Ansoff And Sfa Evaluation Management Essay
GM could use product development to improve revenue on a number of brands. However GM must work to drive down costs. Using Porter’s (1984) cost based generic strategy. It shows reducing costs can also create a competitive advantage. If costs are lowered and price is kept relatively similar this will improve profits (Hines, 2004). This could be seen as a suitable and acceptable option. However how could the costs be reduced? Many suppliers are suffering similar problems from the recession. One strategy would be too merge or acquire existing suppliers, a method of external development (White, 2004), which would reduce costs, improve core competencies and could even lead to technological development. However is this feasible? The strategy has risk, as this may not necessarily reduce costs or improve profits therefore it is not totally acceptable.
GM should continue operating in Europe for the foreseeable future. They have changed the business strategy to focus on becoming leaner and developing core brands, while investing considerably in diversification (Sunderland, 2009). This is the best strategic option open to GM however it must be managed well. Applying it to the main success criteria can highlight how this is the best action (Johnson, Scholes and Whittington, 2007):
This strategy addresses the position of GM. Outlined within the SWOT analysis was the need for product development and the introduction of smaller car ranges. GM have already committed to investing if it gets new products into the market faster (Vlasic, 2009). Additionally McAlister (2009), states that GM are already working on new products that they can continue building within the UK plants beyond 2013. An identified strength was its large supply and distribution network therefore using this core competency it can implement new product ranges. If a competitive advantage is gained then it can use the European market as an additional sales environment. Although Yip (2003) states global strategies can have different driving forces, competencies can still be applied if GM understands the local cultures (Lynch, 2003). Staying in Europe is a logical step. To withdraw now could lead to larger costs in the future, such as re-entry into the market as sales in this area cannot be ignored. Economies of scale exist such as an extensive knowledge through suppliers etc so risk would be low for the implementation of any new strategies.
GM are a global organisation, they have an existing network of both tangible and intangible resources. However significant investment is needed in R&D, which could be attained through selling underperforming brands, although as mentioned GM are willing to commit to this aspect. There are no significant issues of time scale but change is not always immediate. For this strategy to work the rate of change must be quick (Johnson et al, 2007) and adopting a new culture is the priority so the management and workforce must show commitment. This could be difficult as the previous culture was slow to react and very bureaucratic (Maynard, 2009). In the future resources may be needed within Europe and by opting to stay GM will have greater access, making the option more feasible.
A number of stakeholders benefit from this strategy. They government expect GM to keep sales high in order to pay back their debts and this can be achieved more efficiently by existing in a larger market. GM advised there will be a number of job losses, helping towards their restructure and reduction of wages (BBC, 2009). Additionally GM has made the correct decision ethically. This business is vital for a number of industries and therefore helps towards employment so withdrawing from Europe could have a huge effect on suppliers, distributors etc. Finally GM has also made the best decision for their owners. Staying in this market will increase sales and further product development could help sustain a competitive advantage. Although diversification failed in 2004 (Vlasic, 2009) with the mass produced but under marketed EV1 range (Vlasic, 2009), it is possible with the correct investment and understanding it can be a success.
Although as outlined above this is the best strategy available to GM, focus must be placed on developing new technology. Bowman’s strategy clock (appendix 12) shows that offering differentiated products at a market average price can lead to increased sales through high perceived service benefits (Wheelen and Hunger, 2008). If GM were to market any new technology at a high price it could lead to strategy failure as these products may already exist. In comparison if GM introduces similar products at a lower price it could create an immediate and sustainable competitive advantage.
Ansoff Matrix, proposed by Igor ansoff, used to classify and explain 4 strategies for business growth. For the case studied, GM opted for consolidation and market penetration.
GM uses consolidation strategy (Ansoff) to increase sales without drifting from its original product, we speak of market strategy. GM wants to penetrate this market by improving product quality and provide a real service to these customers. To achieve its goal, GM spends large sums of money in marketing and communication, like advertising for example. This strategy is important for GM because retaining existing customers is cheaper than attracting new customers. It therefore decided to keep five brands already in its possession.
