Case Study

This case was prepared by Dr. Ridhwan Fontaine. It covers chapters 7 and 11. Ridhwan Fontaine is the CEO of a fitness company called Super Fit Sdn Bhd. This company, located in Bangi, is a franchise and partners with about 40 gyms all over Malaysia. Apart from the normal gym membership, the company sells food supplements to most of its gym members. Founded in 2010, it has celebrated its 11 th year of continuous growth. Ridhwan considered the information found in Table 1.

In the old days, most of the revenue came from the gym membership. This was the responsibility of Tony Chua, a very dynamic salesman. In order to create the right incentive, Tonys annual bonus depends on the total gym membership sales and the number of franchisees that he can sign-up during the year. The only problem with gym membership is that the net profit margin is only about 5%. For this reason, Ridhwan started a food supplement business. The net profit margin is about 30%. Headed by Fatima, the sales of supplements depend heavily on the number of gym members that go to Super fit gyms. Fatimas annual bonus, not surprisingly, is tied to the total sales and profits generated by the food supplement business. For a few months, Ridhwan has been thinking about the strategic direction that his company should take. Is it a fitness business that focuses on the gym and earns additional income by selling food supplements? Or is it a food company that uses gyms as a means of distributing its products? He wasnt sure anymore.

Although Ridhwan is the CEO, he was not the founder of the company. The founders are three brothers Luqman, Muhammad, and Atah and none of them can agree on the future strategic direction of the company. To make things worse, Tony and Fatima are both upset with him. Tony is afraid that the shift towards food supplements means that his annual bonus will be reduced over time. He has complained that lots of resources is taken away from the gym membership side of the business. He points out that even though the food supplement business is supposed to have a higher profit margin, the operational costs have increased substantially so that the actual profit has reduced over the last couple of years. Tony also hints, from time to time, that if things continue like this, he will consider quitting. Fatima is upset because it seems obvious to her that the gym membership has already reached its limit. There are already too many chains of gyms in Malaysia and it is very hard for Super Fit to compete with names like Celebrity Fitness. However, the food supplement business has an almost unlimited potential. The argument that the operational cost has increased is misleading. The company has invested RM 250,000 to acquire the JAKIM halal recognition. That investment was a one-off cost. So the real profits are in fact much higher. This means that the food supplements can now be sold all over the Muslim world. Ridhwan is worried that things are getting out of control. Tony sees him on a regular basis and pushes his point of view by attacking Fatimas character. Likewise, Fatima sees him on a regular basis but generally ends up criticizing Tonys character. Ridhwan is wondering whether he should change the bonus system so that Tony and Fatimas bonuses are linked to the results of the company overall. Of course, in the short-term, Tony would see a drop in his annual bonus. Ridhwan calls you and asks you for your advice. Question 1: Use a problem-solving model to help Ridhwan make the best decision for the future of Super Fit Sdn Bhd. Explain in detail your logic while taking into consideration the arguments made by Tony and Fatima. (20 marks) 250+ WORDS

Table 1: Highlights 2020 $4.5 million 53% 2019 $4.3 million 57% 2018 $4.4 million 60% Sales Gym membership Food supplements Operational cost Cash reserve 47% 43% 40% $3.6 million $0.6 million $3.3 million $0.3 million $3.2 million $0.2 million