Strategy Management Final - Term Paper Example

Strategy management-exam Name: Grade Course: Tutor’s Name: Date: Strategy management-exam Challenges facing Zipcar From the case study it is evident that the soaring price of gasoline is one serious challenge facing the firm. It has been argued that the age of lower gas prices is long gone and firms, individuals and corporations should brace themselves to foot the huge bills in terms of fueling their vehicles (Hanson, Ireland & Hoskisson, 2011). Additionally Zipcar has found it very hard to meet the rising cost of parking space that are also very few. To deal with the issue the company has transferred the cost of parking to their customer by increasing rates which might be dangerous for the firm if competitors are willing to offer the same services at lower costs. Another challenge that is facing Zipcar is with regards to insurance. It is shown by research that young individuals especially those in collages are more likely usually 4 times likely to cause accidents compared to older members of the society. Having in mind that Zipcar target market include government agencies, corporations, individuals and to a larger extend students, insurance companies will raise the insurance paid by the company to cater for the damages that is caused by accidents. On the same note, the company either leases or buys vehicles that they use at a discount from manufactures in Japan. However, it is worrying that the recent nuclear disaster in Japan is expected to raise Zipcar, cost since the two main brands the firm uses that is Toyota and Honda has experienced shortages as well as delays in manufacturing (Ray, Barney & Muhanna, 2004). Lastly it is important to note that the business is capital and resource intensive and as a result of its lifecycle stages, there is need to constantly modify and improve the way business is done in order to meet the changing demand, aspirations and expectations of customers. In the present world of doing business innovation and creativity is what will make a business relevant and competitive and this calls for financial as well as other resources to be utilized effectively. Based on the present strategies the firm is using to deal with these challenges, it is evident that there is need to change some of them. For instance, concerning fuel costs, the firm should start buying or leasing vehicles that are efficient in utilizing fuel and at the same time releasing less carbon dioxide to the environment (Hanson, Ireland & Hoskisson, 2011). Zipcar key areas of strategy Zipcar has decided to engage and compete in fleet management as well as car sharing business. The later is heavily propelled by the fact that there is need to reduce the number of vehicles in order to curb the problem of carbon and green house gas emission. In the desire to diversify their operations, the firm deemed it feet to develop software that they usually lease to companies that operate fleets of vehicles for various reasons such as transporting goods and human beings. One area that Zipcar has gain competitive advantage is with regards to using technology in its business. Zipsters usually receive a card which is used to lock and unlock the vehicle (Holcomb, Holmes & Connelly, 2009). Reservation can be done through the internet or through phone and the whole system requires very little user interface and it user friendly. Additionally the firm has ensured that although it is easy to access the product, the security is not compromised. This has been accomplished through the radio frequency identification technology. More importantly, Zipcar has managed to market its product through the word of mouth. It is also worth noting that the firm has instilled a culture of innovation and staying and offering customers unique experiences and at the same time expanding their markets, going international. Additionally the structure of the firm is flat which enhances easy and faster communication. Thus customers, suppliers and other stakeholders once they raise issues the same are communicated to the relevant and all level of the firm. This form or organization structure empowers employees to come up with better and innovative solutions to customers concerns. By operating 24/7, this has ensured that customers are help at whatever time of the day. This has given Zipcar a reputation of being consistent and reliable (Kazmi, 2008). Another strategy that Zipcar has mastered is partnership and alliance. The synergy brought about by the combination of resources if well managed yield positive results. Zipcar acquired Flexcar in 2007 resulting to a merge of resources which proved very important in solving redundancies. Additionally this ensured that the firm acquired the leadership skills of Norman Mark who was the former Chief Executive Officer. His skills have proved to be helpful in ensuring that Zipcar expands its operations and at the same time maintaining the firm’s entrepreneurial as well as customer focused business approach. PEST analysis Political It is worth noting that the recommendations of Kyoto protocol and the recent Copenhagen debate and suggestions about cutting down the amount of greenhouse gas emission have been taken seriously by most Americans. Thus the desire for Zipcar to bring the concept of sharing vehicles while American are carrying out