BAC 4674

Integrated Case Study

Individual Analysis
KRS – Survival of a small scale cleaning company

Lecturer : Mr. Abd Aziz bin Ab Jalil

Deadline: 29/04/19

Name Krishah a/p Gunasegaren

Student ID 1122701297

Class section B02

 BAC4674 INTEGRATED CASE STUDY IN ACCOUNTING
Trimester 3, 2018/2019

CASE ANALYSIS REPORT – CASE 1

Student Name Krishah a/p Gunasegaren

Student ID 1122701297

Submission date 29/4/2019

Case title KRS – Survival of a small scale cleaning comp

Class Section B02

ASSESSMENT

To be filled by facilitator

Scores Scores
Components
1-Poor 2-Average 3-Good
Question 1

Question 2

Question 3

Submission 1 mark for on-time submission

TOTAL
 Case Analysis

Analyse the case provided in the appendix and the respond to the following:

1. Identify the issues that KRS is facing – rank these issues, defend your ranking.

1) The first issue is that KRS is facing a problem with their financial resource. This is
evident where the management is having trouble to properly allocate personnel cost.
Within the period of 2011 to 2013, the company has seen a decrease in revenue gains due
to increased costs. These costs could be from the employment of non-local workers or to
pay the rent for storage facilities. On another note, they are also in dilemma on whether to
close down the Segamat and Seremban storage facilities. This is due to the conflict in
making decision between Nasir and Ali.

2) The second most important issue is the employee related problems. It has been a long
dilemma between hiring foreign workers and local workers for their work force. This is
due to the high cost in hiring foreign workers, where the levy charges and transportation
management costs around RM 10,000 per worker. On the other hand, the local workers
are hard to hire and to pay the part-time locals are also cheap. Since they have to make do
with part-timers in tight situation to hire cleaners, Ali does not mind paying them extra
than what the full timers are being paid.

3) Last but not the least, the company is facing difficulties in sustaining and improving
KRS’s business operation. The cleaning industry is booming with newcomers and
therefore, there is an increased competition in the industry. The business is contemplating
on how to make their service stand out in order to try to obtain a larger portion of market
share in near future. This could be done by continuing current projects or with the new
idea of introducing the residential area cleaning services
2. Discuss critical success factors, which are crucial to small and medium entrepreneurs
in general.

In today’s competitive world, businesses need to not only plan extensively, but also
implement prudently. Often, businesses suffer from incompetence in either of these, which
lead to harsh results. This is where the importance of strategy cannot be ignored. Strategy is
equally important to one of the most important sectors of the economy – Small and Medium
Enterprises (SMEs). Their importance is overwhelming, given that they constitute 90% of
any economy today in the developing world.

The current state of the business operation should be known to further enhance its operations
effectively, then the business premise can migrate from the present stage to the next and to
learn the methodology and strategy to implement to reach the next phase. Six key success
factors can help SMEs them stand out in saturated market conditions and differentiate
themselves from their competitors. From these factors, SMEs will be able to identify the key
priorities for their business, and then put a strategic action plan in place.

Firstly, to maintain a sharp focus on the market. An SME should never get too
comfortable with its position in the market. Markets are ever changing and SMEs that fail to
adapt to these changes could be left behind as the market develops. It is important for an
SME to always consider where it is positioned and how appropriate its position is.

Next factor is to bring more to the business operations. SMEs have to bring something
new to table. If an SME is not providing an offering that sets them apart from its competitors,
there will be no incentive for potential customers to do business with them or for customers
to repeat business. Utilising the latest technology, knowing something competitors do not and
offering something new to the market are all effective unique selling points that will help
SMEs shine above their competitors.

The third factor is to build resilience and operate with financial discipline. An SME could
be largely profitable and successful, but poor financial management will be the downfall of
any business regardless of its success. Standout SMEs generally have a prudent attitude to
borrowing and have higher retained earnings than other firms. Adopting these traits helps to
ensure a more financially stable future that is free of overbearing debt, and with more
earnings going back into the business through higher retained earnings, it creates a safety
buffer for unexpected outgoings and funding for future growth.

It is very important to right size your entity. Critical mass is vitally important, as it can be
the deciding factor in survival for any SME. Failing to reach critical mass may hold back
sustained growth and efficiency. Right sizing is the best approach to prevent this. It is an
important aspect of SME survival and should be a constant part of the process at all stages of
development. SMEs should re-evaluate their business structure with their current market in
mind, focusing on market developments and new technology whilst considering the future of
the company and where they should be headed. A new strategic direction will allow an SME
to identify any new skills which may be needed in the future so they can hire or train
employees accordingly, setting themselves apart from competitors as the market develops.

The business can also increase their international outlook and extend their geographic
footprint. It is easy for SMEs to become comfortable with the simplicity of operating within
their original market they were introduced into, but extending business beyond local or
regional markets goes hand-in-hand with growth. SME’s that become complacent will miss
opportunities to bring in more customers from a new geographic area, and may stunt their
own growth. The German SME market, or Mittelstand, is larger and more innovative than
other markets, due in part to bigger and more regular exporters that account for a larger share
of revenues.

The last factor is to act on the policy of managing for today and lead for tomorrow.
Although it may seem obvious, the most important determinant of the success or failure of
SMEs comes down to the quality of their management team. Managerial roles will always
differ depending on the industry, but the right kind of manager in any SME will have its best
interests at the forefront of their considerations. Managers who can effectively aid right sizing
and have a vision for the future will help an SME to differentiate themselves further from
competitors with innovation.

SMEs that develop a full understanding of how these six interlinking factors impact their
business will have a much stronger chance at surviving and prospering, and really become a
stand out SME.
3. Despite knowing that employing non-local employees is expensive KRS still proceed
with hiring these non-locals. Argue.

