Strategic Planning and Control - Coursework Example

STRATEGIC PLANNING AND CONTROL Lecturer: Contents Introduction 4 Mission and vision ments 4 Mobile Inc Mission ment: 4 Mobile Inc Vision Statement: 5 External opportunities and threats 5 Mobile Inc’s internal strengths and weaknesses 9 SWOT matrix 11 Advantages and disadvantages of alternative strategies 12 Recommend specific strategies and long-term objectives 14 Cost analysis for each projected year 16 Forecasted ratios and projected group financial statements 17 Income statement 17 Statement of financial position 19 Cash flow statement 20 Implementation and Results 21 Conclusion 22 References 23 List of Figures Figure 1: Smartphone Market Share 8 Figure 2: Unit production against cost of production 17 List of Tables Table 1: Percentage of global Smartphone market share 9 Table 2: SWOT Matrix for Mobile Inc 11 Table 3: Unweighted decision matrix 14 Table 4: Weighted decision matrix 14 Table 5: Cost analysis 16 Table 6: Projected income statement (amounts in thousands) 17 Table 7: Balance sheet (amount in thousands) 19 Table 8: Cash flow statement (amounts in thousands) 20 Introduction Several reasons account for the fast growing nature of the mobile phone industry. For example, there is the integration of numerous technological platforms fitted into the single device of a smartphone, making it capable of performing most day-to-day complex tasks. To companies such as Mobile Inc in the mobile phone sector, the existing growing pace of the company gives several implications for both production and marketing. This is because of the high level of competition associated with the industry, making it necessary for industry players to have a carefully meted plan that makes it possible to forecast their strategic position in the industry within the short to long term basis (Utterback, 2004). In this business report, the planning and control cycle is used to strategically plan and control the future of Mobile Inc for the next five years. As part of the planning and control cycle, there will be the analysis of opportunities, identification of aim, exploration of option, selection of best option, detailed planning, planning of evaluation, planning of implementation, and closure of plan. The report is presented by Huang tianchi, Ma sichao and Lang liang, who are senior research officer, head of marketing, and head of corporate affairs of Mobile Inc respectively. Mission and vision statements Mobile Inc Mission Statement: Mobile Inc is a global communication giant with empowered spirit to reinvent the way in which the world connects and communicates. The company offers communication solutions that put individuals, businesses, organisations and governments on the go with just a click of a mobile icon. Mobile Inc Vision Statement: Mobile Inc’s vision is to build on its rich history to gain a dynamic and versatile future that is able to meet the prevailing changes of the mobile phone industry. External opportunities and threats As far as the external business environment is concerned, the company can be said to have its toughest competition. These competitions are better highlighted with Porter’s five forces. The first force that Mobile Inc faces is the threat of new entrants. The mobile phone industry is one that operates a fair market structure, which means that new firms can easily enter the market with very little restrictions (Mallon, 2008). Meanwhile, studying the trend of entry into the mobile phone industry, Nielsen, Nykodym and Brown, (2011) noted that most new entrants come in as existing giants who are very successful in other industries, particularly software development and computer manufacturing. As a result of this, these new entrants come in with very formidable operating capital, posing much competitive threat to existing companies. Given Mobile Inc long years of service to customers however, it is expected that the company will be able to overcome this threat of new entrants with the brand equity it has developed over the years. This is because the company’s brand equity in the mobile phone industry makes it easily identifiable with customers (Peter and Olson, 2007). There is also the threat of substitute products, which describe the extent to which a consumer may have an alternative product that provides the very form of services that they would derive from the products Mobile Inc offers (Porter, 2008). In this, it is possible to say that one may find isolated devices that provide all forms of services on the mobile phone platform. Some of these services include phone calling, text messaging, radio, digital camera, radio, calculator and the like. There are however very few device that can give all the services on a mobile smart phone all together. A tablet computer and some forms of laptops may however be able to do this. However, when considering potential factors such as portability and price propensity of substitute products, one would