Financial Performance and Health of an Organization: Wesfarmers Report

This report provides an in-depth analysis of Wesfarmers' financial performance and organizational health. It examines the company's strategic priorities, including its focus on efficiency-oriented management and its commitment to strengthening existing operations. The report delves into the factors contributing to Wesfarmers' success, such as its capitalization on non-financial factors like brand value, diversified business portfolio, and strong market position. It also identifies significant internal risks, including human factor risks related to management changes, operational issues, and technological risks. The analysis covers Wesfarmers' business decisions, risk management framework, and the impact of its strategic planning framework, 'The Wesfarmers Way,' on its long-term value creation. The report references various sources, including Wesfarmers' annual reports, shareholder reviews, and external market analyses to support its findings. The report highlights the importance of balancing growth and efficiency, managing risks, and capitalizing on non-financial factors for sustained success.

Running Head: FINANCIAL PERFORMANCE AND HEALTH OF AN ORGANIZATION
Success Factors and Risks of an Organization
Wesfarmers
Student Name
Date

FINANCIAL PERFORMANCE AND HEALTH OF AN ORGANIZATION 1
Final Project Milestone Two – Module Five
Success Factors and Risks
Strategic Priorities
Accounting procedures and business decisions of any firm are directly based upon its
financial and strategic priorities as it impacts how the firm executes its business. The risk and
return objectives are set by the board and then the business strategy is made accordingly. The
management can set financial and strategic priorities to achieve these goals. Wesfarmers has
recently decided to cut its debt level so as to reduce its financial leverage (Wesfarmers, n.d.).
This change has strengthened the firm’s balance sheet and now it is looking for new
opportunities to expand its operations (Hatch, 2019). So, the firm’s business decisions depend
upon its financial priorities and corporate strategies.
The orientation of the firm can be inclined more towards growth or efficiency. Growth
oriented management gives more attention to the sales and marketing divisions to increase
the firm’s revenues. Efficiency oriented management puts more focus on the process and
procedures to properly execute the strategies at all levels. A mix of both strategies is required
for the organizations for sustainable success. Wesfarmers management is more oriented
towards the efficiency and it focuses on strengthening the group’s existing operations by
having proper procedures. It uses detailed strategies at a divisional level that are focussed on
finding the specific opportunities to improve all of its businesses. It tries to create value via
the strengthening of its existing businesses by achieving excellence in operations to satisfy
the needs of its customers (Wesfarmers Shareholder Review, 2018). Due to the efficiency
oriented management, the group makes business decisions to achieve perfection in its
business- products and services, to have high levels of customer satisfaction.

FINANCIAL PERFORMANCE AND HEALTH OF AN ORGANIZATION 2
Wesfarmers’ management is responsible for the compliance of group activities with the risk
management framework on day to day basis. In May 2018, the group approved its risk
framework, which focuses on the long term risk management for sustainable growth. This
framework guides all the business decisions of the group by providing the proper guidelines
and limits for capital expenditure approvals and all other investments including contractual
commitments. All the business divisions of Wesfarmers do the annual budgeting and monthly
reporting to examine their progress in comparison to performance targets. These parameters
are then utilized in the decision making process to maximize the profits of the group without
breaching the risk targets. The risk policies also impact the overall outlook of the group in the
long run as proper due diligence procedures and guidelines need to be followed for all the
acquisition and divestment activities (Wesfarmers Corporate Governance Statement, 2018).
Earlier Wesfarmers used to give more emphasis towards meeting its budgeted targets in the
short run and that influenced its business decisions. In 2017, group’s management changed
and that also changed the focus of Wesfarmers towards the long term value generation. This
change is visible in the company’s decision of selling/spin-off it’s various assets: Coles,
Kmart Tyre & Auto and Bengalla coal mine stake (The Patient Investor, 2018). The group’s
business model is based upon its framework: The Wesfarmers Way (Wesfarmers, n.d.). It
includes guidelines related to the core values, enablers of growth and value strategies. The
major attribute of this strategic planning framework is to maintain a long-term focus and to
act sustainably for value-creation and business-building. Wesfarmers consistently invests in
the business divisions which offer higher investment opportunities than the required return. It
acquires or divests businesses in order to manage group’s balance sheet towards an
appropriate risk profile, while maintaining the flexibility to invest in the new business
opportunities (Wesfarmers Annual Report, 2018).

