The development of a strategic plan for any company is a very important exercise. The process requires an understanding of the internal environment of the business as well as its external environment. It also requires the involvement of all stakeholders to ensure that organization is moving toward a common goal. However, the development of a strategic plan is not the final step in finding direction for an organization. It is necessary to contextualize the plan to ensure that it is implementable. This paper reviews the decisions made in the development of strategic plan for the B Company. In particular, it focuses on the choice of a generic strategy for the B Company, and the impact of that decision in the implementation of the strategic plan.
Final Cumulative Balance Scorecard, Income Statement, and Balance Sheet
The product of the financial performance, market performance, marketing effectiveness, investments in the firm’s future, wealth, human resource management, asset management, manufacturing productivity, and financial risk gives Cumulative Balanced Scorecard. Table 1 below shows the computation of the balanced scorecard.
|Financial performance=net profit from current operations / Total shares issued||40|
|Market performance = (average market share / 100)* (percentage demand served/100)||23|
|Marketing effectiveness = (average brand judgment/100=average ad judgment/100)/2||3|
|Investment in the firm’s future = (current expenditures that benefit firms future / net revenues) * 10+1||23|
|Wealth= net equity / total stockholders’ equity||3|
|Human resource management|
|Asset management= Asset turnover * Penalty for excess inventory||12|
Table 1: Cumulative Balanced Scorecard.
Figure 2 below shows the income statement and the balance sheet of the organization
Generic Competitive Strategy
The generic strategy chosen by the B Company was a broad differentiation strategy. This decision arose from several factors. First, the B Company recognized that the market for footwear was very large. In this regard, a highly differentiated strategy would have closed out many market segments. At the same time, it was possible to reach most of the customers targeted by highly differentiated strategies.
Secondly, the B Company was aware that the most profitable approach in its line of business was to make its products appealing to a large customer segment. This would increase the volume of sales and would build the brand for the company. Otherwise, a large market is necessary for successful sales in this industry.
The B Company also realized that a focused low-cost strategy would work against its potential. The company was in a position to leverage on its scale of operations to increase the profitability of its operations. In this sense, a low-cost strategy would work against its potential. In addition, competition from companies using a focused low cost strategy was not significant. Such companies tended to have limited geographical reach. They could not compete globally in this industry. While these companies could outperform the B Company in local markets, their impact was not significant at a global level.
The B Company also ruled out the best-cost provider strategy because of the limitations of competing on cost. This strategy works best for companies operating in young industries(Walker, 2004). In such industries, it is possible to find cost reduction options on a regular basis. However, once an industry matures, it becomes impossible to cut costs below a certain level. Cost reduction strategies bring diminishing returns. The footwear industry is very mature and it cannot experience any disruptive changes. This makes it very difficult to maintain a cost advantage. These reasons led to the decision not to use a best-cost provider strategy.
The broad differentiation strategy has two main elements. This strategy aims at meeting the market demand of a mass market using specialized products(Porter, 1991). This strategy is ideal for companies that have the capacity to meet the needs of a large market. In this regard, the company must have the capacity to meet the demands of selling products to a large geographical area. In addition to this requirement, this strategy works for companies with the ability to produce products that meet specific market needs. The companies that use this strategy are usually seeking expansion. A company that focused on low cost as its central strategy can decide to differentiate its markets once it attains a given level of scale. On the other hand, companies that focused on a specialized market can also decide to scale up operations in order to reach a wider market. The B Company already had the scale of operations required to support a mass strategy, while its credentials as a niche supplier gave it the ability to create and maintain a differentiated market profile.
The use of the broad differentiation strategy in the footwear industry was an ideal fit. This was because one footwear maker could not be excellent in making all types of footwear. The goodness of fit test showed that this industry was the ideal place for the use of this strategy. Secondly, the B Company was at a point where it needed to expand its operations along its areas of strengths. The company needed to focus on serving more customers within its traditional markets segments. The company already had several competitive advantages that could support this strategy. Finally, on the performance test, if the company attained the projected sales under the new generic strategy, its profits would increase, and it would become a dominant player in the footwear industry.
Analysis of Competitors
The analysis of the competitors of the B Company in the footwear industry revealed several issues. These issues formed part the SWOT analysis presented in Table 2 below.
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Table 2: Competitors’ SWOT Analysis.
Based on the SWOT analysis above, it is clear that the B Company is able to identify the potential strategies that its competitors can use in their market expansion plans. This SWOT analysis of the company’s competitor is also a very useful tool in the prediction of the potential strategies competitors can employ. This determines how easily the competitors can respond to the market expansion strategy of the B Company.
