Strategic Understanding of Product Markets - Report Example

Using an extended example critically discuss the view that a sector matrix gives a better strategic understanding of product markets than the concepts of product or commodity chains. Contents Introduction 3 Discussion 4 Sector Matrix tool 4 Comparison of the sector matrix analysis tool with other similar models 4 Significance of the sector matrix 5 Use of sector matrix in Ford Motors Company analysis 6 Conclusion 10 References 12 Introduction The sector matrix is a recent alternative analysis tool that has been formulated by Froud, Haslam, Joseph and Williams in 1998. This tool is a deviation from the traditional value chain analysis and the Global Commodity Chain Analysis (GCCA) tools. The sector matrix framework is used for critically examining the prospects of a company from a sector specific and industrial perspective of view and for providing a complete in depth strategic understanding of the product markets and commodity chains. The importance of the sector matrix analysis tool can be established through the discussion of an extended example of a leading company in the global automobile and motoring industry, the Ford Motors Company. This report would also include an analysis and discussion of the significance of the sector matrix tool as evaluated at the company level and industrial levels. The sector level analysis of the selected company would also be considered adequately so that the changes in the activities of the case organization at the business level and their outcomes and impacts on the micro and macro levels of the sector specific performances. Also, suitable comparisons with other popular tools of analysis like the Value Chain model coined by Michael E. Porter and the Global Commodities Chain Analysis (GCCA) framework, propounded by Miguel Korzeniewicz and Gary Gereffi would be done to understand the importance and effectiveness of the sector matrix over and above the other strategic management analysis models. Discussion Sector Matrix tool The sector matric analysis is a strategic management analysis tool that is used for analyzing and prescribing suitable remedies for the attainment of the objective of increased organizational performance and productivity. The sector matrix model is a theoretical model of strategic management which has been conceptualized and coined by Froud, Haslam, Joseph and Williams (Froud, Haslam, Johal and Williams, 1998). The sector matrix analysis is based on the consideration of factors like demand from households and firms which exist outside the particular sector of operation for an organization which enable the company to earn enough economic profits that can help the organization to continue its operations and sustain its personnel base while at the same time allowing for the cost and expense recovery in the production and operations processes (Globerman and Aidan, 2004). The tool also considers the theorem of the surplus in the economic profit of a company to be injected to the other segments of the company which are functional at both the national and international markets (Suhong, Nathan and Subba Rao, 2006). Comparison of the sector matrix analysis tool with other similar models The logical concept of products being the only facts for consideration in the operational process as inferred from the GCC analysis tool, is defined by the sector matrix tool which establishes that not only the finished substitutable products but also the secondary complementary products associated with the primary finished products are to be considered with as much focus as the primary products so that a broader sense of services and commodities can be considered. The results of this would be a horizontal and vertical matrix rather than a simple value chain or a commodity chain (Ploetner and Ehret, 2006). The commodity chain system analysis tool has certain limitations which have paved the need for the development of the sector matrix model. The sector matrix model can be more effective in the complicated production oriented companies because it refers to the complex structures and factors associated with not only the production but also the distribution of the core and ancillary products manufactured and sold by a company (Swink, Narasimhan and Wang, 2007). The other models of analysis like the Global Commodity Chain Analysis and the value chain models can work well when they are employed in the industries and companies of consumable products. But in the case of complex products like pharmaceuticals, automobiles etc. may require large proportions of any kind of production expenditure, which proves the commodity chain analysis and the value chain analysis tools to be much myopic in nature (Quinn, 2002). The sector matrix, on the other hand, can be applied to a wider range of companies and industries because of the accompaniment of the products with services as bundled commodities for sale (Pil and Holweg, 2006). The limitations in the commodity chains of a company functioning in the automobile industry may be considered adequately by the sector matrix so that supply and demand can be viewed in simplified and linear terms. The demand factor is assumed to be in reverse relation to the supply side in the product distribution chain of a company. The sector matrix can provide a definition in which both the primary and secondary groups for products and the supply and demand factors are accounted for (Hult, Ketchen, Casvusgil and Calantone, 2006). Significance of the sector matrix In the contemporary corporate and business world, the value chain model seems to be lacking in terms of analyzing the position and prospect of a company in relation to its production processes. Instead, the sector matrix tool seems to have emerged as a more significant and relevant tool for helping a company to take key decisions for sustaining and growing in a complex and multilayered external environment and infrastructure (Haslam, Neale and Johal, 2000). The sector matrix helps to identify and communicate the ways in which companies migrate into different types of activities and areas found in the institutional and social contexts. The sector matrix is primarily used as a strategic management tool for overcoming the limitations related to the other analysis tools like the value chain model and the Global Community Chain Analysis (GCCA) tool (Dickens, 2001). The significance of a sector matrix tool has been established more strongly over the last few years, especially in particular industries like the automobile and motoring industries which involve increasingly complex operational processes. Use of sector matrix in Ford Motors Company analysis The automobile industry is highly dependent on a producer driven value chain which includes a wide variety of production systems including thousands of companies and entities like subsidiaries, subcontractors and parent manufacturing drivers (Geffen and Rothenberg, 2000). These systems are complex and multi-layered systems which are difficult to be analyzed using simple tools like value chain and commodity chain analysis tools. Instead, this sector calls for the employment of a strategic management tool that would embed the supply and demand factors in the production and operations processes of an automobile company. The key activities involved in an automobile company includes the inbound logistics, outbound logistics, operations, marketing and sales and the after sales services which form the primary business activities in a company like Ford Motors Company. The secondary activities of operations in the case company comprise of human resource management, infrastructure, technological development and sourcing and procurement. It has been identified that the Ford Motor Company is a leading player in the global motoring and automobile sector and it’s operational and business activities have significant influences on a wide range of arena pertaining to the external broad business environment (Sahay, 2003). Figure 1: Value chain of Ford Motors Company (Source: Holm, Blankenburg and Eriksson, 2005) The above value chain represents the main components of the value chain of Ford Motors Company which also reflects the linkages between the primary and secondary activities in the company. The management of the company has identified that these components are interconnected and have both positive and negative impacts on the overall performance of the company. However, a value chain model is not sufficient to analyze the issues that are being faced or may be faced by the company because the value chain model does not take into account the different factors in the macro and micro environmental constructs of the company (Porter, 2004). In case of the Ford Motor Company, the supply interactions that would arise from the re-introduction of the second hand automobiles last for a limited time and have considerable impacts on the overall functioning of the firm and the sector as well. In the motor and automobiles industry, the re-introduction and re sale of the less used second hand automobiles are sold at discounted prices. These products are generally held by the first owner of the car of a period lesser than two or three years which is a normal holding period for any private automobile owner. As such, these kinds of re-introduction and re sale create high level of supply conditions and interactions in the macro level of this sector (Lazzarini, Chaddad and Cook, 2001). Traditionally, the automobile companions sell old cars as a discounted price to the workforce of the company and the demonstration models to the dealer entities. In this respect, the sector matrix identifies that the sale of old cars also add to importance in the organizational performance, economic profits and gains. The new models of cars are also similar in this system and should be included in the demand supply relations because the expense of the automobiles for the company are not terminated on purchase but are continued in the form of other ancillary expenses. The way of evaluation and analysis used in the sector matrix tool would be especially significant to the Ford Motors Company, because in the motoring and automobile sector, the consideration of both primary and ancillary products would act as a key factor in shifting the concentration of the business managers to view the marketing of automobiles in terms of usage and function rather than on simple production systems. The use of this matrix also helps to build the communication and relations from the customer perspectives depending on the patterns of supply and incomes as well as the distribution and demand of the products in relation to the supply side (Horvath, 2001). Thus, the sector matrix tool accounts for the external environmental factors through a vertical and horizontal axis formation, would be more effective in embedding the sector specific and industry specific factors in the operational and management decision making aspects of the company. These extra factors may include the sustainability initiatives and philanthropic initiatives of the company that would help to enhance the reusability factor of the products of the company as well as make the production processes of the automobile company more sustainable and environment friendly (Cardoso and Faletto, 2009). This would not only enhance the capacity and the productivity of Ford Motors Company but would also help the management to prepare the business adequately for meeting the different issues arising in the complex global automobile industry. The use of sector matrix would also act as a key tool for the management of Ford Motor Company to respond quickly to the opportunities and challenges in the external business environment (Barne and Müller, 2004). The sector matrix tool seems to have gained more importance in the area of competitive focus identification in the production, operational and distribution processes of a company. This is because over the last decade the production processes of international and transnational companies have become more complex. While in the earlier scenarios, the competitive focus of the operation and production systems of a company was on the product development stage being the key activities or the primary activities of a company while the company strategies were grouped as the support activities as per the value chain model, in the recent times, a number of other diverse concepts and perspectives have been identified that can be categorized as the primary activities of a company. Both activities and processes as well as corporate and business decisions have started to be included in the primary activity segment of any company. The increasing complexities brought in factors like by innovations in technologies and the phenomena of globalization have made it prominent that a more distinct and effective means of analysis of the production and operational process is necessary. The sector matrix with its consideration of the firm level and macro level perspective is a useful approach in determining a wide range of primary costs of a company and also de-emphasizing on the production processes ad organization of production stages and instead focus on the analysis of demand and supply relations as applicable to the particular firms and sectors (Kehoe, Srinivasan and Whalley, 2005). Conclusion The sector matrix analysis acts as an efficient, effective and innovative analysis tool in the process of evolution of commodities in complex industries like the automobile industry because it employs the combination of both the competing and complementary products and production activities in the analysis and evaluation of the organizational performance and future prospects. 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