Strategic Decision Making - Business Plan Example

Table of Contents Table of Contents 2 Business strategy Game 3 Chapter 2: Competitive strategy 4 Cost Leadership 4 Differentiation 4 Focus 4 Chapter 3: Industry Overview 6 Political Factors 6 Economic Factors 6 Social Factors 6 Technological factors 7 Environmental Factors 7 Legal Factors 7 Porters Five Forces 8 Threat of new entrants 8 Supplier power 8 Buyers bargaining power 8 Competitive rivalry 8 Threat of substitution 9 Chapter 5: Decisions Made 12 Year 11 12 Year 12 12 Year 13 13 Year 14 14 Year 15 14 Chapter 6: Final Results 15 Chapter 7: Reflection 16 Chapter 8: Underlying Strategic Principles 18 Chapter 9: Key Learning Points about Strategy 19 Chapter 10: Conclusion 20 Reference List 21 Appendices 23 Business strategy Game The business strategy game can be explained as a strategy simulation of a competition based exercise where the end results or outcomes are usually unique in reference to the competitive interplay between the various strategies and decisions of every group of companies in the same market (Thompson, Arthur, et al, 13). This business report aims at reporting the analysis of the footwear company Barlun de Compagnie. The report will is divided into nine sections namely: the company’s competitive strategy, industry overview, an overview of the company, the key decisions made by the company every Year, final performance report of the company, a reflection and self-appraisal, the underlying strategic principles, key learning points regarding the company’s strategy and a conclusion. Chapter 2: Competitive strategy Barlun de Compagnie has its own generic competitive strategies that has enabled it to achieve a sustainable competitive advantage of differentiation and they include: Cost leadership, Differentiation, Focus. Focus strategy in this case involves differentiation focus and cost focus (Ormanidhi, Orges, and Omer, 55). Cost Leadership The company in this case set out to be a low cost manufacturer in the shoe industry by managing its cost. Because the cost advantage sources usually vary and may involve proprietary technology, economies of scale, access to raw materials among other factors, the company tries to exploits all the cost advantage sources in order to fulfil and maintain the overall cost leadership. Differentiation In this particular strategy, the company strives to be the unique one in its industry on some aspects that buyers widely value. The company chooses one or more qualities that many buyers in that industry see as relevant and in a unique manner positions itself in the position of meeting those needs. By being unique, the company’s reward is a premium price. Focus The focus strategy of the company rests on the option of a slim competitive reach within an industry. The management which in this case acts as the focuser chooses a group of sections in the industry and alters the company’s strategy to serving the company in exclusion of other companies in the industry. In the cost focus, a variant of the focus strategy, the company searches for a cost advantage in its target section while in the differential focus variant, the company tries to find differentiation in the segment that it targets. Chapter 3: Industry Overview PESTEL model helps in scanning the athletic footwear industries external environment for political, environmental, social, technological, economical and legal factors which are beyond the industries control (Yüksel and Ihsan, 52). The factors include: Political Factors The four geographical regions are regions with no political issues, therefore the company cannot face political adversities such as export traffics, tax policy, labour laws, and trade barriers among others. The external political factors that determine Barlun de Compagnie strategies are: expanding trade policies that are free, stable political climate and government involvement in supporting infrastructure development. All this three political factors present an opportunity to the Barlun de Compagnie. Economic Factors This factors represent the larger economy and usually includes employment levels, cost of raw materials, unemployment, economic growth rates, inflation rates, exchange rates, interest rates and monetary policies. The external economic factors that determine Barlun de Compagnie performance include: developing markets rapid growth which is an opportunity for the company and also a threat in increasing labour costs, Chinese economy slowdown which is also a threat to the company. Social Factors The sociocultural factors in this case that may influence the company include: the increased attention on the safety of products which serves as an opportunity for the company to produce safer products, the significant increase in developing countries of individual wealth which presents an opportunity of tapping consumers, the improvement of attitude about leisure that are positive also serves as an opportunity for the company to adopt new strategies for product development. Technological factors The external technological factors that can affect the company include: widespread use of internet commerce which serves as an opportunity for the company developing and extending its customer reach, rapid technological obsoleteness which serves both as an opportunity and threat. Increased research and development investments by firms is another factor and serves as a threat to the company. Environmental Factors These are environmental changes (climate change and weather) that impact the athletic footwear industry especially the Barlun de Compagnie. The environmental factors influencing the company include: climate change which provides an opportunity for the company, expanding environmental law that offers the company opportunities and lastly, increased strategies among companies for sustainability which provides the company with an opportunity. Legal Factors This are factors related to the company’s operating legal environment. In Barlun de Compagnie case, the important external legal factors to address include: the expansion in the developing countries of consumer law which gives the Barlun de Compagnie an opportunity, the improvement in developing nations of employment laws which also provides an opportunity to the company. On the other hand, it poses a threat to the company. Porters Five Forces