Company Analysis: Determining Strategic Capability - Essay Example

STRATEGIC MANAGEMENT Introduction In the modern globalised world, organizations are increasingly facing intense competition and a rapidly changing marketplace. This is even made more difficult by the fact that organizations are not immune from developments outside their national boundaries. Therefore, organizations have to keep an eye even on issues happening beyond the national borders but which nevertheless have an effect on their operations (Shangquan, 2000 p. 4). This does not in any way mean that internally, organizations are likely to enjoy an easy ride. Apart from threats faced from the globalised market, it should be pointed out that the market also presents immense opportunities for growth. While opportunities in the domestic market shrinking as more players come in, and existing firms expand, sometimes the only way to grow is to look beyond the national boundaries. Currently, for instance, a term ‘emerging markets’ has variously been used to refer to Brazil, much of the Latin America, China and India. Organizations in Western countries are increasingly looking at these markets to grow, given that their domestic markets are diminishing in opportunities. The story of the ‘Subway’ is an indication of just what organizations need to do in an increasingly globalised environment. Winning customer confidence and remaining true to organization’s policies and priorities lies at the heart of just what has to be done. To achieve this, an organization has to have a strategy that delivers capabilities which enables the firm to cope with challenges from within the organization itself as well as outside of it. In the case of Subway, this is what enabled the company, small as it was, to be able to stick it out in a market dominated by global players such as the McDonald’s and Burger King. However, once opportunities in the domestic market shrink, it may no longer be tenable to continue pumping resources in such a market. Expansion outside the domestic market becomes the only option for growth. Growth Strategies All businesses need to grow in order to survive in the markets. Growth may be measured in a number of ways such as having more outlets, bigger sales volume and higher profitability. In essence, whatever metric used, it all boils down to being in a position to sell more units, which earns more revenue and ensures that the owners earn decent returns to the capital invested (Stiglitz, 1999 p. 289). Besides, such revenue can be used to acquire more assets or open more outlets. A company that is growing has the necessary financial muscles to even the competition and fight off any attacks. Whatever growth strategy a firm pursues, such a strategy falls within any of the four strategies identified by Ansoff (1988 p. 109).One of these strategies is market penetration whereby a firm seeks to increase its share in the market. Essentially what this means is that the firm seeks to have more customers to buy its products and therefore earn more revenue. A second strategy is Product Development. A company pursuing this strategy seeks to have its products aligned to the needs of its current customers. This means that customers are likely to spend more of their income on the firm’s products. The next strategy is Market Development whereby the firm seeks to have customers buy its products for a number of uses. This can also be understood in the sense of having the product or brand introduced in new markets (Kotler et al., 2009 p. 28). It therefore means that demand for a firm’s products grows as new customers are roped in. Lastly is Diversification whereby the firm seeks to present the customers with additional products, different from what has been sold to them previously. Looking at Subway business model, it is clear that the firm is pursuing three key strategies. To begin with, the firm has endeavored to purse market penetration strategy. With this strategy, the firm has been keen to expand its reach to as many customers as possible. This can be seen in the way its outlets have grown exponentially. This has been achieved mainly through franchising. In fact, by mid 1990s, it had more outlets than McDonalds which is a giant in the industry. Franchising is advantageous because it cuts down the costs of opening more outlets while at the same time maintaining the quality of the products (McDonald and Wilson, 2011 p. 31). Besides, its offering has tended to target a wide variety of customers. Apart from the mainly low-fat customers, those preferring full-calorie meals were later o be targeted hence pushing its reach. Product Development was another strategy pursued. The firm has ensured that it aligns its product offering to the needs of the customers in a cost effective way. For instance, when it realized that customers preferred it because of its low fat alternative to burgers and French fries, it made this the centre for its promotion campaign, pushing up sales in the process. However, in order not to lose customers who preferred high fat content, still it ensured that their needs were not neglected. This way, the firm cultivated a loyal base of customers who bought from their outlets regularly. Besides, the firm understood that however well the quality of the offering is, customers in the food industry are also conscious of the price. As a result, the company looked for ways of cutting down on operating cost and this enabled it to compete favourably with the giants in the industry such as McDonalds. Lastly, the when the market in North America could not expand as expected, the firm looked outside of this region, opening the first outlet in Bahrain, and expanding to other countries later. Since then, it has become successful in bringing more consumers in the international market to buy its products. By 2004, it was operating in 75 countries across the world. The ability to get customers who have never bought its product and to turn those customers into regular customers is a capability that cannot be taken for granted. This is only possible with a clear strategy and a committed workforce. In the case of Subway, the role of a motivated workforce that is capable of coming up with creative ideas and offerings to their customers can be said to have played a critical role in promoting this expansion. Having all the building and equipment doesn’t amount to much if the workforce is not competent enough and motivated. In fact, this is a key reason why the organization has made training to be one of its key pillars. Therefore, the workforce has been able to ensure that the organization is able to attract customers from across the racial and ethnic divide and return good profits to justify further investment. Strategic Capabilities As mentioned earlier, the global market place, is very competitive and companies must look for ways of retaining their position and seeing off competition. This reality is even more important in the food industry where Subway is based. What makes it even more challenging for Subway is that it is one of the smallest players in an industry dominated by large multinationals. It thus means that Subway must have very clear strategies of dealing with this disadvantage and at the same time realizing growth of its market share. What is needed thus is a set of strategic capabilities. Hussey (2002 p. 44) defines strategic capabilities as a set of resources, capacities and skills that delivers a long term competitive advantage to a business. In other words, a strategic capability delivers a long term sustained growth to the organization. It thus follows that