Goals and Objectives of Speed King Cycles - Case Study Example

Goals and Objectives of Speed King Cycles Executive Summary The purpose of the report is to attempt to compile a strategic plan for Speed King Cycles using Mikes Bikes Single Player Business simulation. The report will try to evaluate the current competitive strategies that can be implemented in the bicycle industry for a period spanning for five years. The paper starts by highlighting the core business of the firm, Speed King Cycles followed by industry analysis through utilizing the Porter’s five forces as well as SWOT analysis. This is followed by attempting to establish the vision, mission and objectives of the firm. Evaluation of various selections of strategies will also be covered in this section through the utilisation of particularly the cost leadership and differentiation strategies and how they can be adopted. This section also attempts to reflect on the advantages and risks of using the chosen strategies. Finally, an assessment of the competitive position will be illustrated through the use of recommendations as to which strategic positioning is the most viable. 1. Introduction The report attempts to compile a strategic plan for Speed King Cycles using Mikes Bikes Single Player Business simulation. This report will come up with strategies that can be adopted during the next five years by Speed King Cycles, a firm operating in Erehwon, a typical western economy. In this case, Speed King Cycles is regarded as a bicycle manufacturing company operating in a competitive environment. The major notable competitor in the industry is Real Cool Cycles. The report will try to evaluate the current competitive strategies that can be implemented in the bicycle industry for a period spanning for five years. In this case, the most appropriate tools to analyse the environment and the company would be mainly based on Porter’s Five Forces model and SWOT analysis. Strategy formulation will mainly draw from Porter’s generic to establish the competitive advantage through the utilisation of the Single Player Business simulation. The vision, mission as well as objectives for the company will be explored in this report which will be followed by the evaluation of various options as well as selection of strategies suitable for the company using Porter’s Generic model as highlighted above. Thus, in view of the above mentioned issues in respect of planning as well as decision making about the firm, the major aim of this report is to suggest strategies that can be adopted and give a critical analysis of the best method of monitoring key success factors particularly through the use of performance management as well as other data such as statistics obtained from the sales. Reflection about the overall performance of the strategies would be given at the end of the analysis. 1.1 Planning Planning is considered to be the starting point of any management process (Bates et al 2006). In other words, before you can do anything in business, you need to determine in advance what you want to achieve and this will help you to visualise the end result and set objectives accordingly. Therefore, we can say that planning is the process in which objectives are decided upon and the plans on how to reach them are put together. This report would outline the plans necessary in implementing strategic changes that are meant to improve the performance of the given organisation through the analysis of various factors involved in the whole process of decision making. Planning is very important because it gives the people in the organisation an idea of the direction in which the business is going. The firs step in planning for strategic changes involves an assessment of the organisation’s environment as going to be illustrated below. 1.2 Industry Analysis Through the use of Porter’s five forces model, this study will analyse the decision making as well as strategic formulation of Speed King Cycles. The company is involved in bicycle manufacturing and selling business in Erehwon and is regarded as the largest bicycle manufacturer in that country. Information obtained through Mikes Bikes Single Player Business simulation posits to the effect that, Speed King Cycles is the largest bicycle manufacturer with a market share of about 36% and with about 82 stores across the whole country and strives to maintain its leading position in the market through the use of decisions such as marketing communications meant to appeal to more new customers. According to the simulation, Speed King Cycles is currently the most trusted own brand among other products by rival competitors. It can be noted that almost half of the shoppers have trust in its products and statistics show that it has a 36% shareholding compared to 26% for Real Cool Cycles, 19% for Hope Mountain Bike and the remaining 19% shared by other smaller competitors. Besides dealing in manufacturing of bicycles, Speed King Cycles also deals in selling the bicycles through retail outlets. 1.2.1 Five forces Model According to an online article, ‘Five competitive forces -Porter,’ the five forces model of Porter is, “an outside in business strategy tool that is used to make an analysis of how attractive an industry is.” This is often regarded as a reliable business tool in most cases (McCarthy J.E & Perreault W. D. 1996). Fig 1. Porter’s Five Forces Model Entry of competitors The entrance of other low cost service providers may lead to growing competition resulting in other businesses loosing customers to rival competitors. No one company enjoys monopoly in the market. Threat of substitute This depends on the probability of a substitute overtaking the product already in the market in terms of cost. Can the service or product be easily replaced? Bargaining Powers Of Buyers This depends on the spending capacities of buyers on certain products. In this case focus is the company in question’s ability to capture the market. Bargaining powers of suppliers Depends on how strong the sellers are. Are there many suppliers or there is