List five benefits and drawbacks to strategic outsourcing. You may use any mix of benefits and drawbacks in your response.
Management (Take Home Final Exam)
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Institution
Section A
Question three
List five benefits and drawbacks to strategic outsourcing. You may use any mix of benefits and drawbacks in your response.
Benefits
Strategic outsourcing increases the profitability of an organization by enabling effective distribution of resources. Outsourcing ensures a firm acquires new experts from other companies who use their knowledge in increasing productivity within the assigned departments.
An organization becomes more flexible and can easily adapt to changing market situations hence achieving a competitive advantage. When an organization contracts another organization, it makes its operations more flexible by learning new methods of conducting businesses to achieve a competitive advantage.
The transparency of the company is enhanced as people focus more on core competencies.
The organization gets access to skilled expertise
It ensures better risk management whereby an organization can easily take control of risks by using contractors to highlight them and advice on their mitigation measures
Drawbacks
Outsourcing encourages loss of managerial control in an organization
When an organization signs a contract with another company to perform the functions of a certain department, the management and control of that particular department turns falls in the hands of the outsourced company. This leads to the contracting company losing managerial control over some areas.
High hidden costs
Once an outsourcing company is contracted, it performs all assigned duties covered in the contract while the contracting company caters for other extra costs in line with the contract. The extra costs slowdown implementation of organization’s strategic plans.
Loss of organization’s strategic alignment
An organization fond of outsourcing other companies is unable to carry out its strategic processes because it always depends on others for business advices. In addition, the management lacks quality strategic commands when it comes to implementing changes aimed at increasing company profitability.
An organization experiences poor quality control
Strategic outsourcing decreases the control in an organization because, many essential operations are conducted by the contracted companies. In addition, the organization has difficulties organizing its employees especially those under the contracted company.
Decreased company loyalty
Strategic outsourcing makes an organization lose its loyalty. Other companies who used to transact businesses with the organization minimize their interaction.
Question four
Explain the differences between related and unrelated diversification. And provide an example of each?
Related diversification takes place when an organization expands its existing product lines and business (Braksick, 2007). For example, a phone company might decide a strategy of diversifying its services introducing wireless gadgets and services such as wireless internet through purchasing a company offering wireless services. On the other hand, unrelated diversification occurs when occurs when an organization introduces a new product lines or market different from its core business activities. For example, the same phone company could decide on starting a broadcasting station for both television and radio programs.
Question 5
A diversification strategy can increase firm profitability, list only five means
Reducing risks of failure
Diversification allows an organization to depend on many customers and loss of one customer does not introduce any risks of failure.
Decreased pricing pressures
The Company has the capability of maintaining its prices because of a wide range of customers to choose from.
Increased organizational competitiveness
Diversification allows an organization to focus many hence giving an opportunity for growth and development. The company therefore; ends up increasing its competitive advantage
Diversification increases firm performance and output
Diversification encourages sharing of resources across businesses that lead to reduced costs of production and high profitability.
Question 10
Name five (5) advantages and disadvantages of vertical integration strategies
Advantages
Vertical integration strategies encourage control over the value chain because retailers are more involved in production and distribution process.
Vertical integration strategies offer an organization the ability to control costs during the whole distribution process
Vertical integration strategies increase the competitive advantage on a firm by blocking competitors from accessing principal markets
Vertical integration strategies increase differentiation by giving a company access to more production inputs, effective distribution of resources and encouraging retail channels.
Vertical integration strategies encourage investment in specialized assets like human assets.
Disadvantages of vertical integration strategies
They lead to higher costs when a firm fails to manage new strategies effectively
Lack of competition may lead to owners of supply and distribution channels producing low quality products.
It increases high potential for legal repercussion leading to a monopoly market situation
It may lead to competitive disadvantage where old strategies corrodes with new strategies
High investments results into reduced flexibility and increased bureaucracy.
Section B
Question 3
When firms enter international markets, they often are confronted with pressures of cost reductions to remain competitive. Please provide 4 situations whereby firms will face the need to reduce their costs in order to remain competitive
If other firms selling the same products market them at lower prices: A firm that enters the international market while selling its products at higher prices than its competitors will be forced to reduce the price in order to be at the same level
The quality of products also triggers the company to reduce prices upon entering the international market. New entrants into the international market might discover their products are of low quality hence are forced to sell them at lower than normal prices in order to make customers buy them.
