Strategic Company Analysis - Lenovo - Coursework Example

Strategic Company Analysis Report - Lenovo Table of Contents Introduction 3 Question Analyse the environment in which this organisation functions and identify the opportunities and threats to which it might expect to have to respond. 1.1 Far environment – PESTLE analysis 3 1.2 Near environment – Porter Five Forces 5 1.3 Opportunities and threats 6 1.4 Summary of the environmental analysis 7 Question 2 - Analyse the resources and key capabilities of the company plus the factors that give the company its competitive advantage. 2.1 Industry Critical Success Factors 8 2.2 Resources and capabilities 8 2.3 Competitive advantage 9 2.4 Identification of the generic strategy 10 Question 3 - Assess the extent to which the organisation’s existing strategies match its environment and suggest improvements where justified. 3.1 Company’s strategy within its environment 10 3.2 J&S Three tests 12 3.2.1 Suitability 12 3.2.2 Acceptability 12 3.2.3 Feasibility 12 Conclusion 13 References 14 Introduction The development of business activities worldwide is related to a series of challenges. For most firms, keeping their market position can be quite difficult especially in industries where competition is quite strong. The implementation of appropriate strategies can help an organization to secure its competitiveness and to avoid failures, at least major ones. For this reason, the identification of flexible and effective strategies has become a priority for business leaders in the global market. A series of strategic tools has been developed for helping leaders to locate strategies that can support the performance of their businesses. Current paper focuses on a particular organization: Lenovo, a major competitor in the global IT industry. The firm which was first established in China in 1984 has an important position in the global market (Lenovo, History 2013). In 2005 the firm was acquired by IBM (Lenovo, History 2013). The firm’s success has been related to its strategic framework. The firm’s strategies are analyzed and evaluated by referring to its micro and macro environment. Appropriate strategic tools, as developed in the literature, have been employed in order to identify the firm’s current and future potentials in its industry. Question 1 - Analyse the environment in which this organisation functions and identify the opportunities and threats to which it might expect to have to respond. 1.1 Far environment – PESTLE analysis The performance of organizations is affected by a series of factors related to their environment. Reference is made both to each firm’s far and near environment. Of course, the level at which each organization is depended by its environment is not standardized; the resources available and the existence of strategic alliances can help organizations to face market pressures even if their environment is extremely hostile. Primarily, emphasis should be given on a firm’s far environment. The power of macro-environment to affect business operations has been highlighted in the literature. In fact, it has been proved that macro-environment can influence different aspects of a firm’s activities, including ‘the methods used for the delivery of products, the preferences of customers for a firm’s products and the level of prices’ (Haberberg and Rieple 2007, p.105). In this context, when trying to evaluate the effectiveness of a firm’s strategies it is necessary to review primarily the firm’s macro environment. A common tool for developing this task is PESTLE analysis. PESTLE analysis reflects the influence of a series of factors, represented by the initials including in this tool’s name, in the performance of organizations (Haberberg and Rieple 2007). According to Kachru (2009) PESTLE analysis helps leaders to understand the challenges that their firm will have to face in its market; in this way, business leaders can align their strategic decisions accordingly eliminating the chances for major organizational failures. Using PESTLE analysis, the factors that have the power to influence Lenovo’s performance could be categorized as follows: a) Political; the firm operates in the global market; it is not related to a particular market so that its activities are not affected by local political decisions; political conditions worldwide are rather stable so that no threat exists for the firm’s operations, at least for this period of time; b) Economic; the recent crisis highly affected business operations worldwide; the firm should be careful when expanding its activities since not all countries have managed to overcome the crisis; c) Social; the firm is based in China but it has developed headquarters in other countries also; this means that the firm is able to align its strategies with different cultures and ethics, a fact that increases its competitiveness; d) Technological; the firm is today ‘first in the PC industry of China and Japan’(Lenovo, Our Company 2013); this fact shows the firm’s potentials to promote innovation, a fact that could help its rapid growth towards its competitors; e) Legal; the firm is a well established multinational; this means that its operations are not depended on the legal framework of a particular country but they are rather related mainly to the international law; this fact offers to the firm a flexibility as of its strategic decisions; and f) Environmental; the firm highly promotes sustainability (Lenovo Our Company 2013); for this reason, no problem has appeared during the expansion of the firm’s activities worldwide, meaning that the effects of the firm on the environment seem to be effectively controlled. 1.2 Near environment – Porter Five Forces Apart from macro-environment, a firm’s near environment is also able to influence organizational performance. It is not easy to state clear whether micro environment influences a firm’s performance more than the firm’s macro environment (Hill and Jones 2009). However, the above issue is not so much important as the following one: the influence of macro and micro environment on organizational performance cannot be controlled (Hill and Jones 2009). In this context, a firm needs to be appropriately prepared to face unexpected turbulences both in regard to its micro and its macro environment (Hill and Jones 2009). Porter has developed a model for helping a firm’s managers to evaluate the power of micro environment. The model is known as Five Forces and it is based on the rule that during its operations a firm has to face five forces, originated from the firms’ near environment (Hill and Jones 2009). The specific model refers to ‘organizations that already operate in the industry’ (Henry 2008, p.69) but can be also used for evaluating the expected pressures that a new firm will have to face in its industry. In the context of the Model of Porter, the five forces that Lenovo faces, as these forces are related to the firm’s micro environment, can be described as follows: a) new entrants; new entrants are always possible to appear in the PC industry, which is highly competitive; still, the firm is already well established in the global market and its operations would not be threatened by new entrants; b) substitute products; it would be possible for substitute products to appear in the PC industry but these products would be, necessarily, of lower quality, than the firm’s products; c) suppliers; the relationship between the firm and its suppliers seem to be quite satisfactory; no problems are reported in the delivery or the quality of the firm’s products; in addition, suppliers in the PC industry are many; therefore, the firm’s suppliers could not pressure the firm for an increase in prices; d) customers; there are many firms in the PC industry and customers can be considered as the only force that could pressure the organization, especially if competition in the market is increased; e) current competitors; existing competition in the global PC industry is already quite strong. However, the firm has become part of IBM which is the leading firm in the industry. This means that the firm’s position in the industry is secured, as possible, and the chances for failures have been minimized. 1.3 Opportunities and threats For all firms, the increase of their competitiveness is a critical target. However, in order for this target to be achieved it is necessary for certain tasks to be developed (Sutherland and Canwell 2008). Primarily, the firm’s internal and external environment has to be reviewed. Referring especially to a firm’s external environment emphasis should be given on opportunities and threats, i.e. to facts and conditions that can positively or negatively influence the efforts of the organization to enhance its competitiveness (Sutherland and Canwell 2008). In order to become more competitive a firm needs to eliminate threats, as possible, and use wisely the opportunities available in its industry (Hill and Jones 2012). After identifying and evaluating the opportunities and threats related to its external environment, a firm can design strategies that will be able to promote the achievement of organizational objectives without being influenced by the threats of the firm’s environment (Madura 2007). At this point, reference should be made to the following fact: the elimination of threats is often not feasible (Hill and Jones 2012). Trying to ‘turn certain of the threats to opportunities’ (Hill and Jones 2012, p.502) is a common strategy for business leaders that aim to increase the competitiveness of their firms. 1.4 Summary of the environmental analysis According to the issues discussed above Lenovo has many chances to achieve a further growth in the global IT industry. The firm’s environment has been proved to be highly competitive; still, there are chances for the relevant forces to be effectively managed so that the performance of the organization is not affected. The analysis of the firm’s macro and micro environment has revealed the following facts: a) firms in the particular industry are quite strong; b) market demands in regard to IT products are still high, with trends for further increase; this fact shows the potentials prospects of the industry in the long term; c) the risks related to the specific industry are not so many, at least as compared with the relevant risks of other industries. This means that the investment made on firms of the particular industry would have many chances to be repaid back rather soon. The above findings lead to the assumption that the firm’s leaders should take any appropriate measure for supporting the growth of the organization in the global market, at the level that the pressures that the firm would face from its environment, both the micro and the macro ones, could be managed rather easily. Question 2 - Analyse the resources and key capabilities of the company plus the factors that give the company its competitive advantage. 