monopoly? Rivalry among the existing players - Does a strong competition among the players exist? Whilst Speed King Cycles is regarded as the largest cycle manufacturer in Erehwon, there are also competitors in the industry such as Real Cool Cycles and Hope Mountain Bike among others that cannot be ignored. Source http://www.12manage.com/methods_porter_five_forces.html The table above shows the five competitive factors that are likely to affect a business and will be used in this report to illustrate how the above mentioned companies are affected by these competitive forces. The entrance of low cost service providers may lead to growing competition resulting in other businesses loosing customers to rival competitors as customers would tend to switch to lower priced products. For instance, the recently introduced lower priced mountain bike by Speed King Cycles has seen a shift in the buyer behaviour of customers resulting in a rise of sales compared to other competitors. Other companies like Real Cool Cycles also do enjoy economies of scale which is advantageous to them which is a healthy situation in a competitive environment. Overally, the market is open where new entrants can enter into business without much hindrance and this serves to promote competition among competitors in the same industry. The threat of substitute depends on the probability of a substitute overtaking the product already in the market in terms of cost. A good example can be cited in a situation where light sport bikes can be introduced to the market. Following the current financial crisis characterising the global economy, Speed King Cycles can bargain from offering bicycles for comparatively lower prices while maintaining high quality through reengineering. Bargaining of powers of suppliers by Speed King Cycles will see the production cost of many items being lowered. This would then result in them accumulating lower costs in their production hence influencing the decline of prices in many items. This position leaves the firm with advantage over others. If the company has the ability to out compete its rival competitors in its supply chain, it would have the advantage of determining even lower prices and would remain profitable which is one viable strategy to be adopted. Bargaining of powers of buyers depends on the spending capacities of buyers on certain products and their concentration in a given area where a firm is operating. In this particular case, focus is on the company’s ability to dominate the market. One other aspect is that of differentiation of products whereby the customers would like to see if the products are standardised. Lastly, rivalry among players depends on the structure of competition existing in the industry. Rivalry will be less if there is a clear market leader and more if there are equally many small sized competitors. Indeed, Speed King Cycles is the clear cut leader in the industry but the existence of other competitors though they may be comparatively smaller cannot be ignored as this would be folly. 1.2.2 SWOT Analysis A SWOT analysis defines the relationship between the internal and external environmental factors in the appraisals in strategic analysis (Robinson 1997). Basically, SWOT stands for strengths, weaknesses which represent the internal environment of the firm while opportunities and threats are external environmental factors. It is primarily concerned with analysing the key factors of the environment and the fundamental internal strengths and weaknesses of the organisation which will help dictate the strategies appropriate to the firm. This must be based on a realistic appraisal of the organisation’s past and present performance. The organisation’s strategy must take into account its resources and competitiveness. Therefore, the objective of this analysis is to use the strategic pointers in order to use the existing business strengths to exploit the opportunities, create new opportunities, to counteract threats and repair the weaknesses (Robinson 1997). By virtue of using the same technique to assess the competitors, the organisation can capitalise upon those competitors’ weaknesses and avoid going head on against their strengths. The main strength of Speed King Cycles is that its present performance is quite handsome compared to other competitors hence the need to capitalise on this advantage in a bid to create new opportunities while at the same time striving to minimise the weaknesses that may challenge the operations of the firm. Competition in the market is the major threat which needs to be carefully countered in order for the firm to maintain its status quo in terms of high sales. 2.0 Vision We will consistently produce the lowest-cost sport bikes, using our cost advantage to enable anyone to own a good quality speed bike. 2.1 Goals and Objectives of Speed King Cycles To remain the leading bicycle manufacturer in the market. To lower costs of production while upholding high quality and consistence. To increase profit margins in the next five years through consolidating the market share. To increase the rate of sales through attracting more customers. 2.2 Decision making process Having outlined the desired objectives and goals of the organisation, it then becomes the role of the management to decide what the organisation wants to achieve and then they need to coordinate the resources of the organisation in such a way that it will be better positioned to achieve the set goals. This is where strategies play an important role. Basically, a strategy is defined a planned method to help the organisation to achieve its mission (Bates Et al 2005). 