Strategic Management

Posted: November 29th, 2013

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Strategic Management

June 2010

Q1

a)      IKEA uses different strategies to appeal to its customer base form a varying background, be it social or economy. It focuses on use of strategies as its key asset basing heavily relying on the Porter’s framework. Some of these strategies target the corporate world while at the same time understanding the competitive market and the strategies they employ. IKEA also takes time to understand the international market to have a clear understanding of the varying needs and come up with the most suitable approach to each market. The Porter’s framework integrates use of strategies affecting the different areas of the organization and this include understanding of the industry structure and realization of factors affecting the industry’s profitability for the application of competitive positioning of the company for it to attain a sustainable competitive advantage(Johnson, Scholes and Whittington, 2008). IKEA uses this framework to its advantage as it focuses on its strategy formulation when it comes to the structure of the company and the methods it uses in its provision of its services. It focuses on creating a niche by differentiating its service provision methods from those of competitors. Its marketing methods are also different addressing its strong point and providing services that are in line with issues that affect the market. For example, it provides ample parking space, recreational areas for children hence making the shopping experience less stressing. It also portrays strategy in the logistics of the company.

b)      They employ international strategies by reaching out to their potential customers in their familiar languages hence making them create a connection with these customers. They also have stores in different countries and still expanding hence does not only concentrate on one market but also seek to expand their market base. They source their products from a local market in relation to where they have their stores hence cutting on their costs therefore they are able to provide the products to the customer at an affordable price. IKEA’s resources range from the work force coming up with these strategic moves, the different stores they own, and the competitive edge they hold in the industry. The company is constantly coming up with new strategies according to the changes in the market therefore their chances of having a sustainable competitive edge is high. They have adapted a system of smaller stores that enables them to operate at lower costs hence they will be able to sustain the low prices they offer their goods at. In the application of the Porters framework, the company has adapted the differentiation technique where they offer themed and selected products in specific stores according to the various categories of goods they offer. This reduces the traffic that would accumulate in the store if all the unrelated items were located in one place. IKEA adapts operational effectiveness in its running and comes up with customer targeting techniques in its strategy. It is innovative when it comes to product procurement and supply methods that are vital tools for sustained competitiveness.

Q2

There are different types of strategic change that may be developmental, transitional and transformational (Johnson, Scholes and Whittington, 2008). These changes occur due to environmental trends forcing the company to advance it methods and strategies to keep up with the market. For example with the growth of the IT, world businesses have to change to adapt to the growing trend an example being McDonalds. The company could adapt different techniques to strategically adapt to the changes, for example by introduction of customer service innovation where they learn more about their customers and adapt their products to the customer specifications. They can also adapt their prices in order to gain more customer attention and good system innovation that makes order and supply process easier. Through the systems they can gain audience from a wider base hence can aid in advertisement.

Q3

Companies choose to expand overseas to create a wider customer base and to survive in the stiffly competitive industries. Entry into less populated industries in new markets gives the company an edge as they have the ability to gain a wider customer niche that is not saturated. Different entry methods used by the companies include exporting, licensing, franchising, turnkey projects, joint ventures and strategic alliances (Johnson, Scholes and Whittington, 2008). In exporting method the company sells goods produced in one country in a different country and this is advantageous as goods that are impossible to produce in one country can be made available through exportation. This gives the company an advantage as the goods sold are of unique nature and there is low competition in provision. The disadvantage to this is the high start up cost and it takes longer to market the product, as it is a new introduction in the locality so the marketing costs might also be higher. Licensing involves allowing a foreign firm to produce and distribute the licensing company’s goods. The advantages are that the company is able to reach new markets where exporting is not possible and the ability to expand without much capital investment. The disadvantages are the income gained is lower than if other methods were used and low control of the licensed company can lead to lower quality goods. The other method of entering new markets is franchising where are partly independent business owners pay some amount of fee to the franchiser to use its trademark and follow its format and system. The advantage is the low cost of expansion for the franchiser aiding reach a wider customer base in a short period than other methods. The disadvantage is that the franchisers may turn into future competitors and a wrong franchisee may ruin the company’s reputation when they do not adhere to the franchising agreements. In turnkey projects, the company enters into contract with contractors to design new facilities and train new employees in an entry to a new market. The advantage is the ability of the firm to establish a new plant that is fully owned by the company that is identical to the parent plant. The disadvantage with the turnkey project method is the possibility of a risk to reveal the companies internal secrets to rivals.

