a single room, in the house of its present owner
andCEO Sikandar Sultan. The initial concept of Shan masala was to provide the people of
Pakistanwith a quality Brand in masala industry. Its initial customers were family members,
friends, closerelatives and other known people. As time passed new and complete strangers
started come for the Shan masala. This was the time when real production started at Shan. It
was established in1981 in the servant quarter of Mr. SikandarSultans house. The route from a
one room company to a multinational firm is slow but successful. It took Shan Foods 25 years to
be, what it is today. A Shan food was initially marketed in 1983, two years after it was founded,
and that was the official launch of Shan Foods in Pakistan. Shan stated its exports in 1984 in
which they had tremendous success.
The company is at area of 100,000sp. Ft. and is equipped with the latest and state of the art
laboratories which testes and analyzes each product right from the ingredient to the finish
stage. Shan offers a great range of products to its customers. Shan Foods sells over 70 different
types of spices and also sells over 70 different types of Mixed and ready recipes in 9 different
heads.
The company has 374 distributors within Pakistan and 60 distributors across 45
countries. Shan has won many awards for providing superior quality products to its consumers
globally.
On May24th, 2010 Shan Foods won one the most significant awards in the culinary industry,
The Superior Taste award given by iTQi International Taste and Quality Institute, Brussels and
became the only food company in Pakistan to ever achieve this landmark.

They believe they have a unique and comprehensive brand portfolio, which has become an
important face of their consumers daily lives. They have the industrys leading resources and
assets through their extensive R&D network. This enables them to translate the consumer
insights swiftly into successful commercialized products; thus leveraging the rapid progress in
science and technology.


LOW MEDIUM HIGH
EXTERNAL ANALYSIS

PORTER FIVE FORCES MODEL

THREAT OF NEW ENTRANTS

A
THREAT OF NEW ENTRANTS Yes
(+)
~ No
()
1. Do large firms have a cost or performance advantage in your segment of
the industry?

2. Are there any established brand identities in your industry?

3. Do your customers incur any significant costs in switching suppliers?

4. Is a lot of capital needed to enter your industry?

5. Is serviceable used equipment expensive?

6. Does the newcomer to your industry face difficulty in accessing
distribution channels?

7. Does experience help you to continuously lower costs?

8. Does the newcomer have any problems in obtaining the necessary
skilled people, materials or supplies?

9. Are there any licenses, insurance or qualifications that are difficult to
obtain?

10. Can the newcomer expect strong retaliation on entering the market?


INTERPRETATION

The above filled questions for the threat of new entrant shows there are more yes than no
which means that industry is less attractive for the new competitors. There are following
reasons for that such as:

For competing on the same scale with existing player of the industry such as national
and Shan new entrant would need to have huge capital investment for setting up huge
production facility and that would ultimately going to have huge amount of fixed cost.

Brands and distribution channel play a significant role in the industry. Majority of the
customers are brand conscious although they will not going to incur any cost in
switching cost in changing company but still there is very huge customer base which is
loyal to brand of their choice

Previously there was very few licensing and certifications required but now this
requirement has also gone up. Some of the many licensing and certification which a
competitor would require to run its operations locally and internationally are EHS, ISO
HASSCP 22000, SANHA, BVQI.

PEST ON THREAT OF NEW ENTRANTS

POLITICAL FACTORS

All the existing players and the new comers are suppose to follow the companies ordinance
1984. Apart from that there is not much governmental or legal restriction while entering or
existing the industry in Pakistan. But when we see the exports market then there are certain
requirement and legal binding especially in term of packaging and quality of the ingredients and
these vary from country to country.

ECONOMIC FACTORS

After the economic meltdown Pakistani economy is unable to recover and continuously facing
decline. But at the same time the industry is experiencing steady growth which very much
affected by the high inflation and especially the food inflation in Pakistan. The new entrant
would have to face high cost of capital but the worse economic conditions would not allow it to
generate the desired level of ROI.

SOCIAL FACTORS


LOW MEDIUM HIGH
Social norm and values of Pakistan are changing though not rapidly but they are . In the case of
new entrants when we see the societal factors such as how many households prefer to buy
spices and masala mix then in this case the results are positive.

TECHNOLOGICAL FACTORS

Technological factors are in the favor of the new entrants because it has reduced the role of
skill labor and errors in the process. But at the same time this has also made life difficult for
some because not all of the new entrants have the capital investment to purchase those
technologies which are now becoming essential for the survival in the industry

BARGAINING POWER OF BUYERS

B
BARGAINING POWER OF BUYERS Yes
(+)
~ No
()
1. Are there a large number of buyers relative to the number of firms in
the business?

2. Do you have a large number of customers, each with relatively small
purchases?

3. Does the customer face any significant costs in switching suppliers?

4. Does the buyer need a lot of important information?

5. Is the buyer aware of the need for additional information?

6. Your customers are not highly sensitive to price.

7. Your product is unique to some degree or has accepted branding.

8. You provide incentives to the decision makers.


INTERPRETATION

Bargaining power of the buyers in the industry is indifferent at the moment with the help of
above questions but it is inclining towards high buyer power in the future. The main reason for
this is that large buyers or key accounts in the industry are increasing day by day. Also the small
buyers do not have to pay any switching cost and new entrant has made lot of options available
to them as well. But in present the good sign for the industry is that a huge chunk of customer
is brand loyal and they are not price sensitive either.

