Strategic Situation of Kepak - Case Study Example

? Strategic Situation of Kepak Task: Executive Summary Every business faces diverse challenges, some of which result from themacro-environment which the management cannot control because of its limited scope. However, it is the sole mandate of every management team to evaluate the macro-environment in which the business operates, identify key competitors and work out a viable strategy with an objective of coping with several advancements. The team should identify the most suitable model that would identify areas of possible strengths to exploit in order to address the different concerns facing the business. The five forces model, for instance, is an effective mechanism of identifying the possible areas to exploit while strategizing to counter the challenges of a business. The next fundamental aspect of consideration is the most applicable strategy that would be viable if applied by the business. Identifying a viable strategy needs a comprehensive consideration of all the factors that influence its application. The value chain analysis model offers a comprehensive strategy that is applicable to a number of businesses. The effectiveness of the strategies used would determine the position of the business to cope with the challenges from the macro-environment. Strategic Situation of Kepak Kepak’s Business Environment Kepak is among the three dominant meat processors in the beef industry, in Ireland, one of the countries that have extensive beef industries with high production levels since the 1970s. Agribusiness and food are among the industries that are major boosters of the Irish economy. This is evident from its recognition by the Irish government, in 2010, as a one of the industries that hold the potential to boost the country’s exports. One of the greatest concerns in the industry is the undervaluation of the food and agribusiness sectors’ contribution to the economy of Ireland, a fact that emanates from the existence of well-paying vacancies and opportunities in other sectors such as technology and financial services. Policy makers, therefore, append little consideration to the food and agriculture sectors of the economy. Competition, as evident in any business environments, is among the challenges that the management of Kepak faces in the industry since its start in the mid-1960s. Several emerging trends in the macro-environment, most of which are beyond the firm’s control, present situations that the management must strategically address to stay in business. The firm’s management, for instance, faced a great test responding to the distressing economic situation in Ireland’s food and agriculture sector in late November 2010. Being amongst the most significant contributors in the sector, Kepak, through its management, had the obligation to find alternative remedies to the situation. Two sectors were in need of prompt action to revert the situation, making the business environment present seriously challenging features to the management. The five forces model, developed by Porter, is of particular relevance in evaluating Kepak’s business environment and recognition of the best position that presents a powerful situation. The model highlights five forces that create the competitive power in any business environment. The business presents a scenario in which consumers preferring high quality to low quality beef can easily switch to a competitor’s substitutes if they are of comparatively high quality. Industry rivalry is an inevitable reality since it is an open market with Kepak as one of the three most known processors and other small-scale processors, which also brings the threat of new entrants. The bargaining power of suppliers and buyers presents one of the vital considerations that the firm must take when planning in the industry’s business environment. Analysis of the Kepak’s Strategy The year 2010, for instance, posed a great test to the management of Kepak because of the unpredictable nature of the business environment. The cost of operation incurred by Irish firms in the food and agriculture sector increased to a considerable extent while the competition was against firms that incurred low operation and production cost. This created a considerable test since there were unfavourable conditions of competition among the firms in attracting qualified personnel. Volatile and unpredictable business environments call for a succinct evaluation and proper planning by the management. The plan should be based on the most applicable model that would get the business in full operation. In response, Kepak employed the value chain analysis model to address the various challenges that it faced, and managed to get through the hard times. The value chain analysis, as a strategy, identifies the role of primary as well as support activities in addressing various challenges that businesses face. The activities are a comprehensive description of the diverse operations that a business can apply to ensure the value of the final products exceeds the cost of production and, subsequently, creates a profit. A serious challenge that Kepak experienced in the 1990s was the devaluation of the Sterling, notably in 1992. This affected the consumer confidence with considerable effects on the rate of sales of beef. The effect was widespread across Europe with the U.K experiencing the most adverse implications of the challenge. Among the realities facing the firm’s management are the limited sources of funding for the business, a factor that renders profitability as the most strategic source of funds for the firm. The value chain analysis was instrumental in a bid to increase the profit margin of the business. Inbound logistics is an instrumental primary activity in the model that aims to ensure a perfect inventory system, warehouse control and other receiving operations in the business. Kepak kept a credible use of inbound logistics as part of its strategies. The decision by Kepak to improve on the quality of beef by controlling cattle from its young age was a sure way to address market challenges. This improved the quality standards set by customers and a subsequent increase in sales volume. Rewarding farmers for producing cattle that produce quality beef is among the best strategies that Kepak introduced. According to Johnson and Ward (2006, p. 78), appreciating farmers for producing cattle that produce quality beef was among the mechanisms applied as alternative methods of pricing in the 1990s. This brought the notion of grid pricing that was a sure way to improve quality of beef compared to average pricing applied prior to the 1990s. Grid pricing is a mechanism that relates the quality of beef to its price through consideration of its carcass characteristics and conformity to grid specifications. Grid pricing also encouraged extensive changes in quality of beef produced across the industry. The firm used operations as a primary activity in the value chain analysis, which ensures the inclusion of value-addition actions in the process of turning goods to finished products. Among the alternatives in the strategy was to engage farmers and encourage them to reverse their means of producing beef to a different way. In the alternative way, farmers would assume the position of partners, contrary to their