Porter’s theory of five forces of competition is founded on the notion that there exists five forces that ascertains definitely a markets competitive attractiveness and intensity (Porter, 32). The five forces are: Threat of new entrants Any market that is profitable usually attracts new entrants and in the process diminishes profitability. In case the profitable market have no standing barriers to entry into the market such as capital requirements and government policies, then the profitability of the market declines to a competitive rate as new competitors enter the market. Supplier power In case there are fewer supplier choices and the company requires a supplier’s assistance, then the suppliers are more powerful than the company. In this case the suppliers bargaining power is low and hence the company obtains its supplies at a lower cost. Buyers bargaining power Because of the nature of the athletic footwear market which is competitive, the buyers bargaining power has increased because they have many options to choose from. This means that the buyers have the ability to drive the shoes prices down. Therefore, in order for the company to encourage customers to buy their shoes, the company should create a better scheme and a friendly environment for customers. Competitive rivalry The athletic footwear industry has a number of key players, therefore Barlun de Compagnie is experiencing competitive rivalry of high intensity because of the number of companies in the available market. Through the strategies of innovation and sustainability, the Barlun de Compagnie can survive the competition by achieving its mission. Threat of substitution In the athletic footwear market, there exists substitute products which increases the probability of customers switching prices in response to price changes. However, despite the threat of substitute products Barlun de Compagnie has a competitive advantage over other companies of offering unique products of high quality at a lower cost. Chapter 4: Company Overview Barlun de Compagnie is a company tin the athletic footwear industry that deals with the production of sports shoes. Barlun de Compagnie vision is to be the leading unique and worlds best footwear company through the implementation of the differentiation strategy. Its mission is to be able to provide their customers with a high quality and comfortable footwear product available in more than one model. The Barlun de Compagnie operates in four geographical regions worldwide namely: Europe-Africa, Latin America, North America and Asia-Pacific. Currently there are about 4 to 10 companies (determined by class size and managers assigned) operating in the athletic footwear industry (Porter, 130). The company’s competitive positioning in relation to its product is that in the Europe-Africa region especially Africa, there is a ready market for the companies readily available sport shoes for running because of the increasing interest in sports and Africa’s spotlight in Olympics. In North America many individuals including nurses use the sport shoes not only for sports but also casually which have increased the company’s market share. In Latin America, the company enjoys a large market for soccer sport shoes especially in Brazil which has a soccer culture. In the Asia-Pacific region, the company enjoys a wide market coverage of its sportswear usually the sports fans the company also enjoys low labour costs which increases its profits. The main strengths of the company is that it has a strong global brand all over the world. Secondly, the company also enjoys low manufacturing costs because of its operations in the above mentioned regions. Lastly, Barlun de Compagnie invests largely on research and development which helps the company innovation of new quality products. Some of Barlun de Compagnie weaknesses include: the company charges high prices for their products than their competitors and the perception that is ongoing regarding the company’s poor labour practices. Chapter 5: Decisions Made Year 11 In the beginning of year 11, Barlun de Compagnie decided to invest $75000 as opposed to the previous year where they had an investment of $180000. The company also increased base wages compensation per worker in relation to the previous year. The company also lowered the number of employees employed and in the process also lowered the number of shoes produced as compared to year 10 in order to cut costs. The company also lowered the price of their products in order to increase their market share in all the four markets which in turn led to an increase of return on investment as compared to year 10 by 7.5 percent. Another key decision made by the company involves internet marketing of branded footwear decisions where the company decided to provide an average of 177 models in all the four regions for online buyers. The company had to make a shipping decision where in some regions the company provided free shipping to its clients instead of asking the clients to pay for the shipping. This decision helped in boosting the company’s online sales where customers were attracted by the free shipping. The company also made an internet adverting decision where across the four regions, the company spent an average of $3164. This enabled the company to meet its investor expectations of 15 percent on return on investment. The company maintained a credit rating of A- with an S/Q rating of 5 stars (refer to the appendices page). Year 12 In year 12, the Barlun de Compagnie in the North America market increased the price per pair of shoe from $50 to $53 and cut their advertisement by $500000 as compared to the previous year. The company also increased their delivery period from 2 weeks in year 11 to 3 weeks. Celebrity appeal was increased to 170. All these decisions lead to an increase in demand from 1.269 million to 1.355 million. The market share also increased from 13.2 to 13.7 percent. In this year, the company made an internet marketing decision where they lowered the price of their online products to an average of $70.45 per pair as compared to the previous year of $73.49. This increased the company’s online sales as well as marketing the company’s products. Another key decision made involves wholesale marketing decision where the company increased the wholesale price from $ 42.79 to $44.03. Due