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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
The organization used in the case study is Bigg-Glowbell (BG), a fictitious multinational conglomerate with
multiple business units. The case study provides sufficient general information about the organization, key
players, history, products and services, organizational structure and business issues facing BG.
Assignment Background
You have been engaged by Bigg-Glowbell to perform a number of rapid assessments of the functional areas
listed below for the EMEA (Europe, Middle East and Africa) region, and to make recommendations for
improvements:
Sales and marketing IT
Supply Chain
Finance
This request follows the replacement of John Bigg as CFO after a steady decline in both profit and market
capitalization over the last two years. John’s departure was imminent at the end of the last financial year,
when material adjustments to profit were made during the audit of the accounts. The announcement
resulted in a 20% decline in shareholder value overnight. There’s now a broad recognition that things have
to change.
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
Bigg-Glowbell Overview
1897 The first commercial-scale production of Herbal Elixir begins in Eureka, Nevada, after
complaints from the neighbors persuade the family that the basement in their brownstone
was unsuitable for commercial operations.
1919 There is strong growth from the core product. BG expands internationally and opens a
facility in Canada.
1928 BG goes public. A share flotation is moderately successful but BG is dominated by the two
families.
1929 BG employs its first female manager, Gwendoline Grimes. She takes on
the innovative role of selling products to continental Europe.
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
1939-1945 During World War II , Herbal Elixir, made with rum or whiskey, becomes a popular drink
with the troops. Its mildly addictive qualities establish the foundations for post-war market
penetration.
1965 The Bigg family buys out the Glowbells’ shares. The resulting legal
battles concerning intellectual property rights over the recipes racks up
3 million monetary units in legal fees and immense animosity between
the families. The legal judgment favors the Biggs, and George Bigg II
assumes the role of CEO.
1971 The Bigg family loses overall control of the company to institutional shareholders. James A.
White takes over as chairman, but the family retains a significant shareholding. George
Bigg II retains his post as CEO. George announces he will sell his shares upon retirement.
1973 Another period of acquisition begins. BG expands into new areas such as logistics pubs in
England, restaurants and hotels. This strategy continues into the 1980s.
2000-present As sales growth fails to deliver profit expectations, the new millennium brings increasing
pressure from shareholders. Rumors of hostile takeovers from rivals persist. An article in
the City Journal suggests that BG could be worth more if it were broken up.
BG remains a dominant player in the drinks and beverage market. The family retains a
shareholding in the company, and until very recently John Bigg was the CFO. John still
works for BG as a “consultant.”
A period of declining profitability and poor share price performance was followed by a
high-profile series of material adjustments to the accounts during the audit by Ocean &
Sky (O&S). Share price declined by 20% overnight as a result. John Bigg was removed as
CFO and replaced by Sarah Goldman. Sarah joined BG last month after being the CFO of
Turnaround Holdings, where she led a series of acquisitions and post-merger
consolidations during the mid- to late ’90s.
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
mu Company performance
Market cap
7,000
(14,000)
6,000
Bigg-Glowbell Revenue
(12,000)
Values in brackets reflect market cap values.
5,000 2005
(10,000)
4,000
(8,000)
1960
3,000
(6,000)
Goes public
1928
2,000
(4,000)
1940
Profit
1,000
(2,000)
1896
1930 1940 1950 1960 1970 1980 1990 2000 Year
Note: The values used are in today’s values.
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
Bigg-
Glowbell
GEOGRAPHY: APAC
Drinks Packaging Logistics IT Services
Division Division Division Division
GEOGRAPHY: EMEA
The organizational structure of the company is not fully aligned to the business structure above. Each
region has a regional director. The board structure includes the regional directors, the CEO, the CFO, the
vice presidents of marketing, IT, and HR and four non-executive directors.
Finance within the regions reports to the MD, with a dotted-line report to the CFO (see organization
chart).