understand that the mobile phone is the most convenient device for a consumer to use to achieve most of the services named. On the external environment therefore, the threat of substitute product is not a very intensive threat that Mobile Inc is faced with. The mobile platform is actually an opportunity for the company. Bargaining power of suppliers is another force considered as part of the external environment which defines the extent to which suppliers have control over cost of production (Pedersen and Huniche, 2006). According to OSullivan and Sheffrin (2003), bargaining of suppliers become intensive when there are fewer suppliers serving several companies. In situation like this, bargaining power of suppliers go high because companies have to pay for specialised service to avoid potential delays with the supply of raw materials. As far as the mobile phone industry is concerned, there may be as many suppliers of raw materials and parts as possible (Monks and Minow, 2001). However, those that are recognised as global suppliers who offer high quality parts and raw materials may be limited. This is where there is a threat for Mobile Inc. The company may however overcome this threat by ensuring that it avoids dependence on fewer suppliers. This is because Nidumolu, Prahalad and Rangaswami (2009) noted that where there is more than one company supplying to a single company, there is competition created among the suppliers, causing them to use cost leadership and other forms of enhanced services to gain competitive advantage from the parent company. The forth force is the bargaining power of customers, which explains the extent to which consumers have the power to force companies to review prices downwards (Porter, 1980). This is one form of threat that can be said to be highest for Mobile Inc. The core reason for higher bargaining power of customers is the numerous number of service and product providers in the mobile phone industry. This is because Porter, Argyres and McGahan (2012) posited that when there are several service providers with fewer buyers, most service providers tend to reduce prices so as to attract the most ordinary consumer who prioritises lower pricing. Once this is done, the bargaining power of customers goes up because they tend to expect such cheaper prices from all other service providers. The companies are also forced to review their prices downwards in such instances because failure to do so would cause their customers to move to competitors offering lower prices (Mallon, 2009). At Mobile Inc, it is possible to overcome this threat by introducing a number of loyalty programmes for customers. Such loyalty promotions can ensure that customers stay with the company without shifting to competitors. The last external competitive force that Mobile Inc faces is intensity of competitive rivalry, which describes the extent of competitiveness among rivals in the industry. Within the mobile there can be two major types of competitors or rivals, which are global leaders and others. The global leaders are Samsung, Apple, Huawei, Lenovo, LG, whiles all others are categorised as others. From the graph below, it would be noted that the market share of the five global leaders alone amount to 53.3% of share in unit shipment. Figure 1: Smartphone Market Share Source: IDC (2014) The figure above is itemised in the table below, where it is seen that Mobile Inc has only 46.7% of market share to compete with all other mobile phone manufacturers in the world other than the five global leaders. This is a very tough competitive situation that Mobile must deal with. This is because apart from the global leaders, there are others like Windows, Motorola, Nokia, and Sony who control greater part of the 46.7% remaining. Table 1: Percentage of global Smartphone market share Period Samsung Apple Huawei Lenovo LG Others Q2 2014 24.9% 11.7% 6.7% 5.2% 4.8% 46.7% Q2 2013 32.2% 13.0% 4.3% 4.7% 5.1% 40.7% Q2 2012 32.2% 16.6% 4.1% 3.1% 3.7% 40.2% Q2 2011 17.0% 18.8% 2.5% 0.2% 5..7% 55.7% Source: IDC (2014) Mobile Inc’s internal strengths and weaknesses Orivel (2006) noted that one of the most useful ways to undertake internal analysis of the internal strengths and weaknesses of an organisation is through the use of SWOT analysis, which identifies how well the company is placed internally to perform. From the SWOT analysis elaborated below, it could be noted that one of Mobile Inc’s best competitive levels is at the internal level. Internally, the quality of mobile phones from Mobile Inc is considered to be of superior standard. On its own, Mobile Inc has also achieved a strong brand name and have distinctive aesthetic look for its mobile phones. This means that as far as the outcome of production which takes place at Mobile Inc is concerned, the company can be said to have a major strength with its products. More to this, there is a strong workforce which has worked together for several years, helping to build a