Page 3 - CIMA SCS Workbook February 2019 - Day 2 Suggested Solutions

CIMA FEBRUARY 2019 – STRATEGIC CASE STUDY

In a similar way, Vita could open its own retail outlets, in a similar approach to that adopted by
Apple and its Apple Stores. Again, new skills would be needed in selling direct to customers face
to face, as opposed to online.

Both of the above would clearly require huge capital investment and the development of new
skills.

The most appropriate form of diversification at the moment would appear to be a move into the
smartwatch market. Global sales of such product have started to exceed those of fitness trackers,
and so there is clearly market demand for smartwatches. This has already been accomplished by
Funfitt, back in 2016 with the launch of their Funwatch. Vita could pursue such a strategy either
organically (i.e. developing its own smartwatch in-house), or by buying/merging with a company
that is already present in the smartwatch market (see below).

This strategy is most likely to be well-received by shareholders, as it would appear to be the way
that demand is evolving for fitness wearables. There are also many synergies with Vita’s current
skills, and so perhaps presents less of a risk than the other diversification methods above.

Organic Growth versus Acquisition

Another way of looking at the possibilities for growth is to consider whether it should be done by
organic means (e.g. Vita adds further models to its product range); or whether it should be done
by means of a merger or acquisition (e.g. buying a business such as Clown, Gopher-IT or Smart
Heart, as already discussed).

Both approaches have their relative advantages and disadvantages. For example, organic growth
tends to be slower – if Vita were to wish to introduce a number of new models to the range that
currently consists of just 5 fitness trackers, it would take considerable time to develop the idea
and design a product that looks noticeably different in what seems to be a maturing market.
Buying a company such as Clown would take time, but relatively speaking is a much quicker way
of gaining access to both an increased product range and achieving much greater market share in
Asia.

However, an acquisition can be expensive, as a premium over current share price needs to be paid
to the existing shareholders to persuade them to sell. The organic approach can work out much
less costly.

Summary

There are many ways in which Vita can look to grow strategically, and other considerations that
have not been addressed here (such as a full examination of the advantages/disadvantages of
acquisition versus organic growth). However, this should serve as a starting point for considering
the future of Vita.

Advice on CEO position

Your enquiry as to whether I could assist you in a possible attempt to replace Gal Yaluz as CEO of
Vita puts me in a potentially difficult position, one of a conflict of interest.

On the one hand, I am employed by Vita as a senior finance manager, and therefore I should look
to do everything I can to work for the benefit of the company. Whether this means helping the
incumbent CEO (who was also the co-founder of the Vita) to be replaced by somebody else is a

62 KAPLAN PUBLISHING