Strategic Actions for CBD Energy - Case Study Example

?Strategic Plan for CBD Energy Overview of CBD and deciding a strategy The need for strategic actions for CBD Energy is urgent now than ever before. A number of reasons account for this urgent need for a strategic action. First and foremost, there is an increased demand among energy consumers of Australia for energy companies to fulfil demands of consumers in both the availability of power and the improvement of it. This pressure calls for expansion of business base and thus an accompanying strategic plan that will meet the expansion. Secondly, as a response to the pressure discussed earlier, CBD Energy has decided on installing solar inventers effective January 2011 and plan on increasing the unit base of production as the months go by. For instance the company plans of producing 20,000 units on an annual basis. This is indeed a huge plan that needs the presence of well chosen strategic plan to implement. Finally, there is a general need for the company to growth in size and revenue target. To make this target achievable, it is important to have a strategic plan that will serve as a benchmark for fulfilling the aspirations of the company. In selecting a strategic action however, there are a number of options for the company. This paper shall be dedicated to analysing a number of strategic actions to identify which would work best for CBD Energy. Levels of Strategy Before deciding on a strategic action, it is very important to appreciate the fact that strategic actions comes in different business levels and that the type of level of strategy selected for a company influences the final form of strategic action that will e taken. Writing on the levels of strategy, the Albany University (2007) notes that “Business level strategies detail actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product or service markets.” Having said this, it is worth nothing that levels of strategy comes in two major forms, which are business level strategy otherwise referred to as individual business unit and corporate level strategy otherwise referred to as company wide strategy. Considering the business orientation and business needs of CBD Energy, the writer finds corporate level strategy as the best level of strategy for the company. This is because the corporate level strategy will offer the company the opportunity to diversify, if the need be; with other companies to achieve the common objectives of the company. Again, quoting from Carpenter & Sanders (2009), Linnenluecke (2011) observes that corporate level strategy “Focuses on the selection and management of a mix of businesses competing in several industries or product markets to gain a competitive advantage.” This means that CBD will have the opportunity to work in a collaborative effort with most other companies when the need to merge or acquire new ventures becomes necessary in the strategic action to be selected. The option (Porter’s Cost Leadership Strategy) The Albany University (2007) outlines four major generic strategies that can be used in helping businesses gain competitive advantage. These are cost leadership, differentiation, focused low cost and focused differentiation. Having researched into all the strategic actions, the writer recommends that cost leadership would be the best strategy for CBD Energy for its present pressing demands. Description of Strategy Linnenluecke (2011) observes that this strategy works under two major philosophies. In the first place, there is a conscious effort to present products and services at lower costs as compared to costs charged by rivalry companies. In the second place, there is a focus on minimizing cost of production while “providing a more or less equivalent product or service compared to rival firms” (Linnenluecke (2011). The underlying factor therefore is that CBD Energy would have to agree on taking advantage of the market by lowing cost of production and cost of products and services. This strategic action works under the assumption that customers would prefer low cost products and services to high cost products and services. The need to offer lower cost is however not an indication for the company to produce inferior or low quality goods and services as Business Resources (2009) notes that “a cost leadership strategy is based on the concept that you can produce and market a good quality product or service at a lower cost than your competitors.” Sources of Cost advantage Cost leadership strategy has a number of advantages when implemented. As a matter of fact, there are also several ways that the company can empower its sources of cost advantage when it adapts cost leadership strategy. The first of such sources of cost advantage is economies of scale and scope. The Alley Articles (2006) notes that “generally speaking, economies of scale are about the benefits gained by the production of large volume of a product, while an economy of scope is linked to benefits gained by producing a wide variety of products by efficiently utilising the same Operations.” This means that the company, when it adapts the cost leadership strategic action will in a position to produce more products to meet the increasing demand of consumers. At the same time, the company will have the option of producing as many diversifying products as possible so as the give consumers different options. In fact one reason why CBD Energy would benefit from economies of scope greatly is the fact that the company has as part of its long term plans to introduce alternative energy sources such as solar energy. Another cost of advantage would have to do with tight cost control. This is where the company would be challenged to put in place factors that will