Critical Success Factors - Term Paper Example

 «Critical Success Factors» Abstract AbbeysteelTM, which has been supplying steel products to intermediate manufacturers at home and abroad, has to find ways to overcome constraints to its growth. After being in business for over 25 years it finds itself faced by the general decline in demand from the major customer segments. To overcome this AS considers a strategy of exploiting an opportunity that is provided by the global concerns on pollution and control. Since its own products are a result of recycling of waste steel material, AS plans to build its strategy around brand promotion of the products, apart from searching for newer products and markets. By this process, AS plans to overcome the present constraints to its growth and profitability. At the same time, it has to overcome the difficult task of retaining the existing customers who may not view its plans for price increase of branded products favourably. The delicate task is to balance the concerns of customers with the long-term objectives of the company. Introduction AbbeysteelTM (AS) has been in the business of supplying steel products since 1981 and has reached a plateau in its present operations. It is a small to medium sized business operation with annual turnover of £2.5 million and employing 20 people (Catulli, 2008). In its quest for expanding profit margins and sustaining business in the long run, AS is considering brand options and strategies for its products. This exercise would involve understanding the customer and scanning the environment vis-à-vis its products and current operations. To examine constraints to growth and possible remedies to overcome the same, branding as a marketing strategy together with options, impact of a new strategy on stakeholders etc., and to present a report on their findings, AS has formed a strategic team of management members and academicians. The present report is being submitted in this context and it contains recommendations for action in the light of the current market situation and options for product branding. Business strategy 2 Constraints to growth Operations in brief AS does not produce any primary steel by itself. It collects excess or waste steel materials from automakers, salvages the usable portions and resells them to customers in usable size, shape, form and packing. To meet its needs of waste steel products for recycling, it has entered into long-term business partnership with many leading automotive manufacturers like Rover, Jaguar, Land Rover and Honda. Automakers use substantial quantities of steel materials like sheets, plates and sections for body and chassis manufacture and in the process generate cut-out materials that they can not use economically by themselves. They sell such items as scrap to companies like AS at marginally higher than scrap value. The business opportunity for AS in these materials is that what is scrap for the auto industry can be a prime material for auto ancillary units and for other industries. It would only require certain value addition to the scrap steel to make it suitable for other purposes. For example, for making a base plate or a holder or a decorative fitting by the lighting or lamp fittings industry, the size of corresponding steel materials that are required is much smaller and can be easily be supplied if the scrap from the auto industry is salvaged, cut to size & shape, repacked and marketed. Based on this opportunity, AS has built up a lucrative business in UK and in the export market for its products. Internal analysis This business model identifies the corporate strategy and competitive strategy of AS. It has developed long-term relations to ensure steady and cheap sources of supply of its Business strategy 3 input materials. It has identified value in the scrap material which can be used by other customers as prime material, if the value of the scrap is enhanced by minimal operations. Of late, AS has further enhanced its competitive strategy by acting as a facilitator between automakers and their ancillary units (sub-contractors) who can use the scrap materials for supplying components back to the automakers. The case study document does not specifically give any information on the profitability of current operations although it can be assumed to be reasonable. It is however a fact that AS is not in direct contact with the ultimate consumers and all its business is in B2B mode. This will have a bearing on the options at its disposal for future business promotion as can be seen in the later sections of this report. AS has a qualified person to head its marketing operations and prepare strategies for future. He is guided and assisted by the MD himself, who took the initiative to set up the team for brand strategy studies. These steps and the steady volumes of business indicate that the organisation’s functional set up is in good shape and can meet challenges of future corporate goals. Although AS is in steel business, it does not contribute to environmental degradation in a major way. On the other hand, it contributes positively by reusing the scrap that would normally go into melting furnaces – which are a major source of pollution. External analysis AS is in steel supply business. Its source of input is from auto industry. Its customers are in light engineering industry including sub-contractors of the auto industry. In the current situation of economic downturn, steel and auto industries are facing seriously reduced Business strategy 4 demand, in all major economies of the world (steelonthenet.com, 2008). This has serious implications for AS both for securing raw materials and for sustaining business revenues. Auto industry is a major consumer of steel followed by the construction industry. Both these sectors are hit hard by the current events. The dramatic increase in the price of crude oil on the one hand and the crisis in the US housing industry on the other led to a significant reduction in the demand for steel. The crisis in the housing sector has impacted the financial industry not just in the USA but also in Europe including UK and elsewhere, leading to credit squeeze and an all round economic slow down. These developments do not augur well for AS. In