Business Strategy of Viking Sewing Machines - Case Study Example

VSM Group Overview:-The VSM group AB formerly known as Viking Sewing Machines AB, changed its in 2002. VSM group become an independent company, developed, manufactured, marketed and sold household sewing machines. Clearly its product line has been divided into two parts i.e. Electronic and computerized model, manufactured in Huqvarna plant in Sweden and the other low priced mechanical machines and over-lockers sourced from Asian manufacturers. Changes in the company have started with Svante Runnquist after being appointed as CEO of the company. Company has reformulated its strategy documents, created new mission statement. The changes started with the change in the distribution network and to make retailers as dealer-partners and to motivate them to promote exclusively the company's products. In its biggest market (US) company collaborated with large retail chain Jo-Ann Fabrics and crafts and opened exclusive retail outlets. In its original country (Sweden) company has already a large retailer's network. In other parts, the company do not have exclusive retail network. Changes at the top management level with widespread changes in overall organizational structure as well as in operating systems. Now in the changed situation company has to adopt different business strategies and analyze that whether these strategies are successful or not. Business strategies: There are three main success criterions for the companies Suitability, Acceptability and Feasibility, which could be analyzed as follow: Suitability: It is a broad criterion concerned with whether a strategy addresses the circumstances in which an organization is operating the strategic position. Suitability can be thought as the rationale of a strategy and whether it makes sense in relation to the strategic position of an organization. Acceptability: Acceptability is concerned with the expected performance outcomes of a strategy. There can be three broad types: return, risk and stakeholders' reaction. Feasibility: Feasibility is concerned with whether an organization has the resources and competences to deliver a strategy. A number of approaches can be used to understand feasibility. Financial feasibility and Resource deployment are the two important approaches generally used for feasibility analysis. Now we will analyze the company VSM on the basis of above mentioned three criteria. The mission statement, VSM has clearly defined its priorities as to develop, produce, market and sell consumer sewing machine and related products, creating demand, being a customer driven company through providing quality products, satisfy customers and dealers-partner alike, and continuously adding values to its brands. It specifically emphasized on employees satisfaction and growth opportunities by adding value to its human resources. Its ultimate aim was to be a leading premium company in the world of sewing. It basically aims towards consolidation of its position in the market. To achieve these objectives, company has to formulate its business strategies carefully after analyzing its core areas of competencies, its strategic positioning in the market as well as the various choices it have in its existing situation. For the next 5 years mainly company has to identify its areas of operations and production, marketing and distribution strategies, financial planning and prudence, expansion strategies, and careful evaluation of various choices it have to formulate its competition strategies to remain successful sewing manufacturing machine company. Strategies might be regarded as suitable from the point of view of: existing opportunities in the environment and avoiding threats; capitalizing on organizations strengths and avoiding or remedying weaknesses; addressing exceptions. The general environment of western market for sewing machine is becoming saturated and shrinking. Even industrial demands are going down and therefore professional and domestic sewing machine market seeing a slump. Therefore VSM group has an opportunity to expand in East European market and may look into options of expanding in potential emerging Asian market. Now for the Far East market acquisition/collaboration with Pfaff will be beneficial for VSM group. Pfaff as a strong brand has already been established in German speaking countries of Europe. Now after acquiring Zetina plant in Czech Republic, VSM could easily expand in Far East Europe up to Balkans. VSM has to explore some OEM's as its reliable partners who can provide VSM A firm foothold in emerging Asian market. In these markets, cost affectivity always plays a major role in achieving success. So outsourcing most of the spare parts manufacturing and software development especially from India will certainly prove beneficial for VSM. The premium product range also could be launched by the VSM group in the Asian market where garment industry is booming and the requirement for domestic as well as industrial sewing machine would be expected to grow fast. After carefully analyzing the whole scenario, VSM will have to collaborate with some retail chains in the Asian market or collaborate with strong OEM or have a manufacturing unit in this part of the world. Low labor costs, expansion of steel industry and its widespread availability of raw materials will prove beneficial to VSM group. VSM has to improve its R& D facilities to continuously improve its products. Being a company strong in finances having gross margin around 60%, it must invest in R & D design expertise. They have to invest in technology and design to achieve greater reliability, product life or performance. One