Q1
Evaluate the strengths and weaknesses of the following strategic management tools and techniques. Show how to minimize the weaknesses of each.
(a). Financial Ratio Analysis
Financial Ratio Analysis is a strategic management tools that helps managers to determine the trends in a particular business. This is done by comparing the average performance of other similar business types to that of the company being assessed. Aside from eternal comparison, companies applying financial ratio analysis also have to compare the performance ratio for the current year with that of successive years. One of the strengths of the financial ratio analysis is that it serves as an all-important early warning system that companies can use to determine any problems within the company that may result to losses if left unresolved. This means that the position of the company relative to that of the competition will provide are better picture of its performance than just looking at their financial statements.
However, the tool also has its downsides one of which is that the findings of the analysis will only provide answers to the “what” questions or it only provides quantitative data. This means the analysis goes only to the extent of determining what is wrong and does not provide any possible solutions. In order fort his weakness to be minimized, the user of the analysis have to pair it with another tool that will provide qualitative data. Doing so will provide a better picture of the companies position in the market.
(b). Key Industry Success Factor Analysis
Key industry success factors are elements that provide business with the advantage over the competition. This strategic tool allows management to identify three or more key success factors that are determinant of the financial and competitive success of the company within the industry. This means that this tool provides the how to details. It identifies the factors that need to be present in the company in order for the business to become successful. For example, companies in the manufacturing industry can determine developing stronger network of wholesale distributors as a means of gaining access to retail stores.
However, this kind of analysis also poses some weaknesses. One of which is the fact that possible success factors changes. This means that the applicable success factors of the previous year may not be the decisive factor for the current year. Business trends do change as well as the position of the company within the industry. Therefore, the findings of the key industry success factor analysis from previous years do not necessarily retain their relevance to succeeding years.
In order for the effects of this weakness to be minimized, it is being suggested that companies continuously perform the said analysis to gain additional information about the effects of the changing trends on the performance of the company. It is also recommended that this strategic tool be implemented along with other tool to determine the exact position of the company within the market and the industry. One such toll that can be paired with the key industry success factor analysis is the financial ratio analysis.
(c). Macro-environmental Analysis
The macro-environmental analysis aims to illustrate, analyze and understand thoroughly the impacts of the government, the economy and the changing societal attitudes have on the business. This analysis is important since the laws of the land in which they are located govern the actions taken by business. They are also part of the society, which means that they affect the societal conditions both directly and indirectly. The failure of the government to run the nation can prove to cause businesses to fail as well. Therefore, it is one of the macro-environmental analysis’ strength to allow businesses to plan their strategies based on the conditions of their surrounding making them closer to the market.
However, the Lucas critique suggests that the macro-environmental analysis is not a reliable form of analysis that business can use to formulate their business strategies. He further explains that quantitative policy instruments change. These policy instruments include tax, money supply and government spending. With this, the macro-environmental analysis cannot be used to analyze and predict the impact of the economic policies changes. This suggests that the tool is not applicable for projections or risk analyses.
In order to minimize the impacts of the tool’s downside, it is being suggested that the findings of the analysis be immediately put into use. It should not be used to make forecasts but rather to support current business activities. The premise of using this tool must be that the findings are valid until the variables as still in effect.
(d). Porters Five Forces Model
Porter’s Five Forces Model implies that business are being influenced by five forces namely supplier power, threat of substitutes, buyer power, barriers to entry and rivalry. This model also implies that business must be able to understand the industry context in which they operate. This must be done in order to better design the strategy that the business will use to be able to compete with rivals within the same industry. It is important for businesses to determine the level of competition present within the industry. This will allow them to address potential risks before they even strike.
However, Porter’s Five Forces Model also has its disadvantages. It is important to note that the model was developed in the early 80s. This means that the global trend is very much different from today’s trends. Back then, the market structures are simple. Today, market structures are more complex and multiple interrelations are present. It is also the case the market is not static but dynamic. Therefore, Porter’s model will not be able to provide much meaningful advices regarding preventive actions.