their day t day activities are deemed to be part of the solution towards cubing global warming. There are hints that the government might provide tax benefits for those companies that are striving to cut down on carbon footprint and Zipcar stands to benefit if it does its business the right way (Schnaars, 1998). Economy It is evident that the cost of operating and maintain a vehicle in busy and densely populated cities such as New York City, Boston, London among other is very expensive. It is recorded that one can use up to $500 dollars for parking only. There are other costs which include fuel, maintenance and repair of the vehicle among others. This might run in excess of approximately $2,000 per month (Kazmi, 2008). Since the financial crisis of 2008-2010 and the recent Euro-zone economic crisis people will seek alternative ways of moving from one place to another at a cheaper cost as they tighten their wallet and only spend their money on necessary things. Social More Americans still want to enjoy the comfort of driving alone. There is no other perfect way to do this other than the Zipcar way. One book the vehicle uses it for the time he or she need then leave it to another user. This reduces the number of vehicle on the roads as well as ensuring the comfort of driving alone is not compromised. On the same note, it is the culture of American as well as European citizens to save time. There is no perfect opportunity to do this other than using Zipcar services as this will help reduce traffic jams (Schnaars, 1998). Technology The internet has offered and will continue to provide Zipcar with a perfect opportunity to mark its products and services. Twitter, face-book among other social sites will continue shaping the way Zipcar reaches to the existing and new customers. With advancement in feature of mobile phones, the company can synchronize their use for instance the google street maps and GPS can be used to enhance commuting so that customers don’t need to call asking for directions. Porter’s five forces Threats of new entrants There is no doubt that the threat of new entrants in this business is strong as a result of its attractiveness in terms of potential returns to new market players. Financial records attest to this. For this reason despite the fact that the whole business is expensive to venture in individuals and companies have devoted themselves and some are already in the business. Zipcar should brace itself to handle pressure from more competitors (Porter, 1985). Power of suppliers Supplier power is competitive position for the firm and it is deemed to be moderate. Zipcar offers car rental services with their own car which they have either bought at lower prices or leased from manufactures in Japan. It is worth noting that the ability to provide customers with vehicles that the company owns ensures that there is no delay as a result of dealing with a third party. Zipcar has formed a strong connection with petrol stations and service bays where technical services are offered. Power of buyers Due to competition, buyers have a strong power as they can chose from other service providers. The availability of other rental services makes it possible for Zipcar customers to switch from other service providers if they feel that their need is not fully met. For this reason, Zipcar need to always ensure that it captures the needs, demands and aspirations of its customers. Threat of substitute product It is worth mentioning that Zipcar is faced with strong substitute products. Due to the lucrative nature of this business, new firms tend to bring in and modify the concept of car rental. They have tried to use technology in their business to appeal to ore customers. On the same note, the public transport industry has also tried a lot in luring new customers. For instance it has managed to construct a rack for bicycles for those customers who have one. Competitive rivalry Hertz Global Holding and enterprise Rent-A-Car Company are proving to be among Zipcar’s tuff competitors. These competitors are constantly offering lower prices to their customers which compel Zipcar to do so leading to war prices. One major way for Zipcar to be competitive is to diversify its products as well as ensure that the products are user friendly and of very high standards (Black & Boal, 1994). Zipcar competitors Enterprise Rent-A-Car Company was established back in 1959 and has cut itself a niche in the market by offering lower prices. Additionally it has enormous resources in terms of vehicles, offices and serving majority of Americans. It was the first rental agency to come up with the idea of toll free reservation. This has worked well for the company for many years. The market slogan they used, we’ll pick you up made the firm to be successful in entering airport market in the year 1990s. After such establishment, the company was the first to offer the car sharing service under the program Wecar. The firm is making its customers as well as potential ones understand that their service is characterized with convenience, and easy to use in meeting personal demands (Weihrich, 2007). Hertz has established itself as a global brand operating in over 140 countries. The strategy the company used to expand and capturing the airport market started back in 1960s. With the understanding that the