Analysis of Strategies for Expansion into UK
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Over the last few decades, there has been a tremendous growth in the volume of business. A number of new players have entered the business world and as a result there is fierce competition making survival very difficult. Therefore it is imperative that Companies establish a sustainable competitive advantage over other competitors. One key strategy that companies have often adopted to sustain in the long term is continuous growth to become recognised brand and dominant that they can set the agenda. Thus we see huge multi-national corporate in various sectors particularly in retail, food and beverages that are dominant and sometimes act as monopolies. However, pursuing a strategy of growth simply does not mean that corporate can expand their businesses, survive and remain successful. In the past, many organisations have adopted various strategies and implemented all of them but have failed. This is because like any other strategy, growth strategies must be carefully formulated and properly implemented. If not, there could be severe consequences.
There are many organisations particularly in the UK that are aspiring to expand their presence. However, a number of huge western based multi-nationals exist that are dominant and follow entry deterrence strategies such as patents, limit pricing, cost advantages, aggressive advertising and marketing etc, in order to prevent other organisations from taking their market share or eroding their margins. We shall study in this dissertation, the growth strategies that such emerging organisations adopt and implement to capture the markets and also see how they encounter the indirect entry barriers imposed by the giant multi-nationals.
Aims & Objectives
The Goal of this dissertation is: to analyse the various strategies that can be composed by an organisation and the ways that they should be implemented; to list the various possible outcomes that can be achieved by an organisation with proper planning and implementation of a strategy; to study the reasons why it is important for organisations to plan and have alternative strategies
Even though many companies form strategies and implement them, not all of them may succeed. So, why do companies fail to achieve their objectives with the implemented strategies. The main purpose of this research would be based on Andronicas - World Of Coffee (AWOC), the way they work on the strategies they plan and the implementation process to make it a success. A Study would be done on the problem that they have faced and are facing in the present and the past while implementing their Retail business strategies to become a recognized brand.
The objective is to complete the study with all the required literature review and theory which relates to strategies formulation and implementation. Analyses the reasons, motives, process and other aspects related to strategies formulation and implementation. The main objective is to have a brief study on how Andronicas- world of coffee has planned its strategy and has implemented it, in order to enter highly competitive market of coffee chains and become a leading Retailer in UK. Analysis will also be done on the performance of this organisation and the growth achieved in short span of time.
The objectives that we aim to explore are given below :
- To Examine the strategies formulated by Andronicas- World of Coffee for establishing their retail business within UK.
- To analyse the different steps and ideas they used and implemented for establishing their retail business in LONDON.
- To find out what Andronicas- World of Coffee was and what it is now after the implementation of its formulated strategy.
- To study the impact of ongoing Financial crisis on Andronicas as a business.
Purpose of Study:-
The fast growing competition in business market has raised the need for new markets. This has inspired many small organisations to grow and provided opportunities, for which various strategy needs to be formulated. The purpose of research is on what field a company needs to concentrate and what strategy it should apply in order to enter the highly competitive market. The implementation plans of company play a vital role. Even though strategies are planned well but some companies fail during the implementation process, this is because of improper communication/ short term plans. The implementation process needs to be monitored very carefully. The purpose of the study is to identify the strategies that organisations plan and the way they try to implement it. The main aim of this study is to describe a method that can be adopted by Small medium enterprise to enter a highly competitive market that is already dominated by big market players with the Example of Andronicas -World of Coffee.
Managers and leaders of companies are constantly involved into decision-making. They use different types of strategy to ensure that their business not only survives but brings profit. . Strategic ideas are relevant for all types of organization, and many of the key issues are the same although they may differ in their relative significance. All businesses in the competitive environment are affected by strategy and strategic issues - if not their own, then those of the competition or the external environment. Long-term strategic success requires coordination of the managers' efforts and effective structure of the managerial department of the company.
Introduction to the Industry
Coffee makes us severe, and grave, and philosophical
- Jonathan Swift, 1722
Possibly the cradle of mankind, the ancient land of Abyssinia, now know as Ethiopia, is the place where coffee was born.
In today's world beverages sector comprising of coffee as a sub sector is one of the key segments of the economy having extensive and forward and backward linkages with other key segments of the economy. According to the latest coffee statistics from the International Coffee Organization (ICO), we pour about 1.4 billion cups of coffee a day worldwide. In fact when we look at per capita coffee consumption, the U.K. is #22 on the list with about 5 kilograms of coffee per person per year.
The coffee industry has grown rapidly since the 1990s; before Starbucks emerged, people were used to drinking low quality coffee from tins. Starbucks introduced fresh coffee made from top quality beans that have excellent taste and drinks such as the caffe latte and cappuccino, which have helped to fuel the development of the coffee market into a multi million pound industry. The size of UK branded coffee chains have quadrupled from 1999 to 2004, with a current market turnover of over £1 billion.
However, Britain's coffee may finally be taking a new direction. Take a walk through London and you'll see a rash of trendy independent coffee houses, with blackboards boasting of freshly roasted, Fair Trade beans and organic milk. Retail sales at specialist coffee shops reached £1 billion for the first time in 2007 and were almost £1.2 billion in 2008. High street chains such as Costa Coffee, Starbucks and Caffe Nero are also performing well, with 890 new branches of branded coffee shops expected to open before 2012, but they are upping their game to meet our rising expectations.
Jeffrey Young, of the consumer analysts Allegra Strategies, says: “We're seeing a movement to a stronger coffee palate. People say that their Starbucks is not strong enough, that Nero is stronger than their Costa. That's something that no one was talking about ten years ago. There has been a massive revolution in coffee drinking, from drinking instant or filtered in a polystyrene cup a decade ago to espresso-based drinks made from 100 per cent Arabica beans today.”