PEST ON BARGAINING POWER OF BUYERS

POLITICAL FACTOR

The role of governmental or customer bodies was not there in the past but now it exist
although at the level where it should have been but the role is increasing. This increase of the
customer bodies role is positively working towards the bargaining power of the buyers.

ECONOMIC FACTOR

One of the major issues with Pakistans economy is food inflation. Currently neither
government nor customer group are not active when it comes to control or bargain the issue of
increase in price.

SOCIAL FACTOR

Huge number of customers is becoming aware of their rights as customers so this is also
increasing the bargaining power of the buyer

TECHNOLOGICAL FACTORS

Does not have any significant impact on the bargaining power of the buyer


LOW MEDIUM HIGH

THREAT OF SUBSTITUTES

C
THREAT OF SUBSTITUTES Yes
(+)
~ No
()
1. Substitutes have performance limitations that do not completely offset
their lowest price. Or, their performance is not justified by their higher
price.

2. The customer will incur costs in switching to a substitute.

3. Your customer has no real substitute.

4. Your customer is not likely to substitute.

INTERPRETATION

Threat of substitute is very low because customers do not have any real substitute available of
spice and readymade masala mixes. One of the real substitutes of the spices and readymade
masala mixes is ready to eat meals and some of the competitors have tested that as well but
they didnt get the good response from the customers.

PEST ON THREAT OF SUBSTITUTES

POLITICAL FACTOR

Political or governmental factors dont have any restriction on the substitutes.

ECONOMIC FACTOR


LOW MEDIUM HIGH
Economic factors usually dont have any significant impact on substitutes but major problem
which any real or unreal substitute has to face is the increasing inflation which has reduced the
purchasing power of the consumers. So if the substitute would cost more than spice and masala
mix then they would have to face hard time in the industry.

SOCIAL FACTOR

Social value of Pakistan are very strong when it comes to food and people prefer to have home
cooked food so any substitute (such as ready to eat meal) which would try to replace the home
cooked food will have to face tough time in rural and urban areas.

TECHNOLOGICAL FACTOR

Technological changes dont have any significant impact on the availability of the substitute.

BARGAINING POWER OF SUPPLIERS

D
BARGAINING POWER OF SUPPLIERS Yes
(+)
~ No
()
1. My inputs (materials, labor, supplies, services, etc.) are standard rather
than unique or differentiated

2. I can switch between suppliers quickly and cheaply.

3. My suppliers would find it difficult to enter my business or my customers
would find it difficult to perform my function in-house.

4. I can substitute inputs readily.

5. I have many potential suppliers.

6. My business is important to my suppliers.

7. My cost of purchases has no significant influence on my overall costs.


INTERPRETATION

The bargaining power of the supplier in the industry is on the lower side because most of the
raw material which suppliers supply are commodities and also with them companies have long
term contracts such as in the case of packaging Shan food has 10 years contract with
packages. Also companies dont have to pay huge amount of switching cost while switching
supplier. But at the same time long term relation with suppliers are also very important
especially farmer because if they sell their crop to someone else in the industry then you would
have to face higher price in importing those raw materials.

PEST ON BARGAINING POWER OF SUPPLIERS

POLITICAL FACTOR

Bargaining power of supplier is positively affected by the restriction imposed by government on
certain item from certain countries such as companies cant import raw spices directly from
india.

ECONOMIC FACTOR

Economic factor also increasing the bargaining power of the supplier because if company will
going to buy from international suppliers then the exchange fluctuate a lot these days and that
will going to increase the cost.

SOCIAL FACTOR

Social trend dont have any significant impact on the bargaining power of the supplier


Technological advancement has reduce a bit bargaining power of supplier as companies can
access many international suppliers over the internet and they can find out the alternate ways
of import which can reduce cost of the company as well.


LOW MEDIUM HIGH

DETERMINANTS OF RIVALRY AMONG EXISTING COMPETITION

E
DETERMINANTS OF RIVALRY AMONG EXISTING COMPETITION Yes
(+)
~ No
()
1. The industry is growing rapidly.

2. The fixed costs of the business are a relatively low portion of total costs.

3. There are significant product differences and brand identities between
the competitors.

4. The competitors are diversified rather than specialized.

5. It would not be hard to get out of this business because there are no
specialized skills and facilities or long-term contract commitments, etc.

6. My customers would incur significant costs in switching to a competitor.

7. My product is complex and requires a detailed understanding on the
part of my customer.

8. My competitors are all of approximately the same size as I am.

INTERPRETATION

The rivalry among the existing competitors is very high because of many reasons such as
follows:

Almost all the players of the industry are having very big production plants which not
only require huge capital investment but at the same time it increase their fixed cost as
well

None of the company is diversified in the industry which leads to increase in rivalry
because all of them want to earn more from the existing pie of the industry

Exist barriers are also very high because companies have invested heavily in the infra
structure as well they are in legal binding with many suppliers and customers.

PEST ON DETERMINANTS OF RIVALRY AMONG EXISTING COMPETITION

POLITICAL FACTOR

Political factor doesnt have any role in the rivalry amongst the exiting players except the anti-
trust law.

ECONOMIC FACTOR

Market is not growing at the expected because of worse economic condition and this has
negative effects on the economic factors. Due to inflation companies are unable to increase the
prices as much as they wanted and the same time they wanted to reduce the cost so that they
can spend those resources for other purposes such as marketing and distribution so that they
can increase their sales.

SOCIAL FACTOR

Customers are very much aware with the traditional marketing and its gimmick. So companies
have to think creative so that they can attract more customers to increase their share and sales.