market for car sharing is shrinking, Hertz has managed to successfully diversify its business. For instance, it is offering heavy equipment rental, telecommunication services, claims management services as well as several car rental segments. At present the firm is planning to enter into the Russian and Middle East markets. Apart from the airport business, the company has realized there is potential for big business outside airports. The company has also entered the car sharing business with Connect by Hertz. The company strongly believes that the strong brand it has already establish, absence of annual membership fees, lower hourly charges, blue tooth and GPS technology will help it conquer the market. Indeed many of the firm’s characteristics seem to match those of Zipcar. Based on competitors strategy Zipcar needs to continue with its strategy of forming strategic alliance, merger, acquisition and partnership. This will continue helping it gain competitive advantage, gain economies of scale and even compete favorably in terms of prices. Zipcar ought to develop new products and services and give added value to their customers. It is no doubt that if the company will adopt using the e-business initiative effectively and successfully it will be better placed in responding quickly to the demands of new markets (Weihrich, 2007). As suggested by Crook, Ketchen, Combs & Todd, 2008 it would be for the best interest of the company to tremendously cut down on overhead costs for instance through utilizing technology to reduce paper. Important stakeholders The major stakeholders include customers, suppliers, the government, and shareholders. There is no way a business can run without having a customer base to serve. There is need for the firm to ensure that it continuously capture the demands of the customers and fully meet them. This calls for a channel to be put in place to capture their buying trends, feedbacks among others. Promotions and advertising should be tailored to these customers. On the same line of reasoning, it is impossible for the firm to operate without having in place those who will supply them with cars. Suppliers are important since a warm relationship with them will guarantee Zipcar timely delivery of new cars. It has been shown in the case study that Toyota Company and Zipcar enjoy a mutual relationship where the later is given vehicles in a timely manner at slightly lower prices. Another important group of stakeholders include the firms that are contracted to regularly service Zipcar vehicles. Since customers usually need services that fully meet their expectations, proper repair, service and maintaining of vehicles is of paramount important to Zipcar and its customers. Petrol stations and repair agencies will help the firm provide customers with fuel with no hiccups among other issues. Since the governments are the one who formulate laws governing business operation, it is important for Zipcar to be in good terms with the various governments of the host countries. Lastly, since the shareholders are the one who make vital decisions, Zipcar need to ensure that it is in good terms with them, properly brief them on the right course of action as well as how to share the profits (Haig, 2004). Additionally the chances of the existing stakeholders and probably new one heavily depend on the performance of the firm. If shareholders are convinced that the company is heading towards the right direction that of making more profit and an increase of dividend per share, then there are higher chances that they will invest more. This will be good not only to Zipcar but also customers who desire the company’s services. Resource, capabilities and competencies Concerning resources, this includes those input a firm directs to its production process. With regards to capital equipment, in the beginning the co-founders solicited for financial or capital and they raised a total of $1.3 million from investors, this was ploughed back into the business. At present the revenue generated is used to improve the software, buy as well as lease new vehicles. It is also worth to mention that those individuals in the managerial positions are the key personnel driving the firm to prosperity. The chairman and CEO Mr. Scott Griffith have a lot of experience and knowledge in transport industry he gained from Carnegie Mellon University, University of Chicago and Boeing. He is the one who conquered the Boston and New York City markets with his leadership style which allowed innovation (Ethural, Kale, Krishna & Singh, 2005). Steve Case is a business person who has gained enormous reputation which can be capitalized by Zipcar. Additionally his prowess in technology has helped the firm adopt a cut edging technology that meets customers’ requirements. Similarly Goldfinger Ed the Chief Finance Officer is well placed to help Zipcar attained technology use, leadership style and financial practice that are desired. Lastly Norman Mark a former employee of Flexcar brings in the advantage of streamlining Zipcar complex business model will help in ensuring that the firm expands and at the same time meets customer demands. The leadership style allows the employees to come up with better and sophisticated solution to existing problem. However, there is need for the firm to ensure that it attracts and retain