to this reason, many retailers will be willing to buy and sell the company’s products since the increase in online prices enhances the sale of footwear in every retail outlet because of the company spending an amount that is above-average for retailer support in comparison to the company’s rivals. The company maintained a credit rating of A- with an S/Q rating of 5 stars The S/Q rating also increased from 5 to 6 stars (refer to the appendices page) Year 13 In year 13, in the Europe-Africa market, the company made a private label decision of 100 pairs for market growth purposes where it have made projections that the market segment will grow to approximately 10 percent annually in year 11 to 15. This decision allowed the company to make use of the plant capacity in a more efficient way. The production volume that was added from being a low successful bidder to supplying private-label shoes to retailers of chain stores assists in spreading fixed costs over many pairs and this can help improve the company’s overall performance financially. The company also made a plant capacity decision of adding a plant capacity of 4000 in the Asia-Pacific region in order to increase the plants operating capacity. The company also made a financial decision of obtaining additional capital from investors of $180,000. Another decision made entailed branded production on the number of models to be produced which are 250. The company met investor expectations of earnings per share, stock price and a credit rating of A (refer to the appendices page). Year 14 In year 14, the key decisions made by the company include: increasing the plant capacity of 2000 for its plant operation and an investment decision to finance its operations of selling shares to investors amounting to $75,000. Corporate social responsibility decision regarding worker compensation of $19,687 compared to the previous year of $21,255 and hiring decisions where the company hired 11 more workers. The company managed to meet the investor’s expectation of maintaining credit rating of A and an image rating of 70 but failed to meet other investor expectations on EPS, stock price and ROE (refer to the appendices page). Year 15 In the year 15, the decisions made by the company involved shipping decisions .of a 0.1 average in all the four plants because no finished products are stored in the plants. Another decision made involves wholesale marketing where the company lowered its price for wholesale selling in some of its markets leading to an increase in demand from an average of 1153 to 2215. In this particular year the company managed to meet some investor expectations such as credit rating of A, image rating and stock prices (refer to the appendices page). Chapter 6: Final Results Due to its differentiation strategy the Barlun de Compagnie now enjoys a wide retail coverage and market share in all the four markets it operates in. The company is one of the leading market leaders in the athletic footwear market. In the North America market, the company has more retailer coverage than in the other regions based on year 15. However, in terms of market share, the company’s market share in this region has decreased from 14.6 percent in year 14 to 13. 8 percent in year 15 (refer to the appendices page fig: 1). In order to increase its market share and maintain its position, the company’s overall competitive positioning involves three strategies which include: overall market expansion through the targeting of non-users by the promotion of the company’s sport shoes as fit for other casual occasions and not only for sports. Secondly, guarding the company’s existing market share through continued product innovation, concentrating on the company’s competitive advantages and increasing customer and distributor relations. Lastly, expansion of the company’s market share through price incentives, geographical expansion into new markets and heavy advertising. Chapter 7: Reflection In the business strategy game, being allocated as a top management executive responsible for making the company’s strategic decisions that would determine the company’s performance in relation production and profits was a big responsibility which required commitment and an individual to think in a business-like manner. In every key decision made, the company’s strategies were altered in order to maintain a competitive advantage of the company over its rivals. So far, the strategic decisions made produced positive results that maintained the company’s competitive position in the market place. Even though it is a very challenging process, strategic decision making for a company’s success requires teamwork and vision. The top management should therefore make a strategic statement that contains both the company’s long term and short term goals and ways in which the company will achieve those goals. In order to achieve both the long-term and short-term goals, the management must first play their main function of management which involves division of labour, communication, providing direction for the company and decision making. In terms of direction the management build an effective work climate and creates an opportunity for motivation, supervision, disciplining and scheduling. In general, the directing function is performance oriented it therefore provides a link between managerial functions such as staffing, planning and organising. The function of directing is a continuous process in managing the company’s employees (Lustig, Myrone and Jolene Koester, 5). In division of labour, the manager breaks down the production process into a set of tasks which he then assigns the tasks to different employees. However, even though division of labour makes work easier and increases productivity, increased work specialization can lead to low overall skills of workers and low motivation for their work due to increased repetition of the same tasks (). Strong communication skills by managers helps in improving employee productivity and performance which in turn contributes positively to the organization. Through effective communication a manager provides timely information to his subordinates, values employee opinions by offering them a chance to air their views. Communication plays a major role in organizational success. Allocating resources is another top management function