addition, the demand for steel in the developed nations like the USA, UK and European Union has reached saturation levels even while global environmental concerns and pleas for pollution control are becoming louder. Steel manufacture is a highly polluting industry. From mining operations for huge quantities of iron ore, coal, coke, and other minerals like limestone & magnesium, ferro-alloys etc., transportation across great distances, crushing, screening, melting, refining, rolling and finishing – all operations consume prodigious quantities of energy and produce all varieties of pollutants like waste water, toxic gases & suspended particulate matter (UN Conferences on climate change). Since steel is the backbone of any economy, being the major construction material for all sectors, economic growth in any country is gauged by its steel production and per capita consumption. The growing economies of major countries like China, India, and Brazil are still in the stage of increasing demand for steel materials, in their quest for Business strategy 5 improving the life styles of their high populations. AS has to find answers to its growth constraints in this scenario. The debate on climate change due to global warming caused by pollution is compelling more and more industries to adopt policies that encompass the three R’s – reduce, reuse and recycle (Bruch, 2003). These are a) reducing consumption b) reusing a product for the same or for a different purpose and c) recycling the product at the end of its useful life. Corporations that adopt these policies in an innovative manner not only secure savings in operational expenses but also gain recognition as responsible businesses. To get an authoritative stamp of approval for such policies, many companies are opting for securing the ISO: 14001 certification. To sum up, AS is in a line of business where the present market conditions are not conducive either for growth of business or profitability. It serves an industry which is still in a growth trajectory in many parts of the world in spite of being a major cause of environmental pollution. At the same time, AS satisfies an equally important criterion of being a recycling industry that itself is non-polluting. Strategic analysis Michael Porter’s strategic analysis identified the five elements that define the competitive situation of an industry at the macro-level as i) competitors ii) customers iii) suppliers iv) potential new entrants and v) substitute products (Porter, 2008). Profitability and survival of a business unit can be critically analysed using this model. In the case of AS, its line of operation can easily be copied by potential competitors since the level of investment need not be high and technology is simple (low entry barriers). To Business strategy 6 neutralise this drawback, AS has wisely developed long-term relationships with its suppliers and customers and based its business model on their loyalty so far. But this equation can easily change in times of stress such as the current times, since every business is searching for ways to cut costs and this may lead to competitors offering better solutions. Hence the supplier / buyer power comes into picture. In addition, there is always the threat of substitute products gaining market share at the cost of AS. For example, steel components can be and are being substituted by engineered polymers and to this extent the demand for components made from scrap steel can go down. Fortunately for AS, such a change will leave the auto industry (scrap generator) with the problem of disposal of the scrap and this can act as a deterrent in a limited way. In this scenario, AS has to strategise its plans so that it can raise the entry barrier, keep suppliers and customers, and promote recycling as a better option than going in for substitute products. It has to seriously consider entering into alternative product business in order to beat the cyclical swings in the auto and construction industries. Branding and promotion is thus an inevitable option for AS. Branding strategy Critical success factors Having identified the forces that are at work, AS has to now identify the critical success factors that are important to its corporate objectives of increased business volumes, profitability and sustaining. The internal and external analysis and the strategic analysis given in the foregoing paragraphs identified the SWOT analysis of AS operations. To briefly recapitulate, its strengths are the business model of recycling scrap and having a Business strategy 7 good supplier and customer base; its weaknesses are low entry barriers for competition and excessive dependence on the health of auto and construction industries; its opportunities lie in the continuing demand growth for auto and construction industry in the major emerging markets like China & India; cashing on its environment-friendly image; and finally, it faces the threat of substitute products and declining demand at home and nearby markets. Hence the critical factors for its success are enhancing the brand value of recycled products to neutralise entry of substitute products and new competitors, overcoming dependence on a couple of industry segments, and searching for new products. Brand options A brand denotes ownership of a product or process by a business and the reason for promotion is to create awareness in the minds of the customers about the unique value offered by a branded product (ISB, 2006). The value may be in terms of quality, price, material content, association with a market segment like youth or women, fashion and many other attributes. To this extent brands have now become customer-centric as opposed to owner-centric in the past. Products offered by AS are not consumer items but are intermediate (semi-manufactured) items for use by other industries. As such the attributes and options for branding get limited. At the same time, it is possible to make a strong pitch for product attributes in all marketing efforts since the customers are themselves businesses that understand, appreciate and value special attributes of a material that goes into their own products. AS is selling its products to original equipment manufacturers (OEMs), who in turn sell Business strategy 