Strategy Organization and Management in the World - Case Study Example

Running head: STRATEGIC MANAGEMENT Strategic Management [Writer’s name] [Institution’s name] Table of Contents Strategic Management Introduction. Organizations change and organizations compete for the same resources, competencies, and customers. These are the cruel realities of management that cannot be neglected. This also means that the notion of strategy and strategic management cannot be neglected as an integral part of what managers do. Strategy is about affecting the overall activities of an organization in ways to make the organization a winner. Strategy is about survival in fierce competition. Achieving the strategic competitiveness and earning above average returns is one of the strategic management challenges. It is very difficult to be achieved even if the firm is very big and it is even harder for those companies that are in small scale. Eventually the profits are usually hard to find or gain. The rigours of change and also competition catch are another challenge (de Brentani 1991 p 33). According to Business Review Weekly's annual list of the Top 1000 companies, more than 30% of the companies drop off in each decade. This shows that more and more company will a very hard challenge for the firm to implement their strategic management. Profit is one of the aim or goal for most of the firm or company. However, in strategic management, strong and consistence profit is not the main priority or concern. A strong and well-thought-out strategy was the top concern. This was followed by maximizing consumer satisfaction and loyalty, business leadership and product or service quality. And it is very hard to achieve actually because each consumer is different from one another in terms of the satisfaction towards a certain product or service quality. So, this could be one of the challenges of strategic management Case Study: From about 1910 to 1930, industry leaders directed the large expansion of the automobile market, By the 1930s, battles for community leadership and bargaining power revolved around the principal supplier to the auto industry: labour. In the late 1920s, around 500,000 people worked in the Detroit area car factories. Working conditions were dangerous; one auto body plant was known as "the slaughterhouse." But by the mid-1930s, the United Auto Workers Union had formed. In 1937, the UAW achieved a landmark victory when GM recognized the union as an official representative of its employees. Labour-management struggles continued into the 1970s. Presently the industry is driven by the effects of the macro economy. The affects of the different economic indicators detailed in this paper ultimately forced the transformation of the domestic automobile industry into what we know today. Current trends Trends in the automotive industry include the style of the vehicle as well as the pattern in sells. The automotive company must have the capabilities to keep up with fashion, meaning goods and services the economy is vesting for. For example, were there more vans sold the pervious or sports cars. The industry has to supple the product that is in demand (Clark 1991 p10). Some of the key factors to success that have been identified are: Control of Costs Controlling costs has become an essential requirement for auto component manufacturers, from the point of view of different perspectives. On the one hand, cost cutting becomes essential if the company is to maintain profitability, even as OEM's have started demanding a price reduction of 5 - 10 % every year on components. Failure to control costs would thus lead to an erosion of margins and hence profitability. Often, this cost cutting can take place in collaboration with the OEM's themselves, by identifying areas of wasteful expenditure and possessing the scope for improvement, as Maruti has been actively doing with its suppliers (Wheelen, 2000 p 7). Maruti has in fact helped suppliers to identify inefficient processes, to develop methods to reduce defects, to provide technical inputs and to decreasing the process times, thus reducing component labour and overhead costs. On the other hand, with cost reductions in mind, OEMs have moved towards "vendor rationalization", retaining only a few vendors who can assure desirable levels of both quality and prices. A direct consequence of this is economies of scale, whereby large vendors would be able to reduce costs for the OEMs by supplying larger volumes. In fact, it has been estimated that a 40-50 percent increase in volumes to the vendor can result in a 3-4 percent reduction in component costs. In this way, the benefits of large scale on the part of the vendor accrue to the OEM, making it a requirement for companies to focus on extensive cost-cutting. Control of Quality Success of the auto component manufacturers is measured by the orders received from OEMs. Today, pre-requisites for obtaining such orders include meeting not only the costs but also the quality requirements laid down by the OEMs. Tier 1 companies in particular are responsible for ensuring the quality of the components supplied by them, as these components are directly loaded on the assembly line - thus these "direct online suppliers" follow self-imposed quality checks that have to be strictly followed. This practice is increasingly becoming important even for Tier 2 vendors and those further up the supply chain. Quality certifications lead to contracts with the OEMs, and thus the sooner a certification is achieved, the better for the vendor as it creates an early lock-in of buyers. Control of Production Schedules Just-in-time (JIT) systems, first introduced by Toyota with tremendous success, have now become the norm for all OEMs. This involves maintaining minimal inventories by sourcing materials and producing only as and when demand arises. In order to fit with such a system, the vendor's own