Retail (includes supermarkets, small grocery stores and non-BG-owned restaurants, pubs and leisure
facilities)
The Strange Stork chain of BG-owned pubs and restaurants
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
Herbal Elixir Classic Concentrates Scunthorpe Beer “Old Codger” (a Russian and Polish
Spring product from the vodka
Herbal Elixir Ultra Freshly Squeezed
Carbonated (also acquisition of
New Zealand wine
Herbal Elixir Citron sold with citron Sidebottom & Sons
Twist or fruit-twist Yorkshire Cambodian sake
Sold in bottles and in Sold in bottles, jars Sold in plastic and Sold in cans and bottles Sold as part of joint
cans in three sizes: and cartons (B-pak) glass bottles in venture projects
standard, large and three sizes: mainly, but not
family standard, large and exclusively, in the US
family and UK
Drinks Operations
Bottling occurs close to the market and is done by a BG plant where sufficient volume exists. Bottling is
outsourced in smaller markets. In overall volume, BG bottles 80 percent of its own products.
All distribution is undertaken by the BG division on a cost-plus basis. Transactions are billed and settled on a
per-shipment basis through the appropriate local Office of Bookkeeping and Reconciliation (OBKR)
departments.
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
Joint ventures with third parties are managed and accounted for against a series of call-off contracts and
profit-sharing arrangements negotiated locally by Marketing.
The Operations division also owns the procurement process, planning and manufacturing, and acts as an
interface to the Logistics division. The function considers itself the pivotal player in delivering customer
service and responding to requests from Marketing. A combination of BG’s over-complex product range, a
desire to be responsive to customers and a lack of effective demand planning contribute to periodic
manufacturing issues, including long product runs to keep change-overs to a minimum and short product
runs to meet unforeseen customer demand. This creates frequent and conflicting problems. Typically, some
parts of the BG supply chain will have too much inventory while others will run out. In situations where
marketing demands cannot be met, the work is outsourced to third parties who have been carefully selected
based on quality, not price.
The Operations and Finance functions do not see eye to eye. In the past, George III frequently reprimanded
John Bigg for the obstinacy and intransigence of Finance. There is little visibility regarding cost, and collecting
data for reporting is difficult.
The complexity of the operations leads to issues concerning performance reporting. Essentially, the process
operates on a day-to-day basis with little apparent planning and few metrics. The master scheduler (Pete
Best) said that they received “loads of complaints,” mainly about shelf life. He said since they were ISO 9000
certified, it was OK because they wrote them down. When being asked what happens then, he responded:
“Nothing, because I just have to fill out a check sheet for the quality manager. Once I’ve done that, I bin
them.”
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
Current operations
The Packaging division continues to be run by legacy T&E management and has remained largely unchanged
since the acquisition.
Packaging products include:
Corrugated products
Boxes and cartons
Current operations
Distribution is divided into long-haul and local. In long-haul, BG owns the trailers and tanks, and the contract
drivers own the tractors. Local distribution consists of employee-driven and -leased smaller trucks and vans.
BG Logistics is at the leading edge of service, guaranteeing next-day delivery to all major clients, thanks to
the Rapid Distribution System (RDS) and the Proactive Warehouse System (PAWS). A significant investment
has been made in RDS and PAWS to support an integrated distribution system linked to the supply chain and
stock management systems of retailers via the Internet. Handheld and onboard computers linked to satellite
navigation systems manage stock levels, routing, and delivery schedules.
X 1200 X 500
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
The investment is symbolic of BG’s customer focus and is seen as an extension of the products themselves.
The development of the system was managed by EDT, who worked closely with Marketing, IT, drivers,
warehouse mangers and a representative group of key retailers. The IT department recruited significant in-
house resources to maintain RDS and PAWS. The Logistics division recruited several supply chain consultants
to ensure that continuous improvement kept BG at the leading edge. These consultants, when not working
on internal projects, are deployed externally through the IT division’s consultancy business, called Solve IT.
RDS and PAWS are not integrated with the financial system. Local printouts from these systems are created
weekly and fed into the stock accounting system and sales ledger by OBKR staff. There is a large black hole in
the stock accounting figures.
The division specializes in transporting food-grade liquids. Recently they experienced a nasty incident when a
tanker carrying food-grade phosphoric acid was used to transport Herbal Elixir without having been cleaned.
The result was red Elixir instead of blue. Luckily, the problem was noticed before the product was packaged
and the material was disposed of.