3.0 Evaluation and selection of key strategies 3.1 Competitive Advantage There are many successful business organizations in the market that are strategically so viable to such an extent that rival competitors can hardly exceed their performance. Such stable status can be achieved only when they apply certain strategies that can hardly be imitated by the competitors for long-term survival and stability, which is known as competitive advantages. Porter (1980) suggested a framework for competitive advantage through his generic strategies. In order to survive in the long term, Porter (1985) has argued that a firm needs to have sustainable competitive advantages. There are two sources of competitive advantage; cost advantage and differentiation as illustrated in the diagram below. Through his generic strategies, a ‘Cost Leadership’ is where a firm seeks to be low-cost producer in its industry whereas ‘Differentiation’ is when a firm seeks to be unique in its industry through features of its products that are highly valued, and ‘Focus’ where a firm focuses on a segment in its industry using a low cost approach or a focus segment of differentiation. Porter argued, that for a company to ensure long-term profitability, it needs to be clear in its strategic positions and try to exclusively pursue one of them otherwise it will become ‘stuck in the middle’. Thus, in this model A Cost Leadership is where a firm seeks to be the low-cost producer in the industry. This is the most ideal strategy that can be adopted by Speed King Cycles since it would give it a competitive advantage while at the same time minimising costs in the production chain. Porter argued, that for a company to ensure long-term profitability, it needs to be clear in its strategic positions and try to exclusively pursue one of them otherwise it will become ‘stuck in the middle’. The report will also attempt to look at how both low cost leadership as well as differentiation strategies may impact on their operations. Fig 2. Porter’s Generic Competitive Advantage Source: http://www.ifm.eng.cam.ac.uk/dstools/paradigm/genstrat.html University of Cambridge- Institute of Manufacturing Retrieved 23 July 2009. 1. A firm chooses to become the low cost producer in the industry in cost leadership. 2. In differentiation strategy a firm chooses to be unique from others. 3. In cost focus, a firm seeks a cost advantage in its target segment. 4. In differentiation target, a firm seeks to be different in its target segment. 3.2 Differentiation In a differentiation strategy, an organisation seeks to be unique from other competitors in the industry where it offers products or services that are valued by the customers. An organisation strives to select one or more products with attributes that are perceived as important by the customers and it attempts to uniquely position itself in the market inorder to meet such unique needs. For instance, the firm can choose to customise its service such as doing the repairs themselves at their own workshops instead of the customers seeking service from somewhere else. Ultimately, the firm will be rewarded with a handsome price for being unique in the services it provides. 3.3 Cost Advantage As far as marketing is concerned, Speed King Cycles should take into consideration the marketing mix which includes the four Ps namely; product, price, promotion and place (distribution). 3.3.1Price: In this regard, the firm will steadily reduce the retail price down to around $1400 over the next 5 years as a way of attracting more customers. The strategy of lowering prices is very effective especially in attracting new customers as well as retaining the old customers. 3.3.2 Promotion: It's important that the customers know that the firm’s bikes are the best price. The firm will increase product media advertising to around $1.5m and increase firm branding to around $300,000. Later, the firm may consider increasing product PR efforts in a bid to raise awareness of the product offered . 3.3.3 Distribution: The organisation will maintain the current margin that is offered to the distributors and will mainly rely on increased sales volumes to attract more stores. Consideration will also be given to increasing distribution outlets in the form of opening more retail outlets across the country. 3.4 Product Development The firm will engage in the process of reengineering, modifying the existing product to have a lower prime cost every second year. This will support the basic cost advantage as it would seek to lower the cost while modifying the product. 3.5 Operations 3.5.1 Responsiveness: Speed King Cycles will have to increase its production capacity in order to maintain a good level of responsiveness to this segment. The firm will strive to expand its operations initially to the capacity of 40,000 and hire 30 more workers. However, it will anticipate having to increase capacity still further in the longer-term. 3.5.2 Quality: The adventurer segment demands high quality so the firm will increase training to around 100 hours, increase maintenance levels as the plant expands, improve relationships with suppliers, and increase inspection to 18%. All this effort will help the firm to improve the quality of its product. 3.6 Finance Equity: The firm does not expect to need to raise cash through share issues. Dividends: The firm will distribute 20% of profit as dividends. Debt: It is hoped that the company will finance its bid for expansion from existing cash flows, but will, if necessary, increase debt to finance it. It would not be expected that increased cashflows following the expansion would allow the organisation to repay any such debt quickly. 3.7 Expected Result Assuming that the firm’s competition structure follows a complementary high margin strategy, in five years it will expect to be selling 30,000-40,000 bikes (generating revenues of around $25m), making a tax-paid profit of around $7m or $3.50 per share. The firm would then be expecting the share price to approach $30 at this time if the strategy has been properly implemented. 