The B Company predicts that its competitors will use one of the following philosophies in their next moves. First, some companies will decide to pursue market consolidation strategies in response to the new business strategy by the B Company. The underlying factor is that when the B Company enters new markets, the battle for market share will commence. Companies that are already in these markets will respond in ways that will maintain their market share. This means that they will pursue market consolidations strategies. On the other hand, some companies that share comparable competitive advantages with the B Company will use the opportunity to expand into new markets. This means that the move by the B Company to enter new markets will ignite a new round of competition for markets in the footwear industry.
Success in the footwear market depends on the ability to a manufacturer to respond to market needs and changes in the marketing environment. Therefore, all the companies in the footwear industry that target the same market segment as the B Company are competing on innovation. Market leaders have no guarantee that they will have the same position in the coming years unless they maintain their innovative edge. Innovation is the main competitive advantage in the footwear industry.
The B Company decided to pursue a broad-differentiation strategy because it realized that it could not compete favorably with low cost providers. At the same time, the company realized that highly focused companies in the industry tended to have either a small but high-value market, or a limited geographical reach. The B Company is aiming at cultivating several high-value markets across various geographical areas. This means that it will compete directly with companies having a highly focused marketing approach. However, even if these companies remain market leaders in their specific niches, the B Company can still assure itself of profits by performing well in several niches. In the same way, the geographic reach of companies practicing cost leadership will not stop the B Company from developing successful markets because of its differentiation strategy. The differentiated products will attract separate markets segments.
Sustainability of Competitive Strategies in the Industry
First Flight Shoes is the market leader according to the Footwear Industry Report. The company uses a broad differentiation strategy as its generic strategy. The company had an Investor Expectation Score of 119, while its Best-In-Industry Score was 95. The overall score for the company was 107. This figure was an improvement from the previous year.
In the Game-To-Date Scoreboard, the company still took the top position. The Investor Expectation Score was 116, while the Best-In-Industry Score was 96. The overall score for the company was 106. In addition, the company had six bonus points. This gave it an overall G-T-D score of 112.
These scores show that the generic strategy used by the First Flight Shoes Company is working well. The company uses a broad differentiation strategy in its operations. After achieving market saturation in its traditional markets, the company chose to go to new markets and to meet new demands within its traditional markets. The result was a wide presence across several market segments in different geographical locations. The success of this strategy shows in its balance sheet.
The sustainability of the broad differentiation strategy comes from several areas. First, the broad differentiation strategy works only for companies that have attained economies of scale in their operations. It is impossible to serve a broad market profitably before attaining economies of scale within that industry. In this regard, the strategy relies on the ability to drive costs down to make the products affordable to customers. The aim of this strategy is not to become a cost leader. Cost leadership also requires the achievement of economy of scale for success. However, cost leadership goes further in the area of cost cutting and cost management to ensure that the products cost the customers as little as possible. Costs leadership only aims at making the product affordable. This is why it is a more sustainable approach in mature industries.
Secondly, broad differentiation works for companies with established brand names. The company must prove that it can deliver products of a given quality to its customers for it to succeed using a broad differentiation strategy. Serving a niche market very well is one way of building a strong brand name before becoming a mass producer of differentiated products(Porter, 1991). In this regard, once a company creates a reputable brand name, it can easily produce differentiated products for its customers.
The third aspect that determines the sustainability of the broad differentiation strategy is innovation. As pointed out earlier, differentiation relies on the ability of a company to produce products that meet prevailing demands. Demand for shoes follows patterns such as style and fashion, weather, and personal preferences. These patterns change seasonally. A producer that is unable to keep up with the demand cannot compete effectively in this market. More importantly, the ability to predict demand and to create products to satisfy the demand is one of the most important aspects of competitiveness in the footwear industry. Companies must be able and willing to adapt to changes to maintain their profitability. Failure to keep up with the market trends can lead to extinction.
The fourth success factor that influences sustainability is the ability to use a business strategy to address competitive pressures. It is foolhardy for a company implementing a broad differentiation strategy to compete with a niche player. Niche players have more depth when it comes to the market needs of a very small market segment. It is not economical to compete with such companies for their small markets. However, any company that has a broad understanding of the market can meet the needs of various niche markets successfully. The goal of this strategy is to operate profitably within each segment, rather than becoming a market leader in each segment.
It was necessary to subject the strategy chosen for the B Company to three strategy tests to determine whether it was the best strategy for the company. This section presents the results of these tests. The three tests in question are the Goodness of Fit Test, the Competitive Advantage Test, and the Performance Test.
