Musimundo Case Study :: Business Strategy Analysis

1. DESCRIBE THE STRATEGIC CONTEXT IN WHICH QUINTANA SHOULD JUDGE MUSIMUNDO’S PERFORMANCE. WHAT ARE THE CHARACTERISTICS OF THE ENVIRONMENT THAT MUSIMUNDO COMPETES IN? WHAT ARE PEGASUS’ STRATEGIC OBJECTIVES FOR MUSIMUNDO? HOW DO THESE FACTORS AFFECT THE BUDGETING PROCESS? Strategic Context Quintana wants to strategically reward the managers of the Musimundo stores for meeting their budgetary goals; however, some managers were completely unable to do this and other managers were guaranteed their sales quota. Quintana can rectify this situation by modifying the Musimundo incentive system. Quintana can use multiple performance measures to reward his managers. These performance measures can be sales based on a flexible budget that looks at historical sales and measures them against current sales. The manager could be rewarded for the percentage of increase. Quintana can also use a balanced scorecard approach for each store. A store’s success can be based on a number of factors aside from sales. These factors could be customer satisfaction surveys, growth within the store, and management of employees and human resources. Additionally for the next year, Quintana should implement and/or refine an Activity Based Budgeting system. Quintana can first assign overhead costs to cost pools that represent the largest activities for Musimundo. These costs would be related to the purchase, location, and stocking of Music (Music represented 41% of the Musimundo business in 2004). After these overhead costs are assigned, the costs can be allocated to the various retail stores based on their consumption of the good (e.g. the number of musical works they stock and sell). The Musimundo Environment The Musimundo environment is jaded and disproportionately profitable in various regions of Argentina. As Argentina was exiting its economic crisis, various regions were â€Å"catching up† in the realm of consumption; however, other regions were either not â€Å"catching up† or lacked the activity to generate the proper sales. Managers in the more profitable regions were achieving/surpassing their sales goals, while managers in the less active regions were unable to achieve their sales goals. These underperforming managers were penalized by a system that they neither fostered nor developed. In all likelihood, the underperforming managers were disincentivized by unrealistic budgetary goals for their region, needing further assurances from corporate that their vision could be achieved. All retail stores suffered from a lack of product, destroying the potential sales that they could have gained. The stores in less popular/populated regions may have garnered a reputation for being unreliable and continually out of stock.