Many businesses offering the same product also opts an organization to reduce its prices in order to attract more customers.
Promotion and advertisement: A new business needs to promote and advertise its products upon entering the international market to do this they have to offer their products at lower prices than normal.
Question 4
In some markets, firms discover that in order to remain competitive they must “localize” their product, including modifications of the entire marketing mix. What situations might bring about these marketing modifications?
Understanding marketing fundamentals of marketing assists business owners in creating a perfect market entry strategy using market mix modifications. Current marketing challenges require an organization to create a sustainable business environment in order to remain competitive (Armstrong & Kotler, 2011). Some of the situations that bring about market modifications include the following. Firstly, the firm might realize it is using a product distribution strategy that affects the entire market mix. On such a case, the firm can modify its means of distribution in order to meet the new market demands. Secondly, when a firm enters a new market it may come across different business laws. The firm will have no other alternative but to modify its marketing mix operations to fit the new market rules and regulations.
Question 6
Firm’s distinctive competencies may play a role in determining the choice of international entry mode. What entry mode would a highly tech firm most likely prefer? Explain why.
A high tech firm would look for an international market entry mode that offers best opportunities for making profits. Licensing is the best entry mode for high tech firms into the international market. Licensing entry mode favors companies with protected assets because they form the key differentiating factors in their marketing channels. For example, Sony Electronics is a high the firm that would require its products licensed to trade in an international market upon entry in order to maintain its brand name. Sony would license its characters to manufacturers and marketers in all categories such as music system and television sets as it focuses on its core business goals and competences. Sony’s licensing agreements in many countries allows it an easier entry to new markets without many challenges (Arnold, 2003).
Section C
Question 1
Competitive advantage is the key to creating customer value and superior profitability. Construct a model of competitive advantage. Be sure to properly use the following terms: resources, capabilities, superior quality, superior innovation, superior efficiency, superior customer service, distinctive competencies, value creation, generic strategies and superior profitability. Additional labels will enhance your illustration.
The figure below shows an example model of competitive advantage.
Figure 1: Competitive advantage structure
From figure 1, a firm’s competitive advantage requires adequate resources, distinctive competences, capabilities, superior customer service, efficiency, distinctive competences and superior quality control. Cost advantage leads to value creation resulting to superior profitability of the firm.
Question 2
Construct a model that shows the relationship among the following: distinctive competencies, a firm’s business model and the set of strategies that configure its value chain that leads to competitive advantage for the firm.
Figure 2
Question 3
Explain how quality affects a firm’s profitability. A model that includes the terms reliability and productivity will greatly enhance your response.
The profitability of a firm is greatly affected by the quality of operations. To start with, the quality of people managing the firm contributes a lot to its success. Managers who are ready for changes and perform according to the current business environment have a high probability of increasing productivity of a firm and make it acquire more profits. Secondly, the performance of employees in a firm determines how much profits it receives. A firm whose employees understand the meaning of reliability and efficiency at workplace produce quality services that enhance firm’s growth and development. In addition, higher concentration of employees to their duties encourages perfect behaviors and increased profitability. Thirdly, the quality of products and services offered in a firm contributes to its profitability. A firm that understands the value of its customers through offering effective customer services and producing quality goods always receive more profits in return. Finally, the quality of the operations on a firm influences its level of profit. A firm with an effective structure whereby flow of information is free and fluent from the top management to the bottom level management receives many gains when it comes to productivity. Effective communication of ideas, strategies and plans improves growth and productivity that in turn leads into increased profits (Fulmer & Conger, 2004).
Quality of employees productivity
Performances of employees
Quality of products and services
Quality of operations. Example, firm structure management and effective communication
Profitability
Figure 3: effects of quality on firm’s profitability
References
Arnold, D. (2003). Strategies for entering and developing international markets: Modes of
market entry. Pearson FT Press. Retrieved from:
http://www.ftpress.com/articles/article.aspx?p=101588&seqNum=2Braksick, L. W. (2007). Unlock behavior, unleash profits: developing leadership behaviour that
drives profitability in your organization (2nd ed.). New York: McGraw-Hill.
Fulmer, R. M., & Conger, J. A. (2004).Growing your company’s leaders how great
organizations use succession management to sustain competitive advantage. New York: AMACOM.
Peters, T. (2013). The benefits of outsourcing. Retrieved from:
http://www.outsource2india.com/why_outsource/articles/benefit_outsourcing.asp
