The Vosper Thornycroft Shipbuilding Company - Case Study Example

How well does the study company carry out their strategic planning and how appropriate is their approach Business Strategy – Introduction. Vosper Thornycroft is a horizontally merged entity whose shares are listed on the London Stock Exchange and the main endeavor of the company has always been to maximize the wealth of shareholders and improve its image in the various stakeholders of the company. For that reason, the company has gone into a major diversification program resulting in many subsidiaries of which VT shipbuilding was one. VT shipbuilding unit strives to win major PFI contracts in the marine sector by growing the US business, improving the education and business skills, win a share of future carrier program and developing alliances with other shipbuilders. For this, the group is considering investment decisions of whether to strengthen their Southampton base or to extend further their services to Portsmouth also. While the advantages of extending to Portsmouth are worth considering, the risks associated are also high making it imperative for the group to examine parameters like six sigma which focuses on reducing the defects, lean management so that employee payout is not high, kaizen- a Japanese strategy wherein improvement should be incessantly done in any work performed. While the above indicators may sound very ecstatic, there is no measure of these strategies to evaluate whether they have been successful or not. For this purpose, different methodologies like SWOT Analysis, PEST Analysis, Porter’s Five Forces Analysis, have to be followed which can enumerate the achievements of the organization. A SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis for the VT shipbuilding company illustrates that the company has strengths like years of experience, availability of high end facility, intricate production processes, large capital investment, on time delivery of quality work, good organizational capabilities of the managers which lead to good industrial relations thus ensuring the utilization of the latest technology in the field. The future opportunities for the company also look to be very bright with increasing demand of offshore patrol vessel worldwide and also a possibility to buy smaller companies in the same field. However, the large investment outlays inherent in this field force the company to venture with other competitors resulting in profit dilution which if ignored can lead to lack of competitive strength and limited building capacity. Further, as the company deals more with the defense services, it has to constantly deal with the Government authorities who in return are dependent on political changes and price regulations especially on steel to reduce the inflation. In addition to these limited returns, competition is stiffening and smaller companies are also gearing up themselves to compete. The PEST (Political, Economic, Social and Technological) analysis illustrates that lot of time and money is being wasted in the form of regulatory processes, material wastage, MoD funding, high labor and employment costs, weather precautions in the docks, high impact of MoD, high competitive technology environment requiring high working capabilities in a constant changing scenario etc. However, the analysis also points that the company is protected from the foreign companies as arms contracts are not awarded to them. Similarly, positive feedback from wealthy customers, good logistics, strong currency, highly motivated staff are the main advantages of the company ensuring that it maintains its niche even in these tough times. The Michael Porter’s five forces analysis on the other hand throws light on the fact that the business is quite risky with high entry barriers for the new comers to set shop in the field. VT is the preferred company among its competitors and their relationship with the customers are very cordial owing to their UK origin which is an added advantage over the US firms. However, as the customers are smaller in number, there may be a risk of losing business if any one of them strains their relationship with the company. Hence, care has to be taken that the personnel are so trained that they handle their customers very well. Also, the suppliers are very less and are tailored to meet the growing needs of technology in the form of outsourcing. This may create a risk of belated deliveries of the products at times which needs to be corrected. All the above analysis is helpful in outlining the performance of the company till date. Now that the company is contemplating its plans whether to strengthen its Southampton base or to extend to Portsmouth, strategies are to be developed based on these analysis for a clear vision of the company’s objectives. The generic strategies to be studied are that of cost leadership, competitive advantage and focus. Cost Leadership: The Company is planning to produce top end vessels at the lowest cost for which, it needs to plan its initial investment outlay for production line of patrol vessels etc. However, while studying this strategy, care should be taken to estimate the future demand properly with due consideration for the future competitors and their possible strategies. Foraying into Portsmouth may develop the cost leadership which the company intends to achieve not only for itself but also to its sister concerns which has to be carefully examined keeping in view the high investment outlays. Differentiation: The Company already has goodwill of latest technology, customer satisfaction, quality product delivery on time, good management skills etc. With this reputation, it is able to acquire many projects of higher end which may not be achievable by its competitors. Owing to the inherent costs in the industry, there is a lesser risk of more new entrants in the field which implies that too little suppliers are serving too little customers. However, if the personnel are not well trained or any relationship with any customer breaks due to communication defects, then, the same advantage of less number of customers becomes a major disadvantage. Hence, the company while enumerating its strategies should evolve new ways to increase its customer base and also ensure that it serves them all properly. Quality work at the least possible time with an advantage of pleasing manners of the staff should become the competitive advantage of the company so that more and more customers always search for the company to extend their orders. Focus: In its endeavor to strengthen its market position, the company has entered into joint ventures with companies who provide highly technical components like engines so that the work load on the employees is reduced and they can work more efficiently. Outsourcing certain parts of the production results in focus of the staff towards more constructive activities thereby increasing the production capacities of the firm. However, care should be taken that the firm does not outsource the production of critical components which were constructive in achieving the engineering skill and process proficiency. Outsourcing of components should be restricted only to products of lower category and higher time utility base. All the three above approaches would enable VT Shipbuilding to maintain the niche which it is already enjoying in its field irrespective of any number of competitors in the market. This can also be diagrammatically represented as follows: (Porter, 1980). Cost Leadership Differentiation Focus Conclusion: It has been observed that while many firms concentrate one or two of these strategies simultaneously, VT shipbuilding is contemplating all these strategies at a time which may be profitable given the care which it should take while implementing all these strategies. For example, outsourcing of certain products to other firms may result in higher production costs which may not support the cost leadership strategy. Similarly, if the company wishes to stick to cost leadership strategy, it may not be able to achieve the differentiation of its products which needs a lot of investment outlay. Thus, while adopting a strategy, a tradeoff between the available options should always be considered to achieve the maximum returns. Book References: Porter, Michael (1980), Competitive Strategy, Cited in: Gupta V., Gollakota K., Srinivasan R., 2006, Business Policy and Strategic Management – Concepts and Applications, Pp.57-59, New Delhi, Prentice Hall of India Private Limited. Online bibliography: Anonymous, September, 2007, VT Shipbuilding, The point of it, Manufacturer.com, 11th August, 2008, http://www.themanufacturer.com/uk/profile/7832/VT_Shipbuilding Read More