8 components to the auto industry and AS has to promote the key attributes of its materials aggressively. Units which succeed in reducing pollution from their operations directly or indirectly by outsourcing eco-friendly products are entitled to earn carbon credits, which can be traded internationally (Times of India, 2007). As such suppliers, whose products earn carbon credits, get preference from the automakers. Automotive industry has been under intense pressure to improve its environmental position mainly for reasons of emission norms. At the same time, the industry itself is a major manufacturing activity that generates high volumes of pollutants and hence is in focus for this reason as well. The fact that AS products are derived from recycling waste steel material is its unique selling proposition. AS then has two options: i) to brand itself as a company that cares for the environment or ii) brand its steel products as those derived from recycled material. In the first option, the promotion puts the company ahead of its products, and would enable AS to include more products in its portfolio at a later date, still retaining its brand image as an environmental-friendly company. However, it would compromise its pricing ability. Promoting a company’s image is more appropriate if the special attributes of its products are perceived by the ultimate consumers. Since AS does not deal with the ultimate customers, by branding itself as an environmentally friendly company, it can not leverage this image to command higher prices from the intermediate players to whom it sells it products. If AS chooses the second option and promotes branded products, it can demand higher price for the same and thus increase its profit margins. At present AS is selling its Business strategy 9 products at a price which is lower than virgin steel materials. By resorting to product branding and promoting the benefits (carbon credits and image) that accrue to its customers, AS can revise its prices upwards to be equal to or even marginally higher than the prices of prime steel materials. The customers are to be educated about the total benefit that includes the carbon credits, while taking a view on their purchases from AS at enhanced prices. These carbon credits get built successively from AS to the sub-contractors and from them to the auto industry. Thus the entire supply chain gets to advertise its share of corporate responsiveness to environmental concerns. Any number of new products of steel or non-steel material can be included in this strategy so long as they are all recycled materials. Thus it is recommended to promote product branding. Stakeholders Product branding as decided above impacts the company and its owners and its customers in the supply chain. Company and its owners get the benefit of higher earnings if the brand promotion exercise succeeds. The company will also have the flexibility to adjust the prices within a range of the present prices and anticipated enhanced prices to suit market conditions of supply and demand. In the climate of environmental consciousness all over the world, AS can penetrate newer markets (like the emerging markets) with its products and thus overcome the constraints in its present operations. The downside to product branding is incurring the displeasure of existing customers with whom relationships have been developed over a long time. This has to be overcome by patient explanation of the benefits that still accrue to the customers as discussed earlier. The two objectives of enhancing business volumes with profit and retaining existing customers Business strategy 10 can be balanced and achieved only if the customers fully understand and see value for themselves in the new scheme of things. Hence, the product brand promotion should lay special emphasis on this aspect. Conclusion AS is operating in a business space that is facing ups and downs currently and which has also reached its full potential in the home and nearby markets. It has a successful business model that is considered desirable in the current situation of global awareness about waste reduction and pollution control. It has the management talent and resources to take forward its existing operations to newer levels of revenues and profitability. Threat of new entrants or entry of substitute products is a cause for concern particularly since the entry barriers to its line of business are not high. In this situation AS, as a part of a supply chain player, has the options to either promote its company or its products in order to obtain better prices for its products and to enter into newer markets. Since it operates in a supply chain situation and is not directly in the radar of the ultimate consumers, product branding is more appropriate. Its unique selling proposition is environmental-friendly recycling operations and this can be exploited by aggressively educating the customers of the benefits that accrue to them by using AS materials in their products. This is to be promoted as a win-win situation for all. Business strategy 11 References Bruch E. (2003). The 3 R’s of the environment, New Michigan University. Retrieved December 11, 2008 from: http://ellerbruch.nmu.edu/classes/cs255w03/cs255students/mmount/P6/intro.html Catulli, M. (2008), Review of the Environmental Goods and Services Sector in Hertfordshire, SPRING. Retrieved from: http://www.environmenteast.org.uk/resources/white-papers/ (as cited in the case study). Catulli, M., Morris, K. and Cooper, P.(2008). Abbeysteel Ltd., Case study, University of Bertfordshire. ISB Insights, 2006, Brand strategies in emerging markets. Retrieved December 11, 2008 from: http://www.isb.edu/isbinsight/ISBInsight_March2006.pdf Porter, M E., 2008. The five competitive forces that shape strategy, Harvard Business Review, January 2008. Steel on the net, Retrieved May 14, 2008 from: http://www.steelonthenet.com/production.html (as cited in the case study). The Times of India, (2007) What are carbon credits, The Times of India November 14, 2007. Retrieved December 11, 2008 from: http://timesofindia.indiatimes.com/articleshow/2539079.cms UN Conference on Climate Change, Retrieved December 11, 2008 from: http://unfccc.int/meetings/cop_11/items/3394.php Read More