Research Articles Base: Case Of Ikea

IKEA’s global challenge

IKEA Cross-Cultural Managements Case Study   Introduction             One of the most important aspects to be considered in a business is to be able to manage cultural factors strategically. In the global environment, there are different organisations that face problems in managing culture; one of these is the IKEA. IKEA is being known as one of the largest specialised furniture retailer. The company has the vision of creating a better everyday life for the many people. Hence, the company tries its best to initiate a strategy and business philosophy that would enable them to reach their objective. As the company grows strong in the market, IKEA has encountered different social issues. One of these issues is about the child labor issue. Although the company is not the direct organisation that use children as part of their workforce, the company is still considering themselves as part of the issues since most of their raw materials came from these countries like India and Pakistan.             Knowing the issue of child labors in these various countries, IKEA’s management find themselves accountable for this, since they are also benefiting from the materials created by these children. However, the issue also lies in the differences in terms of cultural factors with these countries. As a European based organisation, IKEA may find it a big problem to enter an issue with countries having different cultures. Primarily, the main goal of this paper is to provide an analysis of the cross-cultural management theories and how it can be applied to IKEA’s case. In addition, this will also provide discussion on how MBI model can be applied to IKEA.   Cross-Cultural Management Theories             As mentioned, one of the factors that must be given emphasis by a industry’s management is the cultural factors, specifically if the company is engaging to various cultures. There are different cross-cultural management theories which have been provided by different theorists:             According to  (1973), the vital key for having a successful cross-cultural management system is to have an effective cultural communication. In this regard, the management of an organisation must make it sure that there are always open channels for to communicate effectively.  (1976) identifies two categories of culture which have an influence on business and entrepreneurial activity. These include High Context Culture and the low context culture. The first classifications are known to have a very high established homogenous standpoint in terms of nationality, religious values and beliefs (1976). This type of culture can be seen in Japan and Arab countries. Herein, the communication context is given much emphasis such as body language and gestures. On the other hand, in the low context culture, the concept of communication is more recognised in formal written records, like culture which can be seen in the UK and USA. This cross-cultural management can be used in IKEA in solving the problems of child labor. The company may interact or communicate with their suppliers who are allegedly using child as a part of their workforces. The company may use both high context and low context culture in communicating with these organisations. The effective communication among these companies will enable them to provide solutions for this kind of problem. The next theorist who formulated a theory for cross-cultural management is Hofstede. According to  (1991), culture can be differentiated through different dimensions at a national level. These dimensions are power distance, individualism-collectivism, masculinity-femininity, uncertainty avoidance and Long-term versus short-term orientation. This theory can be applied by IKEA in the issue of child labor by determining which among the dimensions can India and Pakistan be best attributed. Herein, the management may identify the cultural identity of these two countries by using Hofstede’s theory and provide a solution based on the identified dimension. The next theory of cross-cultural management is the theory provided by Fons Trompenaars. According to  (1997), there are seven dimensions of culture which is related to the relationships with individuals. These seven dimensions are Universalism vs. Particularism, Individualism vs. Collectivism (communitarianism), Neutral vs. Emotional, Specific vs. Diffuse, Achievement vs. Ascription, Linear vs. Circular and internal vs. external control. These dimensions are attributed as the elements which can be useful for managing cultural diversities. In this situation faced by IKEA, these seven dimensions can be used to solve the problem of child labor by knowing the dimensions that best described the culture of India and Pakistan and other suppliers who are allegedly using children in their organisation. The company must give respect to the provisions of the government of these countries and establish a good relationship with them before dealing with the issue. For example, since the company is a European based organisation, it is important that IKEA must be neutral rather than emotional in solving the problem. In their culture, they think child labor as a inappropriate but in the culture of India or Pakistan, this issue is relatively appropriate to help poor families to earn a living. Hence, IKEA’s management must also consider the cultural situation of India and Pakistan before making any actions.   MBI Model Applied to IKEA             Aside from the above mentioned cross-cultural management theories, there also exist skills for cross-cultural effectiveness which may result to high organisational performance. This cross-cultural effectiveness is consists of three basis skills. The MAP, BRIDGE and INTEGRATE skills or more commonly known as MIB Model. This MIB model can be applied with IKEA by the following:             First, the management of IKEA must identify the cultures that best described their suppliers. This can be done by using cross-cultural models given by Hall & Hall, Hofstede and Trompenaars. The company must be able to understand the differences of the culture of IKEA to the cultures of their suppliers. After identifying the differences, the company must be able to find ways of bridging these differences. In this regard, the company must determine the most appropriate communication skills to be used in this situation. For this case, the company may use both high and low context culture given by Hall & Hall in identifying the effective communication channels to be used in solving this issue. After communicating with the perspective people involved in this issue, the integration must follow. In this situation, the management of IKEA as well as the people in India and Pakistan must bring the capabilities of their culture together and integrate it properly to establish participation among the key persons and solve the issue faced by the organisation. The proper utilisation of MIB Model may enable the company to solve the issue effectively and be able to have a high performing organisation in the global environment.   Conclusion             All in all, it can be said that an efficient, cross-cultural management is one which is enclosed in a diverse organisation which culture is comprehensive of all of the different groups and constituencies that it intends to serve. Hence, it is important that the organisation must be able to determine which cultures they belong and how they can integrate their cultural strengths to other organisations to perform well in the market and to solve different issues encompassing cultures and cultural diversity.     Credit:ivythesis.typepad.com

IKEA’s global challenge

IKEA Cross-Cultural Managements Case Study Introduction One of the most important aspects to be considered in a business is...