To minimize the impact of the models weakness, it is being proposed that the model only be used in the preliminary stages of analysis. The findings of which will only be the basis of further analysis. This way the problems are still not as complex and the model will still be able to provide relevant information. It is important to remember that the more complex the situation the less Porter’s Five Forces Model will be.
(e). SWOT Analysis
SWOT analysis is one of the widely accepted and used strategic tools. It is success is attributed to the fact that it is straightforward. This makes the tool easy and simple to use. The objective of the SWOT analysis is to determine the presence of factors that will help the business in achieving its goals as well as factors that will hinder its improvement both internally and externally. In doing the SWOT analysis, the company will be able to match the resources and their capabilities with the competitive environment.
On the other hand, there are those who believe that the simple way of analyzing business is already obsolete. There now exists practical objections to the tool like the fact that its simplicity drives people to use it sloppily, therefore producing useless results. It has also been argued that four point of the business is not enough to assess the organization’s position in the market. As stated in the previous pages. The market changed dramatically it is no longer static but dynamics. Relationships and structures are more complex than before.
The recommendations on how to minimize the impacts of the SWOT analysis’ weakness borders on the same line as the recommendations for Porter’s Five forces model. SWOT analysis is better to be used when getting to know the company of when preparing case studies.
Q2
Compare and contrast all the following strategic management concepts and provide examples, which highlight the differences.
(a) strategic fit and strategic stretch
Strategic fit pertains to the matching of the company’s mission and resources with the demands of the market. This means that strategic fit aims to formulate a strategy based on the perceive ability and capability of the company. With this kind of strategy formulation, companies set realistic goals based on what they think they will be able to achieve provided the resources that they have at the moment.
In contrast, strategic stretch thinks out of the box. Although, it also takes into consideration the resources and capabilities of the company it does not limit the possibilities on the perceived level of success of the company. In contrast, it creates a stretched connection between the resources and the objectives. This means that companies are driven to make ends meet in order to achieve the set goals. Often, innovation is the resulting action of strategic stretch.
To better present the difference between fit and stretch strategies let us take the following example. A company implementing strategic fit will set increased profitability within the year as its objective, while a company implementing strategic stretch will set increased profitability and market share within six months on the basis that other companies, with the same size and nature, within the industry managed to do so. This example implies that the implementation of strategic stretch also takes into account the size and nature of the company in relation to the industry it operates.
(b) grand and emergent strategies
Grand strategy pertains to the broadest possible formation of how the set objectives will be achieved given the presence of conflict. It organizes and directs all suitable and accessible resources including human, economic, political and even moral. With the grand strategy, several limited strategies are present. These limited strategies are being applied to attain specific objectives in subsidiary phases of the general struggle. There are basic limited strategies within the grand strategy – growth, diversification, retrenchment, integration, stability. Growth is applied when the company wants to create high levels of growth while retrenchment is adopted when the company needs to reduce its size or scope, diversification for expanding to new products or markets, integration for supply line stabilization and competition consolidation. Lastly, stability is adopted when the company wants to maintain its current performance, market and products.
On the contrary, emergent strategy pertains to a pattern of action that has been developed by the organization in the absence or despite of their missions and goals. This suggests that emergent strategies border along the hand-me-downs of the organization as well as their history and habits of problem solving, decision-making and thinking. Emergent strategy does not necessarily put the organizations mission or goals in the middle of the planning. However, it manages to lead business towards one action instead of another. This means that emergent strategy is based on the perceiving and acting patterns adopted by a specific organization.
(c) SBU and profit centre strategy
A Strategic Business Unit is a division of a company whose missions and objectives are separate. They are also planned independently from the company’s other businesses. It is usually the case that SBU’s are a company’s product line or even an individual brand. This suggests that SBU is work independently from the mother company. They are at liberty to exercise command over the majority of strategic factors influencing their performance as a business. At times strategic business units encompass a whole company. However, there are also cases that they are just a smaller part of the company. Since they work independently and develop their own strategies, they often have their own competitors that are different from the rivals of their mother company.
