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Cancer Council Australia is a non-for-profit organisation that is

By Kelly Kennedy,2014-05-17 00:19
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SWOT analysis identifies the strengths, weaknesses, opportunities and threats of a company. The Cancer Council should know whether the company's

Introduction:

Cancer Council Australia (CCA) is a non-for-profit organisation dedicated to promoting cancer

    awareness and prevention. A large majority of funds raised by the Cancer Council are devoted to

    cancer research. Its main sources of income are derived from licensing and royalty agreements with

    third parties. In this document, our team will outline a model that will ensure Cancer Council

    Australia is exposed to minimal risk in dealing with these partnerships both in social and financial

    aspects.

    Financial Viability:

Before entering into any agreements with third parties, it is important to check the financial

    viability of the potential partner. This helps to ensure that the third party has the ability to pay the

    contractual royalty payments negotiated between the CCA and themselves. To assess financial

    viability, a thorough analysis of the company’s financial statements must be undertaken, focusing

    on the third party’s financial stability, liquidity, ability to finance debts and cash flow. Moreover,

    the CCA should have every right to request for the business’ future strategies, plans and budgets in

    deciding whether or not to partner with the third party.

The main financial statements that need to be reviewed in this process are the income statements,

    cash flow statements and the balance sheets.

    ? Income Statement:

    When examining income statements, CCA should look for consistently stable profits for

    the past few years. This will help to ensure CCA receives a secure royalty payment.

    However, even when third parties have incurred losses during past years, it is still

    plausible to enter into agreements with them provided that the company has a bright

    business plan and/or optimistic consumer confidence. The way the company is financed

    is also a vital issue. Large amounts of debt, interest payments and other finance costs can

    prove detrimental to the profit-making ability of the company.

    ? Cash Flow Statement:

    When analysing cash flow statements, a liquid, positive cash flow should be looked for.

    Companies with sufficient liquidity tend to run more smoothly than those lacking in cash.

    Without cash in hand, the investment opportunities of the company are significantly

    restricted.

    ? Balance Sheet:

    When examining a balance sheet, the first few things that should draw CCA’s attention

    are the current assets and current liabilities of the company. It is essential for the

    company to have sufficient current assets to finance its liabilities (especially current

    liabilities). The company should preferably have sufficient cash to pay its immediate

    debts without having to receive loans from banks and other financial institutions.

    Additionally, close attention should be given to the non-current liability accounts

    because companies are able to defer payment of debts to their creditors intentionally, in

    order to boost their current and quick ratios.

Ratios can easily be calculated through analysis of financial statements. These ratios should then

    subsequently be compared with competing companies and industry averages in order to gain

    perspective on the financial position of the potential partner in their industry.

In regards to business budgets and plans, a few issues need to be considered:

    ? Has the company been achieving their targets?

    ? Are the budgets produced by the company reasonable?

    ? Is the company’s business strategy relevant or will it fail in current economic conditions, i.e.

    recession/downturns in the business cycle?

Quality Assurance

    Cancer Council Australia has two main arrangements put in place to generate royalties - namely Licensing Agreements and Cause Related Marketing (CRM). Since a fundamental part of both these campaigns involve selling products and services associated with Cancer Council Australia, they must be of high standards. If products do not meet these standards, severe repercussion for the organisation may result. In order to evaluate the quality of a third party’s activities, CCA must

    obtaining information, both past and present, on the factors involved in the manufacture of products and/or provision of services by the third party.

    Typically, manufacturing of products has more aspects than provision of services that contribute to product quality. First of all, CCA needs to know the quality of inputs used in the production process. Questions should be posed, such as;

    - Does the third party source materials of reasonable quality?

    - Are any of the inputs banned substances or illegitimate?

    - Are the most economical materials used as inputs?

    Once the criteria have been met in regards to inputs, then the manufacturing process and overall product must then be reviewed. Employee training and quality control procedures are implemented so that the health and safety of the consumer is assured. Proper employee training, as well as the appropriate factory conditions impact upon the quality of the manufacturing process. Once manufactured, the final product should undergo testing to ensure that the product meets its description.

    The quality of products is also revealed in the sales figures of the good. Information such as that available to auditors can be analysed to indicate proportions of unsatisfied customers and highlight poor quality of products to the CCA.

    As well as obtaining information about how the products are manufactured, the CCA should also obtain information on the origin of the product. Where a product is made can greatly influence the purchasing decision of a buyer as it can indicate the quality of a product. Usually, products made in Australia are seen to have a higher quality than their counterparts made in China due to the differences in quality control regulations. There was recently an incident in which toy company, Mattel, whose products were made in China, contained lead paint, a poisonous substance. If such an incident were to occur to Cancer Council’s products, the demand would fall greatly, resulting in

    serious losses of income.

Additionally, it is important that CCA is not associated with any companies that utilise

    controversial issues such as sweatshop labour. As such, various products endorsed by the council are manufactured in Australia, such as their sunscreen, depicting both quality and fair labour whilst supporting the local community. Two of Cancer Council’s large corporate partners, Coles and Sorbent, also feature Australian-made products.

In regards to the provision of services, quality is largely reliant on the quality of the employee. CCA

    should evaluate this through examination of the training structure and qualifications of employees.

    If employees have inadequate training or are unknowledgeable, the quality of the service they

    provide would prove poorer. The quality of customer service is also vital to customer satisfaction. It

    is not strange for customers to call customer services to enquire about products or to clarify aspects

    of the product they are unsure of.

Brand Alignment

Brand alignment is considered an important aspect of company reputation. Brands are a way of

    representing the company, and delivering a promise to the customer. As Australia’s peak non-

    government cancer control organisation, it is very important for Cancer Council to maintain a

    positive social image. As such, when aligning with other brands, the Cancer Council’s partners

    must also be reputable and have a positive image in society in order to not damage CCA’s

    reputation. To determine whether the third party has a positive reputation, an analysis of the third

    party’s social, economical and environmental characteristics must be conducted. A SWOT analysis

    can also be implemented to evaluate how well a company can achieve the goals of cancer council.

Socially, a company must be viewed positively by the public. This is evident by the company’s

    actions and the actions of the employees themselves, particularly higher ranks such as directors and

    the CEO. If a company has been involved in any scandals, there is a spill over effect in regards to

    reputation on any associated organisation. These scandals can be the result of business decisions,

    employee actions, and general events that are shunned by the public. Noticeable examples of these

    scandals are illegal business practices such as price fixing, fraud by leaders of the company, and

    mistreatment of employees and customers.

As well as aligning with those with a good reputation, CCA’s must also align with organisations

    with the same values. For example, one of the main values of Cancer Council Australia is to prevent

    cancer development through prevention. Therefore, it would not be in CCA’s best interest to enter

    into agreements with cigarette company Marlboro in which the cigarettes produced are a proven

    cause of lung cancer, regardless of the possibility of large royalty payments.

In recent times, environmental issues have been the subject of attention with the general public. So

    much so that the actions of organisations concerning the environment can change the way the public

    views the organisation. Due to the increasing amount of evidence incriminating businesses of

    environmental damage, more and more businesses are now trying to develop eco-friendly practices.

    For example, large corporations such as BHP, whose operating activities involve necessary

    environmental damage, have implemented policies to minimise environmental in attempts to

    improve their image. Since Cancer Council’s aim is to help people, it should take note of the

    environmental values of potential partners especially since the environment is an issue so close to

    the public’s heart.