FINANCIAL REPORTING

INTRODUCTION Valuation, as a science, deals with, among other things, the following: (1) adherence of general accounting principles for the organization and presentation of the financial data of the business; (2) chronicalization of the facts associated with the historical growth of the business; (3) extrapolation of financial data into future time periods; and (4) calculation of various valuation ratios and statistical formulae ( & , 1999). These are, without question, critical dimensions to a business valuation, but they are not the only dimensions of a business valuation that are important. All too often, for a variety of reasons, individuals may fall into the trap of believing that business valuation is little more than a formulistic exercise. The interpretation of the financial statements published publicly by the companies are utilised by users of such information as an aid to decision-making, more commonly for making investments to the business firm. There would be no trouble in the presentation of the assets of the firm, as they are purely quantitative in nature, and is free of subjectivity. Non-current assets present a problem, though. The valuation of the same is normally expected to provide users of financial information with a ‘true and fair’ view. However, their constant revaluation poses a detriment to the presentation of the view that is the norm. This paper is a critical evaluation of Ryanair’s system of valuing their non-current assets, based on the latest financial statements available for the international carrier, in comparison with other firms’ valuation of the non-current assets of their own. BRIEF RYANAIR BACKGROUND[1] Ryanair is a low-cost, low-fare airline headquartered in Dublin, Ireland, operating over 200 routes in 20 countries. The company has directly challenged the largest airlines in Europe and has built a 20-year-plus track record of incredibly strong passenger growth while progressively reducing fares. It is not unusual for one-way tickets (exclusive of taxes) to sell on Ryanair’s Web site for less than €1.00. See Exhibit 1 for an excerpt of Ryanair’s Web site, where fares between London and Stockholm, for example, are available for 19 pence (approximately US.33). CEO , formerly an accountant at KPMG, described the airline as follows: ‘Ryanair is doing in the airline industry in Europe what Ikea has done. We pile it high and sell it cheap…. For years flying has been the preserve of rich [people]. Now everyone can afford to fly’ (, 2005:  ). Having created profitable operations in the difficult airline industry, Ryanair, as did industry analysts, likened itself to U.S. carrier Southwest Airlines, and its common stock has attracted the attention of investors in Europe and abroad. The company went public on May 9, 1997, and shortly thereafter was voted ‘Airline of the Year’ by the Irish Air Transport Users Committee, ‘Best Managed National Airline’ in the world by International Aviation Week magazine, ‘Best Value Airline’ by the U.K.’s Which consumer magazine, and most popular airline on the Web by Google. The company emphasizes that it defines customer service by low airfares and safety, rather than by the quality of food, pleasantness of staff, and other peripheral items. VALUING RYANAIR NON-CURRENT ASSETS             A study of the consolidated balance sheet of Ryanair dated March 31, 2006 would show that their non-current assets comprise of property, plant and equipment, intangible assets and derivative financial instruments (see Appendix 1 for copy of consolidated balance sheet). IAS 16 prescribes the accounting treatment for property, plant and equipment so that users of the financial statements can discern information about an entity’s investment in its property, plant and equipment and the changes in such investment. Ryanair complied with this standard, as they have in their balance sheet, said property, plant and equipment measured at their costs, and subsequent revaluation, depreciation and the residual values have been properly accounted for. Further, IAS 36, or that which prescribes the procedures that an entity applies to ensure that its assets are carried at no more than their recoverable amount, was also conformed to by the company, evidenced in the section of their annual report which deals with the impairment of their assets, specifically their planes. With respect to their intangible assets, IAS 38 requires that the latter be initially recognized at cost under certain requirements, and it is seen in the annual report of Ryanair that this standard has been complied with as well. The net book value (NBV) of the assets are already what is reflected in the balance sheet, which means that the value of the assets are already less than their respective depreciation and amortization. So as not to understate or overstate the value of an asset, net realizable value (NRV) is included in accounting standards, and this has been abided by the civil aviation firm, as they have indication that their non-current assets are fairly valued. Ryanair puts their assets in use according to their original intention. This is in compliance with the value in use (VIU) standard set by accounting regulators. The said financial statement was presented in Euro rounded to the nearest thousand, being the functional currency of the parent company and the majority of the group companies. They are prepared on the historical cost basis, except for financial instruments and derivative financial instruments, which are stated at fair value. Any non-current assets classified as held for sale are stated at the lower of cost or fair value less costs to sell. The valuation used for the non-current assets of Ryanair seems to be the weighted average of adjusted net income, which is appropriate because the company’s history is not one of continuous growth and profitability. This the more traditional approach of not inputting a growth factor to the weighted average has been appropriately applied for the company’s non-current assets. An understanding of the economic environment of the business is fundamental to deciding the appropriateness of using such valuation method (, 2005). As previous years’ sales resulted from unusual and extremely unfavourable economic conditions, and if the general economic environment has changed since that time, then the past may not be a good predictor of future non-current assets activity, which was maybe the basis of Ryanair for using the weighted average of adjusted net income in the valuation of their non-current assets.             Following the series of bad news announcements in Ryanair in early 2004, the investor community split into two camps: those that saw the downturn in profits and cash flows as the end of Ryanair’s strong performance run versus those that believed the stock price drop to be an overreaction to a company that retained strong fundamentals. However, an analysis of Ryanair’s profitability and operating, investment, and financing activities over the most recent years show that the overall picture is that of a financially healthy company with strong sales growth, high profitability, and negative net debt (i.e., interest-bearing liabilities less than cash and liquid resources). There are discrepancies in valuations, however, and they reflect divergent opinions on numerous issues that plague the airline sector, such as fare competition, cost containment, regulation, and macroeconomic vulnerability.             