Importance of Management and Innovation - Term Paper Example

MANAGEMENT AND INNOVATION

1.0 Executive Summary

Today, it is imperative for organizations to remain innovative to be competitive in the market. When a company remains innovative, it can develop new products and services quickly, hence remaining profitable. Innovation in a company enables businesses to create competitive advantage which helps them to penetrate new markets. Specifically, it is essential for startups to be innovative to gain market share and make profits. In the competitive global marketplace today, companies are seeking new innovative ways to gain competitive advantage. One of the means of gaining competitive advantage is through innovation and creativity. Vicuna Royale should use innovative business strategies to create customer awareness. Moreover, it should use innovative strategies to build business solutions that will support long-term sustainability.

2.0 Introduction

For companies to manage innovation that will enable them to create business value, they must be able to analyze business structure and development that will increase shareholders value. The aim of continuous innovation in business is to create competitive advantage through the creation of new business solutions in the market(Moreno-Izquierdoet al., 2016). This report seeks to create new solutions and explore opportunities for Vicuña Royale Company, which intends to manufacture and sell products made from vicuña, an animal of the camel family. To achieve these goals, this report uses business theories such as SWOT analysis and Porters Five Force Model to analyze the business environment of the company. Moreover, the report critically analyses potential innovative business ideas that can be utilized by the company to gain a competitive advantage in the market.

This report focuses on Vicuña Royale Company, the client of the Vicuna wool, in the UK that manufactures garments such as scarves. The company has a license to import the product in the UK. Vicuña Royale intends to sell the clothes to rich people at a price of £6,000 each. The firm has an impressive opportunity to sell its products in the UK and other parts of Europe because it is the first brand in the world to specialize in selling prestigious products made of the highest standard of quality. The main problem is how to outsource spinning and knitting machines to make profits. The company intends to take advantages of new opportunities in the market since the market is not fully tapped. The best strategy is to use an online platform to create customer awareness and to sell the product. The report starts by exploring the business environment in the UK and competitors in the industry. Finally, the report gives detailed analyses of innovative strategies that can be used to take advantage of existing opportunities in the market. This information has obtained from printed journals, online sources, and magazines.

3.0 Business Environment Analysis

Before introducing a new product in the market, entrepreneurs should always evaluate the business environment. This process includes carrying out a deep marketing research to identify opportunities, constraints, and threats in the market (Grigore, 2014). A well thought-out business environmental analysis enables a firm to penetrate the market more quickly, thus, gaining fair market share. Business environment analysis is the process used by Vicuña Royale in this report to analyze both internal and external factors that might affect the firm's performance in future. It also entails a critical analysis of threats and opportunities that affect the business. This study will help Vicuña Royale to align its business strategies with both internal and external markets. The company operates in the clothing industry in the UK but is unique since its products are made of Vicuna fiber.

The nature fibre is the world’s most delicate to dye because of its thickness. The product will be imported from South America, mostly from Peru and Bolivia. Vicuna Royale will sell the product as scarves in brown to maintain all-important exclusivity. There are no UK importers of the product because of trade restriction implemented to prevent the extinction of the vicuña animals. However, the ban was lifted in 2008 which now allows the company to import the fiber. Therefore, vicuña Royale has a remarkable opportunity to enter into a market that is not exploited. The firm intends to start selling brown scarves from the original fiber of Vicuna at £6,000 each. To analyze the business environment, this report applies Porter's Five Force model.

4.0 Porters Five-Force Model

Porter’s Five-Force Model is one of the powerful tools used to analyze the external environment of a company (Grundy, 2006). It also helps a business to understand the strength of the competitive advantage and the position of the new market Vicuna Royale is about to enter. The Porter’s Five Force Model can be demonstrated in the diagram below.