of the important route, VSM has to adopt is to add value to its products and to the whole system so that it can perform better and better. In the next 5 years VSM group has to consider, rapid global expansion. Global expansion for the group is necessary due to saturated US & European market and cost cutting pressure from competitors. VSM has to frequently extend its sourcing network to access new low cost locations which might be Asia (especially India & China). While developing new bases/base, VSM has to take into account factors such as proximity to the customers, wage levels and manufacturing capabilities. VSM has to apply differentiation strategies to provide more value to the customer, which seeks to provide products and services unique or different from those of competitors in terms of dimensions widely valued by buyers. The aim should be to achieve higher market share than competitors by offering them better products and services at the same price; or enhanced margins by pricing slightly higher. VSM has to follow this strategy in the coming years and for achieving the competitiveness it has to rely more on its strong capabilities of uniqueness and continuous improvements in products. Now the top management of VSM has to analyze that how the profits are distributed across the industry value chain. Such a mapping exercise will reveal which activities are generating a disproportion large share of the profits and which a disproportionate small share. The information revolution in general and the Internet in particular are challenging the traditional business logic. According to Venkatraman and Henderson (1998), business models reflect three distinct yet interdependent dimensions. The first is the Customer interactions in which companies interact with customers, in the past has been multistage i.e. through dealers and retailers but in the present situation direct interaction with the customers is the most preferred one. So VSM group has to develop its web site and provide more and more information to customers. They have to focus on flexibility and speed in customizing products and services. Continuous information exchange with customers allows VSM to create products and processes in tune with market needs. The second most importantly focus VSM has to do is on asset configuration i.e. outsourcing. Many successful corporations today concentrate on creating and developing intellectual and intangible assets while sourcing tangible assets from external partners. The scope of value creation is less in manufacturing and more in the creation of a product or service architecture. Being a manufacturing organization VSM has to look for outsourcing the manufacturing part of the business to its reliable OEM's based in Asia and has to shift its manufacturing bases towards Far East. After acquisition of Pfaff, the manufacturing plant located at Zetina Czech republic, VSM group could cut the manufacturing cost and more and more brands has to be produced at this plant with locally available suppliers. After acquiring Pfaff, VSM has two very strong and known brands. So company will rely more on quality control and branding of products rather than manufacturing it. Apart from core products the after market services has to be started by VSM group. This will increase the differentiation in the market. VSM could expand its activities in the area of training in sewing techniques, software for embroidery construction and ready made embroidery patterns together with spare parts and auxiliary sewing equipments. Although financial feasibility is important, a wider understanding of the feasibility of specific strategies can be achieved by identifying the resources and competences needed for a particular strategy. A resource deployment assessment can be used judge two things: first, the extent to which an organization's current resources and competences would need to change to reach or maintain the threshold requirements for a strategy, and second, the unique resources and core competences required to sustain competitive advantage. VSM has to apply its resources to form alliances to deliver total customer solution rather than providing only the products. The likely return from a particular strategy is an important aspect of the acceptability of that strategy. However, another aspect of acceptability is the risk that an organization faces in pursuing a particular strategy. This risk can be particularly high for organizations with major long term programs of innovations or where high level of uncertainty exists about the key issues in the environment. VSM has to anticipate tomorrow's customer needs and modifying the existing operations regularly to be better positioned to meet that emerging demand. Now the companies are shifting from large scale low cost manufacturing to flexible fast response products, assembling a network of suppliers with excellent production capabilities may be a good more and this could be good for VSM also. VSM have the superior branding capabilities. VSM has to shift towards outsourcing and this makes a sense in most situations apart from Pfaff manufacturing facility at Zetina. The three basic competitors' capabilities and competencies are as; Janome is strong in R&D and cost cutting where as Brother is product innovative and has presence in both segments i.e. domestic and industrial. The third one Juki is the company has more technological competence and mostly associated with a single brand Singer. Looking at the competitor all has the cost and product competencies. If VSM has to differentiate its product it has to add some value to its products. In my opinion, added services and training, providing