Fundamentally, Ryanair is a consumer organic growth story. But, as mentioned earlier, as the company became more established, Ryanair sharply de-rated a couple of years ago, and has clearly traded below historical averages and even below averages for the last three years. It is also trading considerably below its closest peer, easyJet. In the category of financial performance Ryanair is at the top end of the peer group but valuation levels are only close to mid-range. It is therefore felt that derating risk is low and indeed there could be some further movement upwards in the multiple. The medium-term goal is for Ryanair to maintain stable net margins of 20%. Key sensitivities to the valuation are what level of margins and hence returns are assumed before fade-out and the cost of capital. It could be argued that having delivered relatively stable margins close to 20% for the last 11 years, Ryanair has a decent chance of repeating this for a few more years, given the strategic building blocks that are in place, such as the Boeing deal and its market position. Arguably the heavily weighted equity capital structure may be modestly addressed over the coming years, which could mean a modestly lower WACC going forward.             The valuator should not, in  and ’s (1999) opinion, define ‘most appropriate’ based on the results that follow from the application of several methods. Doing a corporate valuation is not a mysterious process that is open only to the few (,  & , 2000). It does require, however, a different perspective from that taken by many managers. It requires focus on long-run cash flow returns, not quarter-to-quarter changes in earnings per share. It also requires a willingness to adopt a dispassionate, value-oriented view of corporate activities that recognises businesses for what they are – investments in new productive capacity that either earn a return above their opportunity cost of capital or do not. There are many areas in valuation where there is room for disagreement, according to  (2002). This includes how to estimate true value and how long it will take for prices to adjust to true value. But there is one point which there can be no disagreement: asset prices cannot be justified by merely using the argument that there will be other investors around willing to pay a higher price in the future. Income statements and balance sheets describe aspects of the financial condition of the business, and hence, both should be examined. In fact, all financial information should be considered in detail. A fundamental and extremely important assumption that underlies all business valuations is that the financial health of the business is accurately characterized by its financial statements. If the financial statements are incorrectly prepared, or if they overstate or understate the true financial picture of the going concern for some accounting reason, then it follows logically that the valuation will be imprecise. Analysts use a wide range of models in practice, ranging from the simple to the sophisticated. The models enumerated previously belong to the general category. These models often make very different assumptions, but they do share some common characteristics and can be classified in broader terms, which makes it easier to understand where individual models fit into the big picture, why they provide different results, and when they have fundamental errors in logic. Comparability is one of many pieces of information that a valuator brings to the valuation exercise (,  & , 2000). As with most non-specific pieces of information, care must be exercised in how such information is interpreted and utilized in arriving at the final valuation opinion. Therefore in order to fully determine the appropriateness of Ryanair’s valuation method used in their non-current assets, there is a need to look into other businesses’ (in the same industry, in this case, civil aviation) balance sheet and determine the valuation method that they use in valuing their own non-current assets. For this purpose, the company easyJet’s balance sheet, a close rival of Ryanair in the markets that the two companies are operating in, is examined.             easyJet is a leading low-cost airline. It was founded in 1995 when new European Union rules allowed free competition in air transport and grew rapidly, becoming a plc in 2000 (, 2001). By 2001, the easyJet network consisted of 35 routes serving 17 airports in 16 cities ( & , 2005). Looking at their balance sheet as of (see Appendix 2). Their non-current assets include goodwill, property and equipment and principally capitalised software and software development costs, restricted cash, deposits paid in respect of Airbus aircraft to be financed by sale and leaseback which deliver in more than one year. Property, plant and equipment comprises principally owned aircraft, spares and deposits paid to Airbus in respect of the delivery of future aircraft which are not to be financed according to sale and leaseback arrangements. As seen in the (2006), the net book amount attributable to property, plant and equipment increased from £398.6 million at 30 September 2005 to £695.7 million at 30 September 2006. The increase is due to capital expenditure of £413.2 million, set out in more detail in “capital expenditure” below, set off against disposals of £88.7 million and depreciation of £27.4 million. The total of other non-current assets has increased from £30.7 million at 30 September 2005 to £31.1 million at 30 September 2006. The choice of a valuation method requires thought and contemplation. The valuator should first learn about the business and then select the one valuation method that is the ‘most appropriate’ based on the relationship between the circumstances for understanding the valuation and the assumptions that underlie each of the valuation methods. The method for the easyJet valuation is the earnings valuation method. It may be the case that the most appropriate method to use to value a going concern is the said valuation method. It is, first and foremost, the most common way to valuation. It is an approach to valuing a company by capitalising its earnings, which generally involves multiplying one or another income statement earnings figure by some multiple (, 2002). The earnings-based valuations assume that the value of an entity is equal to the present value of future earnings that will be generated by the business. Further, this method is based on two elements, the price/earnings ratio and the post-tax earnings per share of a business, which, when combined, give the market price per share (, 2006). There maybe a different (higher or lower) future earnings estimate based on efficiencies arising from new management (higher earnings) or restructuring costs (lower earnings) that will gave an impact on price negotiations. The earnings-based formulation has intuitive appeal. It implies that if a firm can earn only a normal rate of return on its book value, then investors should be willing to pay no more than the book value for the stock. Investors should pay more or less than book value if earnings are above or below this normal level. Thus the deviation of a firm’s market value from book value depends on its ability to generate ‘abnormal earnings’ (, 2002). The formulation also implies that a firm’s stock value reflects the cost of its existing net assets (that is, its book equity) plus the net present value of future growth options (represented by cumulative abnormal earnings). To further strengthen the argument, the AICPA’s Management Advisors Services Practice Aid, Valuation of Closely Held Businesses indicates that the Internal Revenue Service strongly recommends the use of earnings-based valuation models for valuing businesses (as noted by , 2005). APPENDICES Appendix 1. Consolidated Balance Sheet[2] Appendix 2. easyJet Consolidated Balance Sheet[3]            REFERENCES/BIBLIOGRAPHY Credit:ivythesis.typepad.com

