Strategic Management Analysis (Khan)
Strategic Management Analysis (Khan)
PATCH 1
TASK A: RESOURCES
Framework Description Reference
Tangible Resources Firm’s easily identifiable resources
Included in the balance sheet
Examples physical assets and financial resources (Grant & Jordan 2012: 116)
Intangible Resources Invisible resources
Example brand name, and technology (Grant & Jordan 2012: 119)
Human Resources people’s effort and expertise in the firm (Grant & Jordan 2012: 119)
Capabilities
Functional Analysis
Functional Area Capability Reference
Corporate Functions Financial control (Grant & Jordan 2012: 123)
Management development Strategic innovation Multidivisional coordination Acquisition management International management Management Information Comprehensive, integrated MIS network linked to managerial decision making (Grant & Jordan 2012: 123)
Research & Development Research (Grant & Jordan 2012: 124)
Innovative new product development Fast-cycle new product development Operations
Efficiency in volume manufacturing (Grant & Jordan 2012: 124)
Continuous improvements in operations Flexibility and Speed of response
Product Design Design capability (Grant & Jordan 2012: 124)
Marketing Brand management (Grant & Jordan 2012: 124)
Building reputation for quality Responsiveness to market trends Sales and distribution Effective sales promotion and execution (Grant & Jordan 2012: 124)
Efficiency and speed of order processing Speed of distribution Customer service Value Chain Analysis
Porter’s Model
Support activities
Firm Infrastructure
Human Resource management
Technology Development
Procurement
Inbound Logistics Operations Outbound Logistics Marketing and Sales Service
Primary Activities
PART B: Application of Value Chain Analysis
Type of Activity Generic Value Chain label Illustrative Example of Activities and Associated Capabilities required in Motorcycle market
Primary Activities Inbound Logistics Purchase
Manufacture of components
Inventory management
Operations Research and Development
Product design
Assembling
Outbound Logistics Warehousing
Distribution control
Marketing and Sales Products promotion
Advertising
Service Pre-and after-sales services
Repair
Answering customer enquiries
Support Activities Infrastructure Quality management
Improved accounting
Human Resource management Compensation
Employee Relationship with management
Technology Development Expertise
Machines
Research and Development
Procurement Suppliers management
Part C: Commentary
Description Porter Model
Porter hypothesized that activities in a firm may be organized as a value chain or addition of value to make a product precious to customer (Bidgoli 2010: 3). To gain competitive advantage firms should perform these sequential activities at lower costs compared to competitor (Akwety 2011: 178). His model suggests firms’ activities can be subdivided into primary activities involving purchase of raw material, their processing into finished commodities to final delivery to the consumer. These are further broken up into five sub groups including inbound logistics, operations, outbound logistics, marketing and sales and after-sales services. These activities are sequential.
The second category involves all the support activities. These activities generate competitive advantages for the firm by supporting primary activities. Each of them can be used to support any or all primary activities (Rainer & Cegielski 2011: n.p).
Primary Activities
Inbound Logistics
These are activities that deal with management of inbound items such as raw materials warehousing and handling (Hoque, 2005: ). In the motorcycle industry this includes purchase of certain components for manufacturing some components of the motorbike. Warehousing ensure minimal interruption of work-flow. This also requires inventory management to ensure that there is no delay in manufacturing and the firm does not tie a lot of its capital in inventories it does not need.
Operations
This primary activity encompasses activities like research and development, manufacturing, and product design (Hoque, 2005: ). Harley-Davidson experiences steep competition from firms originating from Japan and British. To counter these challenges the company undertakes research and development in order to come up with new products model that are superior from those of the competitors. These products ought to meet specific customer designs. Some customers require motorbikes that are capable of running at high speed, while other wants to have elegantly looking bikes. Once the appropriate design is picked the motorbike is assembled according to customers need and it is ready for sale. However, Harley Davidson R&D was unable to expand to automotive industry. This lack of transfer of knowledge on technology has hindered the firm from developing new products.
Outbound Logistics
This process involves activities that ensure smooth delivery of goods from manufacturing point to the final consumer (Hoque, 2005: ). This includes mainly of warehousing and distribution. Warehousing is an important activity that helps an organization to balance demand and supply. Harley deals with distributors in marketing its products. In 1980 and 90s these dealers were responsible for the failure of the company because of poor stocks of bikes. Warehousing will ensure that dealers can buy only those inventories of recent models they can be abet to sell. They will also avoid being caught off guard by customers who are moving with the trend.