UK being an upcoming market for coffee shops, with an estimation of more than 11000 outlets opened so far and number still increasing. The total turnover of the whole coffee industry is estimated to be over £1.63 billion for year 2009. Estimations for year 2010 are expected more than 13000 coffee shops, including small, medium and independent businesses
Introduction to Andronicas - World of Coffee (Source: - Andrew Knight)
Form of Ownership:
-Andronicas Coffee is a private limited company whose entire share capital is under the control and ownership of Andrew Knight.
Andronicas Coffee - a coffee roaster/ supplier vertically integrated, accessing green coffee at source, roasting and processing through to the point of sale, via either catering or retail industries and including the equipment required to produce the finished drink. With a 25year history of selling, serving and operating retail outlets, adopting the best of both the Seattle and European model. Focused now on trade sales identifying customers whose ideals of quality, taste and service, expectation are at the top end of the market and who see outlet expansion as the driver for their business. Promotion of our brand identity is important but secondary to the overall success and profitable growth of our business. To develop staff skills and competence to recruit to fill any gaps and to take the opportunity forward, always keeping in mind the potential property opportunity as it arises and being in a position to take it up. Maintaining our commitment to re-invest each year across marketing, new plant, product development and if appropriate acquisition i.e. office coffee service.
Not to lose sight of what we have in the pursuit of what we want. Strive to do what we do better - always.
The company commenced business as a retailer of real coffee in the Kensington department store, Barkers in 1979. The addition of a tasting facility lead to our first conflict - the restaurant manager unhappy that we should be offering a free tasting to his potential customers as they walked through the door resulted in some initial difficulty. The compromise reached with the store manager was that we could charge for our sample. This led us to operating one of the first espresso bars in London. It was popular with both the store and customers in equal measure, was extremely profitable, our rent being based on a percentage of sales and led directly to the opportunity to replicate the model at a second House of Fraser store in London's Victoria, just 18 months after the Kensington store opened.
At this time we had installed a small coffee roasting machine. This brought a multiple benefit; vertical integration, aroma at the point of sale, credibility and increased profit.
When House of Fraser invited us to open a third site at Rackhams of Birmingham, it was at the banks suggestion that we should try for our own site. This led to acquiring a lease at 15 St John's Wood High Street in 1983.
We had by this time embarked on the wholesale side of coffee supply to local restaurants and with the acquisition of the lease at St John's Wood installed a 25 kilo professional coffee roasting machine in order to become self sufficient with our coffee. We considered franchising as a possible means of further expansion.
The St John's Wood shop was the ideal coffee shop model; a catering led operation, roasting on-site, front and rear access and space for an office. By now the coffee shop offer was growing to include a lunch-time dish of the day.
It was around 1988, we received the disappointing news, Barkers was to be redeveloped and all concessions were given 6 months notice to quit. Certainly this was a rude awakening, how quickly 6 months goes. So we acquired the lease of another shop nearby in Kensington Court and then had four sites, all trading in profit, each slightly different. Just as we had spare space in St John's Wood, so too a basement in Kensington allowed for the acquisition of a proper factory packing machine, allowed us more control, independence and profitability.
As we assessed a way forward at that time, the expansion of the wholesale side of the business appealed more and our view that department stores, not delicatessen shops were the place to sell real coffee to the consumer, that led us to target Harrods, Selfridges, Fortnum and Mason and Harvey Nichols. In order to access funds to finance a production facility, we had to sell the lease on one of the two London shops. The first offer was for St John's Wood, so that sale allowed us the opportunity to put a production facility in place in a railway arch in Camberwell.
The successful conclusion of the contract to supply all Harrods retail coffee resulted in the need to acquire plant machinery, printing and packaging which quickly burnt through the £120,000 that was paid for St John's Wood and forced the sale of the Kensington shop to give us sufficient cash flow. (The Kensington shop sale was another fascinating lesson in small business management, but not terribly relevant to this). Suffice to say, the timing of the sale was perfect and ultimately led to the opportunity to acquire the freehold of Great Eastern Street.
Having successfully become the supplier to Harrods, we added the exclusive supply of coffee by catering and retail to Harvey Nichols (that was juggling) and Selfridges.
Today even fifteen years later, we are still in that happy position and whilst we only supply a few fringe coffee beans to Fortnum & Mason, as the family owning the store also own Twinning's, we count that as quite an achievement.
Our luckiest break on the catering supply side was to supply an espresso machine and coffee to the first Café Rouge also around 1989. This company went on to expand to 120 sites nationally, acquired the Dome chain and instigated the idea of a restaurant being willing to sell a cup of coffee at any time of day. A bit like Barkers, the news in 1995 that Pelican Group was acquired by Whitbread, owners of Costa Coffee, came as a disappointment. Even then it took Costa three years to take the coffee and machine contract away from us.
Another major customer is AMT Espresso Bars, established in Oxford around 1993, they had two coffee carts when we discovered the operation. Here were three brothers, passionate about their business and their coffee - our coffee. Today with 43 bars nationally focussed in railway stations, there coffee sales are quite remarkable, though naturally confidential.
All this brings us to the point. We have helped a number of high profile customers achieve consistent record sales of real coffee - our real coffee, but nobody knows, nobody has even heard of Andronicas. (Our coffee produces over 50 million cups annually).
We want to continue to develop the business as it is. Continue to sell, supply and develop coffee sales in all of these customers under their brand, but additionally and to different customers we want to sell our brand. The historic and existing business being the income stream to support the next opportunity, but which must remain the primary focus, i.e. the existing business can in no way be jeopardised by the plan for the Future. Our growth might well be limited by that fact, but there is always tomorrow.
