Analysis
The Generic Strategy: Johnson Jewellery Company
Generic strategy models are perhaps the most prevalent conceptual approach to competitive strategy today (1980, 1985; 1978; 1986). Traditionally, one of the main streams of strategy research examines the relationship between strategy type and firm performance (1994: 1984; 1988; 1990; 1987: 1980). These strategy types, sometimes called generic strategies (1980), archetypes, or gestalts (1988), simplify a myriad of possible strategies into a limited set of strategy types.
In addition, researches in the academics have long been interested in the concept of strategy types (1986). Previous research on strategy types includes studies offering new typologies based on empirical analyses (1980; 1978: 1988; 1980), replication studies (1995; 1993; 1986), and studies adding new variables (1983; 1988; 1988). The most widely used strategy types are those developed by (1989).
However, generic models do not answer every concern about the meaning and application of business strategy. New directions in the theoretical strategy literature include business strategy models (1984), contingency models (1987), and resource based models ( 1984). These models generally share the characteristic of treating strategy as a situational response to a particular array of firm-specific resources and a set of environmental conditions. Business strategy becomes a complex phenomenon involving the interaction of a variety of external and internal demands, capabilities, and skills.
In the case of Johnson Jewellery Company, it sells it products at low industry prices to earn a profit lower than that of rivals in order to gain market share. This type of strategy belongs to Cost Leadership. Cost leadership strategy usually targets a broad market. Johnson acquire cost advantages are by improving process efficiencies, gaining unique access to a large source of lower cost materials, making optimal outsourcing and vertical integration decisions. In fact, Johnson did not have its own manufacturing base, by using the outsourcing and strategic partnership in China, Johnson outsourcing its production process into three manufacturing to lower their production cost. Many customers will accept lower quality for a substantially lower price, and the firm which can optimize its production efficiencies can generate larger margins in a price taking business.
However, this strategy may not be applicable for the company already as evidently seen in the quarterly loss of the company in 2005. Customer may have been looking for more quality products.
Having acknowledged this problem faced by Johnson Jewellery Company, it is proposed that the company should employ other generic strategy in their business. Cost Leadership, creates excess returns by providing a basic, or commodity level, product at the lowest cost of production. Firms following this strategy accept cheaper components, use standard production processes, and seek high market share in order to reduce unit costs (1983).
According to some studies, a successful differentiation strategy can be built on many factors, including design, brand image, reputation, technology, product features, networks, and differentiated customer service, and true differentiation should be hard for competitors to imitate. In addition, speed of delivery, convenience, and the security of transactions are important elements of any differentiation strategy
In the case of firms pursuing a focus strategy a specific groups of buyers or product lines are targeted. Within their more limited competitive scope, they emphasize either low costs or differentiated products and services. (1983) conclude in an empirical study that quality and cost controls interact to generate above average ROI.
On the other hand, cost leadership is widely practiced today among firms that sell standardized products and services. The benefit of cost leadership, typically manifested as price competitiveness, is a common competitive dimension among Internet firms. And, among first-time online shoppers, price may well be the most important lector influencing their buying decisions (2000). However, easy price comparisons and very low customer switching costs suggest that firms pursuing a strategy of cost leadership could easily become locked in a vicious cycle of price-cutting.
Therefore, differentiation based on either customizable products or both may be a more viable strategic weapon. Firms that reduce customer search costs, engender trust, and offer products, services, and online experiences tailored to their users’ needs are likely to elicit initial and repeat purchases. Traditionally, cost leadership and differentiation or their equivalents were regarded as equally effective strategies (1978: 1980).
However, (1980) argued that cost leadership and differentiation are such fundamentally contradictory strategies, requiring such different sets of resources, that any firm attempting to combine them would wind up “stuck-in-the-middle” and fail to enjoy superior performance. And, from a traditional business perspective, cost leadership and differentiation do seem incompatible. Cost leadership requires standardized products with few unique or distinctive features or services so that manufacturing and production costs are kept to a minimum. On the other hand, differentiation usually depends on offering customers unique benefits and features, which almost always increase manufacturing and marketing costs.
