Strategy Formulation: Guajilote - Essay Example

Strategy Formulation In less developed countries like Honduras, the organization of business, its functioning and perspectives differs greatly from those in developed countries. The historical development of the country and low economic culture has a significant influence on the business process in Honduras. The firm under analysis represents a cooperative form of business organization in the forest industry. It is an association of persons who joint together to carry on an economic activity of mutual benefit. The Guajilote Cooperativo Forestal was founded in 1991, as "a component of a USAID (United States Agency for International Development) project" (Case study). The company's activity is based on exploiting naturally fallen mahogany trees. Guajilote operates in a simple and static environment. Firms operating in a relatively simple and static environment can generally rely on management strategies that are based on historical data. The internal environment of a corporation consists of variables (strengths and weaknesses) that are within the organization itself and are not usually within the short-run control of top management. These variables form the context in which work is done. They include the corporation's structure, culture, and resources. An examination of how strategy is formed gives useful insights into the nature of strategy itself. SWOT is normally associated with more rational approaches to strategy formulation but perhaps its greatest contribution lies in providing the management strategist and student of business a broad framework for analysing the position of a firm at a particular moment in time (Sterman, 2000). It can also be useful in the development of a number of strategic options which attempt to tackle opportunities and threats, build on corporate strengths and avoid weaknesses. An important consideration is that for most management there is a choice of strategy. The strength of the Guajilote is that it's goods (mahogany wood) obtained a very competitive position on the market. In Honduras, Guajilote is the only venture with the right to exploit naturally fallen trees. A strong leadership provided by Santos Manguia. The company ruled by a leader who was able to raise the price level and gain more or less strong market position. The opportunities include high potential to growth and profitability of the company. The international situation on the wood market suggests the growth of prices on the mahogany wood in near future which becomes rare because of deforestation. Another opportunity include direct sales to manufacturers skipping the distributor, or development of its own manufacture in Honduras. On the other hand, there are a lot of threats and weaknesses which prevent Guajilote to become a leader in the mahogany wood sector. The main weakness is lack of professional staff working with the firm. None of the employees has a special education, and the majority of staff have no primary education at all. Another weak point is absence of lorries to transport the wood to market, and necessity to accept low prices dictated by their only distributor. Technological forces generate problem-solving inventions. The major threat of the business is that it depends upon weather conditions, and number of fallen trees they can found in buffer zone, and difficulty to execute operations connected with the hand sawmill. External environmental influences include the threat of deforestation and fires often take place in this region, slash and burn agriculture. And, of cause, illegal logging with reduce opportunity of Guajilote workers to find fallen trees to a minimum. The social environment includes general forces that do not directly touch on the short-run activities of the organization but that can, and often do, influence its long-run decisions. Economic forces regulate the exchange of materials, money, energy, and information. From the state perspective the area around La Muralla National Park is very attractive for landless campesinos, and that is why they allow farmer to settled their in order to reduce the level of poverty in the country. As the report says: "Not only did they clear the forests for cultivation, but they also cut wood for fuel and for use in building their homes" (Case study). Political-legal forces allocate power and provide constraining and protecting laws and regulations. Sociocultural forces regulate the values, mores, and customs of society. One more important issue of concern is potential restrictions by CITIES (the international convention on trade in endangered species) in order to protect mahogany species, and provide strict limits for mahogany trade around the world. It is possible to conclude that strategy is the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. Speaking about the nature competition it is possible to say that Guajilote have a competitive advantage, but not a competition strategy. Competition strategy can take place on either a price or a non-price basis (Boone,Kurtz, 1992). Price competition involves businesses trying to undercut each other's prices; this will, in turn, be dependent upon their ability to reduce their costs of production. Guajilote has no competitors, obtaining an exclusive right to sell fallen trees. Non-price competition will take form of branding, advertising, promotion, and additional services to customers and product innovation. In some industries, competitive rivalry is fierce, whereas in others it is less intense or even genteel. Non of these activities is available to Guajilote which works with its only distributor. On the other hand, Guajilote has no step-by-step strategic plan to develop the enterprise, and obtain a strong market position. It is possible to say that the company "goes with the flow" submitting to the market conditions. If there are few, large competitors in the industry, it is likely that it is due to high entry barriers. Conversely, an industry of many, smaller competitors is likely to be the result of lower entry barrier. Competitive rivalry on both a price and a non-price basis will be higher in the industry comprising the more, and smaller, competitors. If the product is mature and the industry is subject to 'shake-out', then competition will be more intense. Perhaps the most important thing to bear in mind is the inverse relationship between profit margins or returns and the intensity of competition: as the intensity of competition goes up, margins and returns are driven down. This can require changes in competitive strategy to remain in an industry and, under some circumstances, it can occasion the decision to exit a business or an industry. Marketing strategy deals with pricing, selling, and distributing a product. Using a market development strategy, a company or business unit can capture a larger share of an existing market for current products through market saturation and market penetration or develop new markets for current products. It is "the combination of choices you make about which tactics it uses. The external scanning involves the threat of entry to an industry by new competitors depends up the 'height' of a number of entry barriers. But, for Guajilote this is not the major treat as entry barriers are higher, if the state gives legal permission to anther company for cutting mahogany trees, it will be a threat for Guajilote and even result in bankruptcy. This can be called a treat of substitution where a consumer is able to replace a product with a different type of product performing the same service or satisfying similar needs. Financial situation can be taken into account as it is concerned with the raising of capital to finance the organization's operations and with ensuring that the company can generate sufficient revenue to cover the cost of raising this finance. But, unfortunately, there is no financial data available to analyze the situation except revenues rate in 1997 which were $22,153 US. There was much for conflict between manufacturers and intermediaries as both were seeking to maximize their profits at the expense of the other. Conflict might arise for a number of reasons, but very often intermediaries and manufacturers disagreed on price. The value chain of the production and sales is not extensive in Guajilote. The value chain consists of five generic categories of primary activities (Porter, 1985): Inbound logistics: the reception, storage and internal transport of inputs to the product. For Guajilote all these activities are poorly developed and prevent company from independent market operation. Operations: the transformation of those inputs into the final product form. This is the most successful step in the value chain including hand sawmill. Outbound logistics: the collection, storage and distribution of the produce to buyers, is poorly functioning and depends upon the sole distributor choice, rather than company's strategy. Marketing and sales: persuading buyers to purchase the product and making it possible for them to do so. This is one of the promising areas for Guajilote to improve its business and developing drop shipment to manufactures. Service: the provision of service to enhance or maintain the value of the product. It is possible to say that because of informal leadership of Santos Manguia, this stage of value chain was improves, and resulted in high profitability of the Guajilote. It is evident that value chain of the company and its sales activities has not been developed, because of the weaknesses of internal environment and external threats. But, implementing new strategic planning into practice Guajilote will have a chance to overcome some them. Improvement should be made in the technology development of the process, Human resource management: recruitment, training, development and pay of personnel; firm infrastructure functions such as general and quality management, planning and finance which support the whole value chain. The successful management of these primary and support activities leads to margin - the difference between the value of the products or services sold by the firm and the cost of their creation To improve the situation Guajilote needs to accept strategic planning as a systematic, analytical approach which reviews the business as a whole in relation to its environment with the object of developing an integrated, coordinated and consistent view of the route the company wishes to follow; and facilitating the adaption of the organization to environmental change. The aim of strategic planning is to create a viable link between the organization's objectives and resources and its environmental opportunities Strong force can be regarded as a threat because it is likely to reduce profits. In contrast, a weak force can be viewed as an opportunity because it may allow the company to earn greater profits. In the short run, these forces act as constraints on a company's activities. In the long run, however, it may be possible for a company, through its choice of strategy, to change the strength of one or more of the forces to the company's advantage. If Guajilote maintains its own manufacture it will benefit the company, and help to skip the distributor completely. There is a great opportunities for the company is this field, because specialized shops, throughout the world are interested in goods produced in the environmentally friendly manner. In this case Guajilote will be able to set a high price on its products and avoid low price level fixed by the distributor. To conclude it is posible to say that it vey important to use different techniques and tools in operations management in accordance with the environmenntal changes, internal and externel. Improving performance of oparations will help to satisfy the needs of a customer, and benefit the oeganisation as well. Besides results on a log-linear decision rule that optimizes the overall profit of the firm under certain conditions, they also provide methods for assessing the value of coordinating mechanisms between operations and marketing. The customer satisfaction was achieved changing oparations model concerning fleible level of prices and time of delivering goods. References 1. Boone, L.E., Kurtz, D.L., (1992), Management, 2nd Edition, McGraw-Hill, New York 2. Porter M.E. (1985). Competitive Advantage. New York, Free Press. 3. Sterman, J. D., (2000). Business Dynamics: Systems Thinking and Modeling for a Complex World, Irwin McGraw-Hill, New York. Read More