Cleaning services involve huge work force as its ultimate resources. Based on past
experience, Ali mentioned that it is not easy to get locals to work as full time cleaning crew.
Therefore, he is okay with paying them hourly for their service. A few major issue has to be
monitored by the human resource team. That is to check if the locals have a criminal record,
as it would not be credible to send such person to clean an important work place. It is also to
ensure the comfortability of the customer.

Although, the company would have to sustain most of the payments to bring the non-local
employees in, it is beneficial in the sense that they are contracted to work for the company for
a certain period. In that case, the company would not have a sudden short hand of staff during
an operation. Non-local workers would not have the visa or legal problems and should be
monitored and checked from time to time on the period of their service here.

In order to attract local people to join as cleaning crews, attractive wages packages were
introduces. The wages packages could be not attractive to the locals, and hence the
unwillingness to work as a cleaning crew. The company could decide to change their target
market to acquire locals with better benefits for them as it would be cheaper to hire locals
than non-locals.
4. Discuss the significance or relevance of the two storage facilities. Do you agree with
Ali’s stand?

No, I do not agree with Ali’s stand to maintain the stores in two different states. First of all
the storage facilities are in Segamat and Seremban, which is pretty far from their main office
in Kajang. According to Ali, they should keep it in case of any cleaning tenders in the
southern region. In that case, they should have taken the initiative to target the market in
those areas. They did not do so and the machines in the stores have become rusty due to poor
maintenance. Unnecessary rent payment is expensed over these two storage facilities. It
would be reasonable to have a single storage area, which is closer by so that maintenance and
frequent checks could be done.

One of the significance of storage facilities is that it acts as an archive storage. Many
businesses have years of paperwork and records concerning current and former clients,
customers, employees, deals etc. For a company, this valuable data cannot be thrown away.
However, these records and paperwork consume a lot of space that can be put to better use.
You can safely store these records in a storage unit and use the free space for other purposes.

The storage facilities are a cost-effective option. Self-storage facilities are a cost-effective
way of storing unused business equipment. Getting a larger office space also solves the
problem, but it involves additional investment. This means that apart from paying more for
your rent, you will also have to pay increased tax and utility fees. A self-storage unit can be
easily rented on a monthly basis, which can help businesses save the expense of renting or
buying larger premises. Moreover, start-ups and small businesses can benefit from this
option, as they do not have the required budget to move to a larger office.

Warehouses are expensive for companies to operate. The cost of the land, building,
machinery, labour and the items stored in the warehouse can amount to a significant sum of
money. Most companies would like to maximize the operation of the warehouse, either by
streamlining the placement and picking of goods, reducing the time goods are stored in the
warehouse, or automating as much as possible to minimize labour costs while improving
accuracy. Companies can also reduce their costs and improve the efficiency of their
warehouse by maximizing space utilization, ensuring that it is possible to store as many
items as possible in the most optimum space.
 5. Despite the fact that KRS has been in the business since 1994, they are still struggling
even in terms of paying their 3 full time employees. Discuss.

i) Leadership failure
A leader will struggle if he do not have enough experience making management decision,
supervising a staff or the vision to lead the organisation. Perhaps the leadership team does not
agree on how the business should run, such as certain conflict of decision between Nasir and
Ali. When problems requiring strong leadership occur, the leader may be reluctant to take
charge and resolve the issues while the business continues to slip towards failure.
Solution
Learn, study, find a mentor, enrol in training, conduct personal research – do whatever
possible to enhance the leadership skills and knowledge of the industry. Examine other
business best practices and see which ones can apple to their business.

ii) Lacking uniqueness and Value

The approach is mediocre or lack of strong value proposition. If there is strong demand, the
business probably has many competitors and are failing to stand out in the market.
Solution
Develop a customised approach or service package that no one else in the industry is using so
they can present it as a strong value proposition that attracts attention and interest.
Use social media, word of mouth, cold calling, direct mail, and other tried-and-true marketing
techniques.

iii) Not in Touch with Customer Needs

Do a survey on what the customer wants or expects, whether the services provided still
entails to them and watch whether the market in the industry is declining These are all
important questions to ask and answer. Maybe they are offering a product or service that has
fallen well below trend.
Solution
A successful business keeps its eye on the trending values and interests of its existing and
potential customers. Survey customers and find out what their interests are and keep abreast
of changes and trends using customer relationship management (CRM) tools. Effective use of
CRM can help keep your business from failing
iv) Unprofitable Business Model
Akin to leadership failure is building a business on a model that is not sound, operating
without a business plan, and pursuing business for which there is no proven revenue stream.
The business idea may be good but failure may come in the implementation of the idea if
there are no strategic guidelines in place.
Solution
Develop a complete business plan that includes financial forecasting based on predictable
revenue, strategic marketing and challenge management solutions to overcome potential
obstacle and competitors activities. A sound business model that incorporates best practices
can help your business avoid failure.

v) Poor financial management

The company must know, down to the last dime, where the money in the business is coming
from and where it is going, in order for the business to succeed. Poor accounting practice puts
a business on a path straight to failure.
Solution
Use professional business accounting software to keep records of all financial transactions. If
the staffs lack skills in financial management, consider hiring a tax advisor and professional
bookkeeper or certified public accountant to help manage your financial affairs.

vi) Rapid growth and Over-expansion

Every now and then, a business start-up grows much faster than it can keep up. They may be
convinced that their service is going to take the world by storm that they invest heavily and
order way too much inventory and now they cannot move it. These are both additional paths
to business failure.
Solution
Conduct thorough research to ensure the time is right and the funding is available for
expansion. Make sure the initial business is stable before expanding to an additional location.
The key to successful growth and expansion is strategic planning.