SWOT analysis identifies the strengths, weaknesses, opportunities and threats of a company. The

    Cancer Council should know whether the company’s characteristics are in alignment with their own

    desires. Strengths should be evaluated as what is the company good at, and whether this help the

    CCA raise funds. Weaknesses are the opposite and involve what the company could improve on,

    and whether this will hinder the Cancer Council’s operations. Opportunities involve conditions that the company can exploit in order to achieve their goal. Finally, threats involve factors that can

    become problematic to the company if appropriate action is not taken. These factors are helpful in

    that they can identify future problems which then can be changed into opportunities. Factors that

    relate to public relations should be of particular note in SWOT analysis, as these attribute to the

    reputation of the company.

    Assurance Program

It is imperative that the royalties raised by licensing and CRM agreements are able to create enough

    funds for the Cancer Council to continue operating and achieving its goals. Though many

    businesses are willing to collaborate with CCA, it is important for CCA to be wary when dealing

    with partners. There is always an incentive for businesses to put themselves first and exploit the

    terms of contract.

Auditing is a method, by which the accuracy of a company’s books and financial statements can be

    checked. However, even this has its limitations and so to gain further assurance in royalty payments

    CCA must put in place provisions in contractual arrangements to protect itself. Our team has come

    up with an assurance program, as well as suitable provisions, which will achieve this.

The assurance program for both CRMs and Licensing Agreements follow the same approach. The

    concept behind this program is to calculate royalties from production figures, giving partners a time

    frame in which they must produce the product as CCA endorsed/associated products.

As an example;

    Company X has been approved for collaboration with the CCA in the form of cause related

    marketing. CCA and Company X decide for the contract to be valid for 5 years, and that each year

    from April to June (a 3 month period), Company X must utilise CCA’s logo on a certain product

    and will donate part of the proceeds to CCA.

Our team has developed a 3-part plan to assure the correct amount of royalties payable is calculated.

    1. CCA and Company X should negotiate on a reasonable and appropriate amount that should

    be able to be sold during the 3 months. Estimations can be made from past records. This

    should then be used to set a minimum production level, guaranteeing CCA a certain amount

    of royalties.

    For example, if records show sales of the product from the previous year for April to June

    was 22,000 units, a contract should be made up in which Company X guarantees production

    of 22,000 units (depending on economic conditions and future estimates of sales), giving 10

    cents to CCA per unit produced (not sold).

    2. If Company X wishes to continue producing the product in excess of the 22,000 units

    guaranteed, then every unit sold after the first 22,000 will contribute proceeds to CCA but at

    a discounted rate, 5 cents per unit, raising more royalties for CCA.

    3. At the end of the 3 month period, Company X’s books are checked for production levels

    during the period, and the production figure is used to calculate royalties payable to CCA.

    N.B, Whether Company X manages to sell as much as they produced is irrelevant as the

    percentage is taken from production and not sales.

    E.g. Company X decides to produce more than the guaranteed 22,000 units. Once the 3

    months is over, production figures show that 35,000 units have been produced. To calculate

    royalties payable to the CCA, the first 22,000 units earn royalties of 10c each and the

    remaining 13,000 units earn royalties of 5c each earning total royalties of $2200 + $650 =

    $2850.

The following provisions must be made in the contract to prevent breach or exploitation of the

    contract:

    - A penalty, will be applied if production does not meet the guaranteed amount (e.g.

    the 22,000 promised in the contract).

    - Royalties payable are taken from production and not sales.

    - Company X can only produce CCA endorsed/associated products for the time period

    negotiated. If found in breach, penalties will apply.

    - CCA reserves the right to have Company X’s books audited to confirm production

    figures.

Conclusion

    The income received from licensing agreements and cause related marketing is crucial to CCA’s

    success in researching cancer and promoting cancer awareness. Thus it is important that CCA

    examines these factors of financial viability, quality assurance, and brand alignment, with relation

    to its potential partners. However, prior to entering into a contract with a third party, several

    provisions should be included in the contract in order to minimize any problems regarding royalty

    payments. By covering these points, CCA and its partners, will have a successful agreement.

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