4.0 Methods of Monitoring key success factors Having embarked on a drive to establish some major strategic changes to spruce up the performance of the firm within a period of five years, there ought to be some kind of mechanism in place that can be used to monitor progress of the organisation’s performance. During the contemporary period, businesses are faced with inevitable challenges in the market such as competition hence new strategies ought to be promulgated and monitored constantly so as to ensure compliance with the set goals and objectives of the organisation. For instance, the entrance of other competitors in the industry has often seen the destabilisation of pricing structure in the market place whereby the prices are forced down in some cases. It is against this background that Speed King Cycles seeks to consolidate its profitability by way of reduction of costs. This would also include making major improvements in the manufacturing sector while at the same time cutting costs on production but striving to maintain high standards. The most appropriate methods which can be used in this case to monitor progress would include performance management as well as monitoring the statistics of revenue generated through sales if there would be any improvement over the stipulated five year period. 4.1 Performance management Inorder to monitor performance of an organisation which would be undergoing a facelift in its strategic operations, there would be need for that organisation’s management to closely monitor the ongoing process since it would take about five years to be completed. Performance management therefore, is the process of total quality management (TQM) programs using all of the tools including performance appraisal to ensure achievement of performance goals (Carrell, R. et al 1995). In this particular case, tools such as reward systems, job design, leadership and training should all be regarded as part of a comprehensive approach to performance. Thus, according to Carrel et al (1995), research has shown that the number one desire of HR executives is to design performance management systems to achieve business goals. In this case, the goals of the business include the following: To remain the leading bicycle manufacturer in the market. To lower costs of production while upholding high quality and consistence. To increase profit margins in the next five years through consolidating the market share. To increase the rate of sales through attracting more customers. Therefore, companies are more interested in finding ways to get their strategic goals implemented at lower levels and lower costs within an organisation which also should be the case with Speed King Cycles as a way of monitoring progress on the initiative of new strategic decisions embarked on over a five year period. 4.2 Sales monitoring Another effective method of monitoring progress on the key success factors would involve a constant check on the statistics of sales. One easy and simple method of monitoring progress of a profit making business organisation would involve an analysis of the sales statististics in comparison with the previous records. If ever there is an increase in the number of sales within the five year stipulated period, then it would mean that there is positive development as far as performance appraisal is concerned. In most cases the number of sales is the simple method that is used to determine the extent to which the organisation would be developing positively. A decline in the number of sales compared to the same period during the previous year would mean that the company is badly performing during the stipulated period of implementing the strategic changes that would have been initiated. On the other hand, the profitability of the organisation would also be determined by the total revenue generated from the total sales. There may be a decline in sales in some cases but the organisation would remain profitable considering that the prices would be fairly high to outweigh the limited number of sales. In this case, Speed King Cycles has embarked on a drive that is meant to lower costs in production resulting in the reduction of the overall prices of the product offered on the market. Therefore, it would be expected that this move would likely generate more sales since the prices would have been lowered hence a good method to measure performance and ultimately profitability. Indeed, more customers would be attracted to buy the reengineered product with a lower price compare to the existing one on the market. From this assertion, it can be noted that this is one of the simplest ways of monitoring progress of the changes initiated as a result of the strategic decisions proposed. Reflection on the plan versus the firm’s performance Having carefully undertaken the plan to embark on major strategic changes within the operations of the organisation in strategic decisions as highlighted above, it is imperative for the organisation to constantly reflect on its performance in comparison to its previous status before the major changes. During its five year period using the monitoring system outlined above, there should be remarkable change in the overall performance of the organisation. Positive growth in terms of sales and profits should be witnessed since the initiative would be meant to lower the prices thereby attracting more customers to buy the product. Failure to witness this positive development would mean that there would be little change with regards to the company’s overall performance which would be a negative development. Conclusion Over and above, it can be noted that Porter’s five forces model is very useful in modelling the premises upon which a business can operate as it would give all the information about the market especially with regards to other competitors in the industry. SWOT analysis is also a viable tool in establishing the organisation’s position with regards to its performance in comparison to other competitors. It is imperative for any firm to have information about how other similar businesses in the industry operate as a way of gaining knowledge that can give it competitive advantage over other rival competitors already in the market. The major strategies that can be adopted include Porter’s generic model of A Cost Leadership as well as competitive advantage. Indeed, both differentiated as well as cost leadership strategies have their own advantages. 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