Thesis (M.A.), 2012
53 Pages, Grade: A
This research will be an analysis ' on Business Strategy and Management Control measures for successes of business organizations. It will also look at the strategic management tools that are needed for an organization to achieve competitive advantage.
The research has been divided into parts and the first part is the introductory part which outlines and elaborates on the topic of study. The second part is the background which is the main section of the research. The background part explains further on the topic of study and also elaborates the different management tools that are applied by business organizations to achieve competitive advantage.
The literature review which gives the theoretical view from other researchers and authors on the very topic of the study and it also looks at other areas that have been covered by other previous researches.
The part on the research outlines the various methods used in data collection and how data was will be collected from the respondents.
This excerpt will look at the issue of business strategy and management control measures for the success of business organizations and corporate entities. It will identify the various management tools and control methods that organizations put in place to achieve a competitive advantage over their competitors. It will also identify the strategic business solutions that businesses employee in the competitive and dynamic business environment (Polyack, &Jolene. 2004, p 78).
To deduce a better understanding of this topic it is essential that the terms strategy and management tools are well understood. The word strategy can be defined as the game plan of how one intends to achieve something, that is, it is the tactic of doing something with the aim of achieving some goals. Management tools are the operational devices or ways of managing organizations activities (Canales, J & Barbara, 2000, p 90).
Strategic management tools are the devices of management that help the organization to come up with proper methods for business operations to attain strategic advantage over their competitors. The role played by the management tools is to enhance the capability of the business in analyzing the prevailing market conditions. This offers a suitable opportunity to the clientele to assess the wide assortment of products as well as services that are offered by the firm. These are the tools that form the fundamental part of the game plan in coming up with a smart operation strategy (Hamel, & Gary, 2009, p 45).
Businesses have to develop strategic management tools to be able acquire a competitive edge, be able to cope in the dynamic business environment and more importantly to be to bench mark with other well doing businesses in the industry.
Strategic business solutions are only successful they results in a product or service, which sells well. Strategic Management Tools help analyze the market in which you are positioned. They are the devices that help the business to evaluate market conditions and changes in the external environment. It is a clear business strategy that will enable a firm to achieve the economic responsibilities that the society expect from it these include satisfy the consumers with products, create new wealth, create new jobs, promote innovation and generate revenues from their operations. This creates the opportunity to offer clients a range of products that are more competitive than those of the competitors and better adapted to market developments. The major strategic management tools include (Allison, & Kaye.2005, p 123).
Porter’s Five Force.
The implication of the model of Five Forces of Porter is a procedure that is applicable in the analysis of a business environment in an organization along with the industrial context whose foundation is key aspects that shape the sector namely; competitors, the new entrants, the substitute products, the consumers as well as suppliers (Carrigan, &Linda, 2005, p 205).
Every industry portends the possibility of attracting new firms depending on its profit prospects. This slowly changes the market type through a continuum of monopolistic to perfect competition. The various barriers to entry are the following:
- Economies of scale: economies of scale are the cost advantages that enterprises obtain due to size, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output. Often operational efficiency is also greater with increasing scale, leading to lower variable cost as well. Economies of scale are achieved when there is an increase in the volume of production for a decrease in the marginal cost of production (Collett, & Stacey, 2006, p 123)
- Brand loyalty~ Brand loyalty is where a person buys products from the same manufacturer repeatedly rather than from other suppliers. It consists of a consumer's commitment to repurchase or otherwise continue using the brand. It can be demonstrated by repeated buying of a product or service, or other positive behaviors such as word of mouth advocacy. In brand loyalty there is a built trust in the products or services, and the consumers are not ready to change their mind or behavior towards the product or service
- Government Regulation ~ a regulation is a rule or order having the force of law, prescribed by a superior, relating to the actions of those under the authority's control. Regulation can take many forms: legal restrictions promulgated by a government authority, contractual obligations that bind many parties, self-regulation by an industry such as through a trade association, social regulation ,co-regulation, third-party regulation, certification, accreditation or market regulation
- Customer Switching Costs ~ the negative costs that a consumer incurs as a result of changing suppliers, brands or products. Although most prevalent switching costs are monetary in nature, there are also psychological, effort- and time-based switching costs
- Cost Advantage – this is can be defined as the ability to produce goods or services at the reduced cost of production lower than of the rival firms in the same industry. Cost advantage is achieved with efficiency in production at the lowest cost possible
- Ease in distribution ~ the strategic location of a company in relation to the market position dictates its distribution costs. Good and efficient distribution channels make it easy for the products to reach the target customer and at a lower cost (Collett, & Stacey, 2006, p 289).
Hostility among competing firms in an industry in their endeavors to increase market share puts profitability at risk. The ability of a company to survive under these conditions depends on the bargaining power of buyers and sellers.
Bargaining Power of Buyers;
Buyers are the consumers of a firm’s products. They may be the final consumers or the distributers. Bargaining power of buyers is the ability of a consumer to negotiate for price cuts or increase in the quality of products and services. This in turn reduces a company’s profitability. It may also result into the increment of operation costs. In this way, they are regarded as a threat (Goold, & Michael, 2008, p 234).
Bargaining Power of Suppliers;
Suppliers are the firms or individuals who provide an industry with the raw materials for production. Bargaining power of the suppliers is the ability of these suppliers to raise the market prices of production inputs. The risk is multiplied when the suppliers monopolize the market.
Substitute products are products and services in the market with similar satisfying ability to the consumers. A company’s ability to raise a product’s price depends on the number of close substitutes in the market. This ultimately bears a direct effect on a company’s profitability.
The influence of Porter’s five forces varies from business to business. However, regardless of the industry, these five forces influence the prices, the costs, and the capital investment necessary for break through and growth in any industry. Managers therefore need to understand this model before implementing strategic decisions. It is also vital in the comprehension of market structures. This ultimately aids in the formulation of suitable business policies and achievable development agenda (Gottfredson, 2006, p 108).
The BCG Growth Share Matrix a forecasting tool that is portfolio oriented. The BCG depends on the observation that a company’s business can be categorized into four divisions depending on the blend of market growth and market shares comparative to the major competitor. In this case, market growth acts as a substitute for industry attractiveness, while the comparative market share acts as a substitute for competitive advantage. The whole assumption behind this type of a matrix model is that a comparative increase in market share will result in a comparative increase in cash flow. Logically speaking, the matrix can be relied upon because, when a firm increases its market share it implies that it is consolidating its advantages to overcome its competitors and has the great opportunity to have a cost advantage over them. The other factor to defend this reasoning behind the matrix is that as the market expands, investments in assets also increases and thus overall increase in cash utilization. Conclusively, the position of the business on the matrix is an indication of cash creation and its cash utilization. For instance those Strategic Business Units (SBUs) that are expanding rapidly can be financed by those business units that are at their maturity stage and are capable of producing a lot of cash. If a business can develop rapidly by venturing to become the market leader in a swiftly expanding market, the business is able to relocate along the matrix and adopt a cost advantage strategy (Gottfredson, 2006, p 28)
The BCG model has therefore come up with four categories of business units between which different portfolios can be compared. These categories include
Dogs: These symbolize those business units with low market share and a low growth rate. Dogs cannot generate cash and in equal measure they cannot utilize large amount of cash. Dogs however hold a lot of cash that is held up in the business with little utilization. Dogs are the categories of businesses that should be considered for divestiture.
Questions marks: These are businesses that are developing swiftly and utilize large a mount of cash. However, question marks have low market share and thus they are not capable of producing a lot of cash. A question mark has all the space and opportunity for growth, metamorphose into a star. It can also deteriorate easily into a dog in cases of slow market growth rate. Question marks need a thorough scrutiny to ascertain whether the investment made into them is of necessity (Polyack, &Jolene. 2004, p 112).
Stars: These are the businesses that have become market leaders. They produce a lot of cash because of their strong comparative market share. Stars also utilize large amount of cash because of the high growth rate. When stars keep acquiring large market shares, they generate into cash cows, with decrease in growth rates. For a good business portfolio, stars are necessary for they will become cash cows and be to produce cash for the business (Goold, & Michael, 2008, p 90).
Cash cows are businesses that have become market leaders in a mature market. They show a return on assets of the business that is higher above the market growth rate, hence produce more cash than they can utilize. Cash cows act as major sources of funds for investing into question marks to become the stars. They also provide cash for operations, administrative expenses and for research and development. They also help the business to pay its debts. Businesses use the discounted cash flow analysis to determine the value of cash cows at any given time.
The SWOT matrix which is an analysis of (Strengths, Weaknesses, Opportunities, and Threats) enables the organization to evaluate it environment both internal and external with an aim of achieving a good operation strategy for competitive advantage. It is very important because it enables an organization to identify specific areas that need improvement or areas that need more capacity enhancement to increase productivity and profitability for the business (Pl Collis,& Daniel , 2008, p 112)
Strengths emerge from those particular activities or assets that enable the business to achieve a competitive edge over its competitors. The sources of strengths for a business can be
- Good distribution channels
- Good promotional mix
- Quality products
- Customer/brand loyalty
- Economies of scale
- Good organizational management
Weaknesses are the loopholes that can easily lead to the collapse of a business. Weaknesses are emerge from the internal affairs of the organization
- Sources of weaknesses include
- Obsolete or outdated technology
- High rate staff of turn over
- Weak distribution channels for the products
- Absence of Research and Design
- Poor organizational management
- Poor customer service
- Debt burdens
Opportunities are circumstances that are available in the external environment and a business can easily make good use of them for a competitive advantage. Opportunities in the external environment can be a reduction in the tax rate which an organization can take advantage of to reduce the production cost.
Threats also emerge from the external environment. Threats for a business can be from sources such as political instability within a nation, high tax regime that can increase the cost of doing business. Economic conditions such as inflation which can raise the cost of production. The most common sources of threats are
- Unmanned expansion
- Emergence of new products
- Presence of substitute products
- New Markets
- New products in the market
- Political instability
- Unstable revenues
The marketing strategy revolves around the popular marketing mix known as The 4 P's of the Marketing Mix. This mix, looks at the individual elements that are involved in the sales and marketing activities of a product. The ‘P’s are Product, Price, Place and Promotion. These are the elements that are used in market segmentation, market targeting and product positioning.
Taking at a closer look at each of the individual ‘P’s, product refers to the actual offering that the marketer is providing to the consumers in the market. The product must have the ability to satisfy and meet the consumers’ needs. It should be of the right quality with the required conditions that the consumer desire from it.
Price being a function of the production and all the activities involved in getting the product into the market is another important element in the marketing mix. Price is arrived after putting into consideration the cost of production, advertisement or promotion and distribution of the product. It is one of the very important elements of the marketing mix (Goold, & Michael, 2008, p 90).
Place (distribution, sales)
This is of the important marketing mix that ensures that the product is readily available in the market for the consumers. Distribution should well channel to ensure that the product is able to reach a many consumers at the right time and at the lowest cost possible. The channels of distribution should be properly organized to promote high sales volume to generate high sales revenue hence high profitability (Goold, & Michael, 2008, p 63).
Promotion (communication, marketing)
To create product awareness and thus increase the sales volume for a particular product, promotion is therefore deemed paramount. Promotion enables the customers to obtain information about the products that the marketer is offering; they are also able to learn more about the products features and functionalities. Promotion is mainly done to increase product awareness and increase sales. The various types of promotion are advertising and personal selling.
Recent studies have asserted the 4 ‘P’s of marketing mix can be increased to 7 ‘P’s whereby other P’s include People to whom the products are to be sold to, Physical which is determined by the experience from the consumer about the product and finally Process, especially how a service is offered.
The Product Lifecycle Analysis is an assessment tool that is applied by a business organizations to evaluate the sales performance of a product or service in the market place, this assessment is a tactical strategy to enable the organization see the performance of the product or service in the market and make appropriate marketing decisions that will ensure increased sales volume and increase product acceptance among its consumers (Goold, & Michael, 2008, p 63).
The analysis of product life cycle is very important to enable the business know the stages and their impacts on the overall sales. These stages are
At this stage, the product is very new and not many consumers are aware of its existence in the market. At this stage, the sales are low, profits are also very low this due to the fact that not many consumers know the product. At the introduction stage, the marketing strategies to be applied are advertising, and modifying the products to improve its features and qualities.
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