FINANCIAL REPORTING

INTRODUCTION Valuation, as a science, deals with, among other things, the following: (1) adherence of general accounting principles for t...

“Strategies in the Computer Market: A Case Study of Dell”

“Strategies in the Computer Market: A Case Study of Dell”   1.      Executive Summary   2.      Introduction The PC business is mature and its biggest players are desperate for new sources of growth, even if that means taking on entrenched players in an equally cutthroat business. Technological innovations that began as early as the 1600′s – such as the first mechanical calculating device – have ushered our society into what is now called “the information age.”( 1986)   The microcomputer or personal computer industry has undergone major changes in its market structure. The market structure changed in the computer industry as the PC segment developed ( 1988).  According to  (1988), the industry has grown substantially from its beginnings in January 1975, when the first microcomputer, the Altair 8800, was introduced. During its early development, the industry was dominated by a few small-scale companies, mainly hobbyist-run. Entry into the market was determined by technological innovation and the availability of system-compatible software. Companies tended to design their own software, with little compatibility among systems.   In the PC market, few such technical barriers to entry were present. Existing technology typically has been widely available and components often manufactured by other firms. Despite the seemingly easy entry into the market, however, firm entry and new product introduction required sunken entry costs, such as establishing retail channels and advertising. With the continuously evolving market, few companies managed to survive in the market beyond one or two years.   Increased sales in the computer industry have stemmed from the public’s demand for affordably priced computers that are faster and more powerful so that users can retrieve and send data, play games, and run programs. Businesses have found that computers can save them money by automating many tasks and allowing owners to analyze and retain many crucial records. One of the most important advances is the speed at which computers are capable of processing data.   The extraordinary speed of today’s computers is not the only important development. The rapid decrease in cost, a fiercely competitive market also is critical. Lower prices of computers occur when new technology is introduced at lower prices, which pushes the prices of existing technology even lower. As each new technological breakthrough makes its way into the market, the previous “best product” becomes very affordable. One company enjoyed an edge in the market when they introduced the next generation in microprocessors. It was not long until competitors caught up and introduced similar microprocessors at lower prices. To stay competitive, manufacturers must quickly slash prices and start planning their next better, faster product. This constant pressure has led the computer industry to reduce prices while continuing to improve their products.           Project Overview In the PC market, existing firms have significant advantages over potential entrants ( 1979). For example, consumers are more likely to buy familiar brands, and older firms may have long-term contracts with distributors, lowering their costs relative to those of new firms. According to (1984), because of such considerations, new entrants may be forced to search for empty market segments to avoid price wars with more established firms. Hence, incumbents would be expected to distribute their models along the entire spectrum to make entry difficult for new firms (1977).   Dell Computer, consistently growing annually, has become the one of the top PC supplier. The PC supplier, growing two to three times faster than its rivals, boasts of earnings and unit shipments that are escalating at four times the industry average. Dell’s continued innovation and its unique direct marketing model are credited with sustaining the company’s unmatched success (1997). And electronic commerce is emerging to afford the company significant sales gains along with increased distribution and manufacturing efficiencies. Company officials assert that leveraging its build-to-order manufacturing with electronic commerce enables it to compress its supply chain and become much closer to its customers.   Dell Computer may be growing consistently growing however in the business reality there are intense rivalries between the players in the industry which may hinder the continuous success of the company. The paper attempts to identify these challenges and problems in which the PC supplier may face and to recommend strategies that would enable the company to survive the rapid phase in the market environmental changes.           Objectives The objective of the paper is to analyze how big computer companies, like Dell Computer, survive in the fast moving PC industry. This would involve a case study of Dell Computer. The case study would include its company background and analysis of its problems encountered.   Dell Computer is a leading company in the computer market. However, with the presence of competitors and in competing in the price war market, this has created a difficulty on the Dell Computer to sustain its previously created competitive advantage. Currently, Computer is facing a tough challenges coming from the new industry standard and the profit of the PC become smaller.   This paper attempts to analyze problems encountered by Dell and suggest strategies which it may adopt to enable it to stay competitive and achieve continuous growth in computer industry. In addition, the paper analyzes how Dell Computer can use these strategies to create its innovative and technological competitive advantage.             Terms of Reference Economies of Scope – exist when it is cheaper to produce several products jointly than each one separately. For example, it may be cheaper to produce screws and nails together than each in a separate establishment, since the bulk of the investment (factory, machines, and labor) has already been made.   Market – refers to all existing and potential customers for a company’s products or services, including all the tools and techniques that companies use to understand and better serve their customers   Market Interlacing – is the process in which the firms preempt the entire market by placing new products further away the product space.   Market Segmentation – is the process in marketing of dividing a market into distinct subsets (segments) that behave in the same way or have similar needs.           3.      Literature Review In the computer market, the models that are integrated in the operations of the business is not only technological but rather strategic. Components of the computers are largely produced by other firms other than the firms selling the complete system. Thus, it can be assumed that the technology embodied in making the storage devices and microprocessors can be available to any firm at any time. Each firm has its own choice of what strategy to impose for the business operation given the constraints imposed by the existing technology. These firms face two choices. The first choice is whether the company place their strategy in a single segment of the market by pacing their new models close to their existing ones. With this strategy, the firm can take advantage of the economies of scope in the locality however at the same time create substitutes for their previous models. This strategy results to market segmentation where each can produce only one close substitute.   Secondly, the firm can preempt the entire market by placing new models further away in product space. With this strategy, firms can avoid cannibalizing their existing models and occupy an empty market niches before entrants do. This strategy leads to market interlacing, where various firms’ models alternate.   When the firm chooses to implement the first strategy, it may be too risky since the firm may steer away their existing customers for their existing products in favor of their new product offerings. In addition, entering a new market segment is also too risky as it needs to established new technology before it would be offered to the market and accepted by the consumers.   According to several literatures, in the computer market, being an existing firm is more favorable as the customers are more likely to buy familiar brands. In addition, the existing firms have already established long-term contracts with distributors and can relatively lower their costs compared to the new firms. Thus, forcing the new entrants to seek for empty markets segments to avoid price competition with the established firms. Therefore, existing firms are expected to distribute their models along the entire spectrum to make entry by new firms difficult (1977;  1979; 1984). Under this scenario, models of existing firms will be more dispersed in product space than new entrants’ models.   Hotteling’s (1929) model of spatial location has started the development of several theoretical models of entry deterrence and preemption in a multiform market. In Hotelling’s model, two identical firms locate next to each other along a line. The results change in the case of heterogeneous firms, sequential entry, and companies producing several products, but few analyses deviate from the standard assumptions.   The results of the theoretical studies are inconclusive. While some support the market segmentation scenario, others conclude that market interlacing is more likely. The results depend heavily on the assumptions of specific models, such as number of competitors, order and timing of their entry into the market, whether they produce one or more goods, and whether the products are identical or differentiated. The market segmentation results are shown in  (1978) and in  (1979). In  (1978), the market was dominated by a small number of colluding firms, which localized their brands in order to deter entrants most effectively. In  (1979) model, an incumbent monopolist in a growing industry introduces a substitute for his own product before an entrant does, in order to preempt the market. Market interlacing results from the models of  (1987), (1976), and  (1984). (1987) showed that with no threat of entry, existing firms would locate as far away as possible from each other. If they faced a threat of entry, incumbents would deter entrants by greater product dispersion, in order to create competition in all market segments and make entry unprofitable. In  (1976) model, a firm would not offer substitutes for its own product, as that would lower demand for its existing commodity. The firm would opt for more distant products instead.  (1984) showed that with no entry, a segmented market structure yields higher profits, but a possibility of entry reverses the result. The study of Porter (1985) has concentrated on the strategies that would be able the companies to gain competitive advantage. In addition, in order for firms to develop a strategy that can provide superior performance, these firms must achieve and sustain competitive advantage.  In order for these firms to survive in the highly competitive market, it has been suggested to develop some degree of competitive advantage. In the case wherein the products and services are virtually identical, advantage is minimal and firms in these market struggle to remain profitable and grow. In the case of a convenience store or a gasoline station, competitive advantage would as simple as having a favorable location.  However, in many industries, competitive advantage would be more complex. Competitive advantage is derived from the combination of product appeal, pricing, marketing practices, distribution capability, and many others. According to  (1985), outstanding performers usually obtain their competitive advantage from more than one source. Ideally, competitive advantage should be sustainable in that the strategy that provides it cannot be imitated by competitors. In  (1985) book, “Competitive Advanatge: Creating and Sustaining Superior Performance,” he has identified three basic sources of competitive advantage that can also be integrated with the computer companies. These are referred as generic strategies. First is cost leadership which means competitive advantage can be achieved through having the lowest cost in the industry (1985).  The sources of cost advantage vary depending on the characteristics of the industry but can include determinants such as economies of scale, preferential access to raw materials and superior proprietary technology. However, cost leadership is effective only if the company can command prices close to the industry average, and does not have to give away its cost advantage by discounting prices. The other is differentiation in which competitive advantage can be achieved through making a product or service unique so as to be able to charge a higher price and/or attract a consistent, high sales volume (1985). The differentiation can be in the product characteristics, its delivery system, quality of service, or, for example, its channel of distribution. It can be real – that is derived from the superior quality and/or performance of the product or service – or intangible, based on its image, fashion or brand recognition. Differentiation may impose higher costs on a company, but this is acceptable if it can more than recover these from a premium price. And finally, focus which is based on adopting a narrow competitive scope in an industry (1985). These segment opportunities can arise from product specifications, buyer characteristics and even geography. Focus can be based on differentiation that targets a specific segment of the market with unusual needs that are not being met by others. Alternatively, in cost focus, the company may have specialized machinery that can handle specific market needs efficiently, such as the ability to handle short production runs. According to the study, these different sources of competitive advantage are useful for the success of many companies however, oftentimes they are difficult to implement on the company’s situation (1985). However, there are different ways in which a company can look at these variables to help it identify potential sources of competitive advantage. According to (1985), one of the most common causes of weak industry performance results from the companies in it being squeezed between suppliers and customers who both have high bargaining power. The conventional strategic remedies that should be considered are: to differentiate the product or service to gain influence over the buyer; find substitute inputs; or integrate forward to gain greater control over the market, or backward to control the source of supply It is almost impossible to establish competitive advantage while trying to be all things to all people. The strategic decision on what market segment to pursue is important to the establishment of competitive advantage because it defines what you must do well and helps you focus your efforts. Market positions can be defined by the combination of the value provided and the price charged. The value-based market positions are usually the more profitable. It is, therefore, a common strategy to try to move upward in the market by introducing a premium line. This requires careful separation of the brands to minimize the association between them in the perceptions of the market. Value-based positions also usually rely on intangible appeals, particularly when it is difficult to demonstrate real differences. Companies producing branded products will often also supply private brand or no-name products, a “same-for-less” position that can make a contribution to earnings by absorbing overhead costs, but at the risk of cannibalizing their own sales. The strategic decision on the choice of market position is, however, only the starting point. Competitive advantage requires the ability to serve the chosen market better than competitors. A value-based position requires the ability to provide a differentiated product or service. A price-based position requires cost leadership. The issue then becomes one of achieving operational effectiveness, which is primarily a challenge of implementation. Operating effectiveness means being able to do things better than your competitors. At the outset, this requires identifying which function that the company performs in bringing its product or service to market is the most important in providing superior overall performance. This can be done by value chain analysis. Operational effectiveness can be achieved in three ways: through developing and exploiting a core competence in the activity that is critical to the success of the business; having an efficient structure; and by effective operating practices. Core competence is the ability of a company to perform a function that is important to its success exceptionally well. Such core competence can be based on superior product technology such as the Intel, employee skills such as Microsoft, or functional expertise such as Nike in marketing. The companies that exploit their core competence effectively usually concentrate their activities in those areas, and outsource other functions. Ikea designs its furniture and merchandises it, contracting out almost all other functions including manufacturing. Structure-based advantage arises from the way that the functions and facilities are arranged. A good example of exceptionally efficient distribution system is Wal-Mart, a leader in retailing. The system is based on grouping stores around distribution centers with satellite links from point of sale to the suppliers to minimize inventory and the risk of costly stock-outs. Competitive advantage derived from operating practices arises primarily from how well the employees do their jobs. The procedures and processes of most companies within any industry tend to be similar, but the ones with a creative and motivated labor force can substantially outperform the others. This superiority may come from innovative work practices, attention to quality, or, for example, responsiveness to customer needs. Awareness of and attention to what is important to the success of the business should become engrained in the culture of the organization, both reinforcing and perpetuating it. Competitive advantage through operating effectiveness requires that something be done not just well, but exceptionally well and better than the competitors. Another study by  (1994) has proposed a framework for obtaining competitive advantage in this era of hypercompetition under conditions of penetrable industry barriers, changing rules-of-the-game, iconoclastic rivals, fickle customers and, consequent to all the above, unsustainable competitive advantages. It has been traditionally emphasized by many resource-based theorists that in order to obtain a sustainable advantage, the firm should possess inimitable resources and distinctive capabilities or competencies that results from the combination of these resources. (1996/1991; 1991;  1990). By contrast,  (1980) competitive analysis framework emphasized industry attractiveness and its characteristics, such as the potential to enhance the firm’s power versus buyers and suppliers, thwart potential entrants and outposition competitors, as being the key determinants of competitive advantage and long-term profitability. The sustainability of these competitive advantages was determined by the firm’s ability to create defensible niches. In addition, (1992) acclaimed that an important structural characteristic, inherent in the firm’s capabilities as well as the nature of the market niche, was the presence of “isolating” mechanisms that enabled the firm to protect and shield these competitive advantages. While resource-based theorists primarily emphasized internal firm capabilities, Porter relied on the firm’s capabilities only to help mitigate the ill effects of the competitive environment. Moreover, another set of game-theoretic strategic interaction approach is focusing on achieving competitive advantage is by disorienting rivals by signaling, through exploitation of asymmetries of information, strategic collaboration and pricing (1989;1997). With this perspective, the firm can enable to kept its competitor off-balance and can be disrupted from its comfort zone through implementing tactical strategies with the firm capabilities, industry selection, and strategic positioning. With the initiation of disruption, the initiator can gain a temporary and unsustainable competitive advantage.  (1994) emphasizes shorter-term tactical maneuvering and market disruption as being essential for obtaining short-term, unsustainable competitive advantages especially in today’s high velocity-industry environments with low-entry barriers. The four arenas of hypercompetition relate to external arenas where different sets of competitive dimensions might be employed to provide increased “value” to customers. Firm capabilities are subsumed under the New 7Ss, each of which relates to the firm’s ability to disrupt markets and obtain a temporary competitive advantage. Longer-term competitiveness was enhanced only by stringing together a series of temporary, unsustainable advantages (1994). This can be done by linking and reconciling some of the tenets of the “resource-based,” competitive analysis and strategic interaction frameworks with the approach suggested by  (1994). This would also be accomplished by linking each of the four arenas of hypercompetition described by  (1994) with  (1980) generic business strategies and the appropriate firm-specific resources and capabilities. By steering hypercompetition in their industry into the arena, where their generic strategy orientation and capabilities are most appropriate, the firm can obtain short-term, unsustainable competitive advantages. The first leg is (1996) assessment of the different approaches to market positioning, the advantages thereof, and the types and ranges of value each provides to customers. The second leg is firm-specific capabilities and competencies ( 1996/1991; 1990) arising from the resource-based theory of the firm (1991), and their role in supporting different business strategies and providing types of customer value. A match between the above two legs is crucial for obtaining some form of (albeit temporary) competitive advantage. Their long-term sustainability is, however, a function of the availability of isolating or shielding mechanisms ( 1992) which constitute the third leg of our proposed tripod. The presence of such isolating mechanisms enhances the durability and reduces both transferability and replicability (1991) of the firm’s resources, thereby enhancing the longevity of the competitive advantages obtained. Economists place the intensity of competition along a continuum ranging from monopolistic to perfect competition ( 1980). At the monopoly end of the continuum, the firm makes excessive profits, while at the latter extreme, the bargaining power shifts to the consumer in a highly competitive industry, and firms make only marginal profits. The intensity of competition is dictated primarily by market-based characteristics (1985), and (to a lesser extent) by internal firm-specific resources and their interactions (1996). Since this perspective assumes that industry structural characteristics are exogenous ( 1959; 1981;  1997) and beyond the firm’s control, and that the firm’s resources are sticky and inflexible in the short-term, decision-makers need to consider both characteristics and the impacts they will have over time.  (1994) hypercompetition is characterized by disruption, intensity, and speed, where firms have only intermittent, temporary, unsustainable advantages with concurrently low profits. The greater the intensity of hypercompetition, the lower is the returns. Moreover, under these hypercompetitive conditions, greater returns often go to the player who is prepared to change the existing rules of competing (1996) and disrupt the status quo (1994). Organizational resources, capabilities and the firm’s strategic profile all play roles in determining the firm’s ability to compete under the existing rules of competition. For example, if the organization’s existing resource base is configured for a differentiation strategy based on technological leadership (such as IBM in the early 1990s) while the arena of hypercompetition in the industry necessitated cost-leadership (such as PCs in the early 1990s), the firm’s resource base and strategic orientation will hinder the firm’s competitiveness. Consequently in 1993, IBM was forced to radically restructure and take the largest loss in its corporate history (1997b; 1996;  1997). As the example suggests, incongruence between the organization’s resource base, its strategy and its hypercompetitive arena, hinders the firm’s ability to compete.  (1996) refers to three types of positioning and the type of customer needs that they satisfy. The first, variety-based positioning, relies more on the choice of product or service variety rather than customer segments. Here the company produces particular products or services, concentrating its distinctive competence in a sub-set of value adding activities.  (1996) gives the example of Jiffy Lube, which offers only automotive lubricant services. This serves a wide array of customers, but for most it will meet only a subset of their needs. Alternatively, they may be lured away by firms that fulfill a more comprehensive range of the customer’s needs. Or they may be enticed away by fulfilling the same set of needs more efficiently through an alternative configuration of value-adding activities. The resources that are employed here fit  (1992) description of fast-cycle resources. Product andservice ideas are easy to copy, customer loyalty is low, and markets are characterized by dynamic price and cost pressures, fast profit margin compression and accelerated capital depreciation ( 1992). The technology is widely disseminated. Isolating mechanisms that might shield these resources are absent. Examples of fast-cycle resources are cellular phones, the Sony Walkman, fashion houses, and children’s toys. Since variety-based positioning originates from the firm’s internal capabilities rather than by focusing primarily on customer value enhancement or appropriate industry or market positioning, isolating mechanisms arising from business or market characteristics or geographic location that can shield such competitive advantages ( 1992) are likely to be absent. Consequently, competitive advantages are likely to be short-term and transient. Alternatively, under needs-based positioning, the firm initially identifies a target segment of customers and their needs and tailors a set of value-adding activities to best serve those needs (1996). As long as the customer’s needs remain unchanged (and the lead firm does whatever is needed to be the most efficient in providing those needs), it takes added effort on the part of other firms to disrupt the status quo. Thus, competitive advantages are more sustainable than in the previous case. However, the presence of isolating mechanisms due to industry or market characteristics or geographic location is again unlikely, unless the buyer group belongs to a specialty market, or the customer segment is localized. More typically, this group conforms to  (1992) description of standard cycle resources. Such resource-bases are less specialized, and sustaining competitive advantage is based more on preemptively moving down the learning curve taking customers along and building a reputation for consistency, reliability and efficiency. The third type of access-based positioning focuses on the geographic isolation of the customer segment. Value-creating activities are configured, that is based on firm resources or capabilities, to meet the unique nature of demands arising from this group’s location.  (1992) provides examples of isolating mechanisms that slow down the onset of competitive pressures. They include airline leases on gates at major hub airports, and the private relationships that Goldman Sachs has with its investment banking clients (1992). Competitive advantages are the most sustainable under such shielded conditions. To summarize, the sustainability of competitive advantages is considered to depend on the following three factors, which includes the different approaches to market positioning and type or specificity of customer needs met and the value provided; the idiosyncratic nature of the firm’s resources or capabilities; and the availability of isolating mechanisms that can shield these competitive advantages from rival onslaught ( 1992). However, the most widely followed generic business strategies are  (1980) differentiation, cost leadership, and focus types. They offer different types of value to customers, and each strategy is predicated on specific, unique and different sets of firm competencies and resources ( 1996). Moreover, different strategies might result in differing levels of performance ( 1980). Thus, the differentiation strategy provides unique and superior value to customers in terms of product quality, special features, or after-sale service. In return, the company is rewarded with buyer loyalty. It can often charge a premium for its product. The increased development costs are passed on to the customers. Alternatively, the cost leadership strategy is based on producing and marketing a product more efficiently than competitors. The company’s lower costs often translate into lower prices for customers. The lower costs enable the company to earn adequate returns under heavy competition. The company’s relatively large market share offers it greater bargaining power with its suppliers. The lower prices serve as an entry barrier since potential entrants are often unable to match the company’s cost advantages. Finally, the focus strategy, either differentiation focus or cost focus, concentrates on a particular buyer group, product line, or geographic market. Porter also proposed that a firm’s competitive advantage within its industry is determined by its competitive scope that is, the breadth of the firm’s target market. A firm exploits the focus — competitive alternative when it implements a cost-leadership or product differentiation strategy within a narrow market segment (1996) better than its competitors can. The capabilities for environmental scanning and forecasting, for providing superior perceived quality, and for changing the perceptions of what is superior quality are imperative. Also important is knowing how to perform activities at a comparable cost but in unique ways that create greater buyer value than competitors can (1985). A differentiation strategy could be followed at the upper end of the constant value line. The emphasis here is