strategic capabilities must be well managed as firms look to grow their profits and market share and give good returns to their owners. One of the most important strategic capabilities of the Subway is its concentration on specialist areas such as schools and factories where more established brands like McDonalds would not venture due to low traffic which translates to low profits. In high traffic areas such as in shopping malls, established brands have a competitive edge over smaller brands. This is because they have more resources and can mount serious challenge in terms of advertisement, staff and equipment, something small firms cannot match (Kaplan and Cooper, 2003 p. 27). What Subway has done is to avoid direct competition with established brands focusing on low traffic areas such as schools and factories. The challenge with these specialist ‘zones’ is that profits per outlet are less compared to high traffic areas. To go round this problem, Subway has ensured that it scales down its costs in order to realize profits in these areas. For instance, while it costs upwards in the region of $ 1 million to establish a McDonald store, a Subway outlets ranges between $80,000 to $ 120,000 to established. Besides, staff requirements per outlet ranges from 6 to 8 contrasted to McDonald’s store which ranged between 15 to 20. This way, the firm has ensured that its operating as well as capital cost is kept low. It is thus able to price its products competitively in relation to the competition. So, apart from convenience in terms of accessibility, consumers are also able to access high quality products at a competitive price. Another capability that the firm has is to ensure that its growth is made cheaper through the adoption of franchising model. With franchising, the firm only has to incur promotional costs such as advertisements while capital costs are borne by the franchisees. This has ensured that the company is able to grow very fast, reaching a large segment of customers and therefore winning a loyal base of customers. The high growth has balanced out the low profits per outlet due to unfavourable location discussed above. Besides, it has to be noted that franchising as a growth model is no walk in the park. The mere fact that it is working is an indication that the firm has been good in managing the performance of the the various franchise outlets in terms of quality of service given to its customers. This is another capability that the firm should be credited with. Luangsuvimol and Kleiner (2004 p. 66) observes that failure to manage such franchise outlets would definitely leads to problems to the brand such as sloppy service and bad customer service. This is the reason why some companies seek to grow organically instead. Another strategic capability that the company has had is the alignment of products to the needs of the customers. By meeting the needs of customers on a consistent basis, the organization assures itself of consistent purchases from its customer base, who in turn assures it of constant income. Besides, a loyal base of customers means that advertising and promotional costs are kept down (Kotler et al., 2009 p. 62) as these segments of customers does not need much convincing to get them to buy. Above all, such a segment of customers are an asset and can help the organization in making major policy changes. A good example of how the customers have helped Subway is when the company researched its customers and found out that they buy from the chain due to its offering of low fat content. To this end, a policy shift of promoting the company low-fat offering was undertaken, leading to increased sales. This consistent attempt to meet the needs of the customers must be lauded as one of the key ways that has helped the organization to grow both domestically and internationally. Another thing thing that is giving the firm a competitive edge over its competitors is the workforce. Training being one of the key pillars of the company augurs well with this industry. A competent workforce ensures that fewer errors are made and high customer satisfaction rates are attained. A competent workforce also creatively engages with customers in a way that not only satisfies the customers, but also helps the organization to gain helpful insights into customer’s expectations so that it works to meet them (Oracle, 2014). Valuable information that can lead to innovative products can also be gained through such interactions with customers. Therefore, a satisfied customer base is an important asset that has to be managed well in order to sustain the benefits that flow from such an interaction. There is no doubt that this is what Subway has been able to achieve over time. To conclude, we can say that out of all strategic capabilities the organization has, customer satisfaction seems to be the capability that contributes to Subway’s competitive advantage. As noted above, satisfied customers are likely to come back and thus assure the organization of future sales. Besides, such customers are easier to contribute to the management of the organization through sharing of information, some of which can lead to new products. In the case of Subway, this can be seen in the sense that the organization has been able to realize high sales volumes, leading to a huge growth rate. Conclusion Having a strategic capability ensures that the company’s competitive edge can be sustained into the long run. In the current globalised environment, firms need to grow in order to survive in the market. This growth is difficult to attain due to intense competition. Therefore, organizations need to develop clear strategies that earn them competitive advantages. Otherwise, they will not survive the competition. Organizations need to understand their resources and use them creatively to attain competitive advantages that ensure they brave the competition. It therefore calls on the management to come up with sound priorities and strategies which can be achieved in light of resource constraints. But what must never be forgotten in the whole spectrum of things is that customers play a big role in the success of organizations. Without their purchasing a firm’s products, then the firm will definitely go under. It thus means that a strategy build round customers needs is more likely to survive. The challenge though, is that these needs keep changing in relation to market developments and strategies need to be flexible enough to accommodate such changes. Bibliography Ansoff H.I.(1988).New Corporate Strategy. New York: Wiley Hussey, D. (2002). Company Analysis: Determining Strategic Capability. Strategic Change, 11(1), 43-52 Kaplan R .S and Cooper R. (2003). Cost and Effect: Using integrated cost systems to drive profitability and performance. Boston: Harvard Business School Press. Kotler, P., Keller K. L., Goodman M. and Hansen T. (2009). Marketing Management. Washington: Pearson Education. Luangsuvimol, T. and Kleiner, H. B. (2004). Effective Franchise Management. Management Research News, 27 (4), 64-71 McDonald, M. and Wilson H. (2011). Marketing Plans: How to Prepare them, How to use them, New York: John Wiley Oracle (2014). Modern CRM: A Competitive Advantage. Retrieved January 1, 2014 from https://www.oracle.com/applications/customer-experience/crm/index.html Shangquan, G. (2000). Economic Globalization: Trends, Risks and Risk Prevention. Retrieved January 1, 2014 from http://www.un.org/en/development/desa/policy/cdp/cdp_background_papers/bp2000_1.pdf Stiglitz, J. (1999). Trade and the developing world: A new agenda. Current History, 98(631), 387–393. Read More