Our experience and strength are bound up in a passion for the product. From the grower and processor, we import only the finest beans, anybody can say it and they all seem to, even Kenko (part of Kraft Foods) - but we have seen their factory and others like it. When you grind their coffee beans they look just like mine. Statistically the UK imports very little fine coffee, so somebody is lying. As always it comes down to money. Today I can buy Arabica coffee for £1,000 per metric tonne. We actually pay around £1,800 per tonne so naturally we get something much, much better. It really is that simple. We can only afford to pay more because our customers have the same view, they are willing to pay more because they in turn are saying the same to their customers and so it goes. Be it retail or catering pay more, get better, pay less, get worse. It will always be easy to drive down the price; always it will be pointless.
So we have the best green beans, now we have to roast them. Our processing plant is equipped to roast coffee in batches of 1, 12, 60 and 120 kilos. This flexibility is of key strength, but more important than that, immediately after roasting, our coffee is securely packed, excluding all the oxygen immediately. This is only possible with state of the art valve packaging equipment. Whether nitrogen or vacuum packed removing the oxygen is critical to the aroma, taste and life of the coffee. NB you cannot vacuum real coffee twice, it only works when freshly roasted. The public does not understand this fact at all.
The third critical ingredient to great coffee we will call the barista, the person who makes the coffee. If person one, the grower, person two, the roaster have not done their job, number three cannot win. However even when one and two have done their job correctly, number three can destroy it.
So coffee the nectar of the gods, requires the skill resource and commitment of at least three people to achieve greatness. Given the consumption of coffee in just the UK alone exceeds 150 million cups per day, the scale of both the challenge and the opportunity can only be marvelled at.
Andronicas core skill is in understanding the variables and bringing their expertise to endeavour to help the consumer make great coffee. Be it through bars serving it by the cup or at home made by a myriad of equipment from the simple French pot, the sophisticated Italian espresso machine, a German filter system, a Turkish pot or the elegant cafetiere.
Going back to the bars, today's fashion is for espresso-based drinks and the machines used to do this form an important part of the company's business model. Espresso machines used extensively in every modern catering environment are a key opportunity to develop new business and a great opportunity to build long term customer relationships, through service, maintenance, training and lead to the identified opportunity here ‘ BRANDING'.
Traditionally a bar serving espresso purchases beans packed in kilo bags. This is emptied into a hopper feeding the grinder; the coffee is therefore nameless. In order to identify the brand at the point of sale, the outlet might well be given china cups that bear the brand of the coffee roaster.
Our idea is to change the pack from bag to tin. Instead of emptying the bag of beans, a 2-kilo tin replaces the unbranded hopper. Vacuum packed at the factory this tin allows us to identify our brand at the point of sale. The additional supply of branded cups, china or paper, and other point of sale material, to get the message across at the time the product is being consumed. This should therefore be self-financing. Accepting that our brand is of no commercial value yet, the means to achieve the trade sale is to additionally personalise the 2 kilo caddy with the clients outlet brand. In other words Andronicas Coffee at ………..
Our desire then is to sell our coffee to a new group of trade customers where they are keen to sell the product as Andronicas Coffee. This in itself is not difficult. Coffee is a competitive market, our history, experience and resource make it a relatively straight-forward proposition. An investment in manpower, accessories to support the offer, the process is essentially similar to our current programme.
Moving beyond this, the reason for creating the brand in the first place is to get back to our retail roots and to create value in Andronicas Coffee as a brand and therefore as a business.
We have already indicated that access to market in the retail arena is through supermarkets, departments stores, speciality coffee retailers or mail order. Our view is the supermarkets are not an appropriate route for our company taking account of our existing customer base, our size and brand recognition.
We are established in retail through department stores and therefore any activity to promote our coffee would be like shooting yourself in the foot. Speciality coffee retailers are unlikely to support our brand and are in any event a fragmented group, which brings us to mail order.
Back-tracking a moment - picture a coffee salesman visiting an espresso bar. His objective is to persuade the bar owner to change coffee suppliers. Having made that change and assuming everything the salesman says is true, one would have every reason to suppose that espresso bar owner would continue to purchase a case of espresso beans every week indefinitely. That is what Andronicas does, it persuades espresso bar owners it has great coffee, will not change the blend, will deliver consistently what they require, will not change the offer, price or any fundamental. Allowing him to offer his customer the same and build his business to such an extent he may open a second espresso bar. Who is he going to call?
Picture if you would just for the exercise, a salesman in a car showroom. Imagine for a minute the different objectives of both these sales people. One wants a sale now, today. The other wants a sale indefinitely. They both come from the same place, they are both going somewhere entirely different.
Now back to our retail opportunity. The consumer is a little like our espresso bar owner. They want great coffee, easily accessible, at good value for money, consistently. The supermarket fulfils that need extremely well. The only thing missing is the romance. There is no romance with supermarket coffee. We might all like the coffee specialist, but we don't have the time and there is no consistency.
Mail order might be able to fulfil these objectives, but the cost of finding these potential customers would be excessive. However if the offer was good and met the requirements, it is conceivable such a person could purchase one 250g tin every week, for ever more.. Just like our espresso bar owner.
Buying direct from the roaster, who is also the importer, is the romance.
Operationally for us this is simple. The clever or difficult part is identifying those one in ten UK coffee drinkers who really do only drink real coffee at home.
Events. Picture if you would any day out you have been on. A county show, a day at the races, museums, air shows, Henley, Wimbledon. We don't even expect a great coffee and we are still disappointed. Imagine being at one of these events and being served a great cup of coffee. Yes, it is possible. Might you think I wish I could get coffee like this at home. That is where we want to get to. Serving coffee in locations, the expectation is low, making a great drink and converting the customer to a mail order user.