on enhancing perceived quality and thereby adding value. At this end of the cost-quality continuum, customers are likely to be early adopters, innovators, and opinion leaders. Their risk propensity is higher. Sometimes their notion of quality may lie in the need to be different from the rest of the crowd. Up to a point, such customers are not price sensitive, as long as the novelty and uniqueness offered are viewed as value-enhancing. By emphasizing these attributes in its attempts at differentiation, a company may be able to attract high-end customers and obtain a competitive advantage from its rivals. In attempting to offer perceived uniqueness to a broad range of their customers which is the essence of a differentiation strategy, the firm is attempting a type of variety-based positioning (1996). This is based on attaining superior proficiency in a sub-set of the firm’s value-adding activities. This emphasizes firm-based capabilities. The company does not begin by initially identifying customer needs. On the contrary, its unique capabilities to satisfy unmet or unsensed needs that customer might have. Thus, as already suggested, rivals could entice away these customers through other approaches, which satisfy the same, alternative, or a broader range of their needs. The firm’s resources and market setting are likely to conform more to  (1992) definition of fast-cycle resources, where there is a lack of isolating mechanisms. Consequently, there are many opportunities for rivals to disrupt the status quo and seize the competitive initiative. By contrast, the cost-leadership strategy may be more appropriate at the lower end of the cost and quality arena. Tight cost controls enable a company to provide the same offerings as other competitors at lower prices. This positions it along the lower end of the same constant value line described above. It may even be able to, offer, customers higher value, than differentiators (that is shift the value line to the right) by lowering its prices (provided it has the cost-efficiencies to do so) while offering the same level of product or service quality At this lower end, customer preferences are clearly articulated as lower priced product or service offerings. The efficient process capabilities (which are required to supply these needs) are not easy to replicate in the short-term. Here, the firm employs a needs-based positioning based on the need for low prices ( 1996),  and other resource-based theorists suggest that it is improbable that rivals can come up with a more efficient configuration of value-adding activities (i.e., based on firm capabilities) in the short run. Firm capabilities take time to develop and are inherently sticky. Consequently, the lead firm’s competitive advantages are difficult to disrupt and inherently more sustainable, unless customer needs change. Since we earlier argued that this category fits with  (1992) standard cycle resources, the firm can hope to sustain its competitive advantage, as long as it keeps moving preemptively down the learning curve, while taking its customers along. The joystick (that determines the sustainability of competitive advantages) is under the firm’s control rather than in the hands of its rivals. Consequently, the sustainability of competitive advantages is higher than in the earlier case. As we mentioned, the focus strategy originates from identifying specific customer segments and their needs and then developing the unique sets of firm capabilities and value-adding activities that satisfy them. Consequently, competitive advantages which in this case are based on fulfilling these specific customer needs employing the firm’s capabilities and competencies, are inherently more sustainable. Short-term disruptive tactics adopted by rivals may not succeed with the firm’s core customer group. Further, with access-based positioning (which is the case with some focus customer segments), isolating mechanisms that shield the firm’s resource base may exist (1992). That increases the sustainability of resulting competitive advantages. Such resources (and competitive advantages) meet some of the characteristics of slow cycle resources. In addition, another strategy is on being a first mover or a follower. There are differences between first-movers versus followers in their strategic identities and the types of competencies and resources they embody (1989; 1978). Typically first-movers rely on product innovation. They possess good R&D, marketing, and environmental scanning skills. They may also hedge their technological bets by relying on multiple technologies ( 1978). By contrast, a follower firm must possess good reverse engineering skills, be able to either further differentiate, reengineer or strip-down the product, and be able to establish alliances with key distributors and suppliers, other manufacturers, and trade associations, in order to neutralize the first-movers’ many advantages. In addition, they need superior process skills to neutralize the first-movers’ experience curve advantages and be able to offset the disadvantages of built-up customer switching costs, either by offering compatible products or through offering customers inducements to switch. A differentiation strategy may be more applicable for a first-mover firm. Differentiation enables the firm to cater to customers’ unfulfilled needs. A differentiation strategy enables the firm to identify and capitalize on a broad array of possible opportunities. This strategy provides customers with perceived value through offering novelty and uniqueness. The true nature of the customer’s needs in the emerging market is still being flushed out. The early lead from being a first-mover provides the firm with a price umbrella thereby enabling it to charge a premium price and recover its development costs before imitators enter. Such a strategy would follow (1996) variety-based positioning, which relies primarily on firm capabilities and to a relatively lesser extent on There are many advantages that accrue to first-movers, such as the response lags of followers, the time to build economies of scale, the ability to build switching costs for customers, obtaining preemptive access to channels of distribution and other scarce resources, the ability to become the industry standard, and the added time to benefit from learning effects ( 1994). However, the sustainability of competitive advantages is low here. Since the firm did not start out by first identifying customer’s needs (A) as is practiced in needs-based positioning, customer loyalty is likely to be low. Opportunities abound for rivals to entice customers away and thereby disrupt the status quo. Customer needs are amenable to redefinition and reinterpretation (by enterprising rivals), thereby overcoming the switching cost advantages enjoyed by the first-mover. Again, the `fast-cycle’ resources that are typically employed here are not accompanied by isolating or shielding mechanisms that protect the firm’s resources or accompanying competitive advantages. By contrast, a cost leadership strategy may be more applicable to a close-follower. The lower costs (derived from superior process skills) enable the imitator (following a cost leadership strategy) to neutralize the early entrants’ experience curve cost advantages. In addition, these lower costs may also induce some customers to switch, thereby overcoming the advantages of customer switching costs built up by the first-mover. Close-followers employ a needs-based positioning approach ( 1996). Customers are looking for specific attributes, and the firm has configured its capabilities to meet them. Consequently disruption, of this firm’s competitive advantages is difficult, unless rivals figure out how to supply the same products or services at an even lower price. Even if they do succeed in figuring out alternative methods, these rivals may not be able to accumulate all the required value-adding activities in a relatively short time period. Finally, a late-entrant could employ either a differentiation-focus or a cost-focus strategy, depending on the nature of the customer segment and the specific tactic it is pursuing. This is a needs-based positioning approach ( 1996), which is possible because by this time in the growth cycle of the product, customer segments and their needs have become more clearly defined. With the needs-based positioning approach suggested here, the customer segment’s needs are fairly specific and defined. Moreover, the firm has configured its value-adding activities towards meeting these needs. It is difficult for rivals to easily disrupt these competitive advantages. In some instances, the firm may even be catering to customer segments that by virtue of their geographic isolation or by virtue of the idiosyncratic nature of their demand, offer the firm the advantages of slow-cycle resources (1992). The strategy of the firm is predicated upon the firm’s internal resources and capabilities. In addition, these capabilities also strengthen the firm’s capacity to disrupt markets and gain temporary competitive advantages. They are also relevant for implementing the three generic strategies. Thus, matching the appropriate business strategy with internal resources and capabilities provides the firm with a temporary competitive advantage. Stringing together a series of such temporary advantages can enhance a firm’s long-term competitiveness. However, the sustainability of temporary competitive advantages is dependent on a combination of the customer needs that are being fulfilled, the firm’s resources and capabilities, and the existence of isolating mechanisms in the industry or business environment. Firm competencies are immutable, since the firm has irrevocably sunk resources into developing these capabilities. Moreover, for a company to be successful, business strategy must be based on these capabilities. In the external environment, the intensity of competition is not completely under the firm’s control. Since competitive advantages for the firm will depend on the match between its strategy (i.e., mode of competing based on its internal resources and capabilities) firms must endeavor to achieve the best fit between their preferred business strategies and these exogenous mandates from the market.                 Credit:ivythesis.typepad.com