On the other hand, profit centre strategy is justifying how the portfolios of the business add to the bottom line of the company. This suggests that profit centre is unit of the company that has the ability of generating cash flow. However, it does not take the form of a decentralized unit like the Strategic business unit. It means that profit centres are still under the governance of the missions and goals of the mother company.
(d) new game and same game strategy
New game strategy is defined as the conscious attempt to change the forces shaping the competition and/or the characterization of the business by specific competitors. This means that some actions or innovations taken by companies that later the phase of competition can be called as a new game strategy. This could include the creation and distribution of new products that have the potential of changing the purchasing trend and outlook of the market. For example, the telecommunications industry used to focus on analogue services and product. However, this changed with the introduction of digital media. By doing so, a new market base was created demanding new products and services. With the success of digital media, other telecommunications companies have no choice but to follow suit.
The decision of other companies to follow suit means they used another strategy. It cannot be deemed that they used the new game strategy since they are not the once who caused the alteration of the nature of the competition as well as its phase. Therefore, the companies who followed suit used the same game strategy. This is the case because they used the same element used by another company. They did this with the hopes of experiencing the same success that their predecessors did.
(e) core business and core competence
Core business is defined as a business unit capable of delivering or generating cash flow. However, current performance is not the sole basis for declaring a unit as a core business. One other criteria of core business is that is has the capability of meeting future challenges based on its current performance. Therefore, a core business must have a proven product or service, a pipeline for up and coming products or services, supportive workforce and loyal or steady influx of customers to name a few. Based on the definition of the term abovementioned, it can be concluded that core business is the central profit-generating unit of the company. The survival of the company is dependent on the core business.
On the other hand, core competencies pertains to the commitment to work beyond or across organizational boundaries. It can also be identified by applying a simple 1). is it a noteworthy source of competitive differentiation? 2). Does it rise above one business? 3). Finally, will competitors find it hard to imitate? This suggests that core competency is one thing that a business can do better than the competition. It also ranges for product or service development to the dedication of the company’s employees. Examples of core competencies include Honda’s development of a wide range of quality products from lawnmowers to trucks and Volvo’s adherence to safety is also considered as a core competence.
(f) key industry success factors and the company’s strengths
Key industry success factors are defined as the factors that will help business to develop and advantage over their competitions. These factors are determinant of the financial and competitive success of the company within the industry. This implies that the presence of such factors within the business may translate to the success of the business.
On the other hand, the strength’s of the company are the aspects of the business in which the company excels. However, these strengths do not necessarily means that they are advantageous over the competition. This is the case since the strengths of the company may be in the aspect of the business that is not key to the success of the enterprise.
Although, company’s strengths are important to be developed, since they also contribute to the performance of the company, key industry success factors is better to be present since they are determinant in the position of the company in the industry. If company’s strength are also the key industry success factor than that company is sure to have an advantage over the competition.
(g) domestic and international strategy
With the presence of the global market, businesses are occupied with the task of differentiating and formulating both domestic and international strategies. These two strategies are important in the success of the business since they ensure the presence of stable market for the company. However, these two strategies vary. Since this is the case, it is important to differentiate the two in order to formulate the appropriate strategy for a specific use.
Domestic strategy pertains to the business actions that companies need to take in consideration of the local or domestic market. This means that domestic strategies are based on local variables like the demand of a specific market in a given country. This means that domestic strategy is more attuned to local demands, which is important to meet most especially if the company is trying to establish its presence in that area. One of the most familiar examples of domestic strategy is the one being advertised by HSBC. They claim that in order to success globally businesses must be established domestically.
On the other hand, international strategy caters to the demands of the global market. It takes in to consideration the collective variables of various significant domestic markets in formulating its business strategy. This means that international strategy is more general compared to domestic since it must be able to sweep across cultural boundaries.
Q3
About the following 3 companies, (about 3.5 pages each)
(1) A large fast moving consumer goods company operating globally in the down market low priced packaged noodle market
The key factors in manufacturing packaged noodles are convenience, functionality, indulgence and safety of the food. Consumer are looking for products that they can easily prepare but will not compromise the quality of the food, of course, the products must also be declared safe from consumption. This means that if the business wants to experience growth, it needs to continue on delivering low cost product well improving the quality of their products.
