Question.2131 - You are playing the role of the divisional manager of the new e-bike division of Fox Factory Holdin Corporation. The divisional manager is preparing to request funding to introduce the product and begin sales. Three options have been identified (note that these are fictitious assumptions for the course): Produce the new e-bike internally, Outsource manufacturing to another manufacturer, and License the design to an existing company for royalties on future sales. Note: Please use the most recent Quarterly Results (https://investor.ridefox.com/financial- information/quarterly-results/default.aspx) (Form 10-Q) published under Financial Information section on the Fox Factory Investor Overview website. Please use the earnings announcement fo relevant required information, such as “Fox Factory Holding Corp. Announces Third Quarter 20XX Financial Results.” You will now submit your case study and recommendation to the CEO for Fox Factory’s plan to produce e-bikes for the domestic market. In your project, Complete a one-page Executive Summary introduction with your recommendation among the three options. The Executive Summary should be present at the beginning, followed by other explanation and reviews. Elaborate on the situational assessment of Fox Factory, including key financial information. Review each of the three options, including the costs, benefits, and risks of each item (spending, headcount, and capital). 4/2/24, 10:45 AM Week 6 - Final Project https://uagc.instructure.com/courses/129157/assignments/2497795 2/4 Explain why your recommendation makes the most financial sense for the company. Revise the Balanced Scorecard Excel sheet, OMM622_Balanced Scorecard_Template.xlsx created in Week 5 with any feedback from your faculty. Revise the sheet only for the recommended option. Include five goals and associated KPIs using the recommended template. The Case Study Recommendation final project, must be 6–8 double-spaced pages in length, including the Executive Summary page, but not including title and references pages. See Writing an Executive Summary (https://writingcenter.uagc.edu/writing-executive- summary) for additional guidance. See Writing a Case Study Analysis (https://writingcenter.uagc.edu/writing-case-study- analysis) to see different components of a case study analysis even if it is not the exact assignment you are going to create. must be formatted according to APA Style (https://writingcenter.uagc.edu/apa-style) as outlined in the Writing Center’s APA Formatting for Microsoft Word (https://writingcenter.uagc.edu/apa-formatting-microsoft-word) resource. must include the Excel sheet, OMM622_Balanced Scorecard_Template.xlsx, that you worked on Week 5. Rename it to OMM622_Balanced Scorecard_Final Project_YourName.xlsx after doing the revisions for your recommended option. must include a separate title page with the title of the paper in bold font, names of the student institution, and instructor, along with the course name, course number, and due date. must utilize Academic Voice (https://writingcenter.uagc.edu/academic-voice) . must include an introduction and conclusion paragraph. Your introduction paragraph needs to end with a clear thesis statement that indicates the purpose of your paper. See Introductions & Conclusions (https://writingcenter.uagc.edu/introductions- conclusions) and Writing a Thesis Statement (https://writingcenter.uagc.edu/writing-a- thesis) , for additional guidance. must use at least two credible, preferably scholarly, peer-reviewed sources in addition to the course text. See Scholarly, Peer-Reviewed, and Other Credible Sources (https://content.bridgepointeducation.com/curriculum/file/e5359309-7d3c-4a21-a410- 44d59303ccef/1/Scholarly%20Peer-Reviewed%20and%20Other%20Credible%20Sources.pdf) for additional guidance. If you have questions about whether a specific source is appropriate or not, please contac your instructor. Your instructor has the final say about the appropriateness of a specific source. 4/2/24, 10:45 AM Week 6 - Final Project https://uagc.instructure.com/courses/129157/assignments/2497795 3/4 must document any information used from sources in APA Style as outlined in the Writing Center’s APA: Citing Within Your Paper (https://writingcenter.uagc.edu/apa-citing-within- your-paper) guide. must include a separate references page formatted according to APA Style as outlined in the Writing Center. See the APA: Formatting Your References List (https://writingcenter.uagc.edu/format- your-reference-list) resource in the Writing Center for specifications. Carefully review the Grading Rubric (https://au.waypointoutcomes.com/assessment/35970/preview) for the criteria that will be used to evaluate your assignment.
Answer Below:
Executive Summary: Fox Factory As the Manager of the new e-bike division of the company, Fox Factory Holding Corporation, it can be suggested that soon it would be appropriate to fund the introduction of the product and initiate its sales. There are three options identified for the same and among them, internal production of the new e-bike would be the most appropriate decision. Thus, this report is aimed at analyzing the situation and submitting a recommendation to the company’s CEO for producing e-bikes and selling them in the domestic market. Situational Assessment of Fox Factory From the situational analysis of the company, it was found that recently Fox Factory faced certain challenges in the market. This has significantly resulted in loss of income and revenue. Besides, it has also faced market-level challenges with a rise in interest rates and those aspects. However, with prompt strategic decision-making, the company was able to offset these challenges and earn a decent income in the 4th quarter of 2023. To develop and grow continuously and attain long-term benefits, it would be better if the new e-bike is launched in the domestic market soon. Review of Options Reviewing all three options i.e. in-house manufacturing, outsourcing, and licensing, it seemed that they all had their pros and cons. However, licensing seemed to have more risks than benefits and hence, this option was immediately discarded from the option list. Comparing the remaining options, it seemed that outsourcing would be the most appropriate because the company lacked expertise and resources, and the employees may resist the innovative change. The rationale for the Recommendation The option of in-house production is recommended because, with proper planning, it seemed to be more beneficial. After all, the company can have autonomy and control quality, thereby having the capacity to produce high-quality products and change according to the needs of the customers. Hence, in-house production of the new e-bike has been recommended for long-term benefits. Final Project – Case Study Recommendation for Fox Factory For a company, it is essential to keep growing and developing so that appropriate strategies are taken and organizational performance can improve. For this, the company has been planning to launch e-bikes in the domestic market. This has been well articulated from the previously prepared balanced scorecard. Since the key goal of the company should be to attain continuous growth, the principles of the scorecard were applied to improve performance and strategic decision-making. It was particularly highlighted through the scorecard that cost control needs to be done in the production of the new e-bikes, thereby managing cost scheduling so that revenue can be increased. Apart from this, the strategic objectives for the next three years are internal process control, enhanced customer satisfaction, and continuous growth. Hence, from the perspective of the Manager of the e-bike division of the firm, it can be suggested that it would be highly beneficial to launch the product shortly. For this, three options seem to be valid and those are producing the bikes internally, outsourcing the products from another manufacturer, or licensing the design of the product for royalties. To understand which option is the best for the company, an analysis of the current situation has been conducted first and then all the options have been carefully reviewed. Thus, the purpose of making this report is to recommend the CEO of the company regarding the plan to manufacture e-bikes for the domestic market. Situational Assessment of Fox Factory To analyze the company's situation, FORM 10-Q, and the recent quarterly report have been considered. As per the fourth quarter 2023 report, the company was able to attain a net sale of about $332 million. However, in comparison with the 4th quarter of 2022 ($408.6 million), it can be said that the net sales faced a decline of 18.6%. The gross margin of the company was 27.7%, a 430-point decline from that of the last 4th quarter (i.e. 32%). $81.0 million was its total operating expenses, which showed a significant increase as compared to the 4th quarter of 2022. With the strategic decision to acquire Marucci, it was able to contribute $17 million to the revenue of Fox Factory. Along with this, the company was also able to acquire Custom Wheel House, which denotes continued diversification and vertical integration. Nevertheless, these acquisitions resulted in the primary increment of operating expenses by $6.8 million (FOX Factory, Inc., 2020). The net income delivered by the company was $4 million with a margin of 1.2% only. However, it was able to acquire only an 11.7% EBITDA margin due to adverse conditions such as high-interest rates, UAW strike, and Bike OEM destocking. The effective tax benefit of the company was reported to be $3.1 million, which indicated a decline in income tax expenses as compared to that of 2022 (which was only $0.2 million). This decline was found to be primarily due to a reduction in pre-tax income. With the constant intention of building a pipeline of high-performance products, the company has been launching new and improved products. Even with lots of problems faced, the company has been able to work as per the dedicated strategy and attain long-term growth as well as product leadership in the domestic market (FOX Factory, Inc., 2020). Apart from all this financial information, it is also imperative to note other kinds of information so that the company’s situation can be assessed properly. Herein, it needs to be noted that the company was able to sustain its business through the pandemic, market disruptions, and alterations in economic conditions. However, the company can face uncertainties or risks such as a limited number of partners and suppliers along with the inability to innovate, aftermarket penetration, attain international growth, retain key customers, improve efficiency, and maintain quality as well as relationships. In this regard, it can be noted that the company performed comparatively poorly as compared to 2022’s 4th quarter. One of the key reasons for this decline in performance has been reported to be the UAW’s (United Auto Workers) strike on the 15th of September 2023. This was because it created a continuous decline in sales for about three consecutive months. Even net sales of Specialty Sports Group declined because of higher inventory levels across different channels. Nevertheless, these losses were found to be counterbalanced by Aftermarket Applications Group. This was because its net sales were found to rise by $10.3 million as the company had acquired Custom Wheel House (Fox Factory, 2023). Besides, even though the efficiency of the North American facility improved, the company’s gross margin declined by 110 basis points because of a change in costs regarding the skilled workforce due to the strike and shift in product line. Even administrative and general expenses have been reported to decrease by $3.4 million while marketing expenses increased by $1.0 million particularly because of cost control. However, the situation was found to be counterbalanced by the acquisition of Custom Wheel House as its operating costs were also included. Due to all these ups and downs, its income from operations declined by $24.0 million in the 4th quarter of 2023 (Fox Factory, 2023). Based on the understanding derived from this information, it can be understood that the company’s acquisitions were quite successful. Therefore, it can be suggested that the company requires similar strategic decisions so that organizational performance can increase, costs can be reduced, and the environment of growth and learning can be developed for the betterment of its future. Review of Options As mentioned in the previous section, the company needs to recover from its losses and develop further. Hence, it has been suggested that it is the right time to consider the plan for launching a new product, particularly an e-bike. The reason for considering this product is that in recent years electronic bikes have become popular, which has created a significant opportunity for Fox Factory Holding Corp. According to a survey, 65% of the participants who already had electric bikes stated that they preferred to replace their vehicles with these sustainable and environmentally friendly transportation facility. When e-bikes were compared with cars people were found to be more physically active, which can reduce the public health challenges that have been faced in the US, such as obesity (Velco, 2023). Consequently, the e-bike market in the US was valued to be around $1.98 billion in the year 2022. Besides, the market size is expected to increase in the future. Specifically, with a 15.6% Compound Annual Growth Rate (CAGR), the market is expected to grow from 2023 through 2030. The key reason for this estimation is the encouragement of the government to adopt such bikes through supportive schemes (Grand View Research, Inc., 2024). This provides a huge opportunity for Fox Factory to diversify and tap into a new market so that it can attain long-term growth and improved performance. For producing the e-bikes, the first option that will be reviewed in this section is producing them internally. Product development has been seen to be essential for any company including Fox Factory. By developing an existing product or a new one, the company’s resources and investment in research and development can be combined for its betterment. It is also important to keep developing products so that the latest technologies can be adopted and product quality can be improved. This shows that producing the new product internally can help the company regulate and monitor every step of the production so that quality product is manufactured and value can be created for the customers. However, in-house production can be risky for the company (Gressetvold, 2004). Some of the risks of producing the product internally are facing resistance from the employees to innovate, and productivity and efficiency may be hampered. The employees and workers may also lack the appropriate skills and abilities to produce the product. Besides, technical uncertainties and financial uncertainties can further make the production of the new product burdensome. This means that the company needs to bear additional costs and time for planning, training the employees and workers in the production line, purchasing equipment and infrastructure alongside other resources (Gressetvold, 2004). In the case of the new e-bike, this option seems to be quite beneficial because it will enable the company personnel to control every process of production so that high-quality products can be produced and maximum benefits can be attained from the domestic market. The second option for the launching of new e-bikes is outsourcing. Outsourcing is nothing but buying the product from another manufacturer and launching it under the brand name of Fox Factory. This option has several advantages, especially for a company whose employees are not experienced or whose resources are limited. However, this decision is complex because it depends on the situation and circumstances of the company. Inhouse production can enable the company to customize the product and respond faster to the market demands and changes considering the volatility of the market. However, as