4.0.1 Competitive Rivalry

The competitive rivalry in the Vicuna luxurious garment and clothing in the UK is very low. Competitive rivalry refers to the number of competitors in the same market (Rice, 2010). In this case, Vicuna Royale is the first brand to have the license to import Vicuna fiber from South America. Therefore, the company has an impressive opportunity to expand its products into new markets. However, other companies in Europe offer competitive Vicuna products. For instance, LoroPiana is an Italian company that offers Vicuna garment at competitive prices. LoroPiana is a worldwide renowned company that offers high-quality products of woolen fabrics which also include Vicuna fiber. Although there is no competitor in the UK market, Vicuna Royale is likely to face high competition in the European market because of other players that are offering similar products at competitive prices. In summary, the competitive rivalry in the UK is very low which increases chances of the firm achieving its goals. If Vicuna Royale produces high-quality products such as jackets and scarves that are affordable, it will develop its brand and boost profits.

4.0.2 Bargaining Power of Customers

The bargaining power of customers in the UK for Vicuna products is very low. Vicuna Royale is the only company in the UK that has a license to import and manufacture the luxurious garment. Therefore, customers can only buy their product from this company or import them from Italy. Customers bargaining power is high when there are many competitors in the same industry that offer a similar or identical product (LoroPiana, 2016). However, when the market has only one player, customer’s bargaining power is very low because the firm can manipulate prices (Puiu, 2010). In this case, even if the manufacturer increases the price, customers have no other choice but to buy the same product from the company or import them from Italy. The cost of importing Vicuna product from other European countries is also high. For instance, Coggins (2016) argues that a jacket made of Vicuna fiber cost approximately $21,000.

4.0.3 Bargaining Power of Suppliers

The bargaining power of vendors is very high. The suppliers bargaining power is high because there are few suppliers. The source of Vicuna fiber has reduced significantly over the year due to poaching. In the 1960s, the Vicuna was poached due to its variable and luxurious cinnamon colored coat that prevents the animal from freezing at an altitude of 15,000 feet. In the 1900s, the number of Vicuna had fallen significantly from 2 million to about 10,000 (Coggins, 2016). Consequently, the Peruvian government took measure to preserve the animal from becoming instinct. Today, it is illegal to harm the animal by either poaching or to cut its wool. Moreover, the animal only exists in Peru, Bolivia, and some parts of Argentina (Coggins, 2016). Therefore, the demand for its wool is very high, but few suppliers have the license to export the fibre to other parts of the world. In fact, Coggins (2016) notes that, in 1994, the Peruvian government only gave license to three companies to export the Vicuna wool including LoroPiana, Agnona, and Incalpaca. The fibre is rare and very expensive; thus, the bargaining power of suppliers is high.

4.0.4 Threat of New Entrant

The ability of new companies entering the UK market to manufacture Vicuna garments is very low. First, it is difficult to obtain the Vicuna fibre from South America. This is because there are only three companies that have been given the mandate to sheer and export the wool of these animals. Although the demand for Vicuna products in Europe is high, there is a scarcity of raw material to make the product (Azadi&Rahimzadeh, 2012). For instance, even though LoroPiana has the mandate to export Vicuna fibre, it only manufactures 100-Vicuna piece a year. Therefore, the possibility of a new company joining UK market is extremely low.

4.0.5 Threat of Substitute Products

The threat of new substitute products in the UK is very low. Vicuna is the world' most variable and expensive fibre. However, other substitute products exist in the market such as camel hair that is incredibly soft and fine. Camel hair can be used alone, or it can be combined with fine wool which is used to manufacture sportswear and sports hosiery. However, it cannot match the Vicuna wool in the market.

5.0 Competitor’s Analysis

Vicuna Royale is the first brand company to specialize in exclusive, prestigious products in the market. In fact, the company offers the highest quality and personalized luxury products in the UK. However, even if there is no other company in the UK, there are other players in Europe such as LoroPiana, which operates in Italy. LoroPiana has an incredible experience in the market with huge resources. For instance, in 2013, LoroPiana acquired 330 square miles of grassland in the mountain peak of Argentina, which has an estimated 6000 Vicuna (Banks, 2016). The acquisition has enabled the company to have a more secure source of Vicuna fibre to obtain their super soft wool to manufacture sweaters, jackets, and scarves. It has also acquired 60 percent holding of Sanin SA, an Argentine firm that has a license to shear the wild Vicuna (Banks, 2016).All these acquisitions are meant to increase the source of raw material to meet the increasing demand in Europe and Asia. Thus, Vicuna Royale will experience stiff competition from a highly experienced company in Europe if the enterprise decides to export the product outside the UK.

The major challenge facing Vicuna Royale is the availability of resources and expertise to manufacture fine Vicuna products. For instance, the company does not have spinning machines and the only option to obtain the assets is through outsourcing. However, Vicuna Royale sells their products at a lower price than its main competitor LoroPiana. LoroPiana sells scarves at £9000, which is much higher than what Vicuna Royale intends to sell their product. Therefore, the company can capitalize on producing high-quality products that meet customer needs. Moreover, Vicuna Royale should consider manufacturing other products such as jackets and coats instead of specializing in scarves. Despite the economic downturn, the demand for Vicuna products is still high, especially in China. LoroPiana sells their coats at £12,000, and the demand is still high (Banks, 2016). This shows that Vicuna Royale can gain a competitive advantage by outsourcing their products to cheaper suppliers so that they can sell their product at prices that are lower than their main competitors. This strategy will help the company to boost not only its market share but also penetrate the market.

6.0 Capabilities and Competences

The major competence of Vicuna Royale is the availability of a reliable source of raw material. One of the main challenges of Vicuna products is obtaining a reliable supplier. Due to the high demand for the Vicuna wool and government regulations to preserve the animal, it is difficult to secure a reliable supplier. However, since the company has gained a secure and reliable supplier for long-term engagement, it will be easier to manufacture the garment immediately. Vicunas are shorn once in every two years, producing only 150 grams of wool. Therefore, obtaining a reliable source of raw material is one of the most crucial aspects in the success of Vicuna’s manufactured garments.

Secondly, there is an available market for the product. In the UK, the upper class that can afford a Vicuna coat or scarves represent approximately 20 percent of the total population. This is an incredible percentage for a startup business in the UK before the company considers exporting the products to other parts of Europe. European market also represents a considerable market where the company can export the product. For example, LoroPiana sales increased by 13 percent in 2012 to €630m which was largely supported by the increasing demand for Vicuna products in Europe and Asia, especially China (Nick, 2013).

Lastly, the company has loyal clients where they can outsource machinery for spinning and knitting the scarves. Although the two people live about 50 miles from each other, the company can transport the product from one location to the other. Moreover, the company is negotiating with one of the owners to see if they will allow both machines to be located in the same areas after the business takes off.

7.0 SWOT Analysis

SWOT Analysis is a financial tool used to analyze both internal and external environment of business (Fong Mun & Rashad, 2015). Specifically, it is one of the powerful tools that helps a firm to understand its strength and weaknesses. Moreover, it helps to identify opportunities and threats. SWOT analysis will help Vicuna Royale to carve a sustainable market niche that will help the firm to remain competitive in the long-term (Valverdeet al., 2015). Using SWOT analysis, Vicuna Royale can identify opportunities that the company is well positioned to exploit. It can also help the firm to understand weaknesses, essential in managing and eliminating threats that would catch the business unaware.

Strength

• Reliable supplier who will supply the wool at an affordable price of £1200 per Kg
• Availability of spinning and knitting machines in the UK
• Availability of market in the UK and Europe
• High demand for Vicuna garments in the UK which is likely to support and increase the growth potential of the company
• It is the first UK company to specialize in prestigious products with the highest standard of quality
• High demand for luxurious Vicuna scarves, coats, and jackets in the UK

Weaknesses

• The cost of the wool is very expensive
• Very few suppliers in the market in case the current providers proves to be unreliable which can cause the business to collapse
• High competitors in Europe and specifically Italy
• Lack of machines for spinning and knitting the scarves
• The cost of the scarves is very high for ordinary citizen the UK to afford

Opportunities

• High demand for Vicuna products in the UK market
• The market is not exploited which increase chances of the business succeeding
• High demand for the product in Asia and European countries
• No online firm sells Vicuna products in the UK

Threat

• High competition from Italian companies
• Threat of substitute products which are manufactured from camel hair
• The garments are very expensive which reduces potential of future expansion

8.0 Available Options

The available options for the opportunities in the market are enormous. First, the company is operating in a market that is not exploited and without competitors. This market gives the firm a remarkable opportunity to take advantage of available opportunities on the market. It can manipulate the prices and act as a monopoly in the UK since customers don't have any other options in the market. However, managers must ensure that the prices are not too exorbitant to push customers to substitute products in the market or import them from Italy. The company should capitalize on manufacturing different varieties of garments such as coats and jackets after the business takes off. However, managers should try to find another reliable supplier to be secure. It is perilous for the firm to rely on one supplier who determines if the business succeeds of fails. Therefore, securing at least three vendors will increase chances of the business expanding in future (Polo Pena et al., 2016). Moreover, managers will be able to negotiate the price of raw material from the suppliers.

The firm can decide to use social media and TV adverts to create customer awareness. Social media is one of the cheapest ways of creating customer awareness. Since most of the people in the UK own a social networking account, the company can take advantage to increase customer awareness. Online sales is another opportunity that Vicuna Royale can exploit to bolster sales. With online sales, the business will sell its product efficiently using a cheaper and secure mode of payment. Moreover, customers do not have to travel to the store to purchase the scarves; they can order and pay, and the product is delivered to them.

9.0 Recommendation

Vicuna Royale has entry into UK market that is unexploited. The demand for Vicuna product is high although there are not homemade products. Therefore, this business venture offers the firm a remarkable opportunity to penetrate the market. The best strategy to penetrate the market is by getting personal when promoting the product. For instance, the company can construct a catalog with samples which can be used to conduct a home demonstration of the Vicuna high-quality product. These events should be conducted in home fashion parties for the upper class who have adequate disposable income to purchase the merchandise (Goswami,2015). The firm should also engage in a fashion show to demonstrate the uniqueness of the Vicuna products compared to others in the industry. As a result, the firm will be able to create customer awareness quickly and faster without incurring huge expenses. After the business takes off, Vicuna Royale should nurture a partnership with local conference centers, hotels, spas to increase their chances of having them house their fashion coats and scarves.

Since Vicuna Royale is a startup business that has not progressed into a physical store, the company should create a virtual online shop or more online marketplace to sell their products. A virtual shop allows the business to customize the shop to increase marketing effort. However, EbonzoMenga, Lu, and Liu (2015) argue that managers should ensure frequency and consistency when operating the web shop such as regular update of images and promotion verbiage. The company can also use visual media to create and post edgy videos that spotlight the company’s name and brand. The primary objective of implementing this strategy is to ensure the company takes advantage of existing business opportunities in the market.

Since the business has not taken off, entering the internet is the best strategy that will increase opportunities for the company’s products. Vicuna Royale should start by creating an innovative website featuring videos and virtual tours that show the different products the company is offering. Klaus and Nguyen (2013) highlighted that the website would act as the basis for detailed information about the price and nature of products the company is offering. Moreover, the firm must ensure repetition of the marketing message to create customer awareness. This can be achieved through social media and email. Vicuna Royale should also start a fashion blog about Vicuna products which it displays its link, name, and logo.

The major challenge facing the business is how to outsource spinning and knitting machines. It is recommended that the company should negotiate with the owners to see if they would accept for the machines to be operated together. This can be done by convincing one own to allow the machine to the transported to the other owners premise. When the machines are operated from the same point, it is easier to manage workers and improve efficiency.

10.0 Conclusion

One of the ways of gaining competitive advantage is through innovation and creativity. However, for managers to manage innovation that will enable the company to create business value, they must be able to analyze business structure and development that will increase shareholders value. The aim of continuous innovation in the business is to create competitive advantage through the creation of new business solutions in the market. Vicuna Royale can take advantage of innovative business ideas to penetrate the UK market. Since the market is not exploited, the firm needs to create customer awareness. This can be achieved through an internet connection, going viral and getting personal. However, the business can solve its outsourcing challenges by negotiating with the owners of the machines to operate them in the same location.