Business Strategy to Maintain a Competitive Edge in the Market Place - Case Study Example

PART A Given that we cannot always control political, technological, economic, or cultural issues, how often would you revaluate your business strategy to maintain a competitive edge in the market place? What factors would you use to evaluate the need for change, and what tools you would use to make the changes? In the business scenario, a company has no control over macro-environmental factors. However, a company can remain abreast of these changes, by adopting continuous environment scanning, and changing the company’s business strategy to offset the loss in company’s competitive edge due to transformation in its extraneous atmosphere. In order to evaluate change, we need to study competitive environment, the changing needs of the customers, forecasting changes in their needs, pricing, costs and product segmentation, and differentiation achieved by us and our competitors. A winning strategy includes a thorough analysis of our capabilities, and resources (tangible and intangible) and their use to develop competitive distinction. Based on competitive distinction, we can strategise to retain competitive advantage. The tools that can be used to make changes in the business strategy are strategic group analysis, investment analysis, and game theory. 2. In this weeks lesson you learned that the industry environment has a more direct effect on a firms strategic competitiveness and above-average returns than the general environment. Explain why this is so and discuss ways in which companies can stay abreast of changes that occur in their industry. Industry environment is based on creative use of resources, through its capabilities to achieve company wide cost leadership, differentiation and focus. The company delivers consumer surplus by creating a value in a product that is more than its price. Companies have to conduct internal analysis to make itself more responsive to customer needs with deliverance through efficient, quality, innovation and responsive behaviour, the four primary pillars of distinctive competency. These attributes lead to value creation on the value chain and the company retains its competitive edge over its rivals. These factors remain independent to a considerable degree, from the external macro-environmental conditions giving the company, a position of dominance with above average returns. Above-average returns, yield to the company, average returns, that are more than the industry standards. Above-average give the company a superior reliability. They help a company to maintain sustained competitive advantage. A company needs to create generic competitive strategy by gaining cost leadership, differentiation of products and strategically chalking a balance between the two. Differentiation involves, making the product more reliable and carry a premium value, than the competition and pitching it strategically, in an innovative, efficient, and low cost leadership environment. The value chain enhancement is passed onto the customer as consumer surplus and making differentiation and cost structure inter-dependant. Case Study (Nucor) 1. Nucor competed in a varied macro-environmental problem. It operated in technological, political, economic, and socio-legal environment. 2. Nucor competed in the automobile industry in the beginning, and then moved to Nuclear Service Company, and is dominant player of the steel industry in the US today. 3. The steel industry scene in which Nucor is marked by stiff competition leading to competitive pricing. Steel is directly linked to economic growth and recession and one the first industries that is affected by a downturn in economy. Steel industry is not noted for ever changing technologies, but has to mold itself to global demand and supply conditions. Steel industry is run by large conglomerates world wide. It has to conform to high environmental and emission norms. 4. The Five Forces Model of Porter to Steel industry in general and Nucor in particular yields the following results” (i) Threat of Substitutes: This force has negligible bearing on the Steel industry. Steel is essential to development of infrastructures, automobiles, building, bridges, shipping and other means of transport, pipes for chemicals, water, discharge, and industry. The qualities of steel, durability, low cost, recycling property, and abundant availability of iron ore are factors that favour its proliferation and do not allow any leeway to its substitutes. (ii) Threat of New Entrants: In the era of globalisation, new entrants have come knocking on the doors of US markets. The monopolistic conditions enjoyed by US and companies have been lost. China and Europe are great steel great guzzles and it is increasingly tough for Nucor to compete overseas. Acquisitions, development of big conglomerates threaten the market conditions in the US. The threat of new entrants is extremely high. (iii) Intensity of Competitive Rivalry: With availability to manufacture steel products available everywhere the competitive intensity is tough. (iv) The Bargaining Power of Customers: The bargaining power of customers is very high. This is due to competition in the industry. However, a continuous demand by industries, throughout the year, and demand for more steel with economy staying positive bargaining power of buyers is offset to some extent. (v) The Bargaining Power of Suppliers: In the non-globalized atmosphere the bargaining power of suppliers was very high because industries dependant on steel needed continuous supply line and dependence on local steel industry was huge. US located at a distance from Europe and Asia, enjoyed a protection due to costs of overseas shipments. But now, international companies erect plant and make acquisitions wherever they perceive steady demand. This has declined the bargaining power of suppliers. The steel industry is heavily dependant upon raw ore and material for production and as such companies hold their own supply chains. The suppliers of recyclable steel, however, do hold a tough bargaining potential for Nucor. 