Strategic Management Issues at British American Tabaco - Essay Example

Strategic Management Issues at British American Tobacco Case Overview British American Tobacco is an international company that has been in business for a period of more than one hundred years. During the many years in business, the company has been faced with major business opportunities and challenges. The company has to strategize on how to adapt to changes in the environment in order to maintain a competitive advantage. The process of strategic management involves defining organizational strategies. It is the process that decisions made by managers are based on a set of priority strategies. The strategies chosen by the managers should be able to make the company achieve better performances. The process of strategic management is continuous. The process of strategic management is aimed at appraising industries and business that an organization is involved in. Strategic management appraises the environment that an organization is based in. The process of strategic management analyses the competitors by setting goals and objectives that will enable an organization to gain and maintain competitive advantage over its current and future competition. The strategic management process is concerned with environmental scanning, strategy formulation, strategy implementation and strategy evaluation. Environmental scanning is the process of availing information for strategic decision making purposes (Hit, et al 306). Information about the external and internal environment is collected, scrutinized and presented to the managers for strategic decision making. After the environment has been scanned the managers use the information presented to formulate the strategies. The formulation of a particular strategy is realized after reaching a consensus between managers on the best strategy to implement. The course of action chosen should best exploit the organization’s ability to accomplish organizational goals and objectives. The strategy should ensure that the organizational goals are integrated with the business, functional and corporate strategies (Hit, et al 306).The strategy should ensure that the organization maintains its competitive advantage over its major competitors (Hill & Jones 20). BAT Strategic Management Approach The British American Tobacco company manufactures cigarettes in sixty four countries in the world. The most famous brands of cigarettes that the company produces include lucky Strike, State Express 555, Kool, John Player Field, Rothmans, Dunhill, Viceroy, Benson & Hedges, Winfield, and Peter Stuyvesant. The major brands for the British American Tobacco that are produced in local markets include Embassy (Kenya),Jockey Club(Argentina),Wills(India), Xon(Uzbekistan), GPC(US), Ardath(Indonesia), North State(Finland), du Maurier (Canada), Stradbroke (Australia) among other brands. The company also produces other types of products such as cigars, cut tobacco and pipe tobacco. The company’s products are sold in major supermarkets, hotels, restaurants, bars, hotels, and duty free shops such as army barracks, convenience stores, tobacconists, and cafes. The British American Tobacco company has a strong presence in the world and hence holds a strong market share in the tobacco industry. The company has a robust position in the market as the demand for the tobacco products is high and continuous. BAT is thus assured of high sales volume and profits every year. The company has continued with its strategy to diversify its products market. Recently, the company is eying investing in China. The company has made sure that it is well rooted in major countries in the world. For instance, the company has strong roots in Western Europe, Eastern Europe and North America. To maintain its position in the market, BAT management has ensured that it remains the best buyer of tobacco leafs from the farmers. The main advantage of buying farmers produce at a reasonable price has ensured that the company is ahead in most countries over its competitors. BAT has offered many farmers an opportunity to learn about tobacco farming, which has ensured that all its subsidiaries foster a healthy relationship with farmers. The advantage of fostering a good relationship with the farmers is that it assures the company of a continuous source of raw materials (Hill & Jones 20). The British American Tobacco company had applied applications of strategic management in order to retain a competitive advantage in its market share. The company has focused on operating optimized and flexible routes. By generating optimized and flexible routes the company has been able to create a flat structure in order to improve its operations. Flat structure relates to the company having direct contact with delivery suppliers and customers in order to be able to respond proactively to the changes in its competitive environment. According to Hill and Jones (20), a flat structure has also enabled BAT to cut its operation costs, mainly the distribution costs. One of the main areas the company has focused its competitive strategy is the distribution area. Due to challenges faced from middlemen, the company now engages in direct sales to the customers. Due to changes in consumer tastes, preferences and health concerns, the company has come up with a decision to produce cigarettes with low levels of nicotine known as heavy cigarettes, which have been received with enthusiasm among consumers. The reason for producing heavy cigarettes is due to the rising concerns about long term health effects of cigarettes. The company had to strategize on how to keep up with the health issues before the company profits before its profits could a downward trend. Challenges to the Company Strategy and Success The main challenges facing the British American Tobacco company is the rising concerns on health and pressure from government agencies as well consumer awareness groups. The world health practitioners are increasingly cautioning the public against cigarette smoking, which has compelled governments all over the world to ensure that BAT to include a mandatory nutritional label on its entire cigarette brands. The nutritional label is aimed at cautioning consumers that consumption of cigarette is harmful their own health and those around them. For instance, it has been proven that excessive smoking of tobacco leads to ailments such as throat cancer. Major government researchers have come up with concrete evidence that excessive smoking can have adverse effects on human health (Data monitor, 24). Some cases of people who have been affected by cigarettes badly have been used to advertise major effects of tobacco smoking. The main disadvantage of these health concerns is that many potential customers are opting to stop smoking cigarettes due to fear of ending up like people who have been affected. Exit of customers and inability to attract new customers lead to a continuous decrease in the company’s revenues. Many customers who have been affected by cigarette smoking are always in pursuit to sue the company for damages. As a result BAT faces a large number of cases still pending in courts. These lawsuits have cost the company a lot of money in legal fees and damages. Another major challenge is the increasing competition in some major markets where competitors are coming up with new strategies every day. The company faces a lot of competition from small scale and upcoming manufactures in the tobacco industry (Data monitor, 24). The small companies are offering their cigarettes at a very low price that the company cannot manage to offer. This has lead to reduction in the profits of BAT. Another challenge the company is facing is counterfeit and contraband cigarettes. The increased manufacture of counterfeits and contraband cigarettes has lead to decrease in BAT’s market share. Works cited. Data Monitor. British American Tobacco: Company profile. August, 2005.Web.September 30, 2011.  Hill, Charles and Gareth, Jones. Strategic Management: An Integrated Approach. Florence, NY: Cengage Learning Inc., 2008.Print.  Hitt, Micheal et al. Strategic Management: Competitiveness and Globalization: Concepts & Cases. Florence NY: Cengage Learning Inc.2009.Print. Read More