Development of Management Strategy for Growing Company

Development of Management Strategy for Growing Company Introduction Nowadays technologies are growing so fast that if we will not be able to adopt them in time, than our company becomes non-competitive. This project was done with an aim to apply gained knowledges in engineering and management course, to analyse how selected firm can be developed from engineering and management sides. Engineering studies will help from the one hand to apply engineering knowledges, but from the other hand to get known new technologies and how they make our life better. Universities experience in management and marketing studies will help to do analyses of rival companies and make clear how companys management can be improved or adopted from existing successful companies. There are two important processes in building construction, foundation and roof. Both constructions are equally important for building wellbeing. Foundation need to be designed and build up right in the beginning of construction, but roof need to be carry during all buildings life period. It means that roofs are every sequenced time of period that depends on material, need to be overlaid or repaired. On this theory was born projects engineering part. For projects object was selected a construction firm that focused on roof construction, its technologies and sheet metal works. By exploring roofing market will be determined its growing technologies with an aim to adopt them to selected firm. Exploring major roofing companies management, will help to improve chosen firm current way of management. Generally this project is based on roof technologies, management marketing research. Gained experience will be applied to chosen firm development in all directions. Aim Develop management strategy for a small company. Objectives 1. Literature review of management prescriptive strategy development: * Analysis of environment * Analysis of resources * Development of companys vision, mission and objective * Types of management strategies 2. Choose a company with an aim to apply management strategy 3. Literature review of chosen company 4. Develop management strategy to the chosen company 5. Develop additional management improvements 6. Conclusion Strategic Management Essence of Strategic Management According to the Emergent view there are strategist that suggest that it is hard to predict future and strategy need to be more dynamic with an element of risk. The Prescriptive view Strategic management is about defining a purpose and plans of organisation and work out the actions to achieve desired purposes. The essence of Strategic Management consist from two levels that are shown in Figure 1 and described below : * General corporate level Decision making process depends from in what type of business company belong. The leadership and culture of corporation are very important strategy management. * Individual business level Decision making process generally based on competing for customers, generating value from tangible and intangible business resources and focus on resources that can bring competitive advantage. Strategy is about relations of internal capabilities and external relationships. Figure 1 Essence of Strategic Management (Lynch, p5, 2010) (Lynch, p5, 2010) Approaches to Strategic Management There are exist two different approaches to strategy: Prescriptive and Emergent approach. The prescriptive approach Approach is based on idea that future is predictable and strategy development begins from Where-we-are now and all objectives and steps how implement ideas are developed. The prescriptive theory have three core areas: Strategic analysis, Strategic development and Strategy implementation. All three areas are closely related sequentially. The prescriptive strategy development process shown in Figure 2. Figure 2 The prescriptive strategic process (Lynch, p19, 2010) The emergent approach Approach is based on view that strategy emerges and developed during further period of time based on unpredictable environment. The final objective of emergent approach is unclear and objectives are developed during its realisation. Strategic analysis, Strategic development and Strategy implementation are interrelated. But because strategy is implemented by improvisation and allow mistakes, it is not need to make clear distinction in development and implementation phases. The prescriptive strategy development process shown in Figure 3. Figure 3 The emergent strategic process (Lynch, p19, 2010) Analysis of Environment Analysis of environment is a research of everything and everyone in external environment. It includes suppliers, customers, competitors, government, technologies etc. There are exist nine different tools how environment can be analysed and they are shown in Figure 4. Figure 4. Environment analysis tools (Lynch, p74, 2010) Environment basics There are three basic things that should be analysed: * Market definition and size Question need to be asked in this area is What is the size of market?. It is important to know market size because it will help to design strategy objectives. Market size usually shown in annual sales.  · Market growth After establishing market definition and size need to evaluate how much the market has grown in particular period of time, usually in a year. Market growth rate will influence strategy objectives. Organization that would like to grow quickly will be interested in fast growing market  · Market share It can be defined as ratio of all sales in a market that is detained by particular company. There are different ways how market share can be measured, but most important of them are Sales revenue and Sales volume. (tutor2u) (Lynch, p79, 2010) Degree of turbulence It is important to evaluate external conditions of organisation, specially dynamic of environment. In strategy environment will have high degree of turbulence it will be hard to apply analytical techniques. Environmental forces that influence organisation: * Changeability Degree of environment changeability that shows rate how external factors likely to change. Changeability splits further in such factors: o Complexity Degree of complexity of such factors as internationalisation, technological, social and political. o Novelty Degree of how often new situations influence environment. * Predictability Degree of how changeable environment is predictable. Predictability is subdivided in two categories: o Rate of change How fast environment changes. Usually rated from slow to fast. o Visibility of future Based on previous experience determine how predictable is future. Figure 5. Dynamics of environment. (Lynch, p81, 2010) After doing analysis of factors above will be possible see how stable will be strategy for particular environment. In predictable environment with low turbulence can be used prescriptive approach. In case of high turbulence better to use Emergent approach because of high rate of change where designed objectives can lose their value in short period of time. PESTEL analysis PESTEL is checklist type analysis that is widely used to analyse environment in different directions. Analysis rely on past experience and events that after listing can be used to forecast future or apply them on company improvement design. Factors that need to be discovered in PESTEL analysis:  · Political: o Government policy o Regulations  · Economical o World trends o GDP o Inflation o Unemployment o Energy costs  · Social o Changes in lifestyle o Demographic o Customer demand o Population o Culture  · Technological o Patents and products o Technology development o Speed and change of technologies o Innovations  · Environmental o Public opinion o Green issues o Recyclability o Renewable energy  · Legacy o Law o Health and Safety (Lynch, p82, 2010) Industry life cycle Entity of strategy will change as company move from one life cycle phase to another. In the Introduction phase, company try to attract interest in new product. As product became more recognizable and increase in demand than industry moves into next phase called Growth and with demand increase amount of competitors. Over time when market is saturated and most customers are satisfied with product life cycle proceed to Maturity phase where growth is slowed down. Few competitors may join in this phase, but hard to survive because of high competition. After Maturity phase cycle start to Decline. Whole process is shown in Figure 6. Figure 6. Stages of industry cycle. (Lynch, p87, 2010) Company have more opportunity to survive and gain more profit in life cycle early ages while entry barriers are low and there are only few competitors. But it is hard to determine the beginning of life cycle because if its unpredictable duration. (Lynch, p87, 2010) Key factors for success The Japanese strategist Kenichi Ohmae argue that for successful strategy organisation should define key factors for success that will help to define objectives more correctly. Key factors are resources such as skills, labour, experience or attributes that can bring competitive advantage to organisation. Key factors can be determined not only from internal advantages but also designed based on external environment. There are three factors need to be analysed:  · Customers What exactly customers want? Who are they? Are there any special segments? Why they buy from us? Need to be evaluated (Lynch, p95, 2010): o Price o Service o Product or service reliability o Quality o Technical specification o Branding  · Competition What factors help company to compete successfully? Who are our competitors? What factors influence competition? Need to be evaluated (Lynch, p95, 2010): o Cost comparison o Price comparison o Quality issues o Market dominance o Service o Distributors  · Corporation Companies technologies, organisational ability and marketing? Key resources of our competitors? Need to be evaluated (Lynch, p96, 2010): o Low-cost operations o Economies of scale o Labour costs o Production output levels o Quality operations o Innovative ability o Labour/Management relations o Technologies and copyright o Skills (Lynch, p94, 2010): Porters five forces One of the most important organisation analysis that need to be performed is evaluating environment forces that influence particular company. Such evaluation will help to gain better competitive advantage than rivals. Professor Michael Porter provide model (Figure 7) that helps evaluate forces that will help to understand organisation opportunities. Figure 7. Porters five forces model (Lynch, p95, 2010) The bargaining power of suppliers Every organisation require raw materials to produce product or service it mean that organisation depend from raw material suppliers. There are shown how suppliers can influence organisation: * If there are few suppliers it means that it is hard to switch to another supplier in case supplier is exert its power. * There are no substitute raw materials that supplier provide. * Organisation costs depend from suppliers price. If supplier increase price for provided material than costs will increase and organisation need decide: increase product price or not. Increased price can lead to lose of competitive advantage but if price stay the same that profit will be smaller. The bargaining power of buyers To make a profit organisation sell their products or service to customers. Every customer have need, wants and own opinion about particular product. Organisation should make customer power analysis to understand who have more influence over other. There are some issues: * There are only few buyers. Organisation have weak position and generally depend from customers and want to attract them as more as possible. In this case customers can easily influence organisation. * Product or service is undifferentiated. Customer can easily switch to product offered from other organisation. The threat of new entrants Entrance of new rivals is possible whet profit margins are attractive and entry barriers are low. Porter argue that there are seven factors that influence entry barriers: 1. Economies of scale Production cost are reducing when product volume significantly increased. These cost reductions provide entry barriers, because company entered in such market forced to keep small price to be competitive. 