that plays a major role in achieving organizational success. Managers therefore play the primarily duty of allocating and managing assets in a way that will support the strategic goals of the company. This process of resource allocation involves managing assets that are tangible like hardware in order to make the best use of assets like human capital. When allocating resources, the manager must be able to balance the companies competing priorities and needs and in the process determine the course of action that is more effective in maximizing the effective use of the resources that are usually limited in nature and gain the most in the company’s return on investment. However, before allocating resources a company must first set its desired objectives which can include better brand recognition or increased revenue. The areas that require resource allocation for the company to be successful involve human resources department, marketing department, manufacturing department, corporate social responsibility and financial performance. Chapter 8: Underlying Strategic Principles In the organizational context, strategic thinking entail generating and applying of unique business opportunities and insights primarily intended for the creation of a company’s competitive advantage. It can be done by a manager or collaboratively between a manager and his co-managers to alter the company’s feature. Through strategic thinking, a company’s top management is able to develop a strategic foresight that helps in a company’s decision making process (Kapferer and Jean-Noel, 86). Strategic visioning main goal is to define a company’s purpose and ways in which the company will accomplish its purpose over time. Through strategic visioning, a manager is able to figure out the direction or where the company is going by understanding the company’s past, current position and the company’s possible future directions it could take. Strategic vision involves key components such as a company’s mission, strategies, values and vision which are answers to strategic visioning key questions of “what does the company do?” and “in which ways can the company be successful among similar companies?”. Strategic management deals with the implementation and formulation of initiatives and the main goals taken by the top management of a company who represent the owners in consideration of an external and internal environment assessment and resources in which the company competes (Pearce, John, Richard, and Ram, 124). It helps in the specification of the objectives of the company and the development of plans and policies of fulfilling those objectives followed by the allocation of resources for the implementation of the plans. Chapter 9: Key Learning Points about Strategy Assessing a company’s macro-environment is the first stride in the strategic analysis process. Micro-environment analysis is also sometimes known as PESTEL analysis. PESTEL model of analysing an industries macro environment helps in identifying the external factors that provide opportunities and threats in the remote environment and are outside the company’s industry control. The analysis of the macro-environment answers questions such as: “what are the environmental factors that can influence the growth of the athletic footwear industry as a whole?”, “Will the industry experience growth or shrink in the next five to 10 years?” (Voss and Bristol, 47) In today’s business environments, managers are faced by complexities of running companies such as: 1) Customer, employee, business models, suppliers, socio=political and management systems diversity which forces managers and leaders to respond to a situation of ever increasing and conflicting demands from all the stakeholders. 2) Interdependence where globalizations web of connections has led to the intertwining of company’s corporate governance, exposure to shocks, value chains and financial flows. In this case, local events have the capacity to cause global effects. 3) Ambiguity where information overload usually with conflicting numerous data points makes it difficult for the top management of companies to pin down casual data relationships leading to lack of a valid course of action or decision making (Steger, Ulrich, Wolfgang, and Martha, 280). Chapter 10: Conclusion Strategic decision making process entails creating the mission, objectives, goals and values of an organization. Before deciding on a particular plan of action to take, a manager must first alter the organizations strategy on the basis of observed outcomes. The strategic decision making process has the capability to transform an organization into a large group of companies. In order for an organization or company to be successful, the top management must all be actively engaged through teamwork in the decision making process. Individuals should also realize that one does not need to have actual experience in the business world in order to be able to make business strategic decisions. Reference List Kapferer, Jean-Noel. The new strategic brand management: Advanced insights and strategic thinking. Kogan page publishers, 2012. Lustig, Myrone W., and Jolene Koester. "Intercultural competence." Interpersonal communication across cultures (2003). Ormanidhi, Orges, and Omer Stringa. "Porter’s model of generic competitive strategies." Business Economics 43.3 (2008): 55-64 Pearce, John A., Richard Braden Robinson, and Ram Subramanian. Strategic management: Formulation, implementation, and control. Chicago, Illinois: Irwin, 1997. Porter, Michael E. "The five competitive forces that shape strategy." (2008). Porter, Michael E. Competitive strategy: Techniques for analyzing industries and competitors. Simon and Schuster, 2008. Steger, Ulrich, Wolfgang Amann, and Martha Maznevski. Managing complexity in global organizations. Vol. 5. John Wiley & Sons, 200 Thompson, Arthur A. Stappenbeck, et al. The business strategy game: A global industry simulation. McGraw-Hill,, 2002. Voss, Bristol Lane. "Simplified Strategic Planning: A No-Nonsense Guide for Busy People Who Want Results Fast." Journal of Business Strategy 22.2 (2001): 47-47. Yüksel, Ihsan. "Developing a multi-criteria decision making model for PESTEL analysis." International Journal of Business and Management 7.24 (2012): 52. Appendices Fig: 1 Fig: 2 Fig: 3 Fig: 4 Fig: 5 Fig: 6 Read More