Strategic management
The study will embrace porter’s generic strategy model. According to this approach, focus put on organization’s customer satisfaction through effective services provision and pricing that edge out the competitors. Porter argued that companies compete mainly on perceived value, focus on customers and price. This summarized as differentiation, market segmentation and price respectively (Niesing, 2008). The following is a case study on the Thorntons Company that embraces the porter’s generic strategies model to critically analyze the company’s competitive positioning in the UK confectionary market.
Background of the company
The Company in focus is the Thorntons Plc company located in the UK. It forms the most extensive system in manufacturing and retailing of high-quality chocolates (Grant, 2002). Meanwhile, to ensure continued performance and achievements, back from 2003, the company has integrated planning which is both corporate and strategically induced. The main factors considered include; reorienting the company focus to retail-based, upping both manufacturing and retail operations. Eventually, development would be effected through modifications of the product range, product positioning and market served. Meanwhile, for its core products, major selling and manufacturing activities done in-house, and the retail outlets, which include company-owned shops serve as good quality sales outlets (Sadler, 2003). On a different approach, packaging of its products is done by an outsourced supplier. This works positively for the company as economies of scale comes to play.
With the above integrated, the company has never relented in its quest for greatness. It has since embraced development strategies that aim at growth and innovation since the 1990s. The following is a discussion on some of the strategic management tool integrated with the Porter’s approach of generic strategies. Also, constant relation made to the case study as follows.
The following are the core strategic management tools:
Understanding the approach of operations management: Operations management entails the design operations and improvement of the production systems that creates the firms primary products and services (Bettley, Mayle, & Tantoush, 2005). For a business plan, this is an important consideration because organizations need to design and operate process that are quick, accurate and of relative cost. This is prime for them to achieve competitive advantage thus are able to remain in the market for the foreseeable future. Through operations management, integration is done with finance and marketing departments thus meeting the various segments of customers. The ultimate benefit is the understanding of means of meeting the firm’s customer satisfaction thus achieving the profit motive (Alkhafaji, 2003).
Competitiveness, strategy and productivity: according to Porter, companies compete mainly on perceived value, focus on customers and price. Any firm coming into business operations targets successfully. To counter the competitiveness from the word go, the following factors should be considered; the purchasing power of the immediate customers, the service and image compatibility of the firm with the demographics of the customers-drawing area, competition in the area, the quality of the competition with reference to the competitor’s weaknesses and strengths, uniqueness of the competitors’ firm locations, physical quality of facilities and neighboring businesses and the general operating policies of the firm. (Slack, Chambers, & Johnston, 2007)
Demand forecasting: The process is done to estimate on the output requirements. It is referred to as the output planning process. It is a very essential for the production process of a firm. Its main purpose is to specify the optimal combinations of production rate, workforce level, and inventory levels on hand that ensure maximum production. This helps to meet the estimated demand.
Product and service design: This is a major consideration as it entails the actual product life. It entails the product designing process that entails idea generation, maturity, development, testing and validation and the eventual launching of the product (Moon, 2010). Its importance cannot be overemphasized as the product forms the main competing factors in the market. Thus to attain competitive advantage, resources should be invested in the design process.
Strategic management through prior: this aims to attain the ultimate operating level. From the case study, this is important in a case of a manufacturing firm. With the new manufacturing technology, it is possible for a firm to focus on a selected set of dimensions that most work towards corporate goals. This plays a major role in attaining maximum results at a reasonably short time.
Facility layout and process design: The strategic issue considered while designing include; facilitating of material and info flow, efficient labor and equipment utilization, customer convenience and sales, reducing hazards to workers, improving employee morale; maximizing flexibility, coordination, visibility, minimizing distance, handling and handling cost and provision for good housekeeping and maintenance. The office layout is also of utmost importance for information flow and communication both internally and to the outside users.