The Goodness of Fit Test
The Goodness of Fit Test looks at the appropriateness of the strategy chosen the company. This test evaluates several aspects of the strategy and operations of the company. These aspects include the competitive climate of the company, the opportunities, and the threats facing the company in the market. In addition, it includes and evaluation of the external environment of the company. This test can also help in the evaluation of the resources available to the company in relation to the marketing demands of the strategy. In addition, the test evaluates the competitive potential of the company.
The main elements that define the competitive climate of the company include pressure from other companies that already use the same generic strategy. In this sense, there are manufacturers that already serve the market segments that the B Company is hoping to reach. In this sense, the company must develop tactical measures to deal with the competition. Secondly, the company is under pressure from niche providers who have locked out certain market segments. The market opportunities available to the B Company depend on geographic expansion. The company can get part of the market share in many markets it currently does not serve.
The B Company has sufficient financial resources to break into new markets. However, the company must allocate its resources carefully to ensure that it develops high potential markets first. The company also has sufficient talent in its ranks to oversee the expansion. The Goodness of Fit Test shows that the B Company has all the fundamental elements needed to implement the strategy successfully.
Competitive Advantage Test
The Competitive Advantage Test checks whether a company has a competitive advantage in comparison to its business rivals. This test helps in determining whether the existing competitive advantages are ideal in the new strategy adopted by the company. The two main elements of the Competitive Advantage Test are the impact of the strategy on the growth of competitive advantages and sustainability of the competitive advantages (Walker, 2004). A poor strategy does not result in growth.
The adoption of the broad differentiation strategy by the B Company led to the development and growth of several competitive advantages. First, the company now has a broader geographical reach in its operations. This footprint was necessary for the successful implementations of its new strategy. The company can survive bad performance in some markets while making good returns in other jurisdictions.
Secondly, the adoption of the broad differentiation strategy led to better resource allocation in the company. The company redeployed many employees and other resources in order to serve new markets. This increased the productivity of the company’s assets. It should also lead to stable financial performance in the future. In the current economic climate, companies with diversified portfolios tend to perform better in the long run(Grant, 2005).
The third reason showing that the company chose the best strategy in regards to the development and enhancement of its competitive advantages is in the changes of the operations of the company. The company now has a global focus as opposed to the limited regional focus it had before switching to the new strategy. This has led to new markets and new opportunities for the company.
Finally, the company now has a more secure market, and a more robust supply chain. Its global operations ensure that it has multiple sources of labor, raw materials, and more markets than it had before. The result is that the company is developing a diversified portfolio. This will give it the ability to respond better to market conditions. Previously, the company was at risk of suffering economic shocks based on the performance of the local economy.
The performance test addresses the overall performance of the company. This test stresses that a company must post improved performance if it is using a good strategy. The two main indicators under this strategy are increases in profitability and attaining increased competitive strength and more control over the market.
The profitability of the B Company is not yet showing signs of improvement after switching to broad differentiation as a competitive strategy. The two possible explanations for this situation are as follows. First, the company is still deploying resources to various marketing campaigns. At this point, the new generic strategy is not fully deployed. As such, using profitability as a measure of success in this situation is premature. Secondly, the company is still developing new products to reach new markets. The company can only determine whether its operations are profitable after it deploys the new products.
On the other hand, the company is developing strong competitive advantages as it implements the new generic strategy. First, the company is acquiring a multicultural talent pool that is necessary for global operations. Currently, the focus of the company is in product development and marketing. As time moves on, the company will have a deep understanding of local markets because of its multi cultural talent pool. This will make the company more innovative and will improve the company’s ability to deal with changes in consumer demand. These strengths will contribute towards greater and more sustainable competitive advantages for the company.
Effective Application of Value Chain Analysis
The value chain analysis conducted for the B Company had three main stages. The first stage looked at the major activities undertaken by the company that create of add value to customers. The main activities that affected the value of the products made by the company were the quality of raw materials, the design processes, and the workmanship involved in producing footwear(Grant, 2005). The second stage of the analysis involved determining how to improve the processes involved in these three key aspects of production. During the analysis, numerous suggestions arose on how to increase the value of the products sold to customers at a similar or a reduced cost. In some cases, the only way to assure higher value for customers was by increasing the resources allocated to these processes. The final stage in the process was the development of an action plan for implementing the measures identified in the second stage.