Marketing and Sales
In this step the buyers are informed about new products to create intent to purchase (Hoque, 2005: ). This can involve promotion activity as well as advertising. In the present Harley-Davidson positions itself as a company that upholds American culture. Therefore, its product seeks to create an impression of an American oriented brand. Demographic characteristics of its customer base have changed. Additionally, American image is not also performing properly in other markets in the globe. As a result, it is important for the firm to rethink this brand positioning.
Service
Service encompasses all activities that are meant to ensure that a product is working effectively once the buyer has made an order and it has been delivered 251. In this case this includes activities like after-sale service, responding to customer queries, and offering repairs. Harley-Davidson on these activities it is performing very well. Its pre-sale services included test riding for the customer before buying a motorbike. It also provided rider instruction classes and helped owners to customize their bikes. The firm also required that dealers should stock adequate accessories for the bikes to cater for customer repairs.
Support Activities
Procurement
This activity involves purchasing of materials for use in the production process. Harley-Davidson borrowed idea of JIT-just-in-time from Toyota Company to reduce costs related to inventories and as a result increase its competitive advantage. The goal was also to ensure quality control. The result was an improvement in the firm profitability.
Technology Development
This support activity is very important for the firm in the industry. Technology for manufacturing motorbikes keeps on changing as well as in product design. A firm can only gain competitive advantage if it is able to have both the necessary machinery and expertise to use that technology (Akwetey 2011: 179).
Human Resource management
Training in human resource management is an important practice that enables the employees to gain extra skills to improve customer experience. Besides training, the company emphasized good employee to worker relationship. This is also responsible for increase in the company profits.
Infrastructure
Lastly, the other support activities encompass activities related to development of strategies to deal with changes in business environment, assembling the necessary cash flow when the business needs that, and accounting.
Reflection
In this exercise I have learnt various ways to create competitive advantage for the firm. I have come to appreciate and understand porter’s model of value chain analysis. His model suggests business activities add value to services or products. The firm that is able to add value at the lowest cost gets the competitive advantage. He suggests that these activities are sequential and he divides them into two main categories. Each of the two categories has a set of activities, which are distinct from one another. These were all looked at and various organization activities that can fall under each one of them was noted.
I think in this exercise a mark of 25 percent out of 33 percent would be fair. I have tried to demonstrate how the porter’s model can be used to identify and describe value adding activities in Harley-Davidson Company. I have used Harvard referencing style accordingly and tried to complement information from the case from other sources and in particular peer reviewed books.
PATCH 2: Competitive Advantage
Task A: Sources Of Competitive Advantage
Generic Strategy Key Strategy Element Reference
Cost Leadership Process Innovation (Grant & Jordan 2012: 186)
Control of Overheads and R&D Scale-Efficient plants Differentiation Training (Grant & Jordan 2012: 192)
Unique Products Fast Delivery Strong Brand Task B: Application
Porter’s Generic categories Example of Activity in Starbuck Example of Differentiation Opportunity
Inbound Logistic Coffee Purchasing high quality coffee through fair trade.
Operations Coffee making Trained employee to ensure they know how to make excellent coffee
Outbound Logistics Coffee Delivery process Automation to reduce lead times in the process.
Marketing & Sales Promotion
Advertising
Corporate Social Responsibility Running effective TV campaigns to reach target market.
Participating in community activity and purchasing from fair trade.
Service Quick Service Minimizing delay in the order processing and giving information for delays.
Firm Infrastructure Automation of service delivery Espresso machine for quick delivery of orders.
HRM Recruitment, reward and training The firm attracted the best employees, trained them to make excellent coffee and rewarded them with health benefit.
Technology IT Systems Starbucks has invested in technologies that enhance customer experience like the espresso machine.
Procurement Coffee
Stores The company bought only high quality Arabica coffee and through fair trade to ensure quality of products. The firm can also generate value by selecting locations that will increase business as opposed to opening without considering value added.
Generic Strategy Example of Sustainability driver Example of Starbuck Activity driving sustainability
Cost Leadership Ability to generate customer value Competitors like McDonald were able to market their coffee as cheaper and of better quality than the premium priced Starbucks coffee.
Differentiation Uniqueness of differentiation strategy Espresso machines for delivery of coffee.
Training coffee making to a team of employee
TASK C: Commentary
Cost Leadership
Starbucks cost leadership can be summarized as involving three elements mentioned in Task A. these include process innovation, control of overheads and R&D as well as scale-efficient plants. In terms of process innovation, the firm automated its process to reduce wastage in services delivery and create a cost advantage. It attained this by introducing automatic espresso machines instead of the hand-pulled ones (Grant & Jordan 2012: 202). According to Sehgal (2011: n.p) one way to create cost advantage is automation of the manufacturing process in order to reduce wastage. Therefore, Starbuck move to introduce an automatic espresso machine is an example of an attempt to bring in technology to save on costs.