2.1 Industry Critical Success Factors The success of business activities is not related only to the availability of resources necessary for the realization of the business strategies. It is also depended on the identification of ‘the critical success factors of the market in which a firm is interested to operate’ (Murphy 2005, p.26). From a similar point of view, Grummit (2009) notes that critical success factors need to be taken into consideration in order for a firm’s objectives to be achieved. Moreover, the critical success factors that a firm has to taken into consideration are those that ‘are most related to the firm’s objectives, its culture and its environment’ (Grummit 2009, p.133). This means that for each industry different factors can be considered as meeting the criteria of ‘critical success factors’ (Grummit 2009, p.133). Still, there are critical success factors that can be related to many industries; for example the case of ‘highly reliable service’ (Grummit 2009, p.133). In the IT industry, i.e. in the industry where Lenovo operates, the ‘provision of a highly reliable service’ (Grummit 2009, p.133) could be also considered as a critical success factor. 2.2 Resources and capabilities The use of resources within modern organizations is specific: to help organizations ‘to achieve their strategies’ (Peng 2010, p.97). Resources are usually distinguished into ‘tangible and intangible’ (Peng 2010, p.97). ‘Capabilities’ (Peng 2010, p.97) is a term used instead of resources for showing the assets that a firm employs for securing the success of its strategies (Peng 2010). Tangible resources can be of one of the following categories: ‘a) financial, b) physical, c) technological and d) organizational’ (Peng 2010, p.97). As for intangible resources, these can have one of the following forms: ‘a) human, b) innovation and c) reputational’ (Peng 2010, p.97). A firm can use its resources for increasing its competitive advantage. Different approaches can be employed for such plan. For example, a firm can choose to focus on its intangible resources ‘which are difficult to imitate’ (Hoskisson, Hitt and Ireland 2008, p.221). 2.3 Competitive advantage Developing a competitive advantage is usually considered a top priority for organizations worldwide. At this point, the following question appears: what does the term ‘competitive advantage’ mean? According to Hill and Jones (2009) a firm is believed to have a competitive advantage when ‘its average profits are higher from the average profits of its rivals’ (Hill and Jones 2009, p.6). Thompson and Martin (2005) explain that keeping a competitive advantage can be more difficult for modern firms than acquiring a competitive advantage (Thompson and Martin 2005, p.123). This means that after acquiring such advantage the first priority of a firm would be to secure this advantage, probably by implementing appropriately customized strategies. In addition, for acquiring a competitive advantage a firm needs to use a strategy of specific format, commonly known as generic strategy (Thompson and Martin 2005, p.123). Lenovo should also use a generic strategy, as described below, for acquiring a competitive advantage towards its competitors. 2.4 Identification of the generic strategy Porter has developed a framework appropriate for the identification of a generic strategy. In the context of this framework, known as the ‘Generic Strategy Framework’ (Stonehouse et al 2007, p.175) there are three different strategies that should be employed for securing the acquisition of competitive advantage: ‘cost leadership, differentiation and focus’ (Stonehouse et al. 2007, p.175). The first of the above strategies, the cost leadership, reflects the efforts of an organization to keep its production costs quite low (Stonehouse et al. 2007). In this way, the chances for higher profits are increased (Stonehouse et al. 2007). The second strategy, differentiation, focuses on the identification of products/ services that are unique, as compared to those available in the particular industry (Stonehouse et al. 2007). Innovation is often regarded as part of a firm’s differentiation strategy, i.e. as a tool for increasing the firm’s competitiveness. Differentiation is not necessarily costly to be achieved. For example, by simply changing certain features of its product, a firm can increase its competitiveness (Goldman and Nieuwenhuizen 2006, p.77). On the other hand, the focus strategy means that a firm should only focus on ‘specific segments of the market’ (Stonehouse et al. 2007, p.177). Following the above strategies, Lenovo could increase its competitiveness by reducing its production costs, further promoting innovation and focusing on specific products. The firm’s response to such challenge is analyzed below. Question 3 - Assess the extent to which the organisation’s existing strategies match its environment and suggest improvements where justified. 3.1 Company’s strategy within its environment Levono uses a unique strategy for achieving a continuous growth. As noted in its website, Lenovo employs ‘a balanced business model and strategy that take maximum advantage of profit and investment across the organization’ (Lenovo, Our Company 2013). This means that all the firm’s strategies are primarily reviewed as of their feasibility and their value in achieving business objectives. In addition, it is explained that the firm first introduce its products in China, where the centre of the firm’s activities is based, and then it expands these products in its stores worldwide (Lenovo, Our Company 2013). In other words, the firm’s products are primarily tested in the Chinese market, which is a growing one, and then they enter the global market. Following this practice has made Lenovo a leading competitor in the IT industry. Indeed, Lenovo is currently ‘the number one PC company in China and in Japan’ (Lenovo, Our Company 2013). In addition, the firm has managed to rank first as ‘a PC vendor in large organizations and in organizations of the public sector’ (Lenovo, Our Company 2013). At this point, it would be necessary to refer to the level at which the firm has used a generic strategy, as described by Porter, see previous question, for increasing its competitiveness. The firm has managed to keep its production costs at relatively low level by choosing China as the centre of its operations. Although it is not clearly explained whether all productions units of the firm are in China, such assumption can be made through the following fact: the firm has chosen China as the first place where its products appear (Lenovo, Our Company 2013). Moreover, it is noted that the firm’s products ‘are spread from China across the globe’ (Lenovo, Our Company 2013). It is derived that the firm’s production units are cited in China, a fact that can keep the production costs of the firm relatively low, especially since the firm is Chinese, being established in China for the first time in 1984. On the other hand, the firm focuses on innovation, as noted in its website, at such level that it has become first in the Chinese and Japanese markets, which are quite demanding in regard to IT products. Finally, the firm has 3.2 J&S Three tests The firm’s strategic choices would be evaluated by using three tests, as described below. These tests could help to check whether the firm’s strategies are aligned with the generic strategic phases, as explained earlier, and whether the firm would be able to face effectively the pressures of its environment. 3.2.1 Suitability Suitability means that a firm’s strategies are aligned with its generic strategy (Kew and Stredwick 2001). For Levono, such assumption can be made at the level that the existing firm’s strategies promote all aspects of its generic strategy, as explained in section 3.1 above. 3.2.2 Acceptability A second test for evaluating the strategies of Lenovo would be that of acceptability which reflects the level at which the firm’s strategy is supported by its stakeholders (Henry 2008). The firm’s current performance is quite impressive, a fact that leads to the assumption that its strategies have the consent of its stakeholders, or at least no major disputes exist between the firm’s stakeholders in regard to the firm’s current strategies. 3.2.3 Feasibility Feasibility is the third test available for evaluating the performance of a firm’s strategy, in regard to the promotion of its competitiveness. This test shows whether the firm’s strategy is feasible (Henry 2008), i.e. if it can be applied in practice. As proved through the review of the firm’s existing practices, no problem has appeared in regard to the implementation of the firm’s strategies, a fact that verifies the feasibility of the chosen strategies, as analyzed above. Conclusion The achievement of organizational objectives can be a challenging task for firms of all sizes. For Levono, a firm already well established in the global market, the achievement of its objectives has been related to the firm’s strategic choices. AS proved through the firm’s existing strategies, the criteria used for business key strategies are aligned with its generic strategy, meaning that the firm’s entire strategic framework has been designed so that the firm’s competitive advantage in the global market is secured. References Goldman, G. And Nieuwenhuizen, C., 2006. Strategy: Sustaining Competitive Advantage in a Globalised Context. Cape Town: Juta and Company Ltd. Grummit, A., 2009. Capacity Management: A Practitioner Guide. 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