The company added value to the economy in various ways. First, the company created new jobs in an effort to expand its talent pool. These jobs were in various sectors such as production, sales and marketing, and management. Secondly, the company added value to the economy by paying taxes to the government. The taxes paid to the government went into the management of various services offered by the government. The company also added value to the economy by devising new ways of handling business. In the process of implementing the new strategy, the company discovered that it was necessary to innovate in order to meet new business demands.
The company chose to recruit staff from the regions where it located its new outlets. Selling footwear requires local knowledge. It is easier for customers to communicate with fellow locals as opposed to foreign staff. It was easy to recruit local staff because people in all cultures wear footwear. The company only needed to train its new employees on the peculiar aspects of its products compared to other products in the market. The implementation of new technologies followed a similar pattern. The company believes that anyone can learn how to use a new technology, and that it is best to do so in the context of the local culture. In this sense, the company trained its employees on new technologies in their context of their work.
The customers should see the improved value offered to them in three main areas. First, the customers will experience high quality customer service. This will arise from the better staff training methodologies currently used by the company. Secondly, the customers will experience better product quality when they buy and use products made by the B Company. The company committed resources to improve the quality of raw materials through stricter procurement standards. The company decided to increase the prices paid to suppliers of raw materials provided these materials were of high quality. The company also improved the design process to make it more responsive to emerging demand, rather than reacting to existing demand. These efforts are increasing the quality of products sold by the B Company.
The main gaps in the implementation of the company’s policies and procedures were in the new facilities meant to serve new markets. The company culture has not pervaded these new facilities. The company’s policy of recruiting staff locally led to the dilution of the corporate culture in the new outlets based in foreign jurisdictions. This is affecting the speed of implementing decisions. Secondly, there are variances in customer service standards in some markets. This problem is prevalent where new employees came to work for the B Company from local footwear retail shops. Such employees need retraining in the corporate culture of the B Company in order to serve customers in line with the company’s service charter.
The Three Key Priority Concerns
The three priorities that required attention during the eight-year period were as follows. First, there was need to deal with change because the new strategy meant that the entire organization had to take a new direction. Change management was a major aspect of the work of the management team of the organization. Before the adoption of the generic strategy, the company did not have a clear generic strategy guiding its operations. The company used its trained staff to determine its priorities. At the time, the company felt that the best way to turn a profit was to offer high quality products to as many people as possible. There was constant crisis in the area of strategic management because the objectives of dealing with a mass market were at variance with the objectives of dealing with a niche market. The choice of a generic strategy reduced the strategic management concerns of the institution. In addition, it made the process of change in the organization easier for all the stakeholders. This experience compares well with many companies that operate without a generic strategy, but seek to become both cost and quality leaders.
The second priority area that required attention was handling competition and building internal competitive advantages. The choice of the generic strategy transformed shoe companies that were not in direct competition with the B Company into primary competitors. The choice of a generic strategy made the B Company to shift its focus to new markets. The new competitors were already serving these markets at the time. The B Company made several decisions to tackle the new competitive pressure as well as to build its internal competitive advantages. First, the company decided to commit resources to reach the target markets as quickly as possible. The idea was to ensure that the company had some market share before the existing firms had a chance to react and respond. This led to a period of instability in some of the markets. Eventually the market calmed down and B Company has achieved a dominant position in the shoe market. At the same time, it was important to build on the company’s competitive advantages in order to grow its market share. The strategy adopted at the time was to increase the presence of the company in various geographical locations. It also required the employment of the new members of staff in various regions to take care of business in their localities.
The third area of priority that the company needed to address was the choice of markets and the choice of products to meet the demand created by its new marketing strategy. The B Company steadily produced footwear before it adopted the new generic strategy. However, the new strategy led to an increase in the number of footwear products for sale in the market. There was also the need to increase the quality of all the products in order to meet the demands of differentiated markets. This required changes in the mode of operation of various divisions in the company. The markets that the company wanted to serve influenced these decisions. The company realized the products were the most important part of the strategy. While the company needed to invest in processes and facilities, the main thing the company delivered to customers were shoes. This led to the development of innovation methods in the company to deliver new designs and processes that would help satisfy the demand.
Grant, R. M. (2005). Contemporary Strategy Analysis. Malden, MA: Wiley-Blackwell.
Porter, M. E. (1991). Competitive Advantage. In C. A. Montgomery, & M. E. Porter (Eds.), Strategy: Seeking and Securing Competitive Advantage. Boston, MA: Harvard Business School Publishing Division.
Walker, G. (2004). Modern Competitive Strategy. New York, NY: McGraw-Hill/Irwin.