employees (Johnson & Friesen, 1995). In terms of capabilities, the word of mouth campaign and use of multiple media advertising are working perfectly for the firm. Additionally the idea of using technology, operating 24/7 and offering lower rates seem to work well for the firm. It is no doubt that the firm has also mastered the art of forming strategic alliance, partnership and mergers which has helped it extend their services to areas that would otherwise be difficult to so. It is worth noting that the capabilities of Zipcar are resources which perform in an integrative manner to provide customers with desired products and services. The firm’s capabilities indeed meet the requirements of not being simple that they can be imitable. Additionally they are not so complex that they defy internal steering and control. Conclusion on whether Zipcar is successful There are different attributes that can be used to measure the success of an organization. For instance the financial performance has been deemed to be the most suitable method. Additionally the number of customers an organization serves, the ability to conquer new markets among others will be used in this case. Based on the company’s strategy to go global, it can be said that the firm is successful. Through merger, partnership, forming strategic alliance and acquisition of other firms, Zipcar has managed to expand its operations to regions that were unimaginable such as UK. Additionally the IPO was indeed successful as well as their plan to expand and acquiring new parking lots. For instance the shares were sold at $30 per share and this was received well by investors. It is also worth noting that the firm has continued to increase its revenue. This has been due to addition in terms of members as well as acquisition of other car sharing operations. For instance, financial records reveal that Zipcar grew in terms of revenue between the years 2005 and 2008 realizing an increase of about $97 million from $13.7 million in 2005 to $105.9 million in 2008. Nonetheless, the financial records of the firms are not good enough. For instance the current ratio for 2009 and 2010 are as follows, 0.94 and 0.92 respectively. From this analysis it is evident that Zipcar does not have enough assets to cover its current liabilities. It is worth noting that this can be attested by the $65 million debt the firm has accumulated and they have no cash to pay it down. Concerning the issue of profitability, it is evident that Zipcar has recorded an annual operation cost of about $15,500. This value is twice the annual estimation of costs incurred by those who own a car in the United States of America. This is a clear indication that the firm has not yet started enjoying economies of scale. However Zipcar has recorded an increase in profits in the four major established areas of its operations. In Boston, New York City, Washington DC and San Francisco, the firm attained 17.0% profit margin, 45% growth in profit from the previous quarter and $ 4.6 billion profit. From theory the losses the firm record in previous years can be explained by the high cost of entering big markets such as New York City and Boston. Although it may seem that the company is successful, the competition to be faced in the near future might change the way things are currently. But with better strategies clearly outline in this paper, there is no doubt that the company will continue being a force to reckon in this business. References Black, J. & Boal, K. (1994). Strategic Resources: Traits, Configurations and Paths to Sustainable Competitive Advantage. Strategic Management Journal, 15, 131-148. Retrieved from http://kimboal.ba.ttu.edu/Selected%20writings/strategic%20resources.pdf Crook, R., Ketchen, D., Combs, J., & Todd, S. (2008). Strategic Resources and Performance: A Meta Analysis. Strategic Management Journal, 29, 1141-1154. Ethural, S., Kale, P., Krishna, M., & Singh, J. (2005). Where do Capabilities Come from and How do they Matter? A study in the software services industry, Strategic Management Journal, 26(1), 25-45. Haig, M. (2004). Brand Royalty: How the World’s Top 100 Brands Thrive and Survive. New York: Kogan Page Publishers. Hanson, D. Ireland, M. & Hoskisson. (2011). Strategic Management: Competitiveness and Globalization. Cengage Learning Austraia Pvt Ltd. Holcomb, T., Holmes, M., & Connelly, B. (2009). Making the Most of what You Have: Management Ability As A Source of Resource Value Creation. Strategic Management Journal, 23, 457-485. Johnson, A. & Friesen, M. (1995). The Success Paradigm: Creating Organizational Effectiveness Through Quality and Strategy. New York: Quorum Books. Kazmi, A. (2008). Strategic Management and Business Policy. New York: The McGraw – Hill companies. Porter, M. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press United States Ray, G., Barney, J., & Muhanna, W. (2004). Capabilities, Business Process and Competitive Advantage: Choosing the Dependent Variable Empirical Tests of The Resource-Based View. Strategic Management Journal, 25(1), 23-27. Rosenbaum-Elliott, R., Percy, L. & Pervan, S. (2011). Strategic Brand Management. Oxford: Oxford University Press. Schnaars, S. (1998). Marketing Strategy: Customers & Competition. New York: Free Press. Weihrich, H. (2007). Management. New York: MacGraw Hill Education. Read More