Cost Management Case2
FRANGOR SPA: STRATEGIC COST ANALYSIS FOR PROFIT RECOVERY
by Riccardo Silvi
Preliminary draft
A) Overview and Strategic Financial Analysis
Mr. Paolo Frangor was standing in front of the big window of his office. From there, he could see the wide square and the part of the building where the products -- machines for agriculture (rotary tillers, spading machines, harrows, …) -- were produced. He was satisfied with this new location.
The bigger dimension, indeed, could help his employees do a better job and moreover could support the growth. “Growth was necessary to recover a slowly decreasing profitability”, he thought. He was used to repeat to his father that bigger dimensions were necessary to offer to the market a wide range of products and to provide a service to the customers.
Frangor SpA was founded in 1955. At that time the business was in a strong expansion. After
World War II, Italy had to face its rebuilding. The mechanization of agriculture and the focusing on different kinds of cultivation (i.e. vineyards and orchards), more coherent with the structure of the
Italian territory, had primed a strong demand for agricultural machines in the following 30 years.
Mr. Alfredo Frangor, the founder of the company, had recognized this opportunity. From the beginning of his business, he decided to focus his attention on the non extensive cultivation. Even if low cost was the best strategy to follow, Mr. Frangor believed that differentiation was a good way to compete. Reliability, innovation and service quality were the strategic weapons used. In forty years, Frangor SpA reached important dimensions. In 1996, revenues were about 30 billion Italian liras achieved with eighty employees.
In Italy this industry was characterized by over 150 firms with a revenues level ranging from a few hundreds of thousands of euro to 60 mln euro. Of these firms no more than 20 were well known and operating in a wider scope. Frangor SpA, in particular, was second in the ranking. Rotax
by Riccardo Silvi
Preliminary draft
A) Overview and Strategic Financial Analysis
Mr. Paolo Frangor was standing in front of the big window of his office. From there, he could see the wide square and the part of the building where the products -- machines for agriculture (rotary tillers, spading machines, harrows, …) -- were produced. He was satisfied with this new location.
The bigger dimension, indeed, could help his employees do a better job and moreover could support the growth. “Growth was necessary to recover a slowly decreasing profitability”, he thought. He was used to repeat to his father that bigger dimensions were necessary to offer to the market a wide range of products and to provide a service to the customers.
Frangor SpA was founded in 1955. At that time the business was in a strong expansion. After
World War II, Italy had to face its rebuilding. The mechanization of agriculture and the focusing on different kinds of cultivation (i.e. vineyards and orchards), more coherent with the structure of the
Italian territory, had primed a strong demand for agricultural machines in the following 30 years.
Mr. Alfredo Frangor, the founder of the company, had recognized this opportunity. From the beginning of his business, he decided to focus his attention on the non extensive cultivation. Even if low cost was the best strategy to follow, Mr. Frangor believed that differentiation was a good way to compete. Reliability, innovation and service quality were the strategic weapons used. In forty years, Frangor SpA reached important dimensions. In 1996, revenues were about 30 billion Italian liras achieved with eighty employees.
In Italy this industry was characterized by over 150 firms with a revenues level ranging from a few hundreds of thousands of euro to 60 mln euro. Of these firms no more than 20 were well known and operating in a wider scope. Frangor SpA, in particular, was second in the ranking. Rotax