ensure that because its cost to consumers will be low, there will not be the need to incur more cost within the operations and running of the company. Finally, there would be cost advantage from location advantages. These location advantages shall be in relation to raw materials access, subsidies and tax advantage. Because CBD Energy is located in Australia where there are ready raw materials for solar power, it is certain the company will enjoy this benefit. Cost leadership and the value chain Considering the fact that energy production comes with the use of as many raw materials as possible, it is important that CBD Energy considers how the cost leadership strategy would affect value chain. Investopedia (2011) explains that value chain has to do with “a high-level model of how businesses receive raw materials as input, add value to the raw materials through various processes, and sell finished products to customers.” The following points need to be taken carefully in accordance with the value chain and cost leadership strategy. Firstly in terms of firm infrastructure, it is prudent that the company embarks of on low cost management information system, have few managerial portfolios in order to reduce cost in honouring protocols and have simplified planning processes. With regards to human resource management, there should be cautious measures to reduce the cost of employee turnover and an intense human resource training programs to ensure that the level of competency in producing high standard products and services do not become compromised with. Finally on procurement, the company must ensure that procedures are put in place to always win bids for low cost but quality raw materials. All the above factors will go a long way to ensure three things – the company will not be incurring huge internal cost, the company can afford to offer low cost products and services and the company will not compromise on quality and standard. Advantages of the cost leadership strategy Once implemented by following all the factors and steps discussed, there are a number of benefits that the cost leadership strategy is sure to guarantee the company. The most major advantage is that the company will be empowered to achieve lower cost within its internal segment of production (Quick MBA, 2011). This way, the company will not incur so much expenditure on its budget as compared to other companies. Proceeding, reduced internal expenditure, the company can afford to reduce cost of products and services. In fact in today’s harsh global economic climate, cost reduction is an effective way of gaining significant market shares because a lot of people would want to patronage low cost in order to say more on their expenses. This would in the long run be a major competitive advantage for CBD Energy because Quick MBA (2011) explains that “when a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals.” Feasibility of the option Though a lot of nice things have been said about the cost leadership strategy, its selection must be based on proven feasibility. As far as the delimitation of CBD Energy is concerned, choosing cost leadership strategy is made possible and feasible due to the following reasons: 1. Energy consumers within the catchment area of CBD Energy are price sensitive and would prefer low cost of products and services 2. Game theory is not an issue among local competitors as local competitors are not likely to immediately match lower prices. 3. With the coming in of solar energy as a newer form of energy, consumers will not value differentiation so much. 4. Consumers of energy products and services do not have much change in taste, technology and exogenous price (Jaquier, 2010) 5. The company has a well laid out strategic plan on the implementation of the cost leadership strategy that is rare to other competitors. Conclusion and Recommendations To conclude, it is worth mentioning that the cost leadership strategic action comes with a number of risks and thus the company must be very tactical in its implementation. For instance Mind Tools (2011) notes that “the greatest risk in pursuing a Cost Leadership strategy is that these sources of cost reduction are not unique to you, and that other competitors copy your cost reduction strategies.” To this effect, the company must ensure that 1. Factors put in place to provide substantial value for products and service and this should be given in terms of quality. 2. There are enough publicity strategies to attract customers 3. Customers are made to understand that the company’s policies on low cost are not in any way a means to compromise on quality. 4. Cost leadership is not misunderstood with offering cheap products and services that will in the long run affect the market share of the company. REFERENCE LIST Albany University, 2007, ‘Business-Level Strategy’ accessed September 14, 2011 Alley Articles, 2006, ‘Economies of Scale vs. Economies of Scope’, accessed September 14, 2011 Atobrah G. R, 2003, ‘Risks in Business Level Strategy’, PrintMark Group: Washington D.C Business Resources, 2009, ‘Cost Leadership Strategy’, accessed September 14, 2011 Carpenter M. and Sanders G, 2009, ‘Strategic Management: Concepts, 2/E’, Prentice Hall: New York Investopedia, 2011, ‘Value Chain Definition’, accessed September 14, 2011 Jaquier B, 2010, ‘Cost leadership strategy’, ecofine, accessed September 14, 2011 Linnenluecke M, 2011, ‘Lecture 4, Business Level Strategy’, MGTS7303. unpublished Mind Tools, 2011, ‘Porter's Generic Strategies: Choosing Your Route to Competitive Advantage’, accessed September 14, 2011 Quick MBA, 2011, ‘Competitive Advantage’, accessed September 14, 2011 Quick MBA, 2011, ‘Porter's Generic Strategies’, accessed September 14, 2011 Read More