The firm also expanded to generate economies of scale advantage. Effectively managed firms generate cost advantage through economies of scales which enable managers to lower the manufacturing costs for unit product (Sehgal 2011: n.p). In addition, this can help to create financial and business leverage with suppliers and other partners. Starbucks on realizing the higher number of firms was not generating economies of scales decided to close some of them down. This was in 2008, when Schultz returned as the company CEO. Closing down some of the store was a good decision.
However, though the firm was able to create a cost advantage, it was not able to sustain it. The competitors, once a firm generates a cost advantage, attempt to catch up. As a result, a firm must frequently review cost drivers and come up with strategies for saving and also engage in continuous value chain improvement. Cost saving opportunities will always exist in a firm. Interconnection among various cost saving opportunities is the fundamental source of sustainable cost advantage because it makes a firm distinct from other. Out of this uniqueness a firm is able to generate a competitive advantage, which other firms find difficult to reproduce or mimic (Sehgal 2011: n.p). Zengin & Ada (2010: 5595) suggests that target costing is a cost management technique that can create this uniqueness. They argue that this technique is an attempt to project cost, while continuously improving process designs and products and externally focusing on threats and customer requirements. The fall of Starbucks can partly be attributed to development of cost saving opportunity without similar attempts to understand competitors and customer requirement. The firm was criticized by McDonald as offering overpriced coffee, but not paying attention to quality. This means that the firm may have failed in increasing the number of stores, without commensurate increase or continuous improvement in quality control. A target costing technique could have helped the firm to maintain its earlier cost saving advantage.
Differentiation Strategy
Starbucks greatest competitive advantage is through differentiation strategy. From inception it started to build a competitive advantage via differentiation, as opposed to cost leadership. Schultz first move was to engineer new products design and process for a company that formerly sold coffee-making equipment and coffee beans. His intention was to build a culture of coffee drink similar to what he experienced in Italy. To attain this, he differentiated Starbucks business by buying the best quality beans. The Arabica beans were considered to be of higher quality than the Robusta beans, which was the common variety in use in America then. He developed unique methods of roasting coffee beans, introduced novel coffee beverages, and new ways of making orders in the store. Fundamental approach used to differentiate the firm was thus via new ways of making products and in the process of delivery. This helped the firm to create unique value and price its products at premium. The differentiation approach mention here regarding Starbucks shows attempts to differentiate on various activities of the value chain. This includes manufacture, superior design, and raw materials.
Building a strong brand was also a key differentiation strategy employed by Starbucks during these initial stages. Marketing is used in hospitality industry to create strong brand image or positioning. It has also been used to create awareness (Nykiel 2005: n.p). Starbucks used TV advertisement to cut a new market after introduction of coffee drinks. In the TV ad, the firm encouraged target market to consider themselves an upcoming urbane culture, of coffee-drinkers. This was combined by improvements in the physical environment. This was a brand management technique that emphasized brand awareness, brand quality, and brand association. The aim was to create recognition and recall among the customer base. Starbucks wanted to be recognized as the only place where Americans could get coffee. This created a perception of high quality. It also incorporated an element of brand association, by ensuring that raw materials were sourced through the fair trade deals, which seeks to ensure that coffee farmers are rewarded and the quality of coffee purchased is of high quality.
Its unique coffee products were a major source of differentiation. As (Sehgal 2011: n.p) notes differentiation on the basis of products can be distinguished by the superior design, above average quality, and better materials. A firm is able to charge premium price for perceived quality derived by customers from their products. Starbucks products demonstrated this as highlighted due to the effort put in creating this quality for the consumers. However, the firm failure to sustain this quality following the rapid expansion between 2000 and 2005 is attributable to the loss of the competitive advantage.
In order to make the firm profitable once again, Schultz upon his return embarked on intensive training. Grant & Jordan (2012: 193) observe that opportunities for creating differentiation advantage can only be realized by looking at value chain. In terms of human resource management as a support activity in the value chain, he identifies training as an important practice to enable the staffs to support customer service. This is what Starbucks embarked on by closing for half a day to train employees to make espresso coffee. Grant & Jordan (2012: 193) further notes that sustainable competitive advantage can only come from building uniqueness based on the firm resources or skills requiring coordination of a large number of people. This ensures that competitors are not able to imitate the firm. Starbuck is likely to be competitive in the future because it has emphasized on team building on this aspect of coffee making.
