Page 10 - CIMA SCS Workbook February 2019 - Day 2 Suggested Solutions

SUGGESTED SOLUTIONS

and shareholders may view this move with scepticism, so rather than the announcement leading
to an increased share price, the share price may well fall when the news is released to the market.

Lack of knowledge
As we have never been a retailer ourselves before, a significant risk is that we do not have the
knowledge or skills to make this successful. Indeed, given the challenging climate that is
mentioned, it would be a brave move to take on a challenge like this, as the chances of failure
would be high anyway, and increased by our inexperience in this area.

Staffing
As well as costs increasing due to rent and rates, we will need to hire additional staff so this will
also increase costs further. Staffing poses another risk though, hiring the right type of person with
the right skill set to work in our retail stores and the training of them. The article specifically picks
out the importance of training, mentioning that more regular training is important. We have
never hired for this type of role before and we do not have the expertise to train the staff in the
right techniques either.

Loss of focus
Moving into a new area like this could lead to the risk of management’s time being focussed on
this venture and that adversely impacts the core activities that have been so successful. Judging
from the market share graph, while we have a good and increasing market share of the wearables
market excluding smartwatches, it appears with converging technology it is the wearables market
including smartwatches that is the key market and we need to focus our attention on this as our
market share in this area is declining. Vertically integrating in this way could be a distraction we
do not need right now.

Cannibalisation of sales
There is a risk that the retail outlets, rather than generating additional sales, may just reduce the
sales from our three established sales channels. This effective competition with our current
customers could have an adverse impact on our relationship with them resulting in Vita devices
being delisted from their stores.

Brand
We must consider the implication for the Vita brand name. At present Vita has a good reputation
and has been successful in the ventures and products it has developed. Failure in this venture
would tarnish the success the brand has achieved in other areas and could cause people to lose
confidence in the Vita brand. Indeed, the branding we have links to the mission and vision we
have set out in our integrated report, and while retailing – as you mention – could raise
awareness and provide increased opportunities for people to use Vita devices, we must consider
if it fits with our mission and vision or if they need updating.

Controls
As you suggest there are ways to mitigate some of the risks that I mention and the below sets out
some of the ways Vita could control the risks mentioned.

Research
One of the biggest controls we have available to us is research, this could help us understand so
many of the risks in more detail. Like management of any risk, understanding the risk, what it
means, how likely it is to happen will help us choose the appropriate management of it. Research
into the retailing industry, finding out who these successful retailers are and visiting their stores
will help us understand what we would need to do in terms of fixtures and fittings, staffing,

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