Cost Leadership, Differentiation, and Focus Strategy, Bargaining Power of Buyers and Suppliers - Assignment Example

Answers to Questions Name Institution Question 1 Strategic leadership involves capability of motivating and influencing other people on the organization to make day to day decisions voluntary so as to achieve long-term success while maintaining financial stability. In 2004, Clive Beddoes became the CEO at Westjet, which was bleak and predictably would have failed. Beddoes focused on a new vision expected to be achieved in the next ten years. While in the office, he focused on making a better relationship with employees. Also, he allowed employees to make judgments and decisions in all the hierarchy levels while presenting tight fiscal controls. Westjet was a Calgary start-up which had threeaircraft that were flying in cities within Western Canada. In 2000, Air Canada dominated the industry, and Beddoes decided to expand Westjet to the eastern Canada. Due to the leadership of Beddoes, WestJet has acquired 36% of the Canadian market comparing to 57% of Air Canada. The corporate has had a health profitability and growth despite the economic downturns such as global recessions and September 11th attacks. At the moment, WestJet has over 55 destinations in the United States, Mexico, and Canada making it one of the most profitable and successful airplanes in North America. Due to Beddoes strategic leadership of articulating clear vision while maintaining short-term financial stability, WestJet has achieved long-term viability. The airline has managed and deliveredsmooth day to day operations. Question 2 Business level strategies involve actions taken to achieve competitive advantage and deliver value to customers through discovering core competencies in a product or service. The business level strategies include the use of potter’s generic strategies. According to Michael Porter, corporate strengths fall either to differentiation or cost advantage resulting in the three generic strategies that include; differentiation, cost leadership and focus which are applied on business-level. Cost Leadership Strategy The strategy involves producing a product or service with low cost within a given level of quality in the industry. The firm can opt to sell it product at average industry prices to earn more profit compared to competitors, or sell below the average price so as to gain the market share. A firm involved in price wars while producing its products cheaply remains profitable for long periods while the competitor suffers losses. A business can accomplish cost advantages by achieving unique access to materials at a low cost, improving process efficiencies, creating vertical integration decisions and optimal outsourcing or possibly avoiding some costs. Therefore, firms with cost leadership have significant access to capital necessary to invest and other companiesmay not be able to acquire such capital.Also, the business with cost advantage and skills in designing products with high level of expertise and well-organized distribution channels. Differentiation strategy Differentiation strategy involves products or services unique attributes that customer value and sees them be better than what the competitors offer. Firm’s charges premium prices for the product uniqueness hence covering more than the extra cost incurred in product production. If the suppliers increase the material prices, the firm may be able to increase product prices as the customers may not be able to find a product substitute easily. Therefore, firms implementing differentiation strategy have a leading scientific research, corporate reputation for quality products and innovation, creating development team of the product and strong sales team. Focus Strategy The strategy involves the concentration of narrow segment so as to achieve differentiation and cost advantage within that segment. Therefore, a firm focuses entirely on the needs of a group. In return, the firm enjoys customer loyalty which discourages the competitors. By only focusing on specific groups, firms produce lower volumes hence they less bargaining power when purchasing materials from the suppliers. However, firms practicing differentiation-focused strategy have anadvantage as they pass the extra costs to the customers due to the unavailability of substitute products. The firms that practice focus strategy get strengths in thebroad range of product development to the relatively narrow market well known to them. Combination of generic strategies Porter argued that firms need to focus on specific strategy as all the strategies are not compatible. Therefore,firms may be stuck in the middle and not achieve the desired outcome. However, firms can succeed while using multiple strategies on separate business units. The separate business units should have different policies and cultures so as not to be stuck in the middle. Porter explained that following a single generic strategy may at times lead to failure as customers seek multi-dimensional satisfaction that entails the combination of style, price, quality, and convenience. Question 3 Porters five forces analysis include the forces that affect a corporate capability of gaining profit and serving customers. Any change requires a corporate to re-assess the market and make variations in the industry information. The five forces comprise of the horizontal and vertical competition. The horizontal competition includes the threat of new entrants, the threat of substitute products or services and the threat of new entrants. Vertical competition entails bargaining power of buyers or customers and bargaining power of suppliers. Bargaining power of buyers Some powerfulcustomers can influence prices to drop in other cases demand more services to the current prices so as to gain more value of the products. The customers tend to be powerful when they buy a large portion of the total industry output which significantly accounts for expected seller’s annual revenues. Also, the customers in the industry can switch to other products easily as the products in the industry are standardized or undifferentiated where the customer is a threat upon integrating as a seller in the industry. Bargaining power of suppliers Supply group tends to be powerful when the industry is dominated large firms which are few in numbers while there is the unavailability of substitute products. In this case, the supplier’s goods are significant to the customer end products and hence influence the marketplace success. The supplier’s effectiveness creates high switching costs and can pose major threat upon integrating into the customer's industry. The suppliers in this scenario can use negotiating leverage to their advantage by demanding favorable terms from competitors or charging higher prices. Threat of new entrants A profitable market attracts many new entrants that eventually results to decline in profits to all industries. The current firms tend to reduce prices and incur more costs to retain customers. The threat includes costs associated with building brand awareness, economies of scale, government restrictions and access to distribution channels.Also, the capabilities of new entrants determine the threat. Threat of substitute products or services The industry suffers when a new product or services achieve similar customer basic needs in different ways. An example is when an email acts as a substitute for the express mail. The substitute products serve as a threat when they have attractive price performance and low cost of switching compared to industry product. Rivalry among existing competitors Rivalry occurs when there is many competitors or firms tend to have an equal size and same market position. When the industry growth is relatively slow, and the exit barriers are high, an industry realizes strong rival commitment and diverse ways of achieving goals. The firms’ experiences increased fixed costs with low prices of the end product. Therefore, when the rivalry intensifies, the cost of competing increases and the prices goes down leading to low profits as the firms compete on the value they create. Question 4 Core competences involve delivering unique products or services with value to the customers. This means that the products created hard to imitate. Capabilities means business ability create, modify and manage its resources. Organizations manage their resources or capabilities to achieve core competences and sustainable advantage through the following four criteria. Valuable capabilities. This involves capabilities that help an organization to neutralize threats or possibly exploit opportunities Rare capabilities. This involves firms making sure that their capabilities cannot be possessed by many. Costly to imitate. This involves capabilities that cannot be easily developed due to unique historical conditions, social complexity, causal ambiguity and time diseconomies. No substitutable equivalent capabilities. This involves capabilities with no strategic equivalents due to the firm's specific knowledge and hence become invisible to competitors. Read More