Difficult as it may be, the beauty of the idea is they are going to pay for the tasting and so building this opportunity should be self-financing and by focussing on this avenue to the consumer, we should not alienate our existing trade customer further we are establishing the brand recognition of Andronicas Coffee to his and our benefit.
Andronicas - world of coffee 4th floor Harrods Knightsbridge, is a concept Gourmet Coffee shop, where Term Freshly Roasted means just that. Here green coffee beans are roasted to customer's specifications in the desired quantity. Having identified, what we consider the right ingredients for the perfect coffee shop, we are focused on the other locations where the concept would be appreciated. By Easter 2010 we will have opened Andronicas - World of coffee at Covent Garden, Excel East and West, and Garden Park Peterborough.
Structure Of dissertation:-
Developing a theoretical framework incorporating a number of ideas and findings relevant to understand the factors affecting Small medium enterprise entry barriers. In Chapter two a substantial body of literature is presented about different marketing strategies and branding models.
In Chapter three, the methodology used in research concerned with entering market and brand development is presented. A qualitative research is proposed with the elaboration of focus groups. The use of a guide for the moderator was needed in order to help the researcher to put the research question in parallel with the topics to probe. Also the codification technique is used to organize the information later on.
Finally, Chapter four presents the findings of this dissertation, giving an explanation of what the factors influencing the marketing strategies of any small medium enterprise. It also presents a comparison between the factors extracted from different authors and the ones found in this research evoking interesting potential directions for further research.
“Perception is strong and sight weak. In strategy it is important to see distant things as if they were close and take a distant view of close things”
This chapter is based on brief explanation about how strategies are formed and how they are implemented for any organisation in order to become successful and survive. Strategy is one of the key elements and a major concern for any organisation for its survival in future. Here in this chapter we are trying to explain various theories and concepts that have been put forward.
“Like politics, strategy is the art of the possible; but few can discern what is possible”.
Strategy in terms of business means planning how to reach the objectives of the company and how the planning should be implemented. “Strategy is a the pattern of major objectives, purpose or goals and essential policies or plans for achieving those goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or is to be” Andrew's (1971). In simpler terms can be explained as “The strategy of the firm is the match between its internal capabilities and its external relationship. It describes how it responds to its suppliers, its customers, its competitors and the social and economic environment within it operates” Kay (1993). Andrews' definition clearly identifies two different processes, formulation and implementation, and the interrelation between these two concepts.
“Strategy as the determination of the basic long term goals and objectives of the enterprise and the adoption of the courses of action and allocation of resources necessary for carrying out those goals” Chandler (1962)
Mainly strategy is maintained at three main levels in any organisation.
- Internal Resources: It means the capital and the investments in the business, employee's and their skill sets are resources for the company. To make most of these resources a proper strategy needs to be implemented, and that helps organisations to make most of the resources and that helps to survive and stay in the market.
- External environment within which the organisation operates: Environment means every aspect external to the organisations. It's not only the economic and political situations but also competitors, customers and suppliers. Organisations need to develop strategies that are best suited to their strengths and weaknesses in relation to the environment in which they are operating. According to Mintzberg H (1987) Environment is so uncertain, particularly in global level, that it may be impossible to plan a long term strategy. This may need to be crafted, i.e. built up gradually through a learning process involving experimentation. Strategies need to be devised to cope with such difficulties
- The ability of the organisation to add value to what it is doing presently: To ensure long term survival an organisation must take the supplies it brings in, add value to these through its operation and then deliver its output to the customer. The purpose of the strategy is to bring about the conditions under which the organisation is able to create this vital additional value. The strategy that is formulated should also ensure that the organisation adapts the changing circumstances.
Strategy of a business is in cooperation with art and a science. Particular strategy will not be appropriate for all the cases. Small and medium companies coming into existence has increased substantially over a period of time. Marketing situation is completely different in small to medium enterprise then larger corporations. Gilmore, Carson and Grant (2001) use the limitations for companies to explain the differences. The limitations are capital, time, marketing knowledge and limited impact on the market place. Marketing strategy in terms of small and medium firms is lot different than multinational and larger firms. According to Gilmore (2001) marketing is casual, amorphous, reflex, and is build in the lead and in compliance to industry norm.
Small and medium sized organisations are a very diverse faction. The strength of the company does not decide the purpose and goal's of the organisation. This wide range of Small medium organisations can be categorised hooked on three groups Child-, Dwarf- , and pygmy- companies Brytting(1998). This categorization is done on the foundation of organisation's ambitions and potential of expansion.
Child companies are undersized because they are newly taking place. These companies are on the rise, resolve with time and the right resources increase beyond their present size.
Dwarf companies are small because of internal issues. A dwarf company is disabled with its undersized manpower. This type of business needs to develop or else reshuffle in order to be ready for action.
Pygmy companies are small because that is most suitable size. Pygmy companies are small because they don't try to grow. They are cost-effective and economical in their current size. Growth is generally qualitative because organisational expansion is not attractive.
According to Brytting's (1998) categories give three reasons to give explanation why a company is small. The company is small because it is a new entrant, some is wrong with in the organisation or, it is designed to be small.
In marketing a niche brand is strong within its market division, but small in unconditional terms (Doyle 1990). Companies that come under this category can be highly cost-effective without a large share of the market. According to Doyle (1990) it is possible for a small or medium company to receive comparatively better returns on investment then ratio then rest of the market leaders. Bergvall (2001) explains the fact how small and medium sized companies can be successful in their own markets. A small company is more supple and are innovative as they are physically more closer to customers/ market (Bergvall 2001) .Smaller organisations are have a flatter structure in size, that makes decision making process simpler.
In current management view, marketplace is captured by communication and exchange of assets involving network partners (Norman & Ramirez1998). Drucker (1974), the honoured management guru said “doing things right,” or efficiently, could not save the company when it was not “doing the right things” Both operations and strategic management must be done well to be successful, to gain and maintain a competitive advantage. When the world is changing, managers need to share some common view in the new world. Otherwise, decentralized strategic decisions will result in management anarchy.
Strategy has both pros and cons:
- Strategy sets trend: At present this statement has uniformly advantages and disadvantages. The key function of the strategy is to map the road of a business in order to find the approach cohesively all the way through the situation. But the drawback is that occasionally strategic decision can also serve as a set of blinders to hide potential dangers.
- Strategy focuses effort: Strategy tries to build and promotes team work in an organisation, lacking strategy it can happen that the employees start running in different directions. The drawback on this is faction arises when attempt is too carefully determined, that results in avoiding other possibilities. A given strategy can become too deeply rooted in the foundation of the establishment.
- Strategy defines the organization: Strategy of an organisation, defines it.. A easier way to explain how an organisation works. It gives the employees a better understanding of what they are doing and what they are working for. The only drawback that can comes is defining the business so simply may lead to miss or lose the rich complexity of the system.
- Strategy provides consistency: Strategy is vital to decrease uncertainty and endow with charge; it makes it easier to understand the structure and comes out in a steady work flow. Except at hand are a little drawback; Emerson (2001) says “A foolish consistency is the hobgoblin of little minds...” It's a fact that creativity thrives on inconsistency
There are firm fundamental requirements underlined in order to form successful strategies which are listed under. (Andrew's, 1982)
- Strategy development should be a intentional procedure of conscious notion: Action have to stream from grounds; successful strategies develop from a strongly controlled method of human thoughts. According to Andrew's (1982) managers “know what they are really doing” simply if they make strategy as intentional as likely. Strategy creation in this intelligence is an acquired, not a ordinary talent or an instinctive one, it should be well-read officially.
- Accountability for that to be in charge of and realization should be within the chief executive officer: Hayes (1985) characterized it “this command and control mentality allocates all major decisions to top management, which imposes them on the organization and monitors them through elaborate planning, budgeting and control systems”. According to the school of thought there is only one strategist and that is the executive who sit at the peak of the managerial pyramid.
- The procedure of strategy creation ought to be kept straightforward and comfortable: A citation by Andrew's in Harvard textbook that “the idea of corporate strategy constitutes a simple practitioner's theory, a kind of Everyman's conceptual scheme”. The models and procedures used should be in easier to understand, and should not confuse the members of the organisation.
- Strategies have to be unique, the finest ones outcome's from a development of personalised design: Strategies are different for different cases, one company's strategy doesn't suit another firms requirements. What is within a strategy is sometimes not that important but more importance should be given to how it is to be developed.
- Strategies of an organisation should be transparent, that means open door policy or complete transparency the people who make them and between the people who implement them. If there is an open communication and transparency then it is easier for everyone to understand what is happening and the reason for it. “ Simplicity is the essence of good art, a conception of strategy brings simplicity to complex organizations” Cristensen et al., (1982)
- Lastly, when all these planned and exclusive, advanced, unambiguous and simple strategies are completely formulated, so as to implement them. Planning and initiating is completely two different aspects of a coin, once a strategy is build it should be bring into action and implemented.
Source: Strategy visualization: knowing, understanding, and formulating, by Platts, Hua Tan, Management Decision; 2004
As illustrated above in the figure a strategy building procedure has been shown in various divisions. The figure above tries to illustrate the primary footstep is alignment of all the products that the organization has. Not all the companies have one single product, they are into diverse market, so the companies should actually plan their strategy very carefully, reason being if there is no proper goals it is really hard for an organisation to survive in today's competitive market place. A strategy of company should only changed if in case there were some issues in implementing the strategy within the organisation. In this case the goals of the organisation have to be navigated. This is a ongoing process. Because of the growing competition and innovation organisations have to formulate the strategy according to the global market conditions.
A major concern these days is growing attention in organisational strategic control. To keep the organisation on their specific strategic paths it is really important keep a controlled track of the situation. Certainly we shall argue in our evaluation that a great deal of what has been already talked about Strategic planning and what amounts to this kind of strategic control. Strategic control is also defined as one of the styles to build a strategy says Goold and Camphell (1987)
- Strategic Planning: All the major business decisions are made at the head office in case of individual business. This is the old fashioned way and is more reliable as in the organizing office to determine through analysis how resources are to be used within the business.
- Financial Control: In this particular style, corporate office has minimum involvement in building a strategy. More likely responsibilities are given to individuals within the organisation. The head office maintains the control principally through short term budgeting.
- Strategic Control: This is fusion approach which includes both business unit self-government and support of company's welfare. Accountability for strategy rests with the individuals, but strategies have got to eventually to be agreed by seniors.
Culture and Strategy:
Before 1980 culture in any organisation was never considered as a threat or an issue that needs attention, and just in a span of two decades things change so drastically that its completely opposite today. Culture needs to be prioritized in any organisation if have to bring any strategic change. Here we have to really be careful about the two concepts as they are completely different and diverse. “To match the corporate culture and business strategy something like the procedures given below should become a part of the corporation's strategic planning process” (Schwartz and Davis, 1981)
- Decision Making Style: Culture influences the style of thinking favoured in an organization as well as its use of analysis, and thereby influences the strategy formation process. “Culture acts as a perceptual filter or lens which in turn establishes people's decision premises (Snodgrass, 1984) Organisations with different cultures operating in the same environment will interpret that environment in quite different ways. They will see those things they want to see and may develop a “dominant logic” that acts as an information filter leading to focus on some data for strategy making while ignoring others (Prahalad and Bettis, 1986)
- Resistance to strategic change: A shared commitment to beliefs encourages consistency in an organisations behaviour, and thereby discouraged change in strategy. “… Before strategic learning…. Can occur, the old logic must in a sense be unlearned by the organization…. Before developing a new strategy, the main frame logic needed to be partially unlearned or forgotten” (Bettis and Prahalad, 1995). Cultural beliefs and tacit assumptions act as powerful internal barriers to fundamental change. According to Weick (1987) “A corporation doesn't have a culture. A corporation is a culture. That is why they are so horribly difficult to change.” Lorch (1986) has noted that not only can culture act as a prism that blinds managers to changing external conditions, but that “even when managers can overcome such myopia, they respond to changing events in terms of their culture”, they tend to stick with the beliefs that have worked in the past which means sticking with established strategies too as perspectives, embedded in the culture.
- Overcoming the resistance to strategic change: It is very important to overcome the strategic inertia of organisational culture. Lorch (1986) suggests that top managers must accept as a major part of any company's culture the importance of flexibility and innovation. He felt managers should undertake cultural audits, to develop consensus about shared beliefs in their organisation. According to Bjorkman (1989) Radical changes in strategy have to be based on fundamental change in culture which can be described in four phases given below:
a. Strategic drift : In most cases radical changes are preceded by a widening of the gap between the organisational belief systems and characteristics of the environment, a strategic drift has developed (Johnson,1987)
b. Unfreezing of current belief systems: Strategic drift eventually leads to financial decline and the perception of an organisational belief are exposed and challenged.
c. Experimentation and reformation: After former organisational belief systems have been unlearned, the organisation often passes through a period of confusion. This period may lead to the development of new strategic vision, mingling new and old ideas and culminating in experimental, strategic decisions in accordance with the vision. Positive results may then lead to greater commitment to the new way of doing things.
d. Stabilization: Positive feedback may gradually increase organisation member's commitment to new belief systems which may work.
4. Dominant Values: Successful companies are said to be dominated by key value, such as service, quality, and innovation which in turn provide competitive advantage.
5. Culture Clash: The strategies of merger, acquisition and joint ventures have been examined from the point of view of the confrontation of different cultures. The unique culture that shapes each and every organization ensures that such strategies will always be problematic.
Here, we will consider and will discuss few theories that have been discovered by various authors, who have given a lot of knowledge about benefits strategic formulation and the draw backs they have, that come out in future.
1. Boston consulting group model (1972):
This business model mainly classifies the company's business units into four categories, some of the products at maturity, some at the design stage and others in decline. Each of these may be in different markets, and different places. As a corporation nurture their portfolio of products wider. The product portfolio is a useful tool for strategic planning, in that it allows the planners to select the optimal strategy for individual unit whilst aiming for overall corporate objectives.
Interpretation of matrix:
The diagram has four divisions described below explained below
- Dog: Dog is a low market share product in a low growth industry. It usually has cost disadvantages and few growth opportunities. The primary assumption of the BCG matrix is that the higher an organisations market share, the lower its cost and higher its profitability. An organisation with such a product can attempt to appeal to a specialised market, delete the product or harvest profits by cutting back support services to a minimum.
- Cash cow: A cash cow has a high relative market share in a low growth market and should be generating substantial cash inflows. Cash cow products tend to generate excess cash in order to sustain their market positions.
- Star: A star product has a high relative market share in a high growth rate market. This type of product may be in a later stage of its product life cycle. A large amount of cash may need to be spent to defend an organisations position against competitors. Failure to support a star sufficiently strongly may lead to the product losing its leading market share position, slipping in the matrix and becoming a problem child.
- Question mark: Question mark is also called as a problem child who has a low market share in a high growth rate market. Net cash input is required to maintain or increase market share. The main questions are whether this product can compete successfully with adequate support and what support will cost.
Drawbacks of BCG matrix are:
According to this model high market share is the only success factor and leads to profitability which sometimes may be wrong as business with low market shares can also be profitable. This model does not give importance to the small competitors having a fast growing market shares, it also fails to give a clear definition of what constitutes a market, and this model uses only two dimensions market share and growth rate, which is not the only factors for a company's success. While using this matrix the management may face some problems collecting data on the market share and market growth. It is also possible that some times dogs can earn more cash as cash cows.
2. Five force model by Porter (1979):
Porters five force model helps to clarify the overall business strategy. The model provides the frame work to discuss areas where information technology and systems can yield competitive advantage. Management can use this model to determine which of the forces poses a threat to the future success of the organisation. By ranking these treats in terms of intensity and immediacy, the most critical can then be considered in terms of how information technology or systems can be used to gain advantage or avoid disadvantage.
Threat of entry: The new entrants in the market may bring extra capacity and intensify competition. The strength of the treat from new entrants will depend upon the strength of the barriers to entry and the likely response of existing competition to a new entrant.
Intensity of competitive rivalry: Firms involved in manufacturing similar products, or providing same services, and selling them in the same market comes across this type of rivalry. The most intense rivalry is where the business is more mature and the growth has slowed down.
Threat of substitute products: This treat applies between and industry and the overall industries. In many cases information systems themselves are the substitute product. The treats from substitutes can be minimised by ensuring that an organisation develops a product before its rivals and then protects that product for a number of years by means of patents.
Bargaining power of customers: This is the impact of the buyer having on the producing industry. The bargaining power of customers can be affected by using switching costs and ‘lock' the buyer into your products and services. Another form of locking customers in is to develop customer information systems that inform the organisation about the customer's behaviour, purchases and characteristics.
Bargaining power of suppliers: Raw materials, labour and other supplies are the necessity of any industry, which leads to buyer and supplier relationship. The bargaining power of suppliers and their ability to charge higher prices are influenced by the degree to which switching costs apply and substitutes are available, the presence of one or two dominant suppliers controlling prices. Supplier's power can be shared so that the supplier and the organisation both benefit from performance improvements.
Drawbacks of Porter's five forces model: This model was basically designed for analyzing individual business strategies. It does not cope with the portfolio of large corporations. It is also claimed that certain environment have a rapid , systematic and radical change which require more flexible, dynamic or emergent approaches to strategy formulation. It also implies that the five forces apply equally to all competitors in an industry, but in reality the strengths of the forces may differ from business to business. Larger business will face less of a threat from suppliers than the smaller ones.
3. Model of competitive advantage by M. Porter (1985):
According to porter's (1985) there are two competitive strategies that create competitive advantage, cost leadership and differentiation. In cost leadership, “a firm sets out to become the low cost producer in its industry”. In a differentiation strategy, “a firm seeks to be unique in its industry along some dimensions that are widely valued by buyer. It can also be said as a condition which enables a company to operate more efficiently and with higher quality than the companies it competes with, and which results in benefits accruing to that company. Competitive advantage can be achieved, when the firm is able to deliver at a lower cost the same benefits of the competitors, or deliver benefits that exceed those of competing products. Thus a competitive advantage enables the firm to create superior value and superior profits for its customers and itself.
Cost and differentiation advantages are also known as positional advantages since they describe the firm's position in the industry as a leader in either cost or differentiation.
(Fig 2.4) Porter's Generic Strategies (1985)
To achieve a competitive advantage, the firm must perform some value creating activities in a way that creates more overall value than the competitors. This superior value can be created through lower costs or superior benefits to the customer by differentiation. Another important decision is how broad or narrow a market segment needs to be targeted. Considering this Porter formed a matrix which is called Porter's Generic Strategies. His main contribution was to point out that there are only two superior performances.
- You either become the lowest cost producer or
- You differentiate your product/service in ways that are valued by buyers to the extent that he or she will pay a premium price to get those benefits.
Cost Leadership: For companies competing in a price sensitive market, this generic strategy calls for being the low cost producer in an industry for a better quality. Cost leadership must be a goal of every organisation, regardless of their specific market orientation.
Differentiation: A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers feels better than or different from the products of the competition. In this strategy, a business aims to differentiate within just one or a small number of target market segments.
Focus: This strategy concentrates on a narrow segment and within that sector attempts to achieve either a cost advantage or differentiation. Firms using a focus strategy often enjoy a high degree of customer loyalty and this entrenched loyalty discourages other firms from competing directly.
Limitations of Porter's generic Strategies:
Generic strategies was used on a large scale in 1980s, but over a period of time it was understood that in reality it is not possible for all companies to act on it. The organizations find it very difficult to ignore the cost factor even though the product is different. According to Macmillan et al, (2000) most companies will not admit that their product is essentially the same as that of others. Lynch (2003) says the generic strategies only provide a good starting point for exploring the concepts of cost leadership and differentiation. Perhaps a major limitation of the generic strategy is that they may not provide relevant strategies routes in the case of fast growing markets.
4. The Seven S model better known as McKinsey 7-S by Waterman, Peters and Philips (1980)
The model is a tool which managers can use to analyze and action, it provides a structure considering the company as a whole, so that the organisation problems may be diagnosed and the strategy may be developed and implemented.
The diagram below illustrates the interconnections of the elements that define an organisations ability to change. The theory has helped to change managers thinking about companies could be improved. The model says that it is not just a matter of applying a new systems and strategy and following that, nor is it a matter of setting up new systems and letting them generate improvements. To be effective organisation must have a high degree of fit or internal alignment among all the seven Ss. All the Ss are interrelated and a change in one has a ripple effect on the others which makes it impossible to make progress on one without making progress on all.
(Fig 2.5) McKinsey 7S Model (1980)
Strategy, structure and system can be considered the hardware of success.
Style, staff, skills and shared values can be seen as the software.
Strategy: It refers to the organisation's business and competitive strategies and plan to allocate resources to achieve organisational objectives.
Structure: This is the way organisation is arranged to implement strategy. It refers to the formal organisation structure for e.g. the division of tasks, responsibility and authority.
Systems: This describes the accounting system, which takes care of the financial data and produces information, the reward systems and information systems that ensure that the strategy is actually carried out. It also includes the policies and procedures that the way which the organisation acts within itself and within its environment.
Staff: This is all about the people and their attitudes, staff means that the organisation has hired capable people, trained them well and assigned them to the right jobs.
Skills: This is where the organisation does well. Skills refer to the fact that employees have the capability required to carry out the company's strategy. With the help of training and development people know how to do their jobs and stay up to date with the latest techniques.
Style: Style refers to the employees shared and common way of thinking and acting, unwritten norms of behaviour and thought. This refers to the various options from a great deal of supervision to almost none, or even the informal organisation as well as the cultural attributes that makes the organisation actually works.
Shared Values: Shared values are the belief and goals of the employees and their culture. This means that the employees share the same guiding values. Values acts as an organisations conscience, providing guidance in times of problems.
Limitations: Like all other model this one also has some limitations. In this model it is very difficult for the analyst to explain how implementation needs to be done using this model. This model encourages considering the many interactions, but does not consider the options available for changing interrelationships among the seven concepts; it also fails to specify the order or sequence within which the change should be made.
The 7S model is mostly a static model. This model is useful for looking at a snapshot of the seven constructs at a same time, but it will be difficult to use it for recommendation of changes among the constructs overtime, unless the model is developed, analyzed and applied on an ongoing basis.
5. Balanced scorecard by Kaplan and Norton (1996)
The Balance scorecard is a strategic planning and management system that is used in most of the business units worldwide to align the business activities to the objectives and strategy of the organisation. It helps to improve the internal and external communication and monitor organisation against the strategic goals.
Balance scorecard can be defined as 'A strategic planning and management system used to align business activities to the vision statement of an organization'. More cynically, and in some cases realistically, a Balanced Scorecard attempts to translate the sometimes vague, pious hopes of a company's vision/mission statement into the practicalities of managing the business better at every level. (Kaplan & Norton, 1996)
To follow the Balance scorecard it's necessary for the organisation to know the following things.
- The mission statement of the company
- The strategic plan/vision.
- The financial strength of the firm
- The structure and operating system of the organization
- The employee's skills.
- Level of customer satisfaction.
(Fig 2.6) The Balanced Scorecard by Kaplan & Norton (1996)
The Balance score card suggests the organisation to view from four perspectives which we can see in the above diagram.
The financial perspective: The financial perspective concentrates on the financial objective the shareholders view about the firm. This measure is used to know whether the set objectives are being achieved focusing on the financial results of past management actions which includes profit, sales, ROI, cash flow or economic value added.
The customer perspective: The customer perspective focuses on, what the organisation should do to satisfy its customers; so that it can achieve its financial objectives. This measure mainly focuses on how the organisation can reach and satisfy its target market.
The internal business perspective: The internal business perspective considers on improving the product/market strategy internally so that the financial objectives can be achieved. The outcome may be in the form of innovation of new products and new operating systems.
Learning and growth perspective: Learning and growth perspective focus on the infrastructure that can be built so that long term growth and improvement can be created. It concentrates on the capabilities that need to be improved in order to achieve the long term targets for the customer and internal business process perspectives.
This method is traditional and not much effective in the fast growing innovative business world as it focuses only on four aspects. The result will be achieved for only what you measure; this method can act as short term thinking. It is true that financial performance of an organisation is required for its success. It is applicable to the non profit organisations also as it must deal very carefully with fund they receive. But only a pure financial approach for managing organization suffers some drawbacks.
The information that we receive will be historical and not the present. It fails to tell us what happened in the past, which is a negative indicator for the future performance. The other disadvantage is that it is very common that the current market value of an organization exceed the market value of its assets, the excess value results from its intangible assets. The value of the organization can't be measured by this way of normal financial reporting.
Whatever strategies are formulated there will be time when every organisation will need to put its strategies into practice, to implement them. There are basic
steps involved in this process and the possible links between strategy development and implementation. The prime aim of implementing the strategy is to deliver the mission and objectives of the organisation. Detailed strategic plans are often developed especially where there are elements of experimentation or uncertainty in the chosen strategies. When the strategies are implemented they need to be clearly monitored.
“Implementation is a series of interventions concerning organisational structure, Key personal actions and control systems designed to control performance with respect to desired ends. Hrebiniak and Joyce, (1984)
Wheelen and Hunger (1988) consider strategy implementation as a process, which might involve changes within the overall culture, structure and or management system of the entire organisation. “Well formulated strategies only produce superior performance for the firm when they are successfully implemented. Robinson & Pearce (1984); Noble (1999)
The implementation of business strategy has been subject of increased study and search for solutions, especially since the process from strategy formulation to strategy implementation is not efficient and is, certainly in the present business environment, inadequate. Kovac.H (2000)
International strategy development is more complex to plan and more time consuming to implement because strategy implementation usually involves change. The basic element of the implementation process is to identify the general strategic objectives, the formulation of specific plans, resource allocation and budgeting, monitoring and control procedure. All organisation needs to specify the tasks to be undertaken and monitor progress, choosing the correct type of implementation programme, comprehensive, incremental or selective, according to the nature of the problem and particular environment of the organisation is also important.
There are certain basic elements for the implementation process which has to be followed:
- Identification of general strategic objectives: This states that one should know the results that are expected for the implementation of the strategy.
- Formulation of specific plans: The objectives decided should be put in to action by turning them into specific tasks and deadlines.
- Resources allocation and budgeting: This is the resources requirement without a plan cannot be implemented
- Monitoring and control procedures: To make sure that the objectives are being met with the available resources. Importantly monitoring that the executions are done as per the strategies planned
2.9.1 Relation between Implementation and Strategy development process:
Formulation and implementation are clearly related activity both of which must be accomplished in order to attain organisation objectives. Strategic formulation and implementation are separate distinguishable parts of the strategic management process. Each can be differentiated and discussed separately, conceptually and practically. Implementation follows formulation; one cannot implement anything unless making a strategy formulation.
Formulation and implementation are interdependent. Sound strategic management must recognize this symbolic relation between strategy formulation and implementation. Strategy implementation process is more challenging and difficult than strategy formulation process. Certain factors have to be taken care in the process of strategy formulation and implementation.
- Time frame involved: Strategic implementation activities usually are played out over a long periods of time than formulation of plans. Strategy formulation is generally more time bound and focused than implementation of the plans generated. The more the time period taken the more is likely that competitor's activity and unforeseen factors come into play which must be handled.
- Number of people involved and task complexity: The number of people involved or affected is much greater during strategy implementation and strategy formulation. Managing diverse or conflicting motivations, as well as the need to coordinate the actions of player in different functions or organisations is a major problem. The research work that needs to be carried out in strategy implementation is also more difficult.
- Need for sequential and simultaneous thinking: The researchers and managers involved in strategy implementation process must be able to think sequential and simultaneously about decision making. Sequential thinking implies a logical process, an order between or among implementation decisions and actions (Hrebiniak and Joyce 1984; Thompson 1967)
2.9.2 Task setting and communicating the strategy:
It's very important to set out and agree clear guideline with those individuals who will implement the strategies. This is a process which covers what is to be done, by what time and with what resources. This is a significant implem
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