This may sound as an over kill for the company that will result to loss of profits. However, they can actually go about implementing this by utilizing the production capacity of the plant. Doing so can reduce the cost of production allowing them to divert some funds to research and development for example and formulate new products or innovations.
In any market that is growing, there is bound to be competition and it should be expected that the competition would be tight. In using Porter’s five forces model, it will become evident that the buyers have the purchasing power to consume the products. However, the number of rivals present may pose a threat in the survival of the company. The company can consider the low prices as an advantage over the competition. This is the case since the consumers are populating a down market. This suggests that the company is able to yield to the demand of a specific market for goods that are within the reach of the consumers.
Nevertheless, this very advantage can also be used against the company, since it can be easy for competitors to lower prices in order to gain market shares within the down market. When this happens, the company should turn to other key industry success factors to counter the influx of more competitors.
This will give them the opportunity to develop there product in such a way that the consumers will have more gain in buying their product instead of going for the competitors’. For example, the company can manufacture no cook noodles. Doing so will meet the one of the key industry success factor that will allow them to gain advantage over their competition.
The grand strategy that the company needs to implement is diversification. Diversification is being adopted when a business wants to expand to new markets or venture to new products or product lines. The company must be able to realize that the success of industry means that more and more entrepreneurs will be encouraged to enter the same business. At the moment, there are no perceived difficulties in entering the packaged noodle manufacturing industry, most especially if the new comer wants to operate globally.
Packaged noodles or food in general, are in the demand especially in third world countries. In some countries, instant noodles are staple part of the people diet. These products are relatively easy to prepare and the purchasing cost fits within the budget of even those below the poverty line. Packaged foods are also being distributed in times of emergencies like natural calamities. They are very easy to transport and they have long shelf lives making them a favourite donation item.
With this in mind, the company can actually expand its product production and begin producing and distributing other kinds of packaged foods. Their current equipments will allow them to do most of the assembly line processes needed to complete the product. The company will only have to purchase specialized machineries, which means that the expansion cost will not be as big as opening a separate business unit to handle the expansion.
Because of this, the company will need to implement a new game strategy that will allow them to affect the phase of competition within the industry. For example, their new marketing strategy will have to focus on promoting the existing products and introduce the new products.
They must ensure that the new products will still be associated with the qualities of the existing products most especially those that contributed to the popularity and profitability of the existing ones. This association can lead to market acceptance since consumers will be able to make the connection between the things that they like about the packaged noodle and the thing that they will be able to get if the purchase packaged foods from the same manufacturer.
(2) An intellectual property company in one of the bio-technology industries
Any thought that the discovery of the Deoxyribonucleic Acid (DNA) started that biotechnology industry. The truth is that the basic purposes of the biotechnology industry today remain the same as it was 1000 years ago. The biotechnology industry ranges from food alterations to human and animal health care.
This means that this industry is relatively stable since it caters to the basic needs of consumers, which are food and healthcare. However, this is not enough reason to be complacent and think that the industry will be able to offer limitless possibilities to all business. Even though, the industry is very lucrative, it is still up to the businesses to strategize and develop ways to maintain the profitability of their business.
For the biotechnology industry, it has been identified that human resources as well as product strategy are internal key success factors. However, these must be paired with external key success factors in order to deliver preferred results. External key success factors include infrastructure and national policies.
The ability of the company to research and develop technologies that will revolutionize the industry will be doomed to fail if not enough infrastructures are present to carry out the production and distribution of such technology. It is often the case the activities of private biotechnology companies need to access service provided by other technology. This suggests that interrelations are fostered within this industry. Because the welfare of the population is on the line, it is inevitable that the government be involved in the said industry. The policies that they pass regarding technology and research restriction can make or break any biotechnology company.
Competition is tight in this industry. The growth in the number of patent application is one proof of this. Biotechnology companies are on a race to register as many discoveries or inventions as they can before anybody else can beat them to it. However, people are inclined to buy products that are trusted or have already proven their worth to the consumers. This means that newcomers will have a relatively hard time of gaining market shares and they would have to invest more in building their reputation.