very formidable workplace telepathy which is free of frequent causes of organisational conflict. As a result, the company is able to get along well and focus on productivity more securely. Some weaknesses however draw the company back regardless of the strengths identified. One major weakness of the company is its limited advertisement and promotion, which makes it difficult for new customers to associate with the company’s brand. Meanwhile, Niehoff and Neff (2007) emphasised that advertisement and promotion are important elements that help companies to build competitive image, based on which they are able to compete. As at now, even though the company may pride itself with quality product, limited advertisement and promotion makes it difficult for the whole world to be drawn to this quality. Again, the company has a high expenditure rate which makes it difficult to maximise on its revenues to make profit. This is because most financial inflows that come as revenue are spent back as expenditure, leaving the company with very little operating income to fund its projects. Lean production that aims at ensuring sound financial discipline will therefore be needed to address this situation. This is because through lean production, the company will target to reduce or eradicate all forms of waste which tend to increase the company’s spending (Brander, 2005a). Internally, there are opportunities available for the company to ride above its weaknesses. First, there is a strong presence of diversity within the work structure of the company. Most forms of the diversity are in terms of nationality, gender and age. This makes it possible for workers to understand the needs of different demographic segments based on which strategic marketing planning can be undertaken to boost the company’s sales (Pfeffermann, 2012). Also, there continues to be increasing presence of innovative designs and high quality hardware that can easily be incorporated in the company’s production and designs. Once this is done, the company’s strength will be further boosted as it is already known for its smart quest for superior quality and aesthetic products. Even more, there prevails an opportunity with expanding knowledge base of users, which makes it possible for users to embrace different levels of innovation and advancement within the mobile phone industry. This impacts the company internally as it gives the dynamic workforce the freedom to practice their innovation as widely as possible without worrying about the readiness of the market to accept such innovations. Lastly, there are some few threats that militate against the company internally. One of these is the need for the company to deal with ever popularising low prices even among well known brands. This situation puts pressure on the company’s marketing team when it comes to the selection of the most preferred strategic option. This is because when competitors, due to the large volume of their operating income are able to produce quality products at cheaper prices, the marketing team is forced to go with cost leadership even though it cannot guarantee lower cost of production. Once this threat continues to prevail, the company’s weakness will continue to be there because the need to reduce waste as a way of reducing the cost of production may not necessarily be the solution to avoiding higher expenditure within the company. There is also the threat of currency risk, as most of the company’s markets are outside of the US and have weaker currencies than the US dollar. In a situation like this, the company will keep spending more to make up for currency differences between its foreign revenue and transfer of revenue into the US (Rainer and Turban, 2009). SWOT matrix The SWOT analysis presented above may be summarised in the SWOT matrix below. Table 2: SWOT Matrix for Mobile Inc Strength Weakness 1. Superior brand quality 2. Distinctive aesthetic looks of products 3. Formidable workplace telepathy 1. Limited advertising 2. Limited promotions 3. High internal spending Opportunity Threat 1. Presence of innovative designs and superior quality hardware 2. Diversity among workforce 3. Knowledgeable consumer base with technological innovation 1. Low prices from market competitors 2. Currency risk Advantages and disadvantages of alternative strategies Into the next five years, there are three major alternative strategies that Mobile may choose from. These are directly linked to the Porter’s generic strategies. The rationale for selecting the Porter’s generic strategies is because of its focus on competitive positioning for companies (Krugman, 2006). Right from the onset, it has been noted that Mobile Inc finds itself in a highly competitive industry. As the company seeks to expand its global market size in Asia, America and Europe, it is only better that the company has a strategic option that helps it gain competitive advantage over its key competitors. With this said the first alternative