embroidery software and exchange of information on its website place the company at competitive advantage. Company has to adopt a hybrid strategy through achieving differentiation with the price lower than the competitors. Success of this strategy depends on the ability both to understand and to deliver enhanced value. An assessment of returns is likely to accrue with specific strategies and could be a key criterion of acceptability of a strategy. The arguments about which measures give the best result/return depends on the various quantitative methods like profitability ratio consists of Return on capital employment, payback period, discounted cash flow etc. VSM, strategy could work because VSM have greater volumes and on the greater volumes, low cost base could be maintained. VSM is concentrating on its low cost base in Czech Republic manufacturing facility. Now after acquiring the different brands and companies it can build high standard of product differentiation through product innovations and more cost cutting on logistic and use its retailer's chain by motivating them to become dealer partners. VSM could also use Pfaff distribution chain (channel) in the markets where it is weak in position e.g. Germany and German speaking countries. Another area of the premium segment where VSM may look to cater the demands and needs, and can apply focused differentiation strategy. In the focused strategy, it could launch new, more advanced, technologically innovated products with lots of facilities to target the premium segment of the market. It must have a substantial premium pricing. As we know that Western market is getting saturated, this focused product differentiation could put the company on another platform where it can serve premium segment of the market. Understanding of the likely reactions of stakeholders' to new strategies, the ability to manage these reactions is the main criterion for acceptability of a strategy. There are many situations where judgments of stakeholder reactions could be crucial these situations include substantial issue of new shares, plans to merge, a new e-commerce business model that have the potential to cut the existing channels and attempts to gain market share in static markets which might upset the status quo. VSM has to build its strong holds by tying up different distribution channels. They just not to rely on physical dealer-partner channel but use different channels like mail order or e-business. Another route is acquisition of Pfaff provided them the existing network which could be used by VSM. The next aspect VSM group has to look into, is developing its retail/chain either independently or through collaboration with existing strong retail chain. To convert retailer into dealer partners has to be its main distribution network expansion strategies. Apart from this, providing bonuses to retailer for web sales will automatically increase the acceptability of the whole system. A useful way of assessing financial feasibility is funds flow forecasting, which seeks to identify the funds which would be required for any strategy and the likely source of those funds. It should highlight whether a proposed strategy is likely to be feasible in financial terms. Company have a substantial surplus resources most obviously financial. VSM have profitability throughout and have increasing gross margin. So they have substantial resource base and have the opportunity to gain competitive advantage to tackle competition. The company has strong net sales of 2.393 billion SEK with operating profit to the tune of 270 million SEK. It has sold almost 5, 490, 00 units of sewing machines and lockers. Now looking at the sales only the year 2003 saw a dip in the sales numbers, but have gross margin is increasing and nearer to 60%. Company has sufficient cash flow which increased except year 2003. Its profitability has been varying but remained around 30% to 35%. So, VSM group has the strong financial position and it can think of expansion in different market. Collaboration between organizations may be a crucial ingredient in achieving advantage or avoiding competition (Huxham, 1996). Also organizations may compete in some markets and collaborate in others or even simultaneously compete and collaborate. Collaboration with smaller firms in different area provides them to expand globally. But every advantage is temporarily in nature and will be eroded. So to remain competitive company must have the ability to destroy the bases of their own competitive advantage and always identify niches which can be exploited, or developing and launching new products and services. The more the business environment demands speed and flexibility will increase and the organization, which will be able to adopt these conditions as quickly as possible will be more and more successful in the market. Devolution of responsibility for sensing of buyers expectations and competitive moves active debate across a non-hierarchical network, encouragement for variety and diversity of views and ideas; acceptance of responsibility for action at levels in the organization well below top management, latitude to try things out and tolerance of going things wrong are some of the effective competitive strategies. VSM has to adopt in its organizational culture and design for suitability, acceptability, flexibility, innovation and speed rather than about analysis, positioning and sustainability. References: 1. Creating collaborative advantage, Edited by Chris Huxham, (1996), Sage publications,. 2. Venkatraman, N. and Henderson, John C., (1998), "Real strategies for virtual organizing", Sloan Management Review, fall, pp. 33-47. Read More