Reflection
This was an exciting piece of work compared to previous section. The two strategies for creating a competitive advantage were clearly understood as was the drivers of the competitive advantage generated by looking at the value chain. This section helped me to understand the first patch better than I did while doing Patch 1. I can now apply this knowledge to improve my future company. I find cost leadership strategy workable. For instance the idea of process innovation and reduction of lead times can easily be applied in any firm regardless of the industry. It can make raw materials acquisition to order handling less expensive and create value to the customer. On the other hand, I have learnt that differentiation strategy is not merely about product design. A firm can also differentiate itself on the basis of employee training. This can ensure that they have the necessary skills to support customer services and enhance customer experience in the firm.
So I think I should score at least 30 percent on this section. I demonstrated excellent knowledge of how Starbucks was able to generate and sustain customer value. Additionally, I discussed some of the opportunities the firm has not exploited to create this value.
Patch 3
Task A: Industry Lifecycle, Public and Private Sector, Stakeholder Analysis and Scenaro planning
Industry Life Cycle Description References
Introduction Phase Marked by large number of firms both new entrants and firms diversifying from other industries.
Diverse products due to multiple technologies.
Customer mainly those with high incomes. 223
Growth Phase Rapid increase in market penetration
Improved product quality and design.
Large Scale production. 224
Maturity Phase Price Sensitive and knowledgeable Customers.
Production shifts to newly industrialized nations then developing ones.
Price Competition Increases. 224
Decline Phase Increased Technological Substitution
Less product or process innovation
Aggressive price competition, exits 225
Public and Private Sector Industry Description Reference
Public Sector Ownership in Government
Funded by Government
Produce public goods for free 228
Private Sector Privately owned
Sales of goods and services
231
Not-for-profit-organizations Philanthropic oriented
Placed under special tax category 229
Stakeholder analysis & Scenario Planning Description Reference
Stakeholder Analysis It is a process, where organization leaders identify, understand and rank various key stakeholders to know how they might be engaged in formulation of strategy and to manage relationship with them better. 236
Scenario Planning It is a systematic approach for predicting how future might unfold, by looking at the current signals or trends. 238
TASK B: Application
Stakeholders Power/Interest Grid
Crown (Low power/Low Interest)
General Public Subjects(Low Power/High Interest)
National Organizations
Context Setters (High Power/Low Interest)
Various National Governments Players (High Power/High Interest)
High profile business
Donor
Individual supporters
Response to Stakeholders Position within the power/interest grid
Monitor public perception regarding WWF Give the national organization information on WWF policies
These organization determines what constitute conservation and should be satisfied Manage these close by being accountable and understanding their needs.
Key Trends and Uncertainties Facing the WWF
Steps Description References
Key Trends Global Challenges like Climate Change Green washing Accusations Uncertainties Fundraising Public Support TASK C: Stakeholders Identification and Management
The general public is the consumer of campaigns by WWF. Although, the public does not have much power to determine strategy formulation, their perception can determine future of the organization. As a non-profit-organization it acts in the interest of the public, as a result, it’s liable to public scrutiny. Accordingly, there is need to monitor the public, which shows interest in WWF activities to predict future positioning. However, the public has little influence on the internal operation of the organization.
The second category involves stakeholders with low power and high interest. These are the stakeholders who run organization operations. They are affected by changes in roles, skills requirements, and responsibilities. Therefore, their interest is to understand how changes will affect them. However, because they are only involved at operation level they do not have much influence on organization decisions at the strategy formulation. Therefore, there is need for the organization to keep them informed.
Third category of stakeholders, which WWF ought to be aware on how to deal with are the context setters. These stakeholders have more power, but little interest. These types of stakeholders only like to know that work being undertaken is going as expected. In case there is need to involve them more they require promoting from the project team (Cadle et al 2010: 67). In this case, the context setters for WWF can be considered to be the various national governments. This agency provides grants and other support. They may not be actively engaged, but they only require knowing how the work is progressing. Prompting them through processes like lobbying can indulge them more in conservation activities.
WWF gets its funds from various donors, high profile businesses, and individual donors. These people want the organization to be financially accountable. They are the type of stakeholders, which an organization needs to manage closely. They need to be kept informed on every step of the organization operations. The organization should also take their views seriously. The project outcomes are largely dependent on them (Cadle et al 2010: 67). Companies like Coca-Cola and Alcoa, which have successfully worked with WWF, needs to be closely managed.
Scenario Planning for WWF
The environment in which WWF as a non-profit organization operates in can have sudden and abrupt changes. In this case it is important to engage in scenario planning to predict systematically how this might impact on decision making (Grant & Jordan 2013: 234). Some of the two issues that can help an organization in this systematic process include trend identification and uncertainty prediction.
