PPQ Parts Strategic Plan - Case Study Example

Strategic Management Plan for PPQ Parts PPQ Parts has a number of goals. In order to achieve those goals a strategic management plan is necessary. The big question is: How will PPQ achieve its goals? The company’s four year plan is to: Increase the number of employees from 5,000 in the USA to 10,000 overall Increase the number of facilities so that 80% of them will be outside the USA Increase market share from the current 4% to 9% Increase the price of the stock from the current $10 to $22 Increase profit margin from 6% to 13% Reduce employee turnover from 28% (industry average is 25%) to 17% Increase donations to charity from 0.5% to 5% In order to develop a strategy the company needs to carry out both an internal analysis and an external analysis. This is described as SWOT analysis – wherein PPQ will evaluate its strengths and weaknesses and opportunities and threats in the environment (Harrison et al 1993, p. 38). Weaknesses Based on the rapid turnover of staff, which is above the industry average of 25%, PPQ appears to have some weaknesses in managing its employees. The company therefore needs to determine how it will provide a safe work environment for its employees, jobs that are rewarding, stable employment, equitable pay in exchange for a positive work attitude and outstanding performance on the job (Heizer & Render 2006, p33). The fact that PPQ wants to increase the number of facilities would indicate that there is an increase in demand for its products in other markets. Whether or not that is the case the company needs to market its products in those areas. In selecting its location the company needs to design and build economical and efficient facilities that will be capable of yielding high value to not only the company but other stakeholders including employees and the community in which the facilities will be located. In order to do carry out its operations effectively the company will require competent and experienced staff that will be able to deal with customers at the various locations. In will be expanding into different countries and therefore different environments. Building a multicultural and diverse labor force is therefore important. Therefore, PPQ need to carry out an assessment of its management staff to determine whether they possess the skills necessary to deal with multiculturalism and diversity. It is important that they understand what diversity means. Munjal and Sharma their paper “Managing Multiculturalism & Diversity in Organizations ” (n.d.) states that: Managers usually see affirmative action and equal employment opportunity as centering on minorities and women; the diversity here includes race, gender, creed, and ethnicity but also age, background, education, function, and personality differences. The objective not to assimilate minorities and women into dominant white male culture but to create a dominant heterogeneous culture. They will be dealing with employees and customers from different parts of the world and it is important that they understand not only the culture but how it can lead to competitive advantage. Rick Bobrow, America’s CEO (qtd. in Black Enterprise, 2001) states: Diversity is fundamental to our business. But it is also fundamental to our view of how we do business. To help our clients, and ourselves, achieve success, we have to leverage the different ideas, backgrounds, and values of all our people. When people of all ethnic groups are represented at all levels of the firm, we are better able to perform in a global environment, attract the best talent, and ensure that our clients are served well. Management has to be of the right caliber to be able to do this effectively. It is therefore important that the recruitment exercise is properly carried out so that the right persons (with the necessary skills and talent) are chosen to fill positions. Another of PPQ’s current weakness is its low profit margin. Additionally, its share of the market is very low. Although no information was provided on the market share of its competitors the company believes it can do better than it is currently doing. Training and development of its sales and marketing resources would be very important. An advantage for PPQ parts is that more locations would imply that its fixed cost could be spread over more units. The new facilities will cost but the company is seeking to increase its employees less than proportionately to the increase in its facilities. In order to attain the goal of increased profit over the four year period the company should try to reduce the cost of its operations. It can seek to reduce the unit cost of its products by producing more. However, in order to do so it must have a market for the products and so value creation becomes important. Creating value for its customers at a lower price than its competitors are doing would place PPQ in a competitive position. The company can gain competitive advantage through cost leadership or product differentiation. If PPQ can lower the price of its products and still create value then it can gain cost leadership. In order to differentiate its product it can create a brand that is appealing to customers in terms of its design and attributes. It therefore means that PPQ will need to obtain information on the cost structure of its competitors. Additionally, the company could reduce its cost by better management of its supply chain. This would result in not only lower price but it could also benefit from just in time (JIT) production which implies less funds would be tied up in inventory. The goal of achieving a higher profit margin must be achieved before the company can hope for an increase in the price of its shares. It may well mean that in financing the expansion it may seek to increase its financial leverage (increase gearing) in order to achieve this target as it can only be attained through increased earnings per share and increased dividends, which both work together to increase the price. No information was obtained on the current level of dividends. However, this is critical. Additionally, increased donations may only be possible through increased profits. Opportunities and threats Opportunities and threats in the environment may be evaluated using PESLE analysis. Political factors such as government regulations and policies could negatively affect PPQ. They may not be able to transfer some of their current staff if the location identified for expansion has the necessary expertise. Countries like Germany and Japan have the skills as they have companies that manufacturer both high quality parts and SUV. Regulations will dictate how they do business. The political environment needs to be first tested for its policies in relation to foreign investment. Economic factors include high interest rates and the exchange rates which may not be stable and may therefore be bad for business as well as customers. Instability could result in foreign exchange losses, though there might be some gains. Some countries in Europe are not yet out of the recession and this could affect sales. Additionally, recent increases in the price of fuel as well as unrest in the Middle East which may have further impact could affect the sale of the SUV’s. The recession may still be affecting some countries in Europe and Asia. Legal factors such as labor laws may be different from the US and it is important that PPQ’s management possess knowledge of the laws operating in the different countries. There are also ecological factures to be considered. PPQ needs to ensure that the level of pollution from its manufacturing plants or from its operations generally is in keeping with the laws on emission. Countries are now focusing on reducing carbon emission in the environment. Fines may be levied against firms which are not in conformity with guidelines. Conclusion Global expansion of business operations can be very challenging. It is important that the company’s mission is translated into achievable goals at both the operational and tactical levels and by its strategic business units. Long term goals should be broken down into short term goals and targets should be monitored on a continuous basis. Therefore the goal of achieving 13% profits in the next 4 years should be broken down into short range goals, for example, increasing profit margin by 8% in year 1, 10% in year 2, 12% in year 3 and 13% in year 4. This indicates a gradual increase over the years. In the same way the figures for employee turnover can be gradually reduced. It is also important that multiculturalism and diversity are effectively managed in order to gain competitive advantage. References Black Enterprise. (2001) Managing a Multicultural Workforce. Retrieved from: http://findarticles.com/p/articles/mi_m1365/is_12_31/ai_75754166/. Accessed 20 Feb 2011 Harrison, J; Holloway, M; Jenkins, T; Martin, F; Mills, G. (1993). Management and Strategy. 1994 Ed., UK: Certified Accountants Educational Projects. Print. Heizer, J & Render, B. (2006). Operations Management 8th ed. New Jersey: Pearson Prentice Hall. Print Munjal, N & Sharma, M. (n.d.). Managing Multiculturalism & Diversity in Organizations. Retrieved from: http://www.indianmba.com/Faculty_Column/FC1161/fc1161.html Accessed 20 Feb 2011 Read More