strategy that is available for the company is cost leadership. Under this strategy, the company will be expected to produce cheaper mobile phones that target the regular buyer who cannot afford expensive purchasing (Mbigi, 2005). The advantage with this is that the mobile phone market has most of its customer base in this area. This means that there is wider market for this segment. Again, it will force the company to minimise its cost of production. There is however a disadvantage in that the company would need to produce and sell more units of mobile phones to break even for selling at lower prices (Jiang and Sinton, 2012). There is also a misconception that cheaper phones from lesser known companies are inferior. The next alternative strategy is focus strategic option. Under this option, the company will be expected to direct its marketing to specialised segments whose special demographic qualities guarantee sustainable sales (Rieger, 2006). As far as Mobile Inc is concerned, the most preferred form of focus segment that will be suggested for it is the emerging market. This is because of the high level of untapped market opportunities in emerging markets (McIntosh, 2003). Once this strategy is selected, the company will have the advantage of doing business in emerging markets, where government support for foreign direct investments make the cost of doing business very low (Peter and Olson, 2007). Most of these emerging markets also have very high populations, which mean a ready market for Mobile Inc. Brander (2005b) also emphasised that most emerging markets, for the fact that they are developing countries are now bracing themselves with the technological frenzy being headed by the mobile phone sector of technology. This means that there is always a mad rush for innovative mobile phones in such emerging markets. A major disadvantage with these emerging markets would be the weak currency that most of them have. Also, most buyers in these markets cannot afford expensive mobile phones as they see that to be luxurious living. The last alternative strategy is differentiation. Under this alternative strategy, Mobile Inc will be expected to produce value added mobile phones that will be targeted at what may be referred to as a fewer elite buyers (Matten and Moon, 2004). Due to the value addition, it will be expected that these forms of mobile phone will sell at higher prices on the market. The advantage that this strategy will present is that the company will continue to maintain its brand reputation for quality and excellence. What is more, because the products will sell at higher prices, fewer units sold can guarantee higher revenues and returns. With this said, there are some disadvantages with this option. First, most of the global leaders that Mobile Inc competes with have already taken giant lead with the use of differentiation strategy. Examples are Apple and Samsung. Meanwhile, because these global leaders have larger market share and larger operating incomes, they will be able to produce at lower cost and sell at lower prices than Mobile Inc can do. This means that even though Mobile Inc and its competitors will be producing differentiated products, the competitors may sell theirs at cheaper amounts and thus have favourable market size. Again, this strategy cannot help the company achieve its lean production goals since value added production always come at higher cost (Nidumolu, Prahalad and Rangaswami, 2009). Recommend specific strategies and long-term objectives The selection of a specific strategy is based on the outcome of the decision matrix analysis given below. The matrix has weights from 0 to 5 for key factors which are cost, quality, market size, innovation, and location. These factors are weighed against the three strategies discussed above. In all cases, higher weighting means favourability. Table 3: Unweighted decision matrix Factors Cost Quality Market size Innovation Location Weights Cost leadership 3 1 2 1 2 Focus 2 2 3 2 2 Differentiation 0 3 1 3 1 Table 4: Weighted decision matrix Factors Cost Quality Market size Innovation Location Total Weights 5 4 3 2 1 Cost leadership 15 4 6 2 2 29 Focus 10 8 9 4 2 33 Differentiation 0 12 3 6 1 22 From a competitive perspective, it would be noted that the strategy that can help Mobile Inc to gain global growth and expansion is the focus strategy. Meanwhile, this strategy has a weakness with pricing, which means that it will be difficult to run it as a singular strategy in the long term basis. With this said, a strategic combination of cost leadership and focus is recommended to form a cost focus strategy as the recommended specific strategy for the company. To go into the details of how the cost focus will be used to consolidate the market position of Mobile Inc, it is important to know the exact long-term objectives of the company so as to know how the recommended strategy will be used in achieving the objectives. The objectives reflect the generalised position of where the company is expected to be by the end of the next five years. The objectives are given as follows: 1. To experience market growth within the range of 25-30%, which is analyst’s estimation for Asia’s forecasted growth rate 2. To reduce existing cost of production by 35% to $75 per unit cost. 3. To have new markets from emerging markets, contributing to 20% of company’s overall market size 4. To have an annual production growth rate of 5% from first year rate of 5,346,000 total units produced. 