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
Procure to Pay
Procurement resides within Operations. The process is characterized by a large number of suppliers with
many different terms and conditions. Operational discipline is poor: 35% of supplier invoices are processed
manually. Goods Received is patchy: 30% of orders have no registered or incorrectly recorded GRN (Goods
Receipt Notification) at the time of the month-end close. There are stock accounting issues, with an
apparent void of some 4.3 million monetary units in the last financial year. There are also significant write-
offs due to obsolete stock (product past its shelf life).
Order to Cash
The process is characterized by complex order terms and conditions including volume discounts, loyalty
rebates and cash incentives to pubs. Most orders are on credit, but some customers operate cash on
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
delivery. Twelve percent of invoices raised have credit notes. The most popular reasons for a credit note are
incorrect price (10%) and breakages/returns (9%).
The credit function sits within Sales, not Finance. Its overall performance is poor: Days Sales Outstanding is
running at 75 days.
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
Ownership
The current shareholding is as follows:
Employees
12%
Public
23% George Bigg III
5%
Bigg Family
Institutional Investors
35%
25%
Strategic Issues
BG faces multiple issues at a strategic level:
Poor investor reports
High labor costs
High energy costs, affecting distribution and production
Water shortage and quality issues in the UK
In 1903, BG published and patented the Herbal Elixir recipe. The original patent has expired. Although
the company has applied for an extension, it is embroiled in a legal battle with Drink4U, which has
started manufacturing it under its own brand.
The company faces a class-action lawsuit following the discovery of minute traces of amphetamines in
its Rejuvenating Tonic.
Acquisitions have not been optimized and synergies not realized.
Its dual listing on the New York and London creates problems as it struggles to report in both US GAAP
and IFRS.
A close call with SOX compliance
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
Organization Structure
An example set of organization charts relevant to the engagements we are currently undertaking for BG is
shown below. They are not exhaustive or uniformly representative of how the company organizes itself
everywhere.
Group Level
(Highlighting Finance function)
Chairman
CEO
Operations and
Logistics Group CFO VP Marketing HR Regional MDs Group CIO
Director
Group
Financial Regional IT
Treasury Tax Drinks Packaging Logistics Divisions
Controller FDs Services
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
Group CFO MD
Group CIO
NEMIA
MD
Regional FD UK
UKand Ireland
& Ireland
level EMEA B-G Group
BG Group
Country Group FD
FD MD
Controller Treasury Tax UK and Ireland
& Ireland UK
UKand Ireland
& Ireland
level BG Group Drinks
B-G Group Drinks Division
Division
FD Country BU
Mgt Acct Fin Acct Controller Treasury Tax UK
UKand Ireland
& Ireland level
Drinks Division
Drinks Division
Notes:
The regional level was brought in recently (2000) to transfer power to the regions. The Finance function
has done a better job than the other support functions (particularly sales and marketing) of changing to
the new arrangement, which allows some FDs report to their MDs instead of to Finance.
The Packaging and Logistics divisions do not have operations in every country.
OBKR has some small ‘shared services’ operations in the US, UK and Norway. In general, these do not
perform well and are not cost-effective. In fact, they cost more than when the consolidation occurred.
The company looked at outsourcing these operations to Cloudon, but negotiations broke down. When
the supplier did not guarantee cost savings, no agreement could be reached on the baseline costs and
metrics.
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
Bigg-Glowbell - GROUP
AMERICAS
EMEA Region APAC Region Region
OPS M&S … …
OPS M&S Finance HR
Proc.Acct.*
Tax Controller Treasury
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
Example IT Architecture
The lack of system standardization at BG means that no two parts of the business have identical (or in most
cases even similar) IT architectures. The schematic below shows the IT architecture used by BG’s Finance
function in EMEA.
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
FTE by Location
Division Department EMEA APAC Americas Function(s)
Drinks Drinks 8457 5207 6361
IT Services IT 468 0 326 General IT and IT consulting
Logistics Distribution 3174 0 2090
Packaging Packaging 2276 1697 1895
Payroll 35 24 29
Support Functions - HR Recruitment 47 23 52
Benefits 17 8 19
Procurement* 15 15 15 Procurement
General Accounting and Reporting* 227 115 184 Quarterly Reporting and Consolidations
OBKR 521 0 304 Bookkeeping, Reporting, Cash Allocation (UK), Payments to suppliers (UK)
Support Functions - Finance Planning and Budgeting 32 9 17 Planning and Budgetting with little updating and explantions throughout the year.
