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Part A: defining strategy and its key elements Any business strategy, to be capable of sustained success, must be grounded in competitive advantage. A company gains competitive advantage when its position gives it an edge in coping with competitive forces and in attracting buyers. Many different positional advantages and strategies exist. Bu no matter what positional strategy a company pursues, in must end up with a viable number of customers buying the firms product because of the superior value they perceive it has. Superior value is usually created in one or two ways: either by offering buyers a good product at a lower price or by using some differentiating technique to provide a better product that buyers think is worth a premium price.
I began my report by this part just to give you an idea of what Im going to talk about and what my propositions as to the strategic management will be concerning the food industry. I work for a large, international food manufacturer, who is very concerned with the present situation in the food industry and with danger of hurting its business by the attack of new technologies and by the power of the retail supermarkets in many western countries. I believe that this issue should be closely examined and solved by implementing a strategy that will fit the best our organizational culture, external and internal environment and our companys policies. My proposition is to use the low-cost strategy in the external environment. This will give us a chance to open up a sustainable cost advantage over competitors and use the lower-cost edge as a basis for either underpricing competitors and gaining market share or earning a higher profit margin selling at the going market price. As we are the international food manufacturer we have to implement our new strategy to every foreign market of our company.
Thus we have to implement a global low-cost strategy which is based on the company being a low-cost supplier to buyers in most or all major markets belonging to us. Being a low-cost producer in the food industry implies a broad cross section of the market; a lower costs than competitors; an attempt to make a virtue out of product features that lead to low cost; a continuous search for cost reduction without sacrificing acceptable quality and essential features. The key to be successful in low-cost competition is to manage costs down, year after year, in every area of the business. Regarding the advantages of this low-cost strategy that our company is going to use, I can say that the primary one is the ability to set our industry's price floor and still earn a profit. This leads to establishing barriers around the market position. Any time price competition becomes a major market force, less efficient rivals get squeezed the most.
What I mean is that for any other smaller companies which have the same products, and which want to get the same target customers it becomes almost impossible to do this because of our low-cost advantage. Besides our company will have the competitive advantage spending the money for new technologies, while our rivals will spend theirs in order to penetrate the target market and reach the cost advantage. But our company should also be concerned with some disadvantages that this strategy has. A low-cost strategy has its risks and drawbacks. Using the low-cost strategy, our company has to be aware of the new technological developments of its rivals.
Technological breakthroughs can open up cost reductions for rivals that nullify a low-cost producers past investments and hard-won gains in efficiency. One the most dangerous drawbacks of this strategy is that rival firms may find it easy and / or inexpensive to imitate our low-cost methods, thus making our advantages short-lived. Using this strategy our management has to be aware that driving hard to push our costs down our company can become very fixated on cost reduction. This will make us fail to see some significant market changes beginning to occur.
As to our companys internal environment my strong belief is that we should implement a strategy that is based on a geographic organizational structure, because we are the international food manufacturer. This will allow us to tailor the strategy to needs of each geographical market and define the demand of each target customers. We should base our internal strategy on the differences that exist between the various markets in various countries. This also will delegate profit / loss responsibility to lowest strategic level that makes the decision-making process equally distributed across any unit of our company worldwide.
Besides, the implementation of the strategy, based on a geographic organizational structure, we have an advantage of improved functional coordination within the target market. Concluding first part of my report I want to underline again that our company should implement the low-cost strategy in its external environment and the strategy based on a geographic organizational structure in its internal environment in order to acquire the competitive edge worldwide. Part B: Corporate strategy theory / process To achieve a cost advantage our companys cumulative costs across our activity-cost chain must be lower than competitors cumulative costs. This can be reached by two ways.
The first option is to do a better job of increasing efficiency and containing costs. This means improving the production stage, implementation of new technologies and methods of production, and trying to get as much value as possible from scarce resources. The second option is to revamp the activity cost chain to bypass some cost producing activities all together. Our company has to look over production steps of each food item in order to have no wasteful time activities. Taking as an example the production of sausage which is now combined of 6 steps. I believe that this process can be cut by 1 step giving us only 5 steps to produce.
And this will have the same results. This makes huge difference in our time of production as well as its costs. Besides both approaches can be used simultaneously. If our company wants to be a low-cost producer we should achieve cost advantages from every cost saving approach we can think of.
All our employees should be aware of our cost-conscious organizational culture which reinforces limited perks and frills for executives, intolerance of waste, intensive screening of budget requests, and broad employee participation in cost control efforts. Though our company should be aware of frugality, we should tend to commit funds aggressively to cost-saving improvements. Our company has to scrutinize each cost creating activity and identify what drives the cost of the activity. Then we need to use our knowledge about cost drivers and innovative seek ways to manage the costs of each activity down further and further.
We are possible, whole activities need to be cut out of the activity cost chain entirely. We can be surprised with the results of the restructioning the cost chain that can lead to eliminating unnecessary cost producing activities. Taking as an example I want to mention Iowa Beef Packers. , who has been able to win strong competitive positions by restructioning the traditional activity cost chains in their industries. In beef packing, the traditional cost chain involved raising cattle on scattered farms and ranches, shipping them live to labor-intensive, unionized slaughtering plants, and then transporting whole sides of beef to grocery retailers whose butcher departments cut them into smaller pieces and packaged them for sale to grocery shoppers.
