Competitive Operational Strategy at Hypergol Electronic Systems - Case Study Example

Competitive operational strategy Introduction This report is on the changes required in the operational strategy of Hypergol Electronic Systems, a company involved in manufacturing of electronic operating and control systems. The company has recently considered a proposal for change in its product line. It was hitherto catering to the aircraft industry, both civil and military. The present plan is to enter into the industrial products sector because of the low profitability due to the crisis in the aircraft industry. Hypergol Electronic Systems was formed in the year 1970 by the amalgamation of three main contracting firms catering to the defence ministry of UK. The company has regional offices in Malaysia, South Africa and Poland to meet the demands in Asia, Africa and Europe. The company was privatized in the year 1986. The major reasons for the decision to change the product line are the uncertainty in military contracts due to political changes and inefficiency in the government system. The civilian aircraft industry was also facing crisis as many firms in the line wound up their operations due to high competition and fluctuation in demand due to the entry of second hand aircrafts in the field. Thus there existed an uncertainty in the civilian and military aircraft sector. So the company decided to lay higher emphasis on industrial products. This report is a feasibility study for the company for entering into the new product segment. The study is basically focused on four major aspects. They are: 1. The industrial products sector - It is highly competitive unlike the aircrafts sector which operates under limited monopoly. 2. As the demand for industrial products will be more in developing countries of India and China with a huge consumer base the necessity of shifting the head office from Europe to Asia have to be seriously considered. 3. The demand of market is varied in terms of products and services delivered in the case of Avionics. 4. The impact of the new business on the existing business of the company. Literature review First of all the problems faced by the company at present can be discussed inorder to develop the strategy according to that. Part 1 One of the major problems faced by the company is the high finished goods and work in progress. In spite of it overtime is given to execute orders at short notice. This is a paradox. The reason given by the production department is that they can manufacture only in batches and cannot cater to the variation in demand. The execution of orders at short notice involve over time and sometimes high rejection. The purchase department is of the opinion that a raw material inventory has to be built up to meet the fluctuating demand. Although a minimum of raw material, work in progress and finished goods inventory has to be maintained, to maintain uninterrupted production and to meet unexpected demand. To overcome this, an ABC analysis is required to stock minimum quantity of high value items. Though the company has these problems it has an efficient management team that is skilled in decision making at the appropriate time. They have a customer focus and discuss freely the day to day problems among themselves and arrive at a consensus. The top management team portrays higher leadership qualities in its operation. Effective communication is one of the tools used by the company to enhance its leadership. The vision and mission of the company is shared by all the employees in the organization. "Effective leadership is one key element in the success of a group and virtually anyone can learn to be an effective leader." (Effective leadership. 2001). Both suppliers and customers are regarded as partners of the company. At present the company has its product lines in three segments namely military operations, civil operations and commercial operations. Though the company has commercial operations in its product lines it is less established compared to the other two. Programmable Logic Controllers systems and the associated software are the main products of the commercial arm. The proposed change in the company is to focus more on developing the commercial/industrial operations. The company can adopt the following procedure for developing the new product line. 1. Market survey 2. SWOT analysis 3. Analysis of investment required and profitability 4. Analysis of manpower and training requirements A market survey is the first step to be adopted by the company in the present situation. The market survey should be highly focused on the demand for commercial products of the company in the market. "Marketing research provides information about consumers and their reactions to various products, prices, distribution, and promotion strategies. Marketers who collect accurate and relevant information quickly and design their strategies quicker than their competitors are more likely to be successful." (Introduction to Marketing Research. 2007). At present the commercial products of the company is produced and supplied in a limited market. The survey will also indicate the impact of the new product line on the existing product lines. The survey should be conducted on the existing and potential markets of commercial products of the company. A survey should be conducted among the dealers of the company as they may be highly aware of the taste and preferences of the customers. The second step is to conduct a SWOT analysis of the proposed business idea. This will help to look into every aspects of the given idea, which are Strength, Weakness, Opportunities and Threat. The analysis of weakness will highlight the remedial measures to be taken. The strength of this business idea is that since the company enjoys good presence in most parts of the world there are greater chance for its acceptance by the customers. The company already has knowledge about the production techniques of commercial products. Therefore it is easier for it to grab market share by expanding its commercial products segment. The weakness of this business idea is that the company has expertise in military and civil use products only. Commercial products are employed only as a small business unit in it. Therefore there is lack of resources, and other immediate requirements for focusing only to this segment. The opportunity of this idea is that there is a large demand and sustained customer base for commercial products. Since the company is already in the commercial products segment they already have a customer base as well as knowledge of customer aspirations. The major threat of this business idea is that it will be exposed to more competition unlike the other two avionic segments. The next step is the analysis of investment and profitability. A new business idea requires huge investments in men, money, machine and material. A strategic decision has to be taken regarding the mode of investment either by public issue of shares or by debentures. The company should evaluate the pay back period of investment in order to select the best mode. It should be noted that since the company already has the production facility at a low scale, investment should be made to expand the existing facility. Analysis of manpower and training requirement is the last stage. There are existing employees who are aware about the production of the commercial products. But since the new idea is expansion of the production certain changes have to be made in the production technique. Therefore the employees have to be trained on the new production methods. For example batch production will be replaced by mass production. Production process will have to be changed and quality control measures taken at the process stage to avoid rejection at a later stage. Certain quantitative tools have to be used for maintaining quality. The employees have to be trained on using such tools. The above steps will help the company to develop a better operational model for the new business idea. An operational model will give a framework of activities of the business. "An organisation's operating model should provide a clear, 'big picture' description of what the organisation does, across both business and technology domains." (Operating model. 2008). Part 2 Issues that may prevent Hypergol from entering into the highly competitive market Hypergol has good profitability in the new market. But there are certain factors that might act as a hindrance in their business operation. These factors can be enumerated as follows: The profitability of the new product is high so also the competition. Unlike the other two business segments of the company there are a number of competitors in this segment. The strategy of the competitors in the market cannot be identified fully as they are large in number. Limited expertise of Hypergol is the second factor that prevents them. The company does not possess an expertise in commercial products segment as it is established only as a small business unit. The company will have to strive hard for many years inorder to gain better knowledge about efficient production and marketing of commercial goods. Wider market requires more attention on marketing. Unlike the first two product lines of Hypergol, the market for commercial goods segment is wider. The customers are spread across in many parts of the world. The customers of commercial goods are individuals and small scale business units but the customers of military and civil operations are large scale institutions. Therefore the scope of marketing is higher in the case of commercial goods. Location change At present the company is headquartered in UK. The company also has its regional offices in Malaysia and South Africa. As per the demand and business opportunities it is better to shift the major operations of the company from UK to Asia. This can be done by upgrading the regional office of Malaysia to the company headquarters. There are very high opportunities for the company in Asia as the economies of India and China are growing at a fast pace. "Today, many global business leaders believe that they must have a strategy for China and India. For many, China is seen as the place to produce or procure goods while India is the place to procure business and IT services." (China and India: The reality beyond the hype: Introductory thoughts. 2006). Malaysia offers the combined advantage of India and China. It has a large educated workforce with militant trade unionism being absent. It has large infrastructural facilities in line with developed countries. The government of Malaysia is business friendly. It has better relationship with the government of India and China. They have kept themselves away from the cold war and follow the policy of Laissez-Fair. Since the company has regional office at Malaysia upgrading is not a big issue. They also possess a good knowledge of the Asian market. The following chart will indicate the market segment for the new product worldwide. Issues on the basis of market expectations "The key to developing an effective operations strategy lies in understanding how to create or add value for customers." (Davis et al 2005 p. 36). The competitive proprieties or expectations of the market are: 1. Providing low cost products 2. Providing high quality products 3. Providing products quickly 4. Providing wide variety of products 5. How products are delivered and supported In order to satisfy the first expectation of low cost products the company should reduce the overhead cost by minimizing the investment for expansion. Reducing wastage to the maximum possible extent will help the company to reduce the overhead cost. By monitoring the activities at each stage the company will be able to reduce the wastage of resources. By outsourcing the activities the additional staff required for the expansion can be minimized. Providing high quality products is the next expectation of the market. For this total quality control management concept should be introduced in the company which means that quality is not the prerogative of the inspection department but of every department. Quality control should be exercised from the very initial stage of design to the final stages of manufacturing. "Quality-management gurus have always assumed that maintaining product quality would improve profitability." (How product Quality drives Profitability: The Experience at Holiday Inn. 2008). As such the final product will be of superior quality. Tools such as lean and Six Sigma can be adopted to maintain quality. Speed of product delivery is the next expectation of the market. Customers will not be satisfied with the high quality products delivered at the wrong time. Timely delivery is very essential for satisfying them. To deliver the products at the right time every process has to be allotted a fixed time within which it should be performed. An extra time for adjusting variances should also be allotted. This should be developed as a system in the company so that goods are delivered at the right time consistently. There is no uniformity in the taste and preferences of the customers. The choice of customers may vary according to regions. Therefore the customers can be grouped on the basis of different countries. "Geographical segmentation divides markets into different geographical areas. Marketers use geographic segmentation because consumers in different areas may display certain characteristics and behaviours in that particular region, for example, in London UK certain parts of the West End of London are more affluent then the East End and you will find particular products sold in these regions based on their affluence." (Market segmentation: Geographic segmentation. 2008). Then a detailed country wise marketing research should be done. This will help the company to design the products for different market segments. The next expectations of the customers are better after sales service. "In the competitive world of consumer goods, where products are similar and margins are slim, service is one of the few differentiators." (Forooz and Rostamidehbaneh 2006). Since Hypergol has fully committed marketing team they may be groomed for the new market strategy. Service outlets should be located at places easily accessible by consumers. Impact of new product line on the existing business The customer segment for the existing business and the new business are entirely different whereas the existing business cater to the demands of large Business Houses, Corporations and Government departments the new business is targeting on small scale units. Hence visibly there will be no impact on the existing business. However the marketing strategy for the two types of business will be different. Whereas the existing business works in a limited monopoly the new business has to operate in a highly competitive market. Hypergol is known in the market for a company that manufactures avionics. But the new product change will transform the whole image of the company in the market. This transition will necessitate changes in certain functional activities of Hypergol. Implementation of the new business idea The market survey is the first step in implementation of any business idea. The market survey conducted through dealers will help Hypergol in knowing the market potential for its new product. On the basis of the available sales data the projected figures of sales and profitability has to be arrived at in order to decide whether to carry on with new business idea or not. Statistical tools such as correlation and regression analysis can be utilized for this purpose. On the basis of the SWOT analysis the weakness of the new idea should be rectified with proper strategy. The weakness of new business idea is that the company has expertise only in the other two segments. This can be overcome by investing in training. Training will help the existing employees of the commercial goods segment to equip them with knowledge of improved production methods. The threats can also be overcome by formulating good strategies. The major threat of this business idea is that there is stiff competition from the market. A probable solution for this is to learn the competitors and their strategies. Some of the successful strategies that are adopted by the competitor companies can be utilized for Hypergol's success. In order to minimize the overhead costs and additional investment, Hypergol can outsource the production of components and do only assembling at the factory site. The marginal investments required should be financed through debentures instead of shares. The pay back period should be four years in which the debentures should be redeemed. The current commercial product line of the company has five varieties. By conducting breakeven analysis for each variety the required quantity to be produced for making optimum profit must be calculated. Conclusion At present the profitability of the company is 20%. The main purpose of the current operational strategic model is to increase the profitability to 30% in the course of next three years by enhancing the production of one product line which was not given enough attention in the past. The shift from the existing location to the new one is the notable feature in the new business idea. Hitherto no separate costing system was in vogue for each product. In order to assess the contribution of each product to the profitability separate costing system must be introduced for each product so that the product with the least contribution can be dropped from the product line. A change in production layout is necessary since additional space will be required for assembling the components. Core processes can be identified and the information technology can be utilized on a large scale to streamline the production process using management tools such as Computer Aided Design (CAD) and Computer Aided Manufacturing (CAM). Quality control measures will be introduced at every process using Kaizen technique. Purchase Inventory and Sales Goods Inventory will be controlled through ABC analysis so that the resource of company is not locked up. Bibliography China and India: The reality beyond the hype: Introductory thoughts. (2006). [online]. Deloitte. Last accessed 28 April 2008 at: http://www.deloitte.com/dtt/cda/doc/content/US_ChinaIndiaReality_Research.pdf Davis, Mark M., Aquilano, Nicholas J., Chase, Richard B., and Balakrishnan, Jaydeep. (2005). Fundamentals of Operations Management. chapter 2, Competitive priorities. McGraw-Hill Ryerson, p. 36. 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