How to Gain Business Success - Case Study Example

"What makes some firms consistently more successful than others" Success is a journey and not a destination. Therefore, be it a company or an individual, one has to be meticulous in planning and execution of the plan. However, apart from planning some internal as well as external factors also affect a particular firm's success. Each and every company needs to identify their key competitive advantage in order to survive in the industry. The primary goal of each company is customer satisfaction, as unless the customers are satisfied with the product, no company can achieve their targeted goals. In order to satisfy customers, products should be competitively priced and should have the desired quality. This is the only was a firm can build up long term relationships with the customers. The goal of conducting the internal analysis is to find the answer to the question that why the economic performance of some companies are better than the others in the competition. Internal analysis of a particular firm analyzes and lists out the relative weaknesses and strengths of a company as compared to its competitors. By conducting Internal Analysis, the strengths as well as the weaknesses of the firm can be analysed. This helps to compare the strengths and weaknesses with that of other firms, too. Internal analysis also helps determine the resources along with the capabilities required that may help sustain the company in the competitive market. According to Porter's Internal Value Chain, the primary activities required for the internal analysis are production, inbound logistics, sales and marketing, warehousing and distribution along with the dealer support and customer service. The support activities required are infrastructure, procurement, human resource management and research and development technology. (Barney and Hesterly, n.d., A) Human resource is one of the key factors that influence a firm's success in the competitive market. Quality manpower is the key factor behind the success and failure of any company, as it the human resource that directly contributes to the production. Even if the products are manufactured by machines, it is the manpower, that is, the human beings who are responsible for the smooth functioning of the machinery and its systematic maintenance. If a particular firm has rare and valuable resources that are difficult to be replicated by competitors, then the firm is at an inherent advantageous position. However, the firm should strategies in place to leverage these strengths to generate competitive advantages. A business organization also needs to pay due attention to the intangible assets along with the tangible ones like brand equity, Intellectual Property and the knowledgebase residing within the employees of the company. This is highly beneficial while implementing and conceiving the strategies. If a company's co-operative relationships are better, then quite naturally that firm is at an advantageous position. (Barney and Hesterly, n.d., A) However to maintain a smooth and uninterrupted supply of human resource, companies need to make sure that the employees in general are happy and the labourers in particular. It is seen from the past records that industries were there is a high tendency of labourers forming unions; the net profitability is comparatively much less, as in steel, airlines and automobiles. Companies irrespective of their size and domain of operation should strive to keep the tendency of forming labour unions at the lowest best to yield maximum profit. Fig. 1 shows how the percentage of profitability decreases with an increase in the percentage of employees unionized. Fig. 1: The Impact of Unionisation on Profitability (Source: Robert M. Grant, 1998) Another important factor responsible for a company's success is the marketing skill. It might happen that the products offered by a firm are of superior quality and is also offered at competitive prices, but the customers might be unaware of the particular product. So, it is very much necessary to know the art of selling it in the market; in other words, a proper marketing strategy can help the products to reach the targeted customers. Characteristics of a particular organisation play an important role in determining its success the market. It comprises of age, size, culture, the availability of resources along with the pattern of interaction among the employees. (Factors Affecting Managerial Discretion, n.d.) The VRIO framework is also essential in computing the factors behind a company's success. VRIO is the acronym for Value, Rarity, Imitability and Organisation. If a resource is not valuable enough, it is unable to exploit the external opportunities as well as unable to neutralise the external threats, if any. Any resource should be able to increase the revenues and decrease the costs. Understandably, an organization is in a better position, if its resources offer a combination of the two. A resource also needs to be rare enough to be the USP of a firm. The resource might be available in the market, but at the same time it should be scarce so that there is competition for it. If the imitation cost of a particular product is high, then the firm producing it might enjoy a sustained competitive advantage over a period of time as the cost of imitation by other companies will be higher than the benefit of it. The control mechanisms must be aligned with the structure of the firm so as to offer the incentive and the ability to the people in order to exploit the resources of the firm completely. (Barney and Hesterly, n.d., B) Managers are also an important organisational resource as they use their discretion while making strategic decisions and implementing the approved strategies. Managers need to be tolerant for any ambiguity and they should be committed to the firm as well as its strategic outcomes. The managers of a successful firm are confident enough to take the right decisions at the right time; they are excellent in interpersonal skills and they aspire to reach their set targets for the company which in turn helps in the company's growth. The external factors as well as the particular characteristics of the company affect the discretion power of the managers, as these factors are not universal and they differ from one firm to the other. (Factors Affecting Managerial Discretion, n.d.) The external factors or the external environment play an important role in determining the position of a business organisation in the market. The structure and composition of the target market, along with the rate of its growth are among the most important factors. When a given firm is producing a product, it should consider the number and the type of competitors it would have to compete with. So, the degree to which the products can be differentiated is also a prime external factor. Political and legal constraints also determine a firm's profit, as the firm should take into consideration the legal and political factors that can affect the profit maximisation. (Factors Affecting Managerial Discretion, n.d.) In other words a particular business or a company is integrated into layers of competitors, and the markets, the industry or the sector, where it is functioning and finally the macro environment, which has a great influence on the success or failure of the particular company. (Layers of the business environment, n.d.) PESTEL analysis, which is the acronym for Political, Economic, Socio-cultural, Technological, Environmental and Legal factors, is one of the most important tools that help a manager analyze the external factors. Political Factors: A number of factors come under it, like the taxation policy, the stability of the government