5. The critical factors for the success of Nucor are to: (i) To stay profitable to keep the confidence of stakeholders. (ii) Keep its market value high. (iii) Avoid hostile take overs. (iv) Keep the customer base intact. (v) Expand into Asia, and Europe. (vi) Maintain quality standard while increasing production. (vii) Allow uninterrupted supply chains. (viii) High confidence of workforce created by a unique culture for work. (ix) Performance and job security are related. (x) A culture for fair treatment for all the employees. (xi) Low-cost structure. 6. Tangible resources of Nucor are its eight steel mills; assets acquired through acquisition of Missisipi, Birmingham, and Vulcroft Mills besides the Mills in Australia and Brazil. These mills have properties and heavy infrastructural and production base, and its lean but highly efficient and committed workforce of 12000. The intangible resources of the company are its long and chequered history, electric furnace technology, customer confidence created by high value growth, decentralised management, employee empowerment, high employee confidence and brand value. 7. Firms strategic options include exploration of the growing Chinese and Indian steel markets by keeping its US and European markets intact. The company should make major acquisitions abroad and complete the merger of Harris Steel company. Company should be concentrating on primary steel while increasing the recycling base. 8. At the moment, Nucor’s financial strength is moderately poised. However, customer PART B Discussion Question 1. Describe the fundamental objectives of using any of the business-level strategies to create an effective plan and the way these objectives impact the action steps a company will take to gain a competitive advantage. The most fundamental objective of using any business level strategy is to identify corporate goals and select the corporate mission. This is followed by external and internal analysis to identify threats, opportunities, strengths, and weaknesses of the organisation. Based on the remedial measures to correct the weaknesses, meet threats by building on strengths and exploitation of opportunities, a comprehensive business plan is created. The company meets threats while capitalising on opportunities. These steps help the company to realise is its inherent weaknesses compared and mitigate them. The business plan is studied threadbare in strategy formulation and stated lucidly in, strategy implementation. This strategic plan is based on precise and measurable goals, meeting realistic challenges and specification of a time-period. These plans further help the organisation to achieve competitive advantage based on low cost and product differentiation. 2. Identify one type of business-level strategy and explain how you would use it to increase Above-Average returns in the dairy industry. A company is said to have an above-average returns if it can have competitive advantage over the companies in the industry. When such an advantage is enjoyed for certain years, it is called the sustained competitive advantage. A company has to identify its distinctive competencies, both tangible and intangible resources, strategise to build on resources and capabilities, gain competitive advantage to achieve superior profitability. The profitability can be based on its low cost structures or a premium customer value the product carries. The Dairy Industry churns above average returns through a mix of customer responsiveness by identifying customer needs and fulfilling them. For this, the company has done an intensive external analysis of customer preferences and potential markets. Milk based beverages have been developed banking upon innovation, and industry capabilities to meet the diverse customer choice. From infant to adult, milk products are available in different range and requirements meeting nutrient and flavour needs. The company has a diverse portfolio that sees the customer demand from pure health point of view to sheer pleasurable indulgence. There is value-addition in the manufacturing chain and milk is made available on the shelf as a differentiated product to meet a spectrum of demands. The prices are fixed according to the cost structure in the value chain. There is a dynamic feedback model from the customer that is passed to the company’s manufacturing environment to make variations in products as per customer demands. To meet total customer needs, the milk products are available in various sizes, in distinct flavours that are wholesome and