Q4     

External environments affect the competitive performance of a business as they influence many aspects of the business, may it be the pricing, customer base, interaction with other businesses, its ability to expand and other factors. These environmental influences may be macro or micro, with macro factors including, political and legal factors, economic factors, and social-cultural factors, technological and environmental factors. The microenvironment includes rivalry, threats of substitutes, buyers’ power, supplier’s power and new entries into the market (Johnson, Scholes and Whittington, 2008). In a market of services in strategy development, one such company affected by these environmental factors is the International Development Company. IDC has had to adapt to changes by transforming its strategies to remain relevant in the ever-transforming business environment in order to remain competitive. Some of the actions it has taken include the improvement of its application of technology in communication and adaptation of environmentally friendly ways in the oil and gas business. It has expanded its supply area to include a sizeable portion of the world with companies in many countries. It has formed joint ventures with other companies providing other products hence expanding to reach a wider market base. With the application of these strategic methods, it has been able to remain at the top of competition.

Q5

A strategic option should address the needs of the users. It should also be applicable to the company with reasonable capital investment, that is, the company should be able to sustain the changes implemented because of a strategic change. This will be determined by use of the feasibility criteria. The strategic option should also relate to the environmental changes that it seeks to deal with in the improvement of the company’s competitiveness. While dealing with the changes in the environment, the strategic option should be applicable in the company ensuring that the resources in the company can ensure the sustainability of the strategic action taken. It should not bring about a negative impact on the company or the workers. The suitability of the strategic option should be determined before implementation of that action to ensure that it is compatible with the external forces (Johnson, Scholes and Whittington, 2008). The factors affecting the sales of a certain commodity or service should be well understood before settling on the strategy that will best address them to result in higher sale. Under the acceptability criteria the changes brought about by the different strategies implemented should be acceptable to the customers hence they need to fulfill the customers requirements. For example, in International Development Company the strategies to adapt more eco-friendly methods passed the acceptability test, as they were welcome actions that were bound to cause overall good to the society. The decisions to upgrade the communication systems to utilize technologically forward methods would have to pass the feasibility test before implementation in the company to ensure that it is a sustainable strategy.

June 2011

Q1

a) The resource and capabilities strategy is a strategy that involves identification and classification of firm’s resources, after which the capabilities and strengths of the company over its competitors are identified (Johnson, Scholes and Whittington, 2008). There is appraisal of the resources according to their returns to the company and their sustainability in terms of having a competitive advantage over the competitor. After this, a strategy that best exploits the firm’s resources and capabilities is chosen to be implemented and resource gaps identified are filled. Brompton Bicycle has utilized this resource-based framework in strategizing. By identification of the resource gap in the sluggish production method, the company realizes the importance of addressing the areas causing the slow production in increasing its production level from 19,000 to 50,000 bikes. Brompton Bicycle realizes its strong point over its competition where the company boasts of having the best bikes. The company also has an advantage of the copyright on the design but the costs it experiences are higher than competitors hence new strategies need to be developed. Another advantage the company enjoys is that it is the only company offering after sale services on the bikes, as it is the only one that makes bikes spares. The company realizes that marketing approach the firm continues to benefit from a revenue stream generated by the shops’ after sales and services are part of the weak areas hence it intends on coming up with more strategic marketing methods. Hence, the resource and capabilities method is appropriate for Brompton Bicycles in evaluation of its strategic positioning in the market.

b) Based on the realizations on the company’s position in the competitive market some of the strategies that would work in increasing its competitiveness would be increased investment in marketing and utilization of more aggressive marketing strategies. Another method would be by ensuring sustainability in its strong points at which it surpasses the competitors. It should ensure that its strong points are always attended to for them to remain at the forefront. It should ensure appropriability by retention of value in the firm. Brompton Bicycle should identify its unique competencies and use them to generate more value for the company.

Q2

Stakeholders are the parties having an influence on company transactions or those who are affected by the actions of a certain company. Stakeholders in a company can include employees, shareholders, customers, suppliers, creditors, investors, communities and the government. Stakeholders are important in strategic management since the existence and functionality co-relate as the stakeholders keep the business running in the transactions that occur between the parties involved. For example in the International Development Company, since the company forms major partnerships with other companies it has to apply strategic management to ensure that the requirement of the partners are fulfilled without affecting the policies of the company itself.

Works cited

Johnson, Gerry, Kevan Scholes and Richard Whittington. Exploring Corporate Strategy. Financial Times Prentice Hall. 2008. Print.