Technological advancement is playing a positive role for the companies in the industries as
companies can create competitive edge over others but for that their research and
development will be the key.


OVERALL INDUSTRY RATING

Overall industry rating Favorable Moderate Unfavorable Implications
The threat of new entrants. 7 2 1 Favorable
Bargaining power of buyers. 4 1 3 Unfavorable
Bargaining power of suppliers. 4 1 2 favorable
Threat of substitutes. 3 1 0 favorable
Intensity of rivalry among
competitors.
3 1 4 Unfavorable
Total 17 6 8 Favorable

COMPANY SPECIFIC ACTIONS

In the porter five forces model there are two forces which are unfavorable for industry such as
bargaining power of buyers and rivalry among competitors. The main reason for this is that
buyers are becoming much more aware about their rights and about the products. At the same
time rivalry among the existing players of the industry is increasing mainly because of low fixed
cost due to which more often players in the industry indulged in the price wars.

Shan food needs to work on two things such as follows:

Increase in rivalry among the existing players of the industry can be tackled by the
change in the processes which can reduce cost and this can be done through
technological advancement in its systems, so that errors can be reduced and efficiency
can be improved.

Another thing which need to done is that majority of the customers are not price
sensitive, so for them company need to come up with such activities which increases
their loyalty and attractiveness towards brand so that Shan foods can exploit it.


EXTERNAL FACTOR EVALUATION

EFE

KEY EXTERNAL FACTORS Weight Rating Weighted Score Comments
OPPORTUNITIES
Growth potential in Rural
areas
0.1 3 0.3 Untapped market in rural
areas
Increasing Growth Rate Of
Urban Pakistan
0.1 3 0.3 Population in Urban areas
growing faster than in rural
areas
Fast Lifestyle in Pakistan (less
available time for cooking)
0.1 2 0.2 Increasing trend in working-
women ratio in Pakistan
Quality raw material is
available
0.15 3 0.45 High quality Raw Materials
are grown locally specifically
chilies.
Untapped Asian
Communities Living Aboard
0.1 2 0.2 Opportunity to grow in
global market by catering
Asian communities
THREATS
High Domestic Inflation
Rates
0.08 2 0.16 Inflation impacting cost of
raw material and buying
power of consumer
Agriculture marketing
mechanism of the country
0.1 3 0.3 Inefficient agricultural
system causing frequent
supply shortages
Emerging national/
International competitors
0.07 3 0.21 Shan, Habib and others
increases competition.
Private/ Local Brands 0.1 3 0.3 Metro and Macro private
brand taking market share.
Low Price Competition From
Loose/ Open Spices
0.1 3 0.3 Local retailers provide low
cost loose spices
Total 1 2.72

INTERPRETATION

The Total Weighted Score of 2.72 in the External Factor Evaluation (EFE) Matrix denotes that Shan Foods
is responding well to the existing opportunities and threats in spices Industry. In other words, the

strategy Shan foods is implementing, is taking advantage of the existing opportunities and minimizing
the potential opposing effects of external threats in an appropriate way better than competitors in the
industry.

COMPETITIVE PROFILE MATRIX

S.No. Key Success
Factors
Weight Shan Foods National Foods Un-orgz. sector
Scor
e
Wt.
Score
Score Wt.
Score
Score Wt.
Score
1 Brand 0.15 3 0.45 2 0.3 2 0.3
2 Distribution 0.15 2 0.3 4 0.6 2 0.3
3 Quality 0.1 3 0.3 3 0.3 2 0.2
4 Taste 0.15 3 0.45 3 0.45 2 0.3
5 Financial
Position
0.05 3 0.3 3 0.3 1 0.1
6 Technology 0.1 4 0.4 3 0.2 1 0.1
7 Diversification 0.15 3 0.3 4 0.6 1 0.15
8 Global
Expansion
0.1 3 0.3 3 0.3 0 0
9 Price 0.05 3 0.3 3 0.15 1 0.05
Total 1 2.95 3.2 1.5

According to the competitive profile matrix of the Spices industry in Pakistan, the industry is headed by
National Foods as being the leader in Pakistan with the score of 3.2 and unorganized sector with 1.5,
whereas Shan foods is a stronger than unorganized sector. There are few things which we can see in the
above analysis such as follows:
Areas where competitors are better than Shan foods:
There are few areas where competitors are better than Shan. First area is the distribution because
national foods has a much better score in this field from Shan because it has a very strong distribution in
central region and also it do have fair amount distribution in Karachi and Sindh region. Second is

nationals diversified range of product which allowed it to attract wide range of customers and also
leverage its one brands equity to another brands.
Areas where Shan foods is better than competitors:
There are few areas where Shan foods are better than its competitors. First is its brand which is having
much more equity than its competitors in the market. Second is their technology which is helping Shan
to go for automation in their process to gain efficiency. And last but not the least in its pricing which is
better than its competitors.

KEY SUCCESS FACTORS OF FOOD INDUSTRY (SPICES SECTOR)

TASTE

The right proposition of spices on the basis of quantity that will be cooked makes the Shan spices
different from the competition. They have the best technology available to increase the probability of
freshness of spices for the longer time period. This actually helped them to maintain the taste in their
recipes.

QUALITY

It is another key factor for the company to differentiate your product from the competition. Higher
quality helps the brand to make a stronger relationship between the brand and the target audience
which ultimately helps the brand to increase the market share and brand equity.