The planning on location and layout is vital both on a macro level consideration and micro level. The micro level deals with deals with the site itself i.e. within a region. These decisions when making a plan or strategic thus are long term in nature for the life of the firm. The factor that influences the choice of the location include availability of land, transportation services, other services related to the business, the community receptivity of the business, raw materials availability, availability of labor and cost and accessibility to markets. The ultimate final choice if the location should support maximum production at minimal cost effectively and efficiently. From the case study, Thornton embraced the practice in 1996. In the project, 126 shops closed down and opened 216 new ones. This entailed malls and small market towns.
Capacity management through planning: This come up to focuses on the amount of resource input available relative to the output requirements at a particular time (Slack, Chambers, & Johnston, 2007). A firm in it is operation should work on the maximum capacity utilization and attainment of the best operating level. This is important in a case of a manufacturing firm. With the new manufacturing technology, it is possible for a firm to focus on a selected set of dimensions that most work towards corporate goals. This plays a major role in attaining maximum results at a reasonably short time.
Management of inventory: inventories include raw materials and purchased products; work in the process which partially completed finished good and spare parts (Bettley, Mayle, & Tantoush, 2005). The process of inventory management ensures continued maintenance of the production process. It works to avoid stock-outs, facilitate a smooth production, increase the rate of production and take advantage of the quantity discounts. This fosters stability of a firm with changing times.
Operations management and planning: The idea of product grouping or broad category is what referred to as aggregation. Meanwhile, the process is strategic in nature and done over an intermediate-range planning period of 6 to 18months (Bettley, Mayle, & Tantoush, 2005). Therefore, it forms some of the crucial stages in the long, medium and short-range planning processes.
Enterprise materials and resource planning: it is also referred to as operations scheduling. The process involves a work center where productive resources organized and the work completed. The capacity and scheduling of resources entail infinite loading and finite loading, and also forward and backward scheduling (Slack, Chambers, & Johnston, 2007). The main aim of the activities in this center minimizes on the setup cost and time, meet due dates and maximize on machine utilization. Ultimately this stress on the need for its consideration thus a firm is able to remain competitive in the market once operations have begun.
Ultimately, having discussed the various strategic management tools, I will delve into the actual analysis of these factors with reference to an operating business plan. The first question asked and considered is the scope of business in focus. This is because the business can be local. International, which brings in the idea of another new similar firm, a competitive advantage in mature industries, vertical integration, global strategy as well as concepts of multi-national corporations (Johnson, Schools, & Whittington, 2009). In answering the above question, I will make recommendations as well as ways through which such recommendations can be implemented from the business plan.
Analysis of the Porter’s model and its integration in Thornton’s strategic management:
Firstly, it would be important for the investor to explore their opportunities in cost-advantage. This can be achieved by conducting Pareto analysis of the available opportunities from the formulated ideas. It should then be followed by analysis of the probable profit and losses and means of meeting or minimizing them in the case of the losses. The reasons why most firms get low profits are because of the high costs and expenses that they incur. Through minimizing costs, the industry will be able to increase or rather, maximize its profits.
Secondly, the firm could opt to make use of economies of scale which basically mean huge cuts in the cost of production. From the case study, The importance of economies of scale to mature industries further cemented by the fact that there exists a stronger association between returns on investment and the market share in such industries. Another way through which new businesses and industries can achieve cost advantages is to ensure that they make use inputs that are of low cost. This they can do by cutting the costs of labor and procuring plants and equipment at relatively cheaper prices through bargaining and haggling (Irenroa, 2012). Cost advantage can also be attained through the reduction and minimization of overhead costs. The business strategy must strive to reduce their expenses by outsourcing some functions and downsizing the labor force. Effective and efficient customer selection, as well as, market segmentation is another important strategy.
New businesses tend to be faced with several setbacks in the client market. Top among them slow growth of demand as well as little or no product differentiation. It is therefore, important for industries to cut themselves their own share of the market. Businesses can do this by venturing into geographical areas in which their competitors have little or no presence at all. They can also do this by carrying out segment research and once a good segment identified, do everything in their power to woo and attract the specific segment. They also need to identify the underserved and neglected customer groups and ensure that their activities centered on satisfying such customers’ needs (Grant, 2010). Thornton has countered this through stabilization of the business and creation of organic growth. This was executed through outgoing and acquiring the competitors’ brands.
