Tuesday, April 11, 2023

The Cobbler – A Practice Case Study

Cobbler returned to Edinburgh at the conclusion of the Battle of Waterloo in 1815, following the Black Watch Regiment to their home depot. Since joining Wellington for the Peninsula campaign in 1810, Angus and his wife Judith had been camp followers supplying Regimental Officers with the finest buckle brogues. Through their hard work and thorough attention to detail, they had created a strong reputation for quality highland shoes and, as a result, this strategy met with success during the first two years of operations in their new Edinburgh shop. Angus recalls, only six months earlier, reading the devastating Edinburgh Courier article regarding the Regiment. The Black Watch Regiment was to be significantly downsized as the Napoleonic Wars were at an end.  The impact of the government’s actions on the small business was immediate.  Within a few months, the cobbler and his wife were unable sell sufficient shoes to bring in the revenue required to cover their costs and put food on the table. Their future prospects looked bleak indeed. Over a cup of hot tea, the cobbler and his wife contemplated late into the evening whether the business was sustainable. Angus knew he must do something – but what?

Agnus and Judith had heard of a distant, tiny, elf community that was prepared to provide buckle brogues in exchange for simple meals and scraps of cloth. Angus had also been made aware that, increasingly, the elf community was being approached by competitive cobblers to form part of their outsourced value chain. The elves seemed to be largely motivated by profit without showing any loyalty.  Contracting with the elf community would stabilize the Cobbler’s situation. But, was there a risk that the tiny elves would go into business for themselves once the inner workings of their operation were shared with the elves?

The operational and administrative functions of this mom-and-pop show were simple. Decisions were made jointly with the Cobbler responsible for the manufacturing of the buckle brogues and Judith attending to the administrative requirements for their small business. Their small workforce shared the values of the Cobbler and his Wife and took pride in their work. They did not have any children or family interested in joining the enterprise. Monthly, Judith reported the growing gap between the strategic and financial objectives they had mutually set and the reality of their dwindling bank accounts and sales turnovers.

Questions swirled in the minds of Agnus and Judith…  Should they stick closely to their existing, yet haemorrhaging buckle brogue niche? Should they add new shoe lines and establish a market share in the general shoe market in Edinburgh? Or perhaps, should they establish branch shops in other communities that were home to other regiments? Indeed, the market had changed so much that, as the evening drew to night, the cobbler and his wife wondered if they should get out of the shoe business altogether and seek other opportunities.

Clearly, Angus and Judith had reached a strategic inflection point.  They were proud of their motto, “We provide quality footwear to the noblest of Highland Warriors”, and the brand image they had built as the provisioner to the Regiment over the years past. But, in light of the new environment, they wondered if they could maintain their focus in this turbulent environment or if they should explore new alternatives. What do you think?


Angus Fraser Cobblers
Income Statement (Adapted)
Year Ended 1818 and 1817
(Amounts in Pounds £) 1818 1817
Sales Revenues  £17,500  £31,890
Cost of Goods sold   11,375   19,134
Gross Profit     6,125   12,756
Operating Expenses
Salary Expense     4,800   7,200
Rent Expense     1,200   1,200
Amortization Expense        250      250
Utilities Expense        550      745
Supplies Expense        320      441
Interest Expense          75      110
Total Expenses     7,195 9,946
Net Income (£1,070) £2,810


Angus Fraser Cobblers
Balance Sheet (Adapted)
As at 1818, 1817, and 1816
(Amounts in Pounds £) 1818 1817 1816
Current Assets
Cash  £  50  £3,420  £1,400
Accts Receivable  600 300 350
Inventory 4,315 1,800 1,500
Supplies    120 100
Total Current Assets 5,085    5,615     3,350
Capital Assets
Furniture (net) 450       500       550
Equipment (net) 1,000    1,200    1,400
Total Assets 6,535 7,315 5,300
Current Liabilities
Accounts Payable    600     220     280
Wages Payable    210     300     300
Interest Payable      75       75     110
Total Current Liabilities    885     595     690
Long-term Liabilities
Note Payable 1,500 1,500 2,200
Owner’s Equity
A. Fraser, Capital 4,150 5,220 2,410
Total Liabilities &