Tax 24 11 21 Tax planning and reporting
Internal Audit 65 41 81 Internal Audit
Other 82 56 85 Other general accounting functions
NOTES
* These headcount numbers refer to full-time procurement roles. Most procurement in EMEA is done by line personel, so 'hidden' procurement headcount is estimated to be up to 60 FTE.
**For EMEA, includes 50 accountants allocated to consolidations at HQ level.
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
Financials
Bigg-Glowbell
Financial Statements
200Y
20XX
20XX
200X
20XW
(thismu
year) (last
muyear)
(this year)
Assets
Non-current assets
Goodwill 2,001 2,258
Brand intangibles 2,602 2,992
Software intangibles 145 112
Property, plant, and equipment 988 1,002
Investment in associates 232 234
Deferred tax assets 11 12
Trade and other receivables 54 52
Other investments 7 8
6,040 6,670
Current assets
Inventories 822 688
Short-term investments 23 20
Trade and other receivables 1,549 1,111
Tax recoverable 30 28
Cash and cash equivalents 287 297
2,711 2,144
Total Assets 8,751 8,814
Liabilities
Current liabilities
Trade and other payables (1,709) (1,612)
Tax payable (277) (167)
Short-term borrowings and overdrafts (752) (638)
Short-term provisions (91) (80)
Obligations under finance leases (24) (24)
(2,853) (2,521)
Non-current liabilities
Trade and other payables (44) (34)
Borrowings (2,344) (2,299)
Retirement benefit obligation (571) (567)
Tax payable (170) (173)
Deferred tax liabilities (752) (744)
Long-term provisions (11) (10)
Obligations under finance leases (52) (50)
(3,944) (3,877)
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
Bigg-Glowbell
Financial Statements
20XX
200Y 200X
20XW
(this year) (lastmu
year)
mu
Continuing Operations
Revenue 5,720 5,899
Trading costs (2,796) (2,772)
Selling and distribution costs (1,704) (1,692)
Administrative costs (512) (494)
1) Restructuring costs (9) (13)
2) Amortization and impairment of intangibles (10) (8)
3) Non-trading items (16) (38)
Profit from Operations 673 882
Exceptional item – software costs (35) -
Profit Before Financing and Taxation 638 882
Investment revenue 24 22
Finance costs (20) (17)
Profit Before Taxation 642 887
Taxation (160) (200)
Profit from the Period from Continuing Operations 482 687
Discontinued Operations
Profit for the period from discontinued operations - -
Profit for the Period 482 687
Attributable to:
Equity holders of the parent 482 687
Minority interests - -
482 687
Earnings per share
From continuing and discontinued operations
Basic 32.1p 45.8p
Diluted 26.3p 40.5p
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
Benchmark data
BG began to buy benchmark data from APQC 12 months ago. They stopped when the business began to
resist being shown unflattering comparisons with competitors and other comparable organizations. This is
why only a limited set of data is available.
Sarah Goldman and Jonathan Stone are both big believers in benchmark data, because if used correctly, the
data creates an incontrovertible case for change.
FINANCE
BG Top Quartile Median Bottom Quartile
Finance Costs as % of Revenue 2.02% 0.3% 0.7% 1.5%
Finance Costs per Finance FTE £ 101,000 £ 46,404 £ 67,469 £ 97,565
Days Sales Outstanding 75 25 35 45
Days to Close 20 3 7* 22
IT
Number of IT FTEs for managing the business of IT per $1 billion revenue 12 4.9 6.3 8.8
Total IT budget as a percentage of revenue 1.5% 0.9 % 1.4 % 1.7 %
* Median number for average days to close for companies with decentralized operations.
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Ernst & Young “Business Leaders of Tomorrow” Case Contest
Bigg Glowbell (BG) Case Study
Key personalities
There are a number of key individuals at BG you need to know about at the Group level or in the Regions.
The main BG individuals:
Global Team
Regional/Country Personnel
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Ernst & Young “Business Leaders of Tomorrow” Case Contest