2. Product differentiation Brand, level of service, attracted customers provide entry barrier because by entering in such market will lead to spend extra funds and time to make new brand more recognizable and establish in the market. 3. Capital requirements Entrance in some markets require investment in technologies equipment, distribution etc. 4. Switching costs When customer is satisfied with provided service or product he is not thinking about other products and it is hard and require high investments to influence customers opinion. 5. Access to distribution channels Production need to be effectively distributed. It takes long time to establish own distribution channels and make it work profitably. 6. Cost disadvantages independent of scale Already established companies invested hardly in infrastructure and gained mayor buyers in the market. It becomes hard for new company to find what to start with, because infrastructure is already established and it is hard to involve changes. 7. Government policy Government tend to secure local companies and publish law that defend them. The threats of substitutes Substitutes is something that can replace a product or service usually provided for smaller price. Things that need to be analysed relative to substitutes: * Customer ability to switch to the substitute * The possible threat of obsolescence * What costs will provide switching to substitute Rivalry among existing firms Some markets and companies are more competitive than others. There are thing that need to be analysed (Model of competition): * Number of competitors * Size of competitors * Growth rate * Product differentiation (Lynch, p97-101, 2010): Four links analysis Most organisations links together to perform better with other companies help. Co-operation can lead such factors: * Reduce costs * Increase organisations sustainability * Open new market sectors The Co-operation usually divided in four subgroups that help more clearly define co-operation type and how it might be improved:  · Informal co-operative links and networks The organisation links and co-operates together on mutual basis without contract. The analysis need to be made to find out what opportunities will provide such link. Usually analysis contain from strengths and weaknesses. Need to pay attention by forming mutual contract because in case fraud it will be hard to prove that particular company is right.  · Formal co-operative links Formal co-operation is linked with legal contract. The difference from informal co-operation is in degree of formality. Such links usually form alliance or joint ventures that works together for many years to gain competitive advantage over rivals and take more market share.  · Complementors The Complementors are companies that supply products that add value to final product. Usually such co-operation is based on several companies that provide different skills and resources that work together on manufacturing of one product. Such organisations have interdependence between themselves.  · Government links and networks The organisations that have linkage with government. (Lynch, p102-105, 2010) Competitor analysis In most markets there are more than one competitor. It is hard to evaluate each of them and because usually it is done by taking few companies and making narrow evaluation. It will help to understand what advantages and disadvantages compare to organisation rivals have. Broad analysis of competitors and their power helps to find their forces. Basic analysis will consist from making competitor profile based on such issues:  · Objective An analysis of competitors objectives help to forecast its strategy. If competitor tend to gain market share then probably will start to implement aggressive strategy. If seeking profit growth than possibly competitor will invest hardly in new plant or improve technologies. Every objective can help to forecast rivals action. Companies annual statements can be useful in evaluating but need to be analysed wit attention because of factor of bluffing.  · Resources The type, size and amount of resources that provide competitive advantage to company need to be analysed.  · Past record of performance Can provide companys successful performance that can be adopted.  · Current products and services  · Links with other organisations Evaluate links, alliances and other types of co-operation than deliver competitive advantage.  · Present strategies Innovation, customers, investments, market share, product range etc. Evaluate how such things used for strategy purposes. Customer analysis Customer is crucial resource of company profit income. Any company will always be interested in as more as possible customer attraction. There are measurements that can be used in customer analysis: * Identification of the customer and market * Market segmentation and its strategic implications * The role of customers service and quality Previously market was based on Mass marketing theory where one product was sold to all customers. Nowadays is used Targeted marketing where company aims on particular market segment and provide product or service only for this segment. Market segmentation can deliver more opportunities to strategy: * Particular segments can be more profitable than others * Some segments can have less competitors that can provide competitive advantage * Some segments can have higher growing rate. (Lynch, p107-108, 2010) Analysis of resources and capabilities Analysis of resources and capabilities gives not only opportunity to look how resources provide competitive advantage but also help understand two important things: * How resources can provide higher profit and better service * Which resources provide competitive advantage and how they can they be improved all time. There are two way that goes interdependent: Value added and Sustainable competitive advantage (Figure 8). Path of resource analysis (Lynch, p119, 2010) Resources and Capabilities Resources and capabilities analysis aim is to recognize where is value added resources and explore what resources deliver competitive advantage to company. There are four questions need to be addressed to company with regard to resources and capability analysis (Lynch, p122, 2010): 1. What kind of resources and capabilities company own? 2. Why organisation have these resources? 