DISTRIBUTION

Shan is mostly restricted to Karachi, Hyderabad and other areas of Sindh. This has made Shan Foods to
concentrate on these areas and increase their influence. National foods have diversified it into many
product categories and this has enabled them to create much bigger distribution network all over the
country.

Access to quality distribution is the key to success in this industry. Shan has to work on it in order to
capture the market chunk from other regions of Pakistan.

BRAND

A product from a known source means Brand is something through which people associate their self.
Having a strong brand enable companies to charge premium and sell its product in the global markets.

PRICE

Price is important in this industry as companies with un established brands are competing on prices and
are attracting substantial portion of market. Further more competition between Shan Foods and
National Foods is very intense and they offer products at comparable prices. Any move to change prices
is aggressively answered.

TECHNOLOGY

Technology is another factor that helps companies differentiates themselves from their competition.
Shan Foods takes this factor very seriously and keeps on introducing new technology. They have the
best available technology in Pakistan related to their market.

DIVERSIFICATION

Diversification in food industry helps any company to utilize its resources in efficient way. Company with
multiple products can market its whole range through single channel. Shan Food is a diversified
company and markets more than 110 products. Most of the products are sold to consumers through
General stores and department stores. These products are carried by single distributor in a particular
area which adds in profit for both company and distributor.

FINANCIAL POSITION

Strong financial health enables any company to grab opportunity whenever it presents itself. They are
not listed in the stock exchange. Shan foods whole company finances are based upon shariah.


GLOBAL EXPANSION

INTERNAL ANALYSIS
Impact of globalization is huge for the industry. They have increased their reach to all over the world.
Changing trends help they better understand the consumers.

VALUE CHAIN ANALYSIS

PRIMARY ACTIVITIES

PURCHASE OF SUPPLIES

Shan foods directly buy the raw material from its suppliers and growers. A Shan food has a strong policy
while purchasing the raw materials. Each and every ingredient is carefully selected with no compromise
in quality and they are very strict in this regard. If they dont find the quality they are looking for a
particular variant, they will stop producing it until they find the best quality that fits their standards. This
affects the demand of variant but they are not concerned as quality is their first choice.
OPERATIONS


The suppliers are in the close proximity of the plants, therefore, the transportation costs are low
because the raw material is pre-ordered whenever production has to be started. The quality control
procedures are effective and efficient. The quality of the products is assured at every level. The plant,
machinery and offices, all are in healthy condition and according to the standards. It is also ensured that
no artificial flavor is added to single spice like salt, coriander etc. All the masalas from Biryani masala
to Sindhi Biryani masala are made according to the taste of the specific target audience.
Quality Operations of raw material includes the following tests:
Chemical testing
Physical tests
Microbiological, and
(Organoleptical) evaluation of ingredients and products

Quality Operations focuses on to achieve objectives:

Procure and source best quality and competitively priced ingredients from global and
local markets.
Enhanced productivities by reduction in online rework and rejection
Enrichment of employee thinking capacity through continuous Quality Training program
Reduction in waste
Removal of process hands-offs
Drive an improvement-based quality culture through ISO9001 certification
International recognition ITQi Award
Ensuring the safety of consumer health by adopting worlds recognized Food Safety
Management System FSMS-22000 and HACCP principles.
Ensuring the compliance of HALAL requirements and recognition By SANHA certification

DISTRIBUTION

They do not own any distribution channels and pursue outsourcing. Their target market is whole
Pakistan so they ensure presence of Shan masala on almost every retail outlet all over Pakistan. They

have warehouses located at Karachi, Lahore, Multan, Gujranwala and Rawalpindi. These ware houses
are used not only to keep finished goods for onward delivery to their distributors but are also used for
keeping the raw material in case of bulk quantity purchase.
There are only a handful of locations where Shan foods provide the products itself which include Metro,
Makro, Hyperstar and a couple more. Their distribution partners include NPD and Urooj where 80% of
the distribution is controlled by NPD Pvt. Ltd. which handles the process matching the international
standards.

MARKETING AND SALES

The estimated marketing budget of Shan is around Rs.100 million for both ATL and BTL activities in the
year 2009. The companys marketing activities are designed near Ramadan, Eid or a new product launch
mostly. The breakdown for the budgeting is 80% for ATL activities and 20% for BTL activities.

Shan foods has a unique advertising approach; the management does not advertise as a ritual and can
be termed as quite conservative when it comes to using mass media for promoting itself. Their
communication never shows people performing; only product is displayed in the advertisements. It does
not believe in advertising rigorously. The advertising is done mostly seasonally, however it does conduct
certain BTL and promotional campaigns and activities.
As the Advertising has limited role to promote Shan Brand, the sales team is the biggest asset of Shan
foods. The Sales team is highly motivated to go the extra mile to provide Shan all over Pakistan.
However, National is leading in North of Pakistan and Shan is leading in South.

ADVERTISING AND SALES PROMOTION

The estimated marketing budget of Shan is around Rs.100 million for both ATL and BTL activities in the
year 2009. The companys marketing activities are designed near Ramadan, Eid or a new product launch
mostly. The breakdown for the budgeting is 80% for ATL activities and 20% for BTL activities.

Shan foods has a unique advertising approach; the management does not advertise as a ritual and can
be termed as quite conservative when it comes to using mass media for promoting itself. Their

communication never shows people performing; only product is displayed in the advertisements. It does
not believe in advertising rigorously. The advertising is done mostly seasonally, however it does conduct
certain BTL and promotional campaigns and activities.
SUPPORT ACTIVITIES

PRODUCT RESEARCH AND DEVELOPMENT

The industry is not subject to rapid technological changes as it is not a hi-tech industry. However
automatic plants are bought to increase the efficiency of the company to fulfill the demand within a
short time period.

Shan Foods has a strong R&D department, works in close liaison with production department to ensure
quality and its improvement.

For a company to prosper and grow, it must keep evolving itself to the changing needs of todays
consumer and market in general. New and advanced automatic plants have been installed by Shan
Foods to increase the efficiency of production and quality. Shan foods always believes in continuous
evolution of its product portfolio, therefore the Research and Development is constantly looking for
innovations within the product category and how it can produce new products that meets the
customers demand. They are relentlessly look for a win-win situation for both the company and the
customer.

Recently Shan foods launched a successful range of products named as Shan Oriental. The Marketing
Manager of Shan Foods, Ms. Asma Aman said, Shan has revolutionized the cooking tradition by offering
recipe secrets that make cooking easier and taste Just perfect! As spice blending experts, we take
pride in taking our consumers on a journey to enjoy sumptuous food cuisines from across the globe.
Now Shan Foods offers a full range of Oriental Recipes to give our customers food-treats they will fall in
love with.


PROCUREMENT

Procurement is being done with a very simple manner which is that they make a contract with farmers
at the time of sawing of the crops. For edible oil they have a contract with an Italian company from
which they import oil.
HUMAN RESOURCES DEPARTMENT

Like others they also put great effort to get the best talent and provide benefits to them in the best
possible manner. They believe that in Shan Foods, employees are the key ingredients for the success and
growth of the company and hence the Human Resource department plays a vital role in aligning the
organizational strategy with the employees goals.

Recruitment drive takes place in all the major universities of the country, the fresh talent is passed
through a series a tests and interviews which judge their mental abilities, intellectual level, decision
making ability and the sound knowledge of his/her area of expertise.

Shan Foods is commits itself in providing market competitive remuneration to all its employees.
They strongly believe in a performance driven work culture that promotes competencies and skills that
drives the organization towards success and growth and simultaneously aligning the organizational goals
with the objectives of its employees.

They have designed a Shan Centre for Excellence, where Training Sessions are conducted for
development of Technical and Managerial Competencies. Every HR project is linked with the overall
strategy of the organization and every step helps to achieve vision, which is to be a Global Food Brand.

TECHNOLOGY DEVELOPMENT

With the development of MIS (Management Information Systems) during the last few years in the
company, Shan has immensely been helped by it to become a well-organized and one of the most
advanced companies in its industry. The usage of cutting edge technologies like Microsoft, Oracle and
Linux has helped Shan in the day to day transactions. Mr. Sikander Sultan, CEO Shan foods says that

technology has helped Shan foods to become as big as it is today which started from a Single room in
1981.

Visualizing the future of IT industry, team has decided for business diversification and setting-up new
venture of IT company named as Armtech Business Solutions (Private) Limited.
Since formulation, by leveraging highly flexible business processes, a seamless global delivery network
and a deep domain-expertise, ABS delivers a better return on outsourcing. ABS is among the fastest
growing IT services companies to organize around key industry verticals and horizontals. This enables
ABS to establish extremely close partner-ships that foster continuous operational improvements and
better bottom-line results.
FUTURE

It is worth mentioning here that because people in the rural areas do not prefer packaged spices and
give preference to their own home made ones, as a result of this Shan has not been able to penetrate
well in those areas.
Diversifying into new products should be the future aim of Shan. The competitors; National and Mehran
have a whole range of products from Spices to Ketchup. Shan foods, with such a strong brand, can easily
launch the new products in which cater to the needs of the customers. Delve desserts is one of the
example.
CORE COMPETENCIES

RESEARCH AND DEVELOPMENT

The Research and Development team at Shan Foods is constantly involved in creating products that
cater to the emerging and changing needs of the consumers.
Research and development at Shan Foods strive to uncover new horizons which serve as the perfect
solution for its consumers.
PRODUCT INNOVATION

Great efforts are put into development of new products which are economically beneficial and of
superior quality pursuing its commitment of providing the best-of-the-best products for its consumers.

PROCUREMENT

The selection of raw material is in fact one of the biggest success factor for Shan. One may not have
heard any complaints about the quality of Shan foods in the market. The purchasing of the spices is
done on regular bases but each time the importance of the quality is kept in mind. You can find a
shortage of a particular variant of Shan in the market, not because of the production problem but
because the quality standards that Shan has set, does not match with the ingredients, so Shan foods
wait for the best quality of raw material and stop making that variant.
STRENGTHS

INNOVATION AND RESEARCH AND DEVELOPMENT

Innovation is the word which is very much associated with shan foods when we talk about the
spices industry of Pakistan because shan is the company which is not afraid to try out new and
innovative product in the market. Their innovation is deriving by their strong research and
development department which work dedicatedly for the betterment of the company in the
shape of new products and improving the existing ones.
COMMITMENT AND TIMELINE

Commitment is the another strength of shan food because its the company which is focused on
their job and give their 100% on the task assigned regardless of the results and they have very
strong timeline for each of their task to perform.
QUALITY AND TASTE MANAGEMENT

Shan foods have its own taste which makes it different from its competitors and the reason for
that they have highly advanced automated process which mixes its spices in each packet which
allows shan to maintain its taste.
ENRICHING EMPLOYEE THINKING CAPACITY

HR department of shan foods is implementing training programs very rigorously so that they
can enrich the thinking capacity of the employees so that they can compete in the competitive
global arena.
IMPLEMENTATION OF IBS THROUGH IN HOUSE IT INFRASTRUCTURE

IT department of shan foods is amongst the most efficient department of the company. This
assisted shan food in various ways but IBS is the one software which allowed shan to compete
well in the market

STRATEGIC RELATIONS WITH SUPPLIERS AND FARMER

Supplier and farmer play a vital role in the shans industry. That is the main reason due to which
shan has very much focused on having good relations with its supplier of raw material such as
packaging, printing and etc and also with farmer with the help of strategic contracts.