production schedule must be well-controlled and synchronized to that of the OEM, involving a lot of production planning and logistics management skills. Usually this leads to OEM's sourcing their materials from a single component manufacturer in the vicinity. The problem with the system currently is that JIT has not yet percolated down the supply chain, so while SMEs that are located on Tier 1 have complied, they have not received the same from their suppliers who are either too big (as steel companies) or too small (as traders). Diversification of Buyer Base Vendors must look to diversify their buyer bases rather than be dependent upon individual OEMs. Since this is difficult in the context of rationalized supply chains, the vendors should look towards export markets to meet this need. Technological Capabilities and Collaboration The increasing participation of auto component manufacturers in product development implies a greater need for R&D, and tooling capability, which becomes a great advantage, can be enabled by collaboration with international players. This advantage does not come without its share of drawbacks; however, since the problems of export restrictions and royalties come into the picture. Further, export opportunities are reduced for the vendors since their international collaborators already service certain markets (Grant 2004 p 18). Flexible Production Lines and Flexible Labour Deployment One factor that can make a huge difference to the competitiveness of a vendor is its responsiveness to demand, which can be greatly enhanced if the production lines are flexible with the ability to improve production at short notice, as well as a flexible workforce that can be alternately deployed between product lines to cope with increases in demand. Smart Car an Automobile Revolution MCC SMART (Micro Compact Car) was born of a meeting of minds in 1994 between Mercedes-Benz and Nicolas Hayek, the creator of Switzerland's Swatch. SMART is a combination of Swatch, Mercedes and art. Swatch for the plastic know-how and Mercedes for the engineering. While it is the smallest of urban cars, 2.5 meters in length having 1.2 passengers capacity means that it can be parked facing the pavement. It is one of the most spacious on the market. The tiny car looks like something used in a sci-fi movie for personal transportation on the elevated highways of Planet Xenia. The Smart, as it's called, is a two-seater intended principally for tooling through crowded streets. Five feet shorter and a foot narrower than the new Volkswagen Beetle, it's nearly as lithe and easy to park as a motorcycle. Three of them, nose to the curb, can fit in a single parallel-parking space. The factory in which the Smart is assembled is in France's Alsace region hard by the German border. It's not quite as odd as the car but is definitely different: a windowed cruciform structure connected by enclosed conveyor lines to a surrounding cluster of more conventional buildings. These plants employ a total of 1,400 people and more than 5,000 suppliers. When the system partners are included, this means 2,500 people are involved in building, designing and marketing the SMART. SMART Car’s New Concept When the new concept of smart car came in 1990, the smart concept was known as the only revolution in the automobile industry. With the plan of having a new and innovative concept of mobility, the car was innovative in a number of areas as well as product design, production and sales technique. It is even likely to talk on the subject of a new relationship with urban life, or with the idea of citizenship: peoples are always attracted to towns for a lot of different reasons, mostly because of theatres, sports and shopping every one of them contribute to the quality of life .for a lot of us the town is moreover a beautiful place to work driving conditions, nevertheless are not easy, further more with parking is more or less impossible. So that motorists could get back their freedom, they created something innovative and new; the smart: a city coupe which fulfilled all the demands that and urban life has, it was then thought to be the prefect car for urban life. If every car is 2.50 meters, they could plant an extra tree in every parking space. This car designed in such manner that it would take up only half the normal parking space. The people who live in towns usually wish that there could be more space for cyclists and pedestrians. The smart car seemed to fulfil this wish of people who live in towns. The small size took little space and so there was enough space for every one, both on the road as well as the parking space. The fundamental objective is obvious that to change man’s relationship with the car. Unlike the car itself, this relationship has barely changed at all over the last century. Cars still symbolized wealth, the size of the car as well as the price, thus the relationship between man and car remained unchanged. The concept of the smart car is indeed revolutionary in two ways, both in the design of the object but as well in the way it is considered. This idea is that it ought to no longer be considered as a permanent benefit. This idea was to create a simple, dependable and eye-catching car, it was change from how today’s cars are manufactured; this car was less sophisticated then the cars that are found these days. . The smart was thought to be a basic mobility tool, inexpensive to produce, but also different. For that reason the idea was to generate a new mass market for an urban mobility tool that was very different from the conventional automotive concept as well as at low price. The concept for the smart cars was to target very specific, mostly young yuppies in which both husband and wife or, households in which very member is earning, apart from that the car was also targeted at households with no children and trendsetters .nevertheless almost 80% of the clients