5. To introduce 2 distinct new features that give the company’s product a differentiation from what exists among competitors. Based on the long-term objectives given above, it is expected that the cost focus strategy will be used to target new emerging markets whiles improving sales within traditional markets in the USA, Asia and Europe. Even though Asia’s forecasted growth has been equated to where the company should be positioned, it is important to note that that forecasted growth is a competitive position to be competed among all rival companies. It is for this reason that the cost focus strategy is necessary to focus on new markets, which will be emerging markets. As markets in USA, Asia and Europe become choked with competitors, going to emerging markets, most of which are expected to be in South America and Africa will ensure that Mobile Inc experiences competitive relief with lower intensity of competitive rivalry. The cheaper cost of doing business, coupled with tax holidays for foreign companies are also available in these emerging markets, which means that the objective of having reduced cost of production can be achieved. Cost analysis for each projected year To produce 5% of 5,346,000 units (267300 units more) each year for 5 years at estimated $75 per unit cost which decreases at 4% ($3 less) of production cost for each year, the following cost analysis outcome prevails. Table 5: Cost analysis Year 1 Year 2 Year 3 Year 4 Year 5 Cost per unit $75 $72 $69 $66 $63 Total units produced 5,346,000 5,613,300 5,880,600 6,147,900 6,415,300 Yearly cost $400,950,000 $404,157,600 $405,761,400 $405,761,400 $404,157,600 The relationship between total units for each year and the accompanying yearly cost for it can be represented in the graph below. Figure 2: Unit production against cost of production Figure 2 shows that even though units produced are to increase each year in the next 5 years, the cost of producing will be coming down with time in order to achieve the objectives 1 and 2 respectively. Forecasted ratios and projected group financial statements Based on the objectives, selected strategy and the estimated cost analysis for the next five years, the forecasted ratios and projected group financial statements of the company are give below. Income statement Table 6: Projected income statement (amounts in thousands) Period Ending Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Total Revenue 723,452 693,340 674,242 645,529.5 614,790 Cost of Revenue 414,157.6 423,450 443,234 423,850 410,493 Gross Profit 309,295.4 269,890 231,008 221679.5 204,297 Operating Expenses Research Development 34,535 53,433 43,278 52,424 24,356 Selling General and Administrative 101,234 93,239 105,355 109,324 103,423 Non Recurring - - - - - Others - - - - - Total Operating Expenses 135,769 146,672 148,633 161,748 127,779 Operating income or loss 173,526.4 123,218 82,375 59,931.5 76,518 Income from continuing operations Total other income/Expenses net 6,743 6,443 6,534 6,033 4500 Earnings before interest and taxes 143,566 140,244 143,002 92,345 115,343 Interest expense 43,567 42,422 42,823 29,234 15,343 Income before tax 112,435 110,332 70,232 60,005 35,234 Income tax expense 9,434 9,924 9,239 9,144 8,503 Minority interest 245 (823) - - 843 Net income from continuing ops 132,345 114,245 72,329 49,432 55,324 Non-recurring events Discontinued operations 435 - 533 - - Extraordinary items - - - - - Effect of accounting charges - - - - - Other items - - - 654 500 Net income 132,780 113,422 72,862 50,086 55,824 Preferred stock and other adjustment - - - - - Net income applicable to common shares 132,780 113,422 72,862 50,086 55,824 Statement of financial position Table 7: Balance sheet (amount in thousands) Period Ending Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Assets Current assets Cash and cash equivalents 434,356 413,453 360,232 380,322 350,232 Short term investments 232 324 200 1,123 900 Net receivables 324,564 274,234 280,223 250,232 252,232 Inventory 54,664 50,232 50,234 40,223 45,023 Other current assets 67,332 65,232 63,022 60,249 55,232 Total current assets 881,148 803,475 753,911 732,149 703,619 Long term investments 32,323 30,232 28,322 25,590 30,232 Property plant and equipment 84,343 60,323 65,239 60,323 62,329 Goodwill 123,232 90,323 80,293 85,343 80,232 Intangible assets - - - - - Accumulated amortization - - - - - Other assets 27,238 13,323 15,234 20,323 20,005 Deferred