3. Why they are important and what advantage they deliver to company? 4. How they can be improved? Figure 9 Sequence of resources and capabilities analysis (Lynch, p122, 2010) Analysis of resources and capabilities starts with full range analysis of resources. It is hard because of some resources are hard to measure. Resources and capabilities can be divided in three categories (Lynch, p123, 2010):  · Tangible resources Are physical resources that contribute to companies value added. These can be modern equipment, location, etc.  · Intangible resources Resources that have no physical presence. It can be companies recognisable brand name, culture, skills level etc.  · Organisational capabilities Such resources as management or leadership that manage tangible and intangible resources. Value added The role of resources in company is to add value and gain profit. The value adding process shown in Figure 10 and can be defined as the difference between product output price and the costs of input. Figure 10. Add Value process (Lynch, p130, 2010) The Value chain The value chain is a value of all activities that is linked with functional parts. Each part makes contribution in value add process. Company perform two types of activity that add value to product or service: Primary activities and support activities. Primary is activities that process itself. Support activities are performed by management and human resources. Porter designed companys value chain process that is shown in Figure 11. Where margin is difference between Total Value and Cost of performance Figure 11. The value chain (Lynch, p132, 2010) The primary activities add value to company by its own way and they are(Lynch, p132-133, 2010):  · Inbound logistics The areas that related to receiving raw materials and goods from suppliers, storing them till they will be required, moving and carrying within company.  · Operations The production area where products or services being produced.  · Outbound logistics The distribution of final product to customers. It is about transportation, warehousing, wrapping etc.  · Marketing and sales Analysis of customers needs and wants and deliver to customers information about what product or service company offer.  · Service It is about before product selling pre installation or after selling service. The support activities:  · Procurement The person or department that is responsible for purchasing raw materials or goods. The goods need to be purchased for as low as possible price and highest quality.  · Technology development The important are that need to be updated all the time.  · Human resource management Training, recruitment, management improvement, employees motivation is important for companies success.  · Firm infrastructure Background planning and control of system. The value system Every company have own value chain and at the same time belong to wide system that involve supply and distribution chain and customers chain. The competitive advantage can deliver suppliers that supply better goods to you rather than rival organisations. The value chain need to be evaluated and improved. Sources of competitive advantage (Lynch, p147, 2010): * Differentiation The development of exclusive feature or service that could appeal particular market. * Low costs Development of low cost product or service can attract more customers. * Niche marketing Concentration on particular market and distinguish and provide all necessary to appeal customers from this market. * High performance or technology Improved performance and customers needs satisfaction better than competitors will provide growth in the market share.  · Quality Provide quality that competitors not able to match. * Service Provide service that competitors not able to match. * Vertical integration The backward acquisition of raw material suppliers can increate competitive advantage. * Synergy The combination a parts of business that together could deliver better result success and profit than separate. * Culture leadership and style of an organisation The way how company is organised and managed. The good managed company will lead to employees satisfaction and improve their attitude to company. It will improve service, quality and deliver good environment for innovation. Resource based sustainable competitive advantage There are seven resource elements that can deliver sustainable competitive advantage:  · Prior or acquired resources Easier to create value on already available to company strengths rather than start from beginning.  · Innovative capability The innovation is important because it can deliver competitive advantage and improve entity.  · Being truly competitive Identify resources strength and opportunity is not enough because they need to be comparatively better than competitors as well.  · Sustainability Resources are more competitive if they dont have and cannot be substituted.  · Appropriability Resources must deliver success only to individual company, but not shared among others.  · Durability Good resources should last as long as possible. There is no reason to identify a competitive resources if they are not sustainable.  · Imitiability Resources should be hard to imitate. Defined resources need to be classified in hierarchy of resources (Figure 12) by their importance and delivered competitive advantage. Figure 12 Hierarchy of resources (Lynch, p151, 2010) Improving competitive advantage There are three methods how resources and capabilities can be improved (Lynch, p158-160, 2010): * Benchmarking Compare practice and experience with other companies and identify what improvements can be performed. The compared industry can be perform another kind of job, need to be copied only companies principles of operation. * Leveraging Exploit companies resources fully. That method can be subdivided in 5 prescriptive routes: 1. Concentration Focusing companys resources on the key objectives. 2. Conservation Exploit every resource or aspect available to company. 3. Accumulation Evaluate fully resources of company and use it where appropriate. 4. Complementarity Analyse resources with an aim to combine them. New combination can deliver competitive advantage. 5. Recovery Make sure that all resources generate produce as quickly as possible. * Upgrading resources The resource analysis can show that an organisation is losing its competitive advantage, so resources and technologies need to upgraded. Vision, Mission and objective of the company. Strategy purpose is explored by established mission and objectives of company. To identify mission and objective need to be evaluated why company exist and how value adding can be generated? Additionally need to be explored companys vision based on opportunities and how it can be evaluated. The purpose of the organisation The purposes of organisation need to be defined clearly otherwise it will be hard to establish proper strategy. To define purpose more clearly need to be considered six questions (Lynch, p221-226, 2010): 1. What is our activity and what should it be?  · Need to be considered the area of activity is it business or non-profit organisation?  · Evaluate what company is focused on should company concentrate on the purpose or it can be broad?  · Do company focuses on profit or diversifying? That issue can be defined broad or narrow.  · Usually strategists define purposes based on the competitive resources of company. 2. What kind of organisation do we wish to be?  · The company usually chose one of two areas: o Culture and style Organisations chose this area based on previous experience and developed history. o Challenges to be posed to members of the organisation. 3. What is relative importance of shareholders and stakeholders?  · Some companies purpose is to satisfy shareholders wealth. 4. Do we want to grow organisation?  · Is company growth is included in purpose or it should stay the same size? 5. What is our relationship with our immediate environment and with society in general?  · The purpose need to be considered with environment within which company perform. In immediate environment need to be assumed such factors as turbulence, competition etc. Society in general is about pressures that influence company. 6. How do we bring all these consideration together?  · The summary of purposes need to be stated in few sentences that will specifically describe. Vision for the future It is imagination of company that stakeholders, shareholders or owned would like to see it after a period of time. There are two views on the values that need to be explored to develop a strategy: * The irrelevance of strategic vision For approaching short-term goals strategic vision can be not performed. * The value of strategic vision Vision is a challenging and imaginative picture of the future role and objectives of an organisation, significantly going beyond its current environment and competitive position (Lynch, p227, 2010). There are a lot of reasons to develop a strategic vision and most important is that the vision is going far in future than organisation is and help to develop purposes how to get there. New vision can help to develop mission and objectives. The mission The mission of an organisation outlines the broad directions that it should and will follow and briefly summarises the reasoning and value that lie behind it (Lynch, p236, 2010). The mission need to be defined based on previously explored purposes. In prescriptive strategy mission is set to be realised in next few years. The role of mission is to develop direction which company will follow and try to realise. There are five elements of the mission statement that need to be explored and chosen appropriate: 1. Explore the nature of the company. In this case can be asked such questions as What business are company in? and What is desired business for company? 2. The mission should be developed from customers point of view rather than companys. 3. The mission should show the basic values and beliefs of the company. 4. The elements of sustainable competitive advantages need to be shown in the mission. 5. The mission need to show the particular reason for its choice to realise. The objectives Objectives are the aims that need to be realised to implement the mission. This process cover what and when is need to be done. In most cases objectives should be quantified and measurable, but sometimes such objectives as ethic, employee or customer satisfaction is hard to measure. Company should apply any measurements to hard measurable objectives with an aim to get a feedback how successfully they implemented. Usually companies set objectives in two areas: 1. Financial objectives Such as profit, cash flow, earnings per share etc. 2. Strategic objectives Such as customer satisfaction, market share, product quality etc. (Lynch, p242, 2010). Strategy options development When the purpose of company is defined need to develop a strategy options how to achieve it. After options development need to chose more suitable and that will bring advantage. SWOT analysis As a starting point of strategy options development can be summarising current position using SWOT analysis. SWOT is analysis that helps to find companys internal Strengths and Weaknesses, and external Op