Consequently, studies have both supported and called into question many of Porter’s claims. (1983), using PIMS data, was able to identify firms pursuing cost leadership, differentiation, and focus strategies in two different capital goods industries. (1986) and (1988) also confirmed the existence of Porter’s generic strategies. (1984) found that firms employing only one of Porter’s generic strategies outperformed firms pursuing elements of more than one strategy. (1988), in their study of 97 manufacturing firms, found that stuck-in-the-middle firms showed lower levels of performance. (1988) also found firms pursuing Porter’s generic strategies in a sample of 54 high-growth electronic firms in Korea, and they concluded that firms pursuing one of the generic strategies outperformed firms pursuing more than one of the strategies.
However, there are more recent articles and studies have challenged Porter’s typology and questioned his claims about the exclusivity of the generic strategies. (1988) challenged Porter’s claim about the exclusivity of cost leadership and differentiation, and argued that sustainable competitive advantage rests on the successful combination of these two strategies. (1988) critiqued Porter’s typology, and noted that the development of any successful business strategy must reflect the larger competitive environment. And, since industry environments do not specifically prescribe the need for cost leadership or differentiation, found little reason to conclude that only one strategy should be employed in response to any particular environment. Similarly, a study by (1990) found that multiple strategies are needed to respond effectively to any business environment. (1993) could not confirm the proposition that a combination strategy would be associated with lower performance.
Furthermore, it seems that turbulent environments (1999) and global environments (1999) require flexible combinations of strategies. In a study by (1998), only two out of sixteen successful sample firms employed a unitary generic strategy. The remaining firms in their sample employed flexible, multi-dimensional strategies combining elements of cost leadership and differentiation in order to meet the needs of customers. (1984) proved that a combination strategy was feasible using game theory. And, more than a decade ago, (1991) predicted that firms would not need to choose between strategies of low cost and differentiation.
Any incompatibility between cost leadership and differentiation may have held true in the mid- to late 1980s when business environments were relatively stable. Rapidly changing competitive environments call for more flexibility as well as the ability to mix more than one generic strategy. Mass customization and the development of network organization concepts both demand and make possible the flexible combination of multiple generic strategies ( 1997; 1995; 1993: 1996). And, (1999) concluded that the Internet disassembles traditional value chains, introducing new competitive imperatives and requiring new strategies. Another major change is the disappearance of trade-offs between information richness and information reach. The Internet’s universality and its ability to reduce information asymmetries and transactions costs will also create opportunities to “rewrite the rules” on business strategy (2001).
Thus, Johnson Jewellery Company should combine more than one generic strategy that will be associated with higher performance relative to the strategies of differentiation or cost leadership.
Marketing
In addition to the generic strategies, marketing effectiveness and operational efficiency are critical to the success of business organizations. Unfortunately, these two factors may push in opposite directions (1999). Therefore, in order to win over customers and increase sales, an organization should achieve a balance between operational efficiency and marketing effectiveness through integration of operations and marketing activities
Integrated management of these two functions may not be easily attainable because they require different managerial focus–operations has traditionally been cost- and efficiency-oriented, while marketing has been customer-and market-oriented. The marketing function usually regards superiority of product offering to achieve increased sales. The operations function tends to emphasize the capabilities of service production and productivity as more important strategic decision variables (1999). However, as (1992) have emphasized, strategic linkage between operations and marketing strategies is a must for the success of service businesses.
New technology system implementation
In the recent year, the company implemented a new information technology system to maximize the utilization of resources and to increase productivity. In addition, the system is implemented to serve their customers more effectively with timely and accurate information and more efficiently by streamlining the operation and production procedures. However, as a result, a significant of percent of their workers has left the company due to their resistant with the changes that has to be implemented.
With the rapid changes in technology in the recent time, business organizations are rushing to keep pace with these changes. However, mostly don’t give sufficient thought and attention to how they can best execute them. Managers may not notice or may forget an organization’s culture and people can significantly impact the success or failure of the implementation of information technology system. In many cases, projects fall short, fail or cost much more than anticipated – not because of the technology itself but because of organizational issues. It is also commonly argued that relative failures are due to the fact that technological application is not seen strategically enough by organizations (1991; 1995). Additionally, users of information technology system have for a number of years been increasingly less willing to be chauffeured by technically skilled support staff and have emerged as a key force ( 1982).
When leaders don’t communicate technology strategies and anticipated benefits, or underestimate the impact to the organization, projects may go wrong or fail to achieve intended business results. In addition with the risk potentials of introducing a new information technology in the organization’s strategies, organizations must also consider the people who are affected by the systems implementation.
The success of implementation of a new IT system is measured by its impact on technological, business and human resource requirements. (2003) claimed that too many companies focus on the technology itself, rather than on the people who will use the technology. Companies believe it is the new technology that will deliver productivity and efficiency gains and this becomes the focus of the installation or the upgrade.
In this environment, the installation of the new technology becomes the end game. Almost all the effort and resources are put into the logistics of installing the new system or upgrade. The people who will use the new technology are often overlooked or forgotten, with little done to explain the reasons for the change or the benefits of the technology.
When you change how people work, think or behave, you run the risk of undermining the success of the implementation because people inherently dislike change, irrespective of whether it is good or bad.
It is therefore imperative that companies spend the time and the money to prepare their people for change by listening to employee concerns about the new technology. They should also spell out the benefits of the system to the company and the employee. According to Harris (2003), change management and user acceptance are key to making any project work.
In addition, the company should use change management model that provides a framework for moving from strategy to implementation. This encourages groups to consider all of the crucial components that go into managing strategic change.
In connection with the problem of employee resigning from their jobs, the company must have implemented motivation schemes. According to (1999), the relationship between organizations and their workforces is governed by what motivates individuals to work at their best and the satisfaction they derive from their activities. Without willingness and cooperation of motivated staff, an organization cannot be effective or successful (2000).
External forces and the degree to which workers are willing and able to overcome them in order to attain desired goals are measures of motivation. Motivation is here defined as the driving force within individuals that influences their choices of behavior in performing tasks to achieve desired goals or expectations ( 1999). It is an individual phenomenon, and intentional. It is influenced by personality traits, which makes it complex, multifaceted and changeable.
Motivators can be extrinsic and tangible. Examples include pay, job security, safety, promotion, pensions, employee friendly policies and favorable working conditions. Or they can be intrinsic and intangible, with examples including opportunity to perform, challenge, sense of achievement, personal growth, positive recognition, and being appreciated, valued and treated with respect, care and consideration.
These form part of the unwritten psychological contracts between employees and organizations–contracts that are at the heart of motivation and organizational effectiveness. Their fulfillment ensures employee loyalty, trust and commitment (1973, 1988, 1997).
(1982) grouped motivators into three major classes of workers’ needs and expectations:
· Economic rewards, such as salary, benefits, pension and security
· Intrinsic rewards, such as interest in the job, personal growth and development, appreciation, positive recognition and being valued
· Social relationships, such as friendship at work, status and dependency.
On these three pillars hang people’s motivation to work and their derived job satisfaction (1999).
The personal and unique nature of motivation determines which pillar individuals need fulfilled in order to stay motivated at work. Managers and leaders should work therefore on these motivators to find creative and effective ways to improve staff performance, productivity and retention.
Additionally, financial rewards make employees’ uninteresting tasks worth doing. This may be because workers need extrinsic rewards such as pay to make work exciting before intrinsic rewards from the job catch on to keep the momentum of motivation.
People in repetitive and routine jobs, with few gain intrinsic pleasures or scope for advancement, work for pay ( 1988). Therefore, employees who are doing physically heavy and emotionally draining jobs feel dissatisfied and exhausted, and focus on equitable pay.