WEAKNESSES

LIMITED EXPANSION DUE TO COMPLETE EQUITY FINANCING

Shan food is the company which is 100% equity financed due to which company some time face
limitations when it plans for the larger expansion. Because it is the shariah compliance
company due to which they are against taking loans on interest from bank. So that is main
reason they finance all their from complete equity.
WEAK DISTRIBUTION IN PUNJAB SIDE

Shan food does not have a distribution channel in the central region of Pakistan due to which it
is unable to generate revenue from the very big population.
LIMITED APPROACH TOWARDS MARKETING COMMUNICATION

Shan food is using very few medium in marketing and communication. They are very much
focused on ATL but in that as well they have very strict internal policy for advertisement. Also
they are very conservative in their approach in using new marketing approach.
TOUGH CREDIT POLICY

A Shan food is having strict credit policy for its customers. It has approx 80% of the sales on
cash basis and remaining in the credit basis. This practice is hindering their progress in those
markets where big buyers are available but they want to have some good credit policy


INTERNAL FACTOR EVALUATION

IFE

Key External Factors Weight Rating Weighted Score
STRENGTHS

Innovation & R&D

0.15 3 0.45
Commitment and Timeline

0.05 3 0.15
Quality and Taste
Management

0.15 2 0.3
Implementation of IBS
through in house IT
infrastructure

0.1 1 0.1
strategic relations with
suppliers and farmer

0.05 3 0.15
WEAKNESSES

Limited expansion due to
complete equity financing

0.15 2 0.3
Weak distribution in Punjab
side.

0.1 4 0.4
Limited approach towards
marketing communication.

0.1 2 0.2
Tough Credit Policy

0.15 3 0.45
Total 1 2.5

INTERPRETATION

The Total Weighted Score of 2.5 in the internal Factor Evaluation (IFE) Matrix denotes that Shan Foods is
scoring on an average score. In other words, shan foods has lot of room available to implement good
strategy to improve its IFE score. It can do by utilizing its strength properly and reduce its weaknesses as

much as it can. Shan can utilize its technology advancement to the distribution and sales team so that
they can penetrate in the market and also by relaxing its credit policy.

TWOS MATRIX

STRENGTHS WEAKNESSES
1. Innovation & R&D
2. Commitment and Timeline
3. Quality and Taste
Management
4. Enriching employee
thinking capacity.
5. implementation of IBS
through in house IT
infrastructure
6. strategic relations with
suppliers and farmer

1. Limited expansion due to
complete equity financing
2. Weak distribution in Punjab
side.
3. Limited approach towards
marketing communication.
4. Tough Credit Policy

OPPORTUNITIES
S-O STRATEGIES
W-O STRATEGIES
1. Growth potential in central
and northern regions
2. Fast Lifestyle (less available
time for cooking)
3. Quality Raw Materials
Available in the country.
4. Untapped Asian
Communities Living Aboard
1. Penetrate into central and
northern regions .
(S1,S3,O1)
2. strategic alliance with
supplier and farmers (S2,
S6, O3)
3. Expand operations in .
south American and eastern
Europian countries (S1,S3,O5)

1. Market expansion with
flexible credit policy
(W1,W4,O1)
2. Increase market share in
central and northern region
(W2,O1,O2)
THREATS
S-T STRATEGIES
W-T STRATEGIES
1. High Domestic Inflation
Rates
2. Emerging National and
International Competition
3. Private/ Local Brands
4. Low Price Competition
From Loose/ Open Spices

1. Expand operations in
foreign countries (S1, S2,
T1, T2)
2. Related Diversification (S4,
S6,T2,).

1. unrelated diversification
(W1,W2,T1,T2)
2. improve marketing and
communication (W3,T2,T3)


SPACE MATRIX
FINANCIAL STRENGTH RATINGS
Return on Investment 5
Days sales outstanding 4
Private limited company 2
Inventory turnover 4
15
INDUSTRY STRENGTH

Industry Growth potential 4
Profit Potential 3
Availability of Raw material 4
Brand equity 5
Exports growth 5
21
ENVIRONMENTAL STABILITY

Inefficiency in agricultural production
-4
Food inflation -4
Energy Crisis -6
Strict trade policy -3
Price elasticity of demand -2
-19.0
COMPETITIVE ADVANTAGE

Market Share -2
Product quality -1
Customer loyalty -2
R&D and Technology Implementation -1
Control over supplier and distributor -3

-9

y-axis

Financial strength +3.00 +1 worst to + 6 best
Environmental stability -2.00 -6 worst to 1 best

x-axis

Competitive advantage -2.50 -6 worst to 1 best
Industry strength +4.00 +1 worst to +6 best
FS
Conservative Aggressive

(2.4, 0.4)

CA IS

Defensive Competitive
ES
CONCLUSION

ES Average is 19 / 5 =-3.8 IS Average is 21 / 5 =4.20
CA Average is 9/ 5 =-1.8 FS Average is 15 / 4 =3.75
Directional Vector coordinates: x-axis: 4.2 +(-1.8) =+2.4
y-axis: 4.2 +(-3.8) =+0.40
Shan Foods should pursue Aggressive Strategies.