Key Trends
There are a number of issues that might bring about changes in the organization. However, the most common ones include global poverty, global financial crisis and ethical issues. These are major issues that might impact on the future of WWF. As a non-profit organization that depends on the well-wishers to raise funds for its projects it s susceptible to any change that might affect economic power of its key players. Global poverty and global economic crisis are two major threats to this economic power. In addition, the public is now scrutinizing the CSR activities of certain companies. High profile businesses that donate huge chunks of money to WWF for conservations have in recent times been criticized for green washing. This means that to protect their image that is under attack these corporations can decide to withdraw their support and enrage in direct CSR activities to please their public. This can affect the firm ability in the future to meet its fundraising goals.
More recently environmental debates have started to shift from issues of loss of biodiversity and pollution at local scale to a much large extent or global level. This has seen an emerging trend towards a new set of environmental problems like climate change. These types of changes are no longer possible to be handled at the organization level. They require collaboration between governments and regions. They also require strategies to be formulated at an international level. This can be a challenge to the basic reason of WWF existence.
Uncertainties
One issue which WWF is uncertain about is fundraising. Fundraising is a common activity among non-profit organizations. In recent years it has become highly competitive. Many failures in these types of organizations can be attributed to failure to attract adequate funds for an organization’s operations (Grant & Jordan 2013: 233). Whilst WWF has in the past managed to hold successful fundraising, the future is not clear. The major contributor to this uncertainty is the poor coordination of national organizations, which are responsible for undertaking fundraising at national level, lack of accountability that has displeased donors, and uncertainty in global economy. Fundraising has also become highly competitive today. Therefore, there is always the possibility that as a non-profit organization it will fall to the same trap that that many find themselves in by failing to make it in fundraising.
As a non-for-profit organization and sharing a lot of resemblance with public sector organizations, WWF should appease the public which is the main beneficiary of its philanthropic work. It requires the public to support its activities. Its activities will require services from the public as volunteers. Recent trends like accusation of colluding with large corporation to let the latter engage in green washing might affect the positive relationship with people. This in turn can affect its operations, which can cause complete failure of the organization. Accordingly, there is need to monitor these kind of public perceptions and come up with ways of dealing with them to avert organization failure.
Reflection
The main lesson that I can take from preparing this patch is that developing strategy for a non-profit organization or public organization differs in certain ways from doing the same for a private firm. This difference is due to the context in which the two operates their business. In these organizations changes can take place abruptly and impact on the strategy adopted. In order to avoid this, leaders of these organizations should be aware of certain key activities that can help them to anticipate change and put up measures to avert its impacts on the strategy.
The first thing that these leaders should be aware of is the various stakeholders who are the people who might affect or be affected by the activities of their organizations. In this patch I have learnt how to identify the various key stakeholders. I have learnt how to use a power grid matrix to categorize these stakeholders on the basis of power of influence and interest in an organization operation. In addition, I have also identifies strategies that a leader in such an organization can employ to deal with each category of stakeholder. Accordingly, in case I find myself employed or consulted by any of these organizations to formulate a strategy, am at a better position to undertake this task. I have also learnt about scenario planning technique which is basically a systematic way of mapping recent trends that might impact on the future of non-profit-organization, which are prone to sudden change. Therefore, I feel I deserve a mark of about 27 percent in this section.
References
Akwetey, L. M., 2011, Business Administration for Students & Mangers. Trafford Publishing. (Print).
Bidgoli, H., 2010, The Handbook of technology management: Supply Chain Management, Marketing and Advertising, and Global Management. Hoboken, Nj: John Wiley & Sons. (Print).
Cadle, J., Paul, D., & Turner, P. 2010, Business Analysis Techniques: 72 Essential Tools for Success, BCS, the Chartered Institute. (Print).
Hoque, Z. 2005, Handbook of cost management accounting. Spiramus Press Ltd. (Print).
Nykiel, R. A., 2005, Hospitality Management Strategies. Pearson Education Inc. (Print).
Rainer, R. K., & Cegielski, C. G., 2011, Introduction to Information Systems. Hoboken, NJ: John Wiley & Sons Inc. (Print).
Sehgal, V., 2011, Supply Chain as Strategic Asset The Key to Reaching Business Goals, In Conceptys of Business Strategy. Hoboken, NJ: John Wiley & Sons. (Print).
Zengin, Y. Ada, E., 2010, Cost Management Through Product Design Target Costing Approach. International Journal of Production Research, 48(19): 5593-5611. (Print).
Grant, R. M., & Jordan, J. J., 2012, Foundation of Strategy. Wiley.(Print).