FINANCIAL PERFORMANCE AND HEALTH OF AN ORGANIZATION 3
Capitalization on Non-Financial Factors
Wesfarmers group was originated in 1914. The critical reason for its prolonged success is the
group’s effective capitalization of its nonfinancial factors. These factors provide the
organization with a specific economic moat or competitive advantage. According to Market
Index (n.d.), Wesfarmers is one of the top 20 public companies in Australia. Its diversified
business portfolio includes general and speciality retail division, home improvement division,
industrials division, gas processing and distribution operations; insurance business and office
supplies segment (ASX, n.d.). Many of the group holdings like, Bunnings and Kmart groups
are top leading companies in their specific segments (Wesfarmers, n.d.). Such diversified
business operations, leading industry position and enormous market share give Wesfarmers a
competitive advantage. The group uses its top industry position for the business expansion by
acquiring other businesses and by entering the untouched markets. It can further use this
unique competitive advantage by applying loss leader strategy to destroy the competition.
The group has a lot of brand value due to its strong position in various industries, its
successful history and its continuous positive contribution to the community services.
According to Reputation Institute (2018) list of the most reputable companies in Australia,
Wesfarmers comes in the top tier. This strong brand value allows the group to command
significantly high market valuation in comparison to its less known competitors.
Wesfarmers has a total number of shareholders close to 490,000 and it is one of the largest
employers in Australia in the private sector with close to 105,000 employees (Wesfarmers
Half-Year Report, 2019). The group has grown through the acquisition of various businesses,
hence acquiring the prevailing management and other work-force of those firms. Wesfarmers
has well reputed and highly skilled executives who can use their experience to grow and
expand its business. All capital investments, acquisitions and takeovers of other businesses
have created a strong asset base: tangible and intangible assets. The group via its various

FINANCIAL PERFORMANCE AND HEALTH OF AN ORGANIZATION 4
business divisions has a large number of plants and equipment under its control. Wesfarmers
can use all these assets for the production and delivery of top quality products and services
that can distinguish the company from its competitors.
Significant Internal Risks
The group faces major human factor risks due to the change in its top management team in
2017 when Rob Scott was appointed as the CEO of Wesfarmers (Low, 2017). The new CEO
has no previous track record and that poses a risk for the company. There is suspense
regarding the group’s future approach. Any new business strategy formed by the new
management can be risky in the long run and it may prove unsuccessful.
There can be significant operational issues for the group arising from the loss of essential
supply inputs, business disruptions due to disputes/strikes, workplace safety hazards and loss
of data because of cybercrime/system-crash.
Wesfarmers also faces several other internal risks that include technological risk from the
out-dated operating systems. Old IT systems may lead to decreased group productivity by
affecting the production ability of its business and by causing disruptions in supplies. There
are frequent changes in the computer systems and modern technologies, which create risks
for the companies as these disruptive technologies can affect the demand for its products and
services. In order to safeguard itself from such risks, Wesfarmers consistently capitalize on
the latest technology to improve its data systems and business processes (Wesfarmers
Shareholder Review, 2018). It invests heavily in the research and development of IT systems
based on the new available technologies as the inefficient implementation of unproven
advanced technologies can be fatal for the business.

FINANCIAL PERFORMANCE AND HEALTH OF AN ORGANIZATION 5
References
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https://www.asx.com.au/asx/share-price-research/company/WES/details.
Hatch, P. (2019). Wesfarmers ready to pounce on M&A after paying down debt. Retrieved 27
June 2019 from https://www.smh.com.au/business/companies/wesfarmers-ready-to-
pounce-on-m-and-a-after-paying-down-debt-20190114-p50rb3.html.
Low, C. (2017). Wesfarmers names Rob Scott to replace CEO Richard Goyder. The Sydney
Morning Herald. Retrieved 27 June 2019 from https://www.asx.com.au/asx/share-
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FINANCIAL PERFORMANCE AND HEALTH OF AN ORGANIZATION 6
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