former roles as adversaries with the processors of beef. Outbound logistics as part of the value chain analysis, being various efforts to get to the consumers, was instrumental in raising the firm’s sales volume. There was necessity to develop a convincing value offer for the high number of retailers and customers. This emanated from the realisation that the customers rarely consumed premium meat based on market observations. These strategies featured Kepak’s cooperation with other leading retailers including Coop Italia in attempts to promote the delivery of products with high uniqueness. Marketing and sales, as part of the primary activities in the chain, were key strategies that the firm used to reach a great number of customers in the market. Kepak started as a retail butcher’s business but later began supplying beef to different sectors. By the mid-1960s, it supplied the food service sector with wholesale beef and later expanded its market. The Irish beef market realised a considerable boost in the 1970s and 1980s when there were interventions by the EU to increase the dominance of beef sales and supply to countries in the Middle East as well as the northern parts of Africa. Service, as a primary activity in the chain, is important in boosting profitability, which was the central objective of the strategy. The reaction of Kepak was to introduce its first brand of chicken and beef burger in the market. Expansion was a considerable move for the business that saw it set up sales offices in some of the considerably large European markets. Expansion in other European markets also provided a platform for the business to gain knowledge in the market. It also offered the business an opportunity to create sustainable sales with customers of premium ratings in the market. This was provision of services that supports the consumers’ specifications and personal preferences. In addition to the primary activities, support activities are equally useful in ensuring the implementation of value chain analysis as a framework to work out the strategy. Expansion of human resource management in the firm, infrastructural development to support the activities, technological advancements and procurement procedures are among the support activities. Kepak’s management, besides applying the primary activities, extended to furthering their operations through various support activities. The expansion of Kepak elevated its turnover to an estimated level of one billion dollars. The business supported an estimate of one thousand seven hundred employees by 2010 (Bell, Mcloughlin & Shelman 2011, p.2). In addition, the business expanded its production that increased to an estimated three hundred thousand head of cattle. The number of lambs that Kepak produced was an estimate of over one million, annually. The company operated through nine manufacturing units, before 2010, both in the UK and Ireland. The meat division had plausible performance from the sales of meat in cut and processed formats. The firm operated a convenience food that recorded an equally recommendable performance. Aga Trading, the firm’s division that traded in agricultural commodities, experienced a high sales volume. Critical Appraisal of Kepak’s Strategy The market for beef in Ireland and Europe faces a significant challenge of fluctuations and transitions in the market conditions, which poses a great hardship for most processing firms to run their operations in the market. The market’s financial performance is irregular and challenging to predict. Inadequacy and little access to capital present a problem that managers of firms in the market must address to ensure sustainable business operations. To achieve high performance in business would imply the application of strategies to address the various challenges in the industry. Effective and timely planning is central to the performance of any business that has serious challenges. The strategies employed by Kepak blend well to guarantee the firm a sustainable business environment for high profitability. Through an assessment by the VRIN framework, the firm is competitively sustainable. The meat division contributes to an estimate of over half of the firm’s revenue since meat is the most sold product because of its valuable products. Programs that boost the quality of product of any business entity increases customer preference. Improving quality of products also increases the customer loyalty level to consume beef products. According to Lee and Kennedy (2009, p. 241), demand varies in relation to parameters employed to create and bring up quality adjustments. There is a considerable high preference for beef of high quality to that of low quality. According to a survey conducted by Lee and Kennedy (2009, p. 241), a notable portion of beef consumers in South Korea prefer meat imported from Australia, to local beef. This is explainable by the high quality that South Korean beef consumers attach to imported beef and, subsequently, high demand for imported beef. The relationship between quality and the demand level of consumers presents a vital opportunity for firms to increase their sales level and respond, effectively, to challenging market conditions. In a free market situation, diverse factors contribute to the success of any business and address market fluctuations. Kepak bought cattle from farmers who were subscribers of quality assurance schemes making the firm to employ rare avenues. This ensured that all cattle were subject to certified standards of health and safety considerations as external fat levels. Installing safety inspection programs for the various sectors including plants boosted the level of beef quality produced by the firm. High quality standards improve market dominance because of high customer preference. This attracted retailers and other customers who bought a considerable portion of fresh meat from Kepak. Conformity to customers’ lifestyle by the meat division is among the strategies that contributed to the success of Kepak in the notably challenging market. The division also introduced heat-and-serve products that created an ease for their customers who had limited time to make food. This also worked to increase customer demand for the products of the firm. This makes the strategy inimitable by its competitors. Kepak is a firm that holds dedication to prove its resilience against market challenges and forces and it may consider introducing a variety of products that suit the needs of diverse groups of consumers, making them nonsubstitutable. The strategy by Kepak to introduce the convenience foods unit was perfect in expanding its business and increasing its profitability. The introduction of convenience food as burgers in 1996 helped increase its market base and profitability. References Bell, D, Mcloughlin, D & Shelman M 2011, February, ‘Kepak and the future of the Irish beef industry’, Harvard Business School Case 511-070 (revised). Johnson, H & Ward, C, 2006, April, ‘Impact of beef quality on market signals transmitted by grid pricing’, Journal of Agricultural and Applied Economics, vol. 38, no.1, pp. 77–90. Lee, Y & Kennedy, P, 2009, April, ‘Effects of price and quality difference in source differentiated beef on market demand’, Journal of Agricultural and Applied Economics, vol. 41, no. 1, pp. 241–252. Read More