Yet, GM is moving beyond its customer base to attract new customers for its existing products. This strategy often involves the sale of existing products into new international markets. For example, the new GM wants to expand its market share thanks to the demand emerging countries like Brazil, China, and India. Indeed, these countries are expanding and it is a growing market for years in the motor industry.
Evaluation of the strategies
To evaluate the effectiveness of the strategy of the new GM, the SFA (Suitability, Feasibility and acceptability) is an important tool. This theory presented by Johnson, Scholes and Whittington (seventh edition, p. 371, 2005) may help us to analyze the potential of the strategy.
The suitability of this strategy is well. The old GM was producing big cars and consumed a lot. They were not economic and do not respect the environment. Thus, the American manufacturer has seen its sales fall in recent years.
In addition, the feasibility of this option is good. The new GM has a lot of knowledge and an impressive physical capital. GM already knows the brands it represents. In addition, engineers are working continuously to develop more economical cars. There is a university in the company to provide access to information. Moreover, GM today focuses on 5 brands instead of 11; it can devote a largest share of investment in the R&D sector. To finish, GM has received some aids.
To finish, the acceptability of this strategy is good. GM is supported by many governments and organizations (for the development of new energy) for its restructuring. It receives financial aid. The US government spends money for GM restructuration, in return GM has to develop clean cars.
Personally, I chose the same option as it is obvious that the Old GM had a wide range of products. But they do not come up to consumer’s expectations. In addition, I took the risk to launch the company into emerging market because there is great potential in sales. Thus, I proposed new models for this market and even open factories, specifically to come up to consumer’s expectation.
Identification and Evaluation of Strategy
Product development and related diversification (Ansoff, 1988)
Mc Afee’s software will provide Intel’s chips with hardware-enhancing security (Takahashi, 2010) which leads to a competitive advantage. This strategy is classified as product development since Intel delivers a technologically modified product to its existing market (Johnson, Scholes & Whittington, 2008).
As Mc Afee remains an independently run security company which stays in its market (BBC News, 2010) it is regarded as one key player in the emerging market of cloud computing (Takahashi, 2010). This vertical integration enables Intel to expand to new markets, diversify the risk through a broader product portfolio and enhance its growth perspectives. Therefore Intel follows the strategy of a related diversification (Johnson et al, 2008).
The strategic directions are suitable as long as they address the key issues identified previously (Johnson et al, 2008). As Intel’s current market is almost stagnating, the strategic direction should enable long-term growth. Moreover it should incorporate the knowledge of consumer and technological trends in mobile computing.
With the acquisition of McAfee, Intel addresses the trend for security and energy efficiency in chips. Moreover they react to the saturated market of PCs as McAfee is expected to be a key player in the growing market of cloud computing (Takahashi, 2010). Another issue arises from anti-trust regulations which prevent Intel from acquiring competitors. A vertical integration does not violate any laws while it enables Intel to enhance its growth perspectives in new markets (diversification).
Intel’s strength to finance their investments from their operating profit supports the financial feasibility of the acquisition strategy. Intel’s healthy financial position allows the company to exploit R&D to integrate McAfee’s security software in their chips. Moreover they gained much experience with M&A initiatives from the past (Intel, 2010). This implies that they have strong resources and competences in place which enhance the strategy’s effectiveness.
The acquisition was decided unanimously by the both boards. However, falling stock prices of Intel (Appendix 6) reflect suspicious shareholders (Hardawar, 2010). A possible reason for mistrust is seen in a lack of understanding of the gains in comparison to the immense acquisition costs. Intel argues that the financial position justifies the $7.68bn acquisition (BBC News, 2010) which is supported by the assumption to regenerate the $5 billion cash spend for the acquisition in less than a year (Hardawar, 2010).
However, the deal may help Intel to gain wider long-term profit margins which reflects a higher shareholder value (King, 2010). Since the acquisition enhanced Intel’s vertical integration focus and does not place any threat towards anti-trust violations, there is no risk incorporated with governmental intervention (Hardawar, 2010).
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