Iowa Beef Packers revamped the traditional chain with a radically different strategy large automated plants employing nonunion labor were built near economically transportable supplies of cattle, and the mean was partially butchered at the processing plant into smaller high yield cuts, boxed and shipped to retailers. Iowa Beef Packers inbound cattle transportation expenses, traditionally a major cost item, were cut significantly but avoiding the weight losses that occurred when live animals were shipped long distances; major outbound shipping cost savings were achieved by not having to ship whole sides of beef with their high waste factor. This same method of reduction the shipping cost of some of our food items can be borrowed from Iowa Beef Packers. I believe that this reduction will give us significant savings in our expenses, and thus we can allocate this money to other useful activities. We can reduce other expenses besides transportation accordingly to different food items, that we will find to be unnecessary, thus gaining the same result. Another important step in the strategy process that will give us a benefit is the heavy influence in setting the industry's price floor.
Thus we can be in the best position to compete offensively on the basis of price, we will have the opportunity to defend against price war conditions, to use the appeal of a lower price as a weapon for grabbing sales and market share from rivals and to earn above-average profits based on bigger profit margins or greater sales volumes in markets where price competition thrives. As our company is a low-cost producer we are in a more favorable position than higher-cost rivals, because we can use the low price as a defense against the attempts of substitutes to gain a market inroad. Our strategy process will also be intended on attacking small local and regional firms that are not doing the job and whose customers are primed to switch to a better brand and services well as the retail supermarkets in many western countries. Our next steps would be: (the developing product features that deliver superior performance to buyers or that lower buyers user costs; (giving buyers more responsive after sale support; this means that we will be aware of all the complains if any, provide the damaged goods service without any charge and make the home delivery service available in every district of our business; (escalating the marketing effort in an under marketed industry; (pioneering a new distribution channel or making some improvements in present ones; (bypassing wholesale distributors and selling direct to the end-user; (having the prestigious access to dominant distributors. It is vitally important that our strategic offensive be tied to what our company does best our internal strengths and capabilities. As a rule, these strengths represent a key skill (cost reduction, customer service skills, technical expertise) or a unequally strong functional capability (engineering and product design, manufacturing expertise, advertising and promotion, distribution access. ) Among other methods to protect our companys competitive position would be trying to block other food manufacturing challengers from entering a product market.
This can be achieved by several ways: (broadening the product line to close off vacant niches and gaps to would-be challengers; (introducing products or brands that match the characteristics challengers products already have or might have; (keeping prices low on models that most closely match competitors offerings; (signing exclusive agreements with dealers and distributors to keep competitors from using the same ones; (granting dealers and distributors sizable volume discounts in order to discourage them from experimenting with other suppliers; (offering free or low-cost training buyers personal in the use of our product; (making it harder for competitors to get buyers to try their brands by giving special price discounts to buyers who are considering trial use of rival brands, resorting to high levels of coupling and sample give always to buyers most prone to experiment and leaking information about impending new products or price changes that cause buyers to postpone switching; (raising the amount of financing provided to dealers and / or to buyers; (reducing delivery times for ingredients; (patenting feasible alternative technologies; (protecting proprietary no-how in products, production technologies and other parts of the activity cost chain; (signing exclusive contracts with the best suppliers to block access of aggressive rivals; (avoiding suppliers that also serve competitors. Summing up all the points mentioned above I believe that low-cost strategy is the key to profitability in competitive world food markets. The real opportunities for our company in a global market, and the bigger financial returns, will come from value adding along the food supply chain. It is essential that we become better at food production and food processing through innovation if we are to compete on a 'level playing field' with other large food producing nations. To date, the increases in our exports have tended to come from diversification of commodities, or through efficiencies via suppliers, rather than genuine value-adding in the food sector, which means that the potential for growth in value, output and employment has, to date, been under-exploited in the industry. Our company should focus on low-cost strategy in food product, process and systems development, anticipating and meeting consumer needs, and attracting follow-through investment.
We hope that following all these points of this report our company will manage to become a leader in the food industry. Bibliography Thompson, Arthur A. Strategies for Staying Cost Competitive. Harvard Business Review 62, no. 1 (January February 1984), pp. 110 - 117.
Hax, Arnold C. , and Nicolas S. Majlif. Strategic Management: An Integrative Perspective. Englewood Cliffs, N. J. : Prentice-Hall, 1984, ch. 15. Cohen, William A.
War in the Marketplace. Business Horizons 29, no. 2 (March April 1986), pp. 10 - 20. Fahey, Liam, and H. Kurt Christensen. Building Distinctive Competence into Competitive Advantages. In Liam Fahey, The Strategic Planning Management Reader.
Englewood Clifs, N. J. : Prentice-Hall, 1989, pp. 113 - 118. Coyne, Kevin P. Sustainable Competitive Advantage What it is, What it is not.
Business Horizons 29, no. 1 (January-February 1986), pp. 54 - 61 Porter, Michael E. Competitive Advantage (New York: Free Press, 1985), ch. 3, 4, 5, 7, 14 and 15. MacMillan, Ian C. Preemptive Strategies. Journal of Business Strategy 4. No. 2 (Fall 1993), pp. 16 - 26.
Paine, Frank T. , and Leonard J. Tischler. Evaluating Your Costs Strategically. In Liam Fahey, The Strategic Planning Management Reader. Englewood Clifs, N. J. : Prentice-Hall, 1989, pp. 118 - 123.
Stevenson, Howard H. Defining Corporate Strengths and Weaknesses. Sloan management Review 17, no. 2 (Winter 1986), pp. 1 - 18 10. Rothschild, William E. Surprise and the Competitive Advantage.
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Research essay sample on Part A Defining Strategy And Its Key Elements