COMPANY SPECIFIC ACTIONS

The calculation of the space matrix of shan foods is showing that it is existing in the aggressive quadrent
which is the most competitive quadrant. Because here the market is growing which is attracting more
companies to jump in the market and also allowing the existing player to penetrate more? So here there
are few things which shan foods need to do such as follows:

It need to come up with new product which may geographically targeted
It need to penetrate in the central region so that it can increase its revenue
By increase revenues it would be having more cash in hand which eventually allow shan to
expand more


I-E Matrix

INTERPRETATION

Shan foods IE matrix score fall in the division 5 which suggest having hold and maintaining
strategy. For holding and maintain the current position in the industry the best suited strategies
would product development and market penetration.

The IFE Total Weighted Score

Strong Average Weak
3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
High I II III
3.0 to 3.99

Medium IV V VI
The EFE
Total
Weighted
Score
2.0 to 2.99

Low VII VIII IX
1.0 to 1.99


GRAND STRATEGY MATRIX
Rapid Market
Growth

Quadrant II Quadrant I

Weak Strong
Competitive Competitive
Position Position

Quadrant III Quadrant IV

Slow Market
Growth

INTERPRETATION

According to grand strategy matrix shan food lies in the first quadrant. It has a competitive position in
the market by enjoying a big share of the market. Also is has strong brand recognition which is allowing
it to grow In the rapidly growing market. Shan foods has the opportunity to utilize its brand to leverage
itself while doing market expansion and market penetration. Shan foods also have a very unique taste
and quality which differentiate itself from all of its competitors which include both branded and
unbranded. Shan food also utilizing its resources very efficiently such as their IT department through
that it has developed it own business processing software.


QSPM MATRIX

STRATEGIC ALTERNATIVES
Key Internal Factors
Weigh
t
Penetrate
into central
and northern
regions
Market
expansion
with flexible
credit policy
Related
Diversification
(ready to eat
meals)
Opportunities AS TAS AS TAS AS TAS
Growth potential in central and northern regions 0.20 2 0.40 3 0.60 2 0.40
Fast Lifestyle (less available time for cooking) 0.10 3 0.30 2 0.30 3 0.30
Quality Raw Materials Available in the country. 0.15 4 0.60 2 0.30 3 0.45
Untapped Asian Communities Living Aboard 0.10 3 0.30 4 0.40 1 0.10
Threats

High Domestic Inflation Rates
0.15 2 0.30 3 0.45
3 0.45
Emerging National and International Competition 0.10 3 0.30 2 0.20 1 0.10
Private/ Local Brands 0.10 2 0.20 2 0.20 1 0.10
Low Price Competition From Loose/ Open Spices 0.10 1 0.10 2 0.20 1 0.10

1.00

Strengths
Innovation & R&D 0.15 4 0.60 1 0.15 2 0.20
Commitment and Timeline 0.05 3 0.15 3 0.15 3 0.15
Quality and Taste Management 0.10 4 0.40 - - 3 0.30
Enriching employee thinking capacity. 0.05 3 0.15 4 0.20 3 0.15
implementation of IBS through in house IT
infrastructure
0.10 3 0.30 3 0.30
2 0.20
strategic relations with suppliers and farmer 0.15 3 0.45 3 0.45 2 0.30
Weaknesses

Limited expansion due to complete equity
financing
0.10 3 0.30 1 0.10
3 0.30
Weak distribution in Punjab side. 0.15 4 0.60 3 0.45 2 0.30
Limited approach towards marketing
communication.
0.08 2 0.16 2 0.16
1 0.08
Tough Credit Policy
0.07
3
0.21 4 0.28
1 0.07
Sum Total Attractiveness Score 1.00
5.82 4.89
4.05


GENERIC STRATEGIES

CURRENT GENERIC STRATEGY

Shan food is currently doing a combination of differentiation and focus. In that they are targeting both
type of audiences such as they are not very narrowly scoped but at the same time company is targeting
for a mass market as well. The main emphasis of the company is to remain differentiated and focused
through its product innovations which is allowing company to retain loyal customers as well as this
uniqueness allowing shan to establish itself in the international market as well.

At the same time national, one of the biggest competitors is having differentiation strategy for the
broad market. Although they are also very much trying to be unique through product innovation but
they are re-active in its approach and also they have very big range of products which put them in a
position to do so. The unorganized sector is mainly focused on cost leadership strategy because they are
the one which one competes with the brands only on price so that is why they try to be cost leader.

S
C
O
P
E

LOW COST PRODUCT UNIQUENESS
B
R
O
A
D

Cost leadership

Differentiation
N
A
R
R
O
W

Focus (low cost)

Focus (differentiation)

PROPOSED GENERIC STRATEGY

The proposed generic strategy for shan food is to become cost leader. Scope of shan foods is very well
set because in all other areas either the market is very narrow or the competition is very high. So there
is no need to change scope. Because their change in generic strategy will allow shan foods to eliminate
all cost leakages which will eventually save a money and also this will provide the flexibility to the
company to penetrate into the new markets by spending and focusing more on their marketing and
distribution for the central region of Pakistan.