under which the organisation is functioning, social welfare policies and how foreign trade is regulated. Economic Factors: These factors comprise of interest rates, business cycles, money supply, disposable income, inflation rates and unemployment. Along with this, Gross National Product or the GNP is also an important, though indirect, factor that determines the success rate of a company. Technological Factors: The amount of money that the government is spending on the research and how much industry and government is focusing on the technological effort is a prime factor to consider. Every company should strive for new developments and discoveries in order to sustain itself in the competition; as it is relatively easier to market a new product with some new features. The speed of technology transfer is also an important factor. The rates by which the products become obsolete affect the success of an organisation. A product might be excellent and relatively cheaper in the competition but if it obsolete, it would fail to generate the expected profit from the market. Legal Factors: A particular company while expecting profit from a set of products needs to consider the legal factors as well. The employment laws and the competition laws are the most important ones along with product safety and, health and safety measures. (Pergamon Flexible Learning, 2005) The rise in consumerism has also changed the expectation and attitude of the consumers. Along with the price and quality of the product, other factors like after sales service also affect the success of a product, that in turn affects the profit or the success of the company. (Der-Fa Robert Chen, Shu-Yin Wang and Shiuh-Tarang Cheng, n.d.) Socio-cultural Factors: Income distribution, population demographics, social mobility, attitudes to work and leisure and levels of education are key socio-cultural factors that affect the profits of a firm. Along with this, consumerism and lifestyle changes are also taken into consideration while discussing about the external factors. With the change in lifestyle products used by the consumers also changes. These shifts may make present star brands obsolete, or may open up entirely new markets. Businesses also need to have strong insights, as it helps create the marketing strategy to sell the product to the targeted customers. Environmental Factors: Some environmental factors also play an important role in determining the profit or loss of a company in selling its products. Waster disposal mechanism is a growing concern nowadays as environmental pollution is increasing an alarming rate in the present time. The companies should abide by the environment protection laws to be allowed to function. The amount of energy consumed directly affects the bottom-line of a company. High consumption may lead to increased costs, possible breaching of environmental laws and enormous negative carbon credits. (Pergamon Flexible Learning, 2005) Industry Analysis: Industry Analysis is really important as it facilitates a firm's understanding of its position in relation to the companies that produce similar product or products or offer similar service/services. It also helps identify the potential threats as well as opportunities that the business might experience in the near future. It comprises of three major elements; the overall attractiveness of the industry, the underlying forces and the critical factors that affect the success of the company within the particular industry. (Porter M.E., 1980) Fig. 2: Porter's Five Forces of Competition Framework (Source: Robert M. Grant, 1998, A) It can better be understood from Porter's five forces of competitive network, as depicted in the figure above. A firm needs to consider the threats from the potential entrants and the substitutes and the bargaining power of the buyers and the suppliers, in order to sustain itself in the competitive market. Threat of New Entrants: Entry barriers, or lack of them, are one of the most important factors that determine the competitive advantage of a firm. Rivalry Among the Existing Firms: Rate of the growth of the industry along with the number of competitors are important factors for industry analysis. Along with this, intense rivalry is also related to the amount of fixed costs, service characteristics, capacity of the firm, height of the exit barriers and also how diversified the rival companies are. Threat of Substitute Products and Services: Some products appear to be different to the consumers but it might serve the same purpose. In this way, they are able to satisfy the need of the consumers. So if a company manufactures these kinds of products then it has to face severe competition from other companies that offer relatively low cost substitutes. Bargaining Power of Buyers and Suppliers: As buyer purchases a noticeable amount of the products, they become powerful and bargain a lot when some other suppliers offer the same products at relatively cheap prices or if the products are in plenty. In comparison, supplier becomes powerful when the supplier industry dominates when few companies offer same product; in this way the suppliers outnumber the buyers. The supplier also enjoys the advantage of the uniqueness of the product or the switching cost of the product. (Management Extra, 2005) Fig. 3: The Profitability of US Indutries, 1999 -2005. (Source: Robert M. Grant, 1998 B) There are some US companies that have sustained in the respective industries, in spite of the internal as well as the external threats. The name that comes to mind, while talking of households and personal products, are Procter and Gamble, Colgate-Palmolive and Kimberley-Clerk. The pharmaceutical industry is dominated by Johnson and Johnson, Pfizer and Merck. The name of Anheuser-Busch and Coca-Cola readily comes into mind when someone thinks of the beverage industry. Apparel, another important industry that probably has the highest number of consumers, is dominated by Nike, Jones Apparel and VF. Oracle, Microsoft and CA have crossed the barriers of the Computer Software industry and have become a household name. Walt Disney, Time Warner and News Corp. have been successful over the years in the entertainment industry. The above chart displays the name of the companies that have consistently proved their success with respect to other companies in the competitive market, and have been able to sustain itself and grow over the years. Though there are a number of factors that can be considered while deciding a firm's success over others, there is no such sure shot formula that the firms can employ in order to sustain itself in the competitive market. The firms need to decide their own success formula, depending on their internal and external resources, and plan their action accordingly. The role of the managers is of utmost importance, because they are the persons, who analyse the resources and plan the course of action, in order to eradicate the negative forces and to implement the positive forces, successfully; which in turn, can lead to the success and growth of a particular firm, in the competitive industry. List of References: 1. Barney and Hesterly, (no date A), Chapter 3, Evaluating a Firm's Internal Capabilities, Strategic Management and Competitive Advantage - Concepts and Cases, retrieved on January 30, 2009 from 2. Barney and Hesterly, (no date B), The VRIO Framework, Chapter 3, Evaluating a Firm's Internal Capabilities, Strategic Management and Competitive Advantage - Concepts and Cases, retrieved on January 30, 2009 from 3. Der-Fa Robert Chen, Shu-Yin Wang and Shiuh-Tarang Cheng, (no date), The Success Factors for Direct Selling Business, Department of Business Management - National Sun Yat-Sen University, retrieved on January 30, