Section A – This ONE question is compulsory and MUST be attempted
The following information should be used when answering question 1
1 Introduction
Hammond Shoes was formed in 1895 by Richard and William Hammond, two brothers who owned and farmed land
in Petatown, in the country of Arnland. At this time, Arnland was undergoing a period of rapid industrial growth and
many companies were established that paid low wages and expected employees to work long hours in dangerous and
dirty conditions. Workers lived in poor housing, were largely illiterate and had a life expectancy of less than forty years.
The Hammond brothers held a set of beliefs that stressed the social obligations of employers. Their beliefs guided their
employment principles – education and housing for employees, secure jobs and good working conditions. Hammond
Shoes expanded quickly, but it still retained its principles. Today, the company is a private limited company whose
shares are wholly owned by the Hammond family. Hammond Shoes still produce footwear in Petatown, but they now
also own almost one hundred retail shops throughout Arnland selling their shoes and boots. The factory (and
surrounding land) in Petatown is owned by the company and so are the shops, which is unusual in a country where
most commercial properties are leased. In many respects this policy reflects the principles of the family. They are keen
to promote ownership and are averse to risk and borrowing. They believe that all stakeholders should be treated fairly.
Reflecting this, the company aims to pay all suppliers within 30 days of the invoice date. These are the standard terms
of supply in Arnland, although many companies do, in reality, take much longer to pay their creditors.
The current Hammond family are still passionate about the beliefs and principles that inspired the founders of the
company.
Recent history
Although the Hammond family still own the company, it is now totally run by professional managers. The last
Hammond to have operational responsibility was Jock Hammond, who commissioned and implemented the last
upgrade of the production facilities in 1991. In the past five years the Hammond family has taken substantial
dividends from the company, whilst leaving the running of the company to the professional managers that they had
appointed. During this period the company has been under increased competitive pressure from overseas suppliers
who have much lower labour rates and more efficient production facilities. The financial performance of the company
has declined rapidly and as a result the Hammond family has recently commissioned a firm of business analysts to
undertake a SWOT analysis to help them understand the strategic position of the company.
SWOT analysis: Here is the summary SWOT analysis from the business analysts’ report.
Strengths
Significant retail expertise: Hammond Shoes is recognised as a successful retailer with excellent supply systems,
bright and welcoming shops and shop employees who are regularly recognised, in independent surveys, for their
excellent customer care and extensive product knowledge.
Excellent computer systems/software expertise: Some of the success of Hammond Shoes as a retailer is due to its
innovative computer systems developed in-house by the company’s information systems department. These systems
not only concern the distribution of footwear, but also its design and development. Hammond is acknowledged, by
the rest of the industry, as a leader in computer-aided footwear design and distribution.
Significant property portfolio: The factory in Petatown is owned by the company and so is a significant amount of
the surrounding land. All the retail shops are owned by the company. The company also owns a disused factory in
the north of Arnland. This was originally bought as a potential production site, but increasingly competitive imports
made its development unviable. The Petatown factory site incorporates a retail shop, but none of the remaining retail
shops are near to this factory, or indeed to the disused factory site in the north of the country.
Weaknesses
High production costs: Arnland is a high labour cost economy.
Out-dated production facilities: The actual production facilities were last updated in 1991. Current equipment is not
efficient in its use of either labour, materials or energy.