compared to outsourcing, it is more time-consuming and expensive (Schmidt & Winterhalter, 2019). Outsourcing the product can enable the company to utilize the expertise of an already-producing manufacturer rather than developing or training the existing employees of the company to produce a good product line. The company can also make use of different resources and equipment, which is not available in-house. Thus, it can be said that this option reduces the time and cost of the company. This seems to be a better option than in-house production for Fox Factory because, within a few months, the company can launch new e-bikes and meet the demands of potential customers. This will further enable Fox Factory to emphasize its core competencies (Schmidt & Winterhalter, 2019). On the other side, there are some risks involved in outsourcing and those are the inability to control the entire process like in-house production and quality control problems. It can also be difficult to maintain regular communication with the manufacturer and hence, miscommunication might lead to significant loss on the part of Fox Factory. The costs that need to be incurred in this option are related to production, transportation, legal, communication, and quality control (Kabiraj & Sinha, 2011; Schmidt & Winterhalter, 2019). The third option that needs to be assessed in this report is licensing the design of the new e-bike to another company so that royalties can generate additional revenue in the future. In this option, the expenses that would be incurred are while allocating resources for designing the product and the cost of licensing. Apart from this, advertising and marketing costs may be required along with development costs as per the trends. The benefits that can be attained by the company while considering this option involve the creation of additional revenue, exposure to a new customer base and partners, and reduced level of financial risks when compared to the other two options discussed above (Allcot, 2024). The company can also have the opportunity to make use of the resources and expertise of another company, particularly for marketing and product development activities. This means that the company can have the ability to increase profit, enhance brand recognition, and expand market reach. Similar to the other options, this option also has certain risks and those are the possibility of future disputes, immense competition, no income guarantee, deficiency of control over the produced products, inadequate efforts put in by the other company, and the possibility of intellectual property theft (Allcot, 2024). These show that the third option has a greater level of risks, and hence, it cannot be considered to be appropriate for Fox Factory. The Rationale for the Recommendation Among outsourcing and in-house purchasing options, the recommended option would be in-house purchasing. This is because it will enable the company to control the entire production process and help it attain a huge amount of product in the long run. Herein, it needs to be noted that it has certain risks, which need to be taken care of. This can be done by proper planning, training, educating, and implementing the plan appropriately. In conclusion, it can be suggested that this option may be time-consuming and costly but to meet the strategic objectives outlined in the balanced scorecard, this option would be highly beneficial. It also must be noted that with proper planning any kind of additional cost can be avoided and hence, this option can also be made advantageous in the short run as well. However, equipment and certain parts of the e-bike, which seems to be challenging for the company can be outsourced so that the process can be made simpler. In this manner, the company can attain its strategic objectives and attain long-term growth and development by producing the new e-bike and tapping the prospects. References Allcot, D. (2024). What to Consider Before Licensing Your Brand. U.S. Chamber of Commerce. https://www.uschamber.com/co/start/strategy/brand-licensing-pros-and-cons FOX Factory, Inc. (2020). Fox Factory Holding Corp. Reports Fourth Quarter and Fiscal 2023 Financial Results. Fox Factory Holding Corp. https://investor.ridefox.com/press-releases/news-details/2024/Fox-Factory-Holding-Corp.-Reports-Fourth-Quarter-and-Fiscal-2023-Financial-Results/default.aspx Fox Factory. (2023). FORM 10-Q. Fox Factory Holding Corp. https://d18rn0p25nwr6d.cloudfront.net/CIK-0001424929/1f1f35f3-93be-43dc-bda3-34a9e8cfe155.pdf Grand View Research, Inc. (2024). U.S. E-bike Market Size, Share And Trends Report, 2030. Automotive & Transportation. https://www.grandviewresearch.com/industry-analysis/us-e-bike-market-report Gressetvold, E. (2004). Product Development – Effects on a Company’s Network of Relationships. Paper for the 20th Annual IMP Conference, 1-20. https://www.impgroup.org/uploads/papers/4547.pdf Kabiraj, T. & Sinha, U. B. (2011). Strategic Outsourcing With Technology Transfer. CDE, 203, 1-19. http://www.cdedse.org/pdf/work203.pdf Schmidt, S. R. & Winterhalter, C. (2019). 2-4 Make vs. Buy (In-vs. Outsourcing): Causes, Criteria, and Consequences. Bioplan Associates, Inc., 73-79. Velco. (2023). The American E-Bike Market: Between Challenges And Opportunities. News. https://velco.tech/en/american-e-bike-market-challenges-opportunities/More Articles From Management