Given the constantly changing trends in the biotechnology industry, companies must ensure that they will be able to catch up with the bandwagon. Technological breakthroughs appear like mushrooms almost everyday and the consumers perception of their biotechnological needs also changes constantly, for these reasons, a biotechnology company’s sustainable advantage is their ability to adapt with the changing times. Highly competitive and reliable human resources are needed for this to be realized.
This is the case since the biotechnology industry thrives on innovation. They are profitable as long as they are able to make improvements that the consumers will accept as for their own good. In world plagued by disease and mutating viruses, people turn to the research and development team of biotechnology companies to make the necessary medicines to counter the effects of the drugs or bacteria on the human body. Therefore, one of the greatest assets of biotechnology companies are their people most especially those involved in the process of discovering or inventing products and services.
In addition, further innovation is one of the possible retaliation of competitors. Rival companies will work to outwit the products or services of the company. This means that the company must work continuously to ensure that the will be ready with newer and better options for the public in case the competition comes out with new products.
The need to satisfy the thirst for innovation will be the best characteristics that biotechnology companies can acquire. Their employees must be dedicated to answering questions that will help people live in better world.
It is being suggested that the company implement the stability grand strategy. By doing so, they will be able to further the establishment of their reputation within the industry. Stability aims to maintain the current performance of the company as well as retain their current market and product. It may sound contradictory to the nature of the industry, which is based on innovation.
On the contrary, it was stated that the company would maintain the performance and market. This means that the company will continue on producing and distributing existing products. However, they should continue there research and development programs so that when the time comes that the company can expand into new ventures, they will be ready with new products and services to offer their consumer base.
The use of stability as a grand strategy suggests that the biotechnology company will be using the same game strategy. This is the case, since the company will not be taking actions that will alter the forces affecting the competition, at least not yet. At the moment, the biotechnology company will continue to harness its employees and acquire more intellectual property that they use later on.
(3) An overseas DVD producer entering the Australian market
At the end of 2004, sales of DVD players in Australia reached 1 million. Locally the players can now be bought for $60. In the United States, it has been estimated that more than 5 billion DVD titles have been sold to date. In addition, it was also mentioned that Australia is 2 years behind the United States on this matter. This suggests that the DVD production in the have more room to grow and DVD producers still have great chances of striking gold if they enter Australian market today.
The key success factor of this business is believed to be in the product that they produce. The versatility of the DVD makes it a magnet of consumers. The product allows consumer to carry all the files they need in one disc. Contrary to popular belief, DVDs are not just for movies. It can also hold data files. The ability of the product to hold a significant amount of data files also makes it ideal for every kind of consumer from students, business people and even movie buffs.
Given the demand for the product in both the main stream and the underground market, DVD producers are now mushrooming. The proliferation of manufacturers has even been accused of being one of the reasons for rampant piracy of both movies and music. The great number of DVD producers can be explained by the relatively low start up cost of the business. In addition, DVD producers do not stop with just producing blank DVDs.They also offer authoring services as well as designing the cover of the DVD. This means that entering the DVD production industry mean that the company have the potential of establishing a number of core business. In turn, these core businesses will be able to generate more profit for the parent company.
On the other hand, the number of producers is a reflection of the number of patrons of the products. The proliferation of DVD producer also suggests that many people are demanding DVDs. The high demands for the product can offset the effect of the number of present competition.
Like in the case of the biotechnology company, the sustainable advantage of a DVD producing company lays at its capacity to initiate innovation or at least welcome it. DVD is a technology based product, which means that it has the potential of going obsolete as long a new and better storage media has been introduced to the market. The introduction of the next wave of storage media can be the competitor’s retaliation. The only counter strategy that the company can do about it is to produce the same product and adopt a same game strategy or research and developed their own and better storage media that would make the competitions product obsolete. If the company opts for the latter, they need to implement a new game strategy.
In a technology based, it is always better to adopt a new game strategy. This way the company will be assured that they will be one of the leaders of the industry since they have the capability of altering the forces of competition. This means that they have the power to set the standards of the industry.
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