However, in his classic paper on motivation, maintained that `motivation is a function of growth from getting intrinsic rewards out of interesting and challenging work’. He regards financial rewards as `abstract, devoid of feeling and passionless’. To him, job enrichment and not job enlargement is the key to motivating employees for productivity ( 1968)
Effective leadership and managerial support can reduce staff frustration and dissatisfaction while increasing productivity and retention.
SWOT Analysis
Conclusion
From the analysis, Johnson Jewellery Company has poor strategy execution and they have the poor ability to retain their valuable employees. With its generic strategy, it has been working for the past years of operations however in the currently dynamic and rapidly changing business environment, it might not be applicable as customer are more quality sensitive. Cost leadership may not be a good idea for the company.
In the case of the marketing strategy of the company, in the past years it has been giving much discounts and coupons for promotion and might be the reasons for the loss they have in the recent year. The company has not properly planned their marketing making more a problem than a solution. The company should have aligned its marketing strategy with their operations strategy.
In the case of their employees leaving, the main reason of this problem is the implementation of a new information technology which they are unwilling to learn and the loss of security since having the new technology would likely to lay off some of the employees that the company not need. Moreover, the employees thought that their pay is lesser than the market. The company has less motivating strategies to retain its valuable employees. The company has not taken in consideration the employees before implementing the new information technology system.
Recommendations
With the following problems identified from the company, it is recommended that the company should change the strategies they are implementing.
In the case of their generic strategy which is currently cost leadership strategy, the company should into a more effective strategy. It is recommended that the company would use a combination of more than one generic strategy that will be associated with higher performance relative to the strategies of differentiation or cost leadership. As evidence given above, with the recent business environment, a more flexible strategy is more applicable.
In the case of their marketing strategy, an integration of marketing effectiveness and operational efficiency should be taken into account for the success of the company.
In the implementation of a new information technology, essentially, there are five key elements to every organization which includes technology, people, process, structure and culture. According to (2003), organizations that are planning to implement a new information technology should take these risk mitigation steps:
Ø Assess current and future business and technical requirements. Incorporate end user feedback at a detailed level to validate senior management vision and strategy. Clarify and document current business requirements and map against future organizational needs.
Ø Concentrate on specific change management efforts. Develop customized communication plans and skills inventory analysis to determine appropriate communication messages and strategies and customized training needs. Encourage and reinforce organizational behavior and advocacy throughout the organization.
Ø Identify organizational impacts. Analyze internal impacts on business processes, technology, organizational roles and responsibilities, reporting relationships, organizational charts, physical layouts and geographic concerns. Review external relationships with customers, suppliers and other strategic partners to document and identify existing and future touch points.
Ø Document and track results. Communicate results and reinforce a culture of continuous improvement. Determine project-specific metrics and monitor them for the duration of the project.
(2003) suggested that a holistic approach, utilizing risk management perspectives, is the only way to address problems of implementation of a new technology system in an organization. It provides a strong foundation on which to plan and execute. Those organizations and individuals that are able to understand and plan for the complete solution and then master its application will be the ones that succeed (2003).
In motivating the employees, it is recommended that the management should consider the following to retain valuable employees:
Ø Managers should consistently clear messages between them and the workforce on organizational intentions, objectives and proposed changes to reduce uncertainty and promote trust.
Ø Regular performance related pay that is based on competence rather that the post occupied will enhance employees’ morale and their perceived reputation or image.
Ø Incentive schemes involving financial motivators, such as efficiency reward, personal or team bonuses would encourage staff to reduce waste and become more efficient and productive.
Ø The hallmark of successful organizations is the attention given to their staff. The development of caring cultures and friendly atmospheres creates feelings of being part of a committed, satisfied, motivated and empowered workforce.
Ø Good work environments and timely communication reduces gossip, improves relationships and social cohesion and motivates staff to help attain corporate objectives. Provision of facilities such as changing and rest rooms for staff will enhance departmental pride and retention.
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