 Owner Equity

   £6,535 £7,315 £5,300


Angus Fraser Cobblers
Statement of Cash Flows (Adapted)
As at 1818 and 1817
(Amounts in Pounds £) 1818 1817
Cash Flows from Operating Activities
Collection from customers £  17,200  £      31,940
Total Cash Receipts 17,200  31,940
To suppliers for COGS 13,510  19,494
To employees   4,890    7,200
Operating Expenses   2,095    2,381
For Interest        75       145
Total Cash Payments 20,570  29,220
Net Cash Inflow from Operating Activities  (3,370)     2,720
Cash Flow from Financing Activities
Payment of long term notes payable      0      (700)
Net Cash Outflow from Financing Activities      0      (700)
Net Increase in Cash & Cash Equivalents (3,370)    2,020
Cash & Equivalents, January 1   3,420    1,400
Cash & Equivalents, December 31  £    50  £3,420


Profitability Ratios
Gross profit margin % = (sales revenue – cost of goods sold) / sales revenue
1818 1817
Gross profit margin % 35.00% 40.00%
Net profit margin % = net income /sales revenue
1818 1817
Net profit margin % -6.11% 8.81%
Return on assets = net income / total assets
  1818 1817
Return on assets -16.37% 38.41%


 Liquidity Ratios
Current ratio = current assets / current liabilities
  1818 1817
Current ratio 5.75 9.44
Quick ratio = (current assets – inventory) / current liabilities
  1818 1817
Quick ratio 0.87 6.41


Efficiency Ratios
Inventory turnover = cost of goods sold / average inventory
  1818 1817
Inventory turnover 2.18 7.50
Average collection period = accounts receivable / (total sales / 365)
  1818 1817
Avg collection period (in # of days) 12.51 3.43


Financial Leverage Ratios
Debt to assets = total debt / total assets
  1818 1817
Debt to assets 36.50% 28.64%
Debt to equity = total debt / total equity
  1818 1817
Debt to equity 57.47% 40.13%
Times covered = profit before interest and taxes / total interest charges
  1818 1817
Times covered  (13.27) 26.55


Shareholder-Return Ratios
Return on equity = net income / total shareholder equity
  1818 1817
Return on equity -25.78% 53.83%
Return on total assets = net income + interest expense / average total assets
  1818 1817
Return on total assets -14.37% 46.29%



Reflect on the following questions to stimulate discussion around strategic management concepts and notions.

  1. What problems does Angus Fraser have? What issues need to be addressed? Do Angus and his wife need a new mission? New objectives? New strategy?
  2. Perform a comparative analysis of the reasons to change and the reasons to continue.
  3. What strategic option(s) do the Fraser’s have? Is continuing with the present strategy an option or is the present strategy obsolete? Is a whole new strategic direction (mission, objectives, strategy) needed? Perform a comparative analysis of the reasons to change and the reasons to continue.
  4. What are the pros and cons of accepting a continuing and possibly growing their outsourcing relationship with the tiny distant elf community?
  5. Would a new organizational structure be needed? Can Elves be empowered and trusted?
  6. What action plan would you recommend to Angus Fraser?
  7. What action steps should Angus Fraser undertake to implement the action plan? What will ensure the success of these steps?

[1] Instructor’s suggested answers to these case questions, including PowerPoint slides, can be made available by contacting  ( link Chirag??)

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Terrance Powerhttps://terrypowerstrategy.com
Terrance Power is a Wharton Fellow and professor of strategic and international studies with the Faculty of Management at Royal Roads University in Victoria. This article was published in the Business Edge. Power can be reached at tpower@ancoragepublications.ca


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