tasty. Here, we see a value chain in operation that gives competitive advantage to the company based on its superior product differentiation. Case Study-AMD 1. The dominant dimensions applicable to the case are Technological, Economic and Political-legal. The AMD is a leading provider of computer hardware manufacturing the processors and the graphics cards. Economic conditions, of flamboyant or recessionary trends dictate the market demands of computer hardware. Since the products are used in a highly technology computer market, the technological dimension plays an important role. The company has to keep abreast of technical changes in the compatible software, and hardware, by the industry standards. The company is locked in a do-or-die business battle with Intel, and as such both companies are locked in legal cases involving copyright infringements and regulatory environment of the US. The political forces help shape the destiny of countries of with potential markets, dissipation of trade barriers across the world, and help speed up technological development thus impacting AMD’s market. 2. Dominant industry characteristics are intense competition, threat of substitutes, brand loyalty, cost structure, innovation and bargaining powers of suppliers and buyers. Since the product line of AMD is highly advanced and its market is threatened by Intel. The company has to remain in an innovative mood to always improve its product line and provide more options to the consumer. Computer technology especially the microprocessor and chips product range is dynamically evolving so a threat of development of efficacious substitutes always looms large. AMD enjoys brand loyalty across the world due to its high-quality products. AMD has to remain in earnest to keep up its performance. The cost structure has to be kept low so as not to avoid the emergence of AMD products as higher in pricing ratio of computer components. 3. The chip and micro-processor is highly competitive and lucrative only as long as a company can keep up the tempo technological development. On the application of Porter’s five forces model, we realise that the company is not in immediate threat of entry of new competitors. This is because of the extremely advanced stage of technological expertise. However, the intensity of rivalry between AMD and its chief rival, Intel, is very intense. The is due to making of high speed, more technologically efficient products by Intel. Bargaining powers of buyers is low as computer, desktop, PC, and Laptop are dependant upon Intel and AMD—the two suppliers who hold a monopolistic grip on the market. However, the market power of suppliers to AMD is low because the products used by AMD are simple and there are lot many suppliers, who can furnish the same product line. There is no closeness to substitutes as AMD holds sway over its market. The only substitute threat comes from Intel. 4. The chief competitors of AMD are Intel, IBM and Freescale Semiconductors. Competitors. Intel enjoys leadership in micro-processor industry. Intel is highly aggressive in its segment and works to the maximum of its innovation and capability to outwit AMD. Intel holds sway over the Far-east and rest of Asian market. The South Korean regulator and European Commission hauled it up for monopolistic practices. Intel tries, through alleged unfair means, to achieve market leadership through cost cutting for its bulk buyers. There is a suit pending against Intel filed by the AMD in US and Japan also. Intel is capably stronger than AMD and fights back the AMD acquisitions with production growth and innovation. IBM for long held sway over computer manufacture. But now, its is lying on a low key and manufactures chips for its own PC unit. Occasionally it looks for markets beyond its own sphere. Freescale is low-end competitor producing bulk products for the Chinese and the US market. 5. The biggest problem in the case is that monopolistic allegations levelled by AMD against Intel do not have concrete evidence. It is very difficult to identify a difference between production promotion and using a monopolistic regime. 6. Hector Ruiz brings a waft of fresh air in the top echelons of AMD. He has diverse global experience in working at AMD’s rivals like Texas Corporation, Motorola, besides being a technocrat of immense knowledge. He is a member of various scientific, industrial and educational committees and has the ability to guide his team to turn tables on Intel. His vast experience and incisive knowledge will help AMD to sharpen its strategic frontiers besides developing cutting edge competition. 7. Opetron is focussed on a strategy to achieve quality differentiation strategy to promote Dual Core technology, . Dual core technology intends to deliver fast processing desktop systems. Dual core increases the CPU speed and a more powerful Athlon6_X2 workstation. The path breaking technology will lead to the development of Triple core and Quadruple Core giving, AMD a lasting competitive advantage. 8. Technologically, Opetron heralds the change in K7 architecture with implementation of point-to-point interconnects, the Hypertransport. Due to 64-bit extension, the computer in which the Opetron was used was called the AMD 64. The entire effort was to tap the high-end, higher speed processor based computer market. Read More