long term asset charges 239,320 203,893 201,892 222,390 223,238 Total asset 1,387,604 1,201,569 1,144,891 1,146,118 1,119,655 Liabilities Current liabilities Accounts payable 213,555 234,232 250,232 240,233 255,333 Short/current long term debt 658 800 650 950 1,245 Other current liabilities - - - - - Total current liabilities 214,213 235,032 250,882 241,183 256,578 Long term debt 165,323 200,232 250,000 255,232 300,000 Other liabilities 355,334 450,229 480,900 239,232 400,500 Deferred long term liability charges - - - - - Minority interest 5,343 6,900 7,000 6,000 4,000 Negative goodwill - - - - - Total liabilities 740,213 892,393 988,782 741,647 761,078 Stockholder’s equity Misc. Stocks options warrants - - - - - Redeemable preferred stock - - - - - Preferred stock - - - - - Common stock 250 200 200 200 200 Retained earnings 674,343 650,000 600,000 600,000 500,000 Treasury stock - - - - - Capital surplus 893,232 700,000 650,000 720,000 550,000 Other stockholder equity (673,343) (600,000) (500,000) (600,000) (500,000) Total stockholder equity 894,482 750,200 750,2000 720,720 550,200 Net tangible assets 764,232 690,323 682,823 660,000 489,900 Cash flow statement Table 8: Cash flow statement (amounts in thousands) Period Ending Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Net income 132,780 113,422 72,862 50,086 55,824 Operating activities, cash flows provided by or used in Depreciation 23,232 25,232 23,232 25,000 20,000 Adjustments to net income (13,239) (16,232) (16,000) (16,000) (16,000) Changes in accounts receivables (5,343) (3,282) (3,000) (4,000) (4,000) Changes in liability (30,232) (25,233) (25,000) (25,000) (25,000) Changes in inventories (7,500) (9,002) (8000) (9,000) (9,000) Changes in other operating activities 9,000 12,132 15,000 20,000 20,000 Total cash flow from operating activities 108,698 97,037 59,094 41,086 41,824 Investing activities, cash flows provided by or used in Capital expenditures (62,329) (60,000) (60,000) (50,000) (50,000) Investments 350,232 300,000 300,000 200,000 250,000 Other cash flows from investing activities 876 (9000) 845 (5000) 2500 Total cash flows from investing activities 288,779 231,000 240,000 145,000 202,500 Financing activities, cash flows provided by or used in Dividends paid (45,860) (40,000) (35,000) (30,000) (30,000) Sale purchase of stock (132,789) (100,000) (100,000) (95,000) (95,000) Net borrowings 54,000 50,000 50,000 45,000 45,000 Other cash flows from financial activities - (9000) - (5000) - Total cash flows from financing activities (124,649) (99,000) (85,000) (85,000) (80,000) Effect of exchange rate changes 4,000 4,000 5,000 5,000 5,000 Change in cash and cash equivalents 276,828 233,037 219,094 106,086 169324 Implementation and Results All recommendations given above can be implemented based on a cross-functional team work. This means that the need to start the strategy shall be broken down into smaller tasks and shared among all departments within the company. This implementation strategy is expected to enhance efficiency as there will be more hands on deck. After the overall implementation of the strategy, the company is expected to grow in revenue and profit while increasing its unit production and minimising cost of product. Conclusion The mobile phone industry is arguably one of the fastest industries in the world currently. There are several reasons that can account for this development. Key among the reasons is the important place of mobile phones in day-to-day communication and business. This strategic planning and control has helped in identifying Mobile Inc’s position in this competitive industry over the next five years. Compared to its internal business environment, Mobile Inc can be said to have is toughest competition coming from the external business environment. As seen from the Porter’s five forces, the company has several threats that ought to be overcome in order to make the company globally competitive. But as there are several internal strengths and opportunities, it is important that the company takes advantage of its internal strengths and opportunities to overcome its external threats. The best way to get this done is by emphasising on the use of focus differentiation. But for any meaningful future gains to be made, the company ought to have critical understanding for its incomes against expenditure, a reason for which financial discipline is highly important for Mobile Inc. References Brander, J. (2005a). Strategic trade policy, NBER working papers, No. 5020. Cambridge: National Bureau of Economic Re-search. Brander, J. A. (2005b). Strategic trade policy. In G. Grossman, and K. Rogoff (Eds.), Handbook of International Economics, Vol. III. New York: North Holland Press. IDC (2014). Smartphone Market Share 2014, 2013, 2012 and 2011. 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Utterback, J. M. (2004), Mastering the Dynamics of Innovation, Harvard Business School Press, Boston, Massachusetts Read More