This strategy will also going to challenge the position of national food in the central because currently
they are having very good market share in the central region but when with the help of cost leadership
generic strategy shan would be in a position to spend more on distribution and communication in the
central region which would threaten the competition.

S
C
O
P
E

LOW COST PRODUCT UNIQUENESS
B
R
O
A
D

Cost leadership

Differentiation
N
A
R
R
O
W

Focus (low cost)

Focus (differentiation)

PROS

MORE CASH IN HAND

Cost leadership will allow the company to have more cash in hand which it can eventually utilize for the
penetration in the central region. For penetration in the central region it will have to spend more on
distribution.

STRENGTHEN INBOUND AND OUTBOUND LOGISTICS

For reducing cost on the first place shan would have to make strategic partnership or contracts with
farmers and suppliers which will lead to cost reduction. After that it can increase its distribution network
in Punjab by making contract with a renowned distribution company which can handle shan distribution
in this region.

COMMODITIES

All the raw material which is shan food is using are more or less can be categorized as commodities. So
all the players in the industry are only left with their strategy and costing procedures and if shan is able
to achieve cost leadership then it would be having edge over others especially when price of raw
materials get high and profit starts shrinking.

CONS

REDUCTION OF BUDGET IN RESEARCH AND DEVELOPMENT

Whenever the cost leadership is practiced in any organization so the first cost which is being reduced is
the budget of research and development.


REDUCE PRODUCT INNOVATION AND TEST MARKETING

Cost leadership will also make management think to reduce its pace on product development and that
will eventually lead to reduce in test marketing of the new product. In other words this will bring
company in stagnant position as far as product development is concern.

BLUE OCEAN STRATEGY

Create:
Create a new market of diet products .Shan foods has a range of traditional desserts which can further
be expanded into diet products. The brand Delve is a dedicated non-traditional dessert brand. It can also
introduce new variants of diet products. There has not been any company who has launched in this
category. As the trend of diet products are growing in Pakistan, Shan should capture the market by
entering into it.

Raise:
Shan foods will really have to raise the bar of marketing and communications because it is one of the
factors that is limiting the brand to grow. The promotional strategy of Shan foods is, by far, one of the
most conservative in nature which is preventing itself to reach mass audience. The competition is
communicating its products through all the marketing channels available, however Shan foods is on the
same track from the first day. It has to reconsider the mindset and adopt to the changes with the
environment in order to better compete in the market.

Reduce:
Shan food is the company which is 100% equity financed due to which company sometimes face
limitations when it plans for the larger expansion. Because it is the Shariah compliance company due to
which they are against taking loans on interest from bank. So it is the main reason they finance all the
expenses from complete equity. They will have to reduce this method of equity financing by keeping a
balance between the equity and debt ratio to expand and meet the growing requirements effectively.


Eliminate:
Due to the strict quality control system and policy, the raw material is very carefully selected for each
and every product. There are a few products whose raw material is not easily available and which
require high Research and Development from the process of purchasing of raw material to the finished
product. This increases the cost of making the product. Even though the market for that particular
product is less, Shan food is still manufacturing the product. So, in all it is taking huge costs to
manufacture it and yet have a very small market of buyers. These variants should be eliminated. They
are the cost drivers for the company.

LEADERSHIP
Executing a strategic shift, particularly fast and with limited resources is difficult. The leadership at Shan
will have to play a pivotal role in winning the employees trust throughout this process of change. The
best devised strategy is tested throughout its implementation but Shans leadership will truly prove
itself when the energies and the beliefs of the critical masses create movement aligned with this process
of change.
How to remove the cognitive hurdle:
One major hurdle for the company is the cognitive hurdle when people are not able to adapt to changes
they oppose the change, so it must be made sure that the employee want the change to occur by
themselves and without any external stimuli, when measuring performance the managers at Shan need
to go at ground zero and realize themselves what problems the customers, the distributors, the farmers
and the daily wage worker is facing, this will itself compel the managers to rethink their approach
toward the way the business is being done.

How to overcome resource constraints:
A company that is equity financed resources is a major hurdle, the managers at Shan will have to work
on performance measurement processes that are not targeted at individuals but at departments and
workgroups within these departments, through this the identification of hotspots, coldspots and
resource gaps will become effortless. Once this is done surplus resources can be channeled to resource
starved area of the company resulting in increased productivity. Financial restraints can be reduced
further by introducing Musharakah and Mudarabah in to Shans capital structure without compromising
on Shans shariah compliant policy.
How to overcome motivational hurdle:
Drastic changes in the organizational structure can many times demoralize the employees. If Shans
managers employ a top down approach they will lose precious time for the change to be absorbed by
the masses. They will have to identify the kingpins since these people have a good will among the
masses and they influence others, kingpins must be made integral part of the change process since
others will derive inspiration from their actions. There should be a framework for this process and it will
have to be fair so that the people will understand why they have been promoted o sidestepped.
How to knock down the political hurdles:
Like any other organization if we want to dramatically change Shans current structure there is bound to
be resistance, but it is the quality of a great leader that they are able to establish consensus among the
masses and lead from the front. In a company like Shan there will be those who are ready to accept new
ideas and align themselves with the overall strategy. The managers will have to identify those
likeminded people. With more employees willing to accept change the momentum of organizational
change will increase.

2 Strategic Management Shan Foods Private Limited

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