“Strategies in the Computer Market: A Case Study of Dell”

“Strategies in the Computer Market: A Case Study of Dell” 1. Executive Summary 2. Introduction The PC business is matu...

Strategic Management: The Comfort Zone

Strategic Management: The Comfort Zone     Introduction             The furniture industry is well known for its resistance to change and has been furniture manufacturers have been pushed into the rapidly changing environment of the new century. The forces of internationalization and globalization are bringing fundamental changes to this industry. The purpose of this paper is to examine and better understand the management style and strategy that is needed for a furniture shop called Comfort Zone relative to the current issues it faces.             The owner’s management style has been mixed; at times the staffs sees him as paternalistic in that he takes an interest in the workers and their family members – at other times he seems to be very authoritarian, with a clear idea of what he wants to do. This is very much the owner’s company and he seems to have a clear idea of the direction that it should take. He still has the tendency to do a wide range of tasks and has difficulty in delegating tasks to subordinates. Management meetings are short and to the point with the owner directing the staff or telling them what he wants done. Comfort Zone relies on a banner that says Customer is King. No system was more responsive to the customer than craft-production such as what the production of furniture is all about. It’s hard to imagine that such a system could survive without delighting the customer. The furniture produced must therefore appeal to the customers in order for Comfort Zone to be successful.             Although some companies have striven to reach customer satisfaction excellence, this objective remains difficult to achieve. The question still is: Is it worth focusing on customer needs and requirements, evaluating and improving products and processes with the customer in mind, training the work force and providing the right kind of leadership to make it happen?             This banner of Comfort Zone that the Customer is King is not supported by some authors. According to  (2003), the customer is not king anymore, at least not any customer. Sales staff no longer let you return goods without question while rushing to shake your hand. There has been a fundamental shift in how companies assess customer value and apply their resources. Thanks to advanced technology, companies can measure exactly how much business a customer generates, what he/she is likely to buy, and how much it costs to answer the phone. That kind of information allows them to deliver a level of service based on each person’s potential to produce a profit. Customer service and satisfaction have become just another product for sale.             Now, the Comfort Zone furniture shop faces a competition in IKEA, which is set to open in the next year and will be located just a few kilometers from where Comfort Zone is located. A strategic plan has to be developed which can solve all the issues that the furniture company faces. Strategic Marketing Planning             Strategy is very important for any organization as it offers the direction the organization would like to pursue to attain its objectives. In the recent years, the integration of strategic planning and functional marketing has been perhaps the most relevant development in the field of marketing management as marketing managers have all the more realized that tactical marketing decisions must be made within a wider strategic framework.                   Strategic Marketing Planning In addition, it is necessary that management of the marketing function be built upon purposively defined and analytically based marketing strategies. Strategic marketing planning offers the analytical process which develops efficient marketing strategies. The strategic marketing planning, according to (2006), involves basically three stages: (1) segmenting the market; (2) profiling the market segments; and (3) developing the market segment marketing strategy. Please refer to figure 1 for the outline.             After analyzing the market segments, customer interests and the purchase process, the firm must then establish the strategic marketing plan. This strategic marketing plan document usually constitutes (2006): (1) situational analysis – Where is the company now? – i.e., characteristics of the market, key success factors, competition and product comparisons, technology considerations, legal environment, social environment and problems and opportunities; (2) marketing objectives – Where does the management want the company to go? – i.e., product profile, target market and target volume; and (3) marketing strategies – What should the initiatives be taken in order to attain its objectives? – i.e., product strategy, promotion strategy, pricing strategy, distribution strategy and marketing strategy projection. All large companies, however, do not look with favor on such a practice of division within the organization. Other large companies favor the adoption of a functional type of control structure. With this sort of arrangement, a company’s physical operations may be dispersed, but the managerial control for all of its different operations is centralized. This means that a single sales force sells all of its different products and manufacturing plants are directed from the home office. Such an arrangement focuses the responsibility centering on the president of the company. In a large company, this does not sound very good. This concentration of responsibility may overburden the chief executive with supervisory duties, leaving him too little time for creative thinking and acting. It also tends to create a shortage of potential managers because of the centralizing authority at the top. At all times a firm must be aware of the risks that are inherent in competition – chances for loss through shifts in the price level, changes in style and fashion, and the appearance of substitutes on the market that sometimes render present models obsolete. Consumers could switch from a furniture made of wood to a furniture made of glass although the wood furniture is still a new one and has no defects. Also, consumers could switch to a cheaper furniture of another competing furniture company but with the same quality. There is always a risk involved in the use of substitutes for materials formerly used. It must also be noted by Comfort Zone that an organization means that management endeavors to achieve its objectives by directing the efforts of the people under its supervision. This procedure is a necessity whether it be a large or a small company. This has been taken seriously by the owner of Comfort Zone. While the success of a Comfort Zone may be attributed to many other causes, the skills with which the owner directs and manages the organization is one of the major factors in the positive end result. Therefore, the owner must be more responsive to his employees and what his company needs most.             Probably the most foremost responsibility of management at all levels, but especially top management –is the making of decisions. In many, if not most, instances, the decisions that chief executive officers have involve the making of choices between two or more alternative courses of action. The company therefore rests on whether the owner will choose the right decision or not.   Importance of Understanding Competitors             Understanding the competitors of a business in a given industry and developing methods as to distinguish it from them is a very relevant and critical aspect which influences the development of the competitive strategy of the firm. In addition, it is also an important aspect of the strategic planning process as it (1) facilitates the management to understand their competitive advantage or disadvantages associated to their competitors; (2) creates understanding of the competitors past, present, and future strategies; (3) offer an informed basis to develop strategies to gain and maintain competitive advantage in the future; and (4) to facilitate the firm in forecasting the returns that may be made from future investments.              (2000) notes that understanding competitors is the core to making marketing plans and strategy. A firm has to compare its products, prices, channels of distribution and promotional methods with those of its competitors on a regular basis to make sure that it is not at a disadvantage. The process of the competitor analysis basically constitutes three steps. The first step is to identify the firm’s competitors. As for Comfort Zone, it has several competitors in the furniture industry, but it has to take into consideration the new furniture company which is about to start business near their location.             The second step of the competitor analysis is the assessment of its competitors. This may be done through benchmarking as the firms will first have to determine the objectives of its competitors as well as their objectives, then later on assessing the strengths and weaknesses of its competitors.  (1997) notes that benchmarking sustains organizational growth as well as facilitates world-class competitive status.             Finally, the third step in the competitor analysis is the selection of competitors to avoid or to attack. After the assessment of the firm’s competitors, the firm will have to formulate the specific strategies that will give them the competitive advantage against its competitors.             It must be noted that during the process of competitor analysis and the implementations of its strategies, the firm will have to assess which of the competitors’ strategies that they will have to follow or not. The second stage which allows the company to compare their operations with others will necessitate some degree of change within the organization. Thus it should be very well noted that the company only as to follow the strategies that will apply to their business as every business is unique in their own nature. These strategies will have to be in lined with the company’s philosophies as well.             Some of the major changes that should be made by Comfort Zone should be induced by changes in the environment and industry or by the existence of a vacuum in strategic groups. In the midst of such change, or in the absence of competitors, Comfort Zone must be able to apply its market knowledge to capture greater value The basis of customer trust should be reputation, built on financial probity and the ability of the firm to absorb trading risk while profiting from the experience. To absorb the risk of others, Comfort Zone itself requires long-term internal and external relationships built on high trust and the avoidance of speculation in commodities or in other business interests about which information about individual investments and commitments was incomplete.             Cost and high quality are no longer the only competitive factors a company should consider. Flexibility is another component that should be considered as a critical success factor. Some authors also advocate the concept of performance evaluations and control systems when new strategies are to be implemented, especially in the manufacturing area. At the operational level, it is critical to measure and control the new strategies after they have been put to work (2007).   Conclusion The furniture industry has already extended throughout the world. Firms that operate within the furniture industry are categorized as a market structure that is highly competitive yet volatile. Many customers can opt for substitutes to a specific furniture offered by a company. In this paper, the case of Comfort Zone was analyzed. The strategic marketing planning for Comfort Zone provides the company a methodical and logical process that develops efficient marketing strategies. This strategic marketing planning has three stages namely: (1) segmentation of the market, (2) summarization of the market segments, and (3) development of the market segment marketing strategy. This paper has strongly recognized the importance of understanding competitors in strategic marketing planning for the benefits that it gives to the successful planning of marketing activities. These benefits and advantages include the following. First, understanding competitors will facilitate the firm’s management to understand their competitive advantage and disadvantages in relation to their competitors. Second, understanding competitors will also generate understanding of the past, present and future strategies of the firm. Third, it offers the firm an informed basis to develop strategies in order to gain or maintain competitive advantage against their competitors in the future. Lastly, understanding competitors will also facilitate the firm in forecasting or predicting the financial returns that they made from future investments.                 Credit:ivythesis.typepad.com

Strategic Management: The Comfort Zone

Strategic Management: The Comfort Zone Introduction The furniture industry is well known for its resista...