Differentiation is yet another strategy that mature firms can use to increase their competitive advantage. Thornton embraced brand value addition, product development and shareholders’ value, to meet the need of differentiation niche. Differentiation of course refers to the ability of the company/firm to produce goods and services that vary from the goods and services produced by competitors. Thorntons has gone an extra mile to embrace through the freshness of its products. They used vegetable fat in place of cocoa butter, which attracted more customers. It helps to insulate the company against the cut-throat competition that is normally characteristic of price competition (Aliyu, 2012). The industry may pursue differentiation by placing a greater focus and emphasis on setting their public image apart from the rest as well as offering complimentary services that are not offered by competitors (Irenroa, 2012).
Through innovation, firms are able to bring new goods and services into the market thus attracting a new market segment which is seeking such innovations. Mature industries can encourage innovation by having an active research and development department tasked with encouraging new innovations and new developments.
Industries, in a bid to control and reduce the costs that it incurs could opt to acquire its suppliers and therefore, start making the intermediary goods themselves; a concept known as backward integration. Through this, company is able to cut down on the costs of intermediary goods while at the same time creating a room to serve the rapidly expanding markets. The company is also able to ensure stability in the input and supply of resources as well as increase efficiency (Jurevicius, 2012). The only means for the organization to do this is to buy off its suppliers. This therefore, means that its suppliers cease to become a different company and instead integrated into the company. Careful consideration should be done before buying from the suppliers.
Firms could also decide to control the process of distributing their goods and services themselves rather than entrusting this work to other companies. These decisions when making a plan or strategic thus are long term in nature for the life of the firm. The factor that influences the choice of the location include availability of land, transportation services, other services related to the business, the community receptivity of the business, raw materials availability, availability of labor and cost and accessibility to markets. The ultimate final choice if the location should support maximum production at minimal cost effectively and efficiently. From the case study, Thornton embraced the practice in 1996. In the project, 126 shops closed down and opened 216 new ones. This entailed malls and small market towns. This strategy is important in cases where the firm is after the achievement of high economies of scale as well as after cutting themselves a large share of the market (Mahlburg, 2000). The industry could pursue this through what known as forward integration which involves taking control of the distribution process either by coming up with their own distribution channel, or acquiring (through buying) a distribution company that already exists. This means that goods and services are available to consumers at lower prices than before.
A business could also increase its competitive advantage as well as its profit margin by increasing the scope of the firm. Thorntons has constantly embraced this. It actually tried to spread its product distribution in the US and Australia, This entails exploring new industries some of which are not even closely or rather directly related to the company (Jurevicius, 2012). Increasing the scope of the company means that the firm is able to earn more profit from other activities other than those it initially formed to do. To ensure this, Thornton has embraced retail activities support, brand value addition, product development and the café concept. This is of course helpful in ensuring the stability of the firm as well as the stability of its earnings. This also gives rise to the advantages and benefits in the form of economies of scope. The company may embrace the ideology to achieve the desired integration levels. This is done through horizontal and vertical integration by embracing buyouts and mergers.
Businesses could also undertake some strategies to increase their competitive edge, and one of these strategies is risk management (Diaconu, 2012). Risk management is especially important for global companies as each country brings along a different set of risks and perils. The success of companies is measured by their ability to manage and overcome the risks that come their way. Management of risks also ensures flexibility (Diaconu, 2012). Global companies need to do extensive research on the risks that will face them in each and every country they penetrate. The company management also needs to identify the most efficient and effective ways of dealing with each and every of these risks posed by the different countries.
By and large, in its quest for better performance, Thornton Company has integrated the factors as discussed above (Johnson, Scholes, & Whittington, 2012). Ultimately, its future plans facilitated by application of the Porters generic approach in many diverse sectors of its operation. From the above discussion, the advantages of embracing Porter’s model in strategic management, is out rightly evident.
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