were estimated to be families looking for a second, or even a third car. SMART Car’s Failure One of the most important factor for smart car‘s failure is that they seemed to have forgotten one very significant point. They forgot that car buyers are not young. On they are usually 47 years old or older. Furthermore, the smart target is more predictable than the initial market study forecast as well as is not the customers targeted by the smart’s initial advertising campaign, judged by professionals as too exclusive. One more criticism was the high price, which was thought of to be too expensive by the car industry experts. for the competition, if the smart had been put on the market at 4600 pounds ,then competitors have been actually worried for the twingo .a number of investors gave their view that with this price cannot be negotiated, consumers like to negotiate on prices as they are happy to save between 460 and 600 pounds ,even if they don’t like to bargain so the idea that the price could not be negotiated as well as that the car was very expensive played a major role in smart’s failure Market scopes are completely convinced that the price is the main reason and that if they would lower the price than other car manufactures would be shivering from fright. MCC would point out that urban drivers only carry 1.2 passengers on average. But the marketing professional remain skeptical so. By offering a 2 -seaters MCC made a psychological mistake and thus loss their market. People also want to buy things that are convenient for them in the long run, especially if what they are buying is expensive, so people would prefer to buy a car in which they can carry several people even if it’s only at are occasions. .The smart story is the story of a failed take-off. In October 1998, Daimler Chrysler brought the smart, micro car, into the automobile market. Target 130,000 units sold between now at the end of 1999.the result to date is under 20,000 sales. SMART Car 2000 Onwards According to Pieere Agudo 1999: “It is true that the car has been improved. It is now more comfortable and includes state-of-the-art electronic driving systems and an attractive after-sale service we should perhaps wish it good luck for it has been calculated that the cost of closing down the Hambach plant would be almost one and a half billion euros, and, in particular, it would be the death blow for 1,700 employees who, after seeing the end of the steel industry and declining in the mining industry, are beginning to breathe again through the production of a little car which appears extremely practical for driving intelligently in town.” (Case study: Smart Car an Automobile Revolution) From 2000 onwards, smart sales began to grow quite significantly .The car had its best year in 2000.It ranks 2nd for small car sales in Europe. (Behind the VW Lupo).They is encouraging, although they need to be considered in perspective. The small urban vehicle is a very recent segment, which is why it is difficult to make forecasts in terms of % penetration. Today if we speak about smart’s real sales segment, we are alone in this category. We are still the only constructor offering a genuine 2-seater.Smart’s survival depends on the sales of its new models. The paradox of the situation is that today the smart car is being compared with cars which do not share the same features at all, and this means that the rate of market penetration is not necessarily being assessed at its true value. What is needed is a real competitor with a similar type of product, but the other constructors are waiting for smart to establish that market. By 1st January, 2003 a total of 450,000 smarts had been produced since the initial launch. In 2002,123.000 cars had been sold, and in 2003, the figures remained satisfactory despite a depressed car market .In France, the sales forecast are around 12,000 units for 2003. As a result of their new business model, the major factors which were announced on April 1, 2005, fixed costs were to be reduced by 30% within the next two years as well as productivity was going to boost. Since April 2005 extra cost cutting realignments have been initiated. They carry on decreasing their work force. Furthermore DaimlerChrysler will make an effort to strengthen sales and the smart brand‘s sales will improve after incorporating smart into the Mercedes organization. As t he bleeding has slowed down they have planed to try to gain profitability as well as productivity for the smart car smart in 2007. DaimlerChrysler will now pay attention “entirely” on its Smart ForTwo models. DaimlerChrysle’s sources predict that; the 2008 Smart will congregate the U.S. Department of Transportation and Environmental Protection Agency needs and turn into an US compliant. The headlights of the car will be more aerodynamic, tail light updates, a slight increase in weight, invigorate horse power, improved safety features, new available colours choices, nevertheless because of the customer’s choice the general appearance dimensions as well as the Smart appeal will remain the same. Success most probably will come with out any effort at all for the 2008 Smart in the U.S. Smart probably will be the celebrated vehicle of the new millennium. References Case study: Smart Car an Automobile Revolution, retrieved from coursework on August 27, 2007 Clark, K.B., Fujimoto, T. (1991), Product Development Performance: Strategy, Organization and Management in the World Auto Industry, Harvard Business School Press, Boston, MA p 10 De Brentani, U. (1991), "Success factors in developing new business services", European Journal of Marketing, Vol. 25 No.2, pp.33-59 Grant, R. M. 2004. Contemporary Strategic Analysis. Blackwell Publishing, London. P 18 Wheelen, T.L. & Hunger, J.D. 2000; Strategic Management. Upper Saddle River, N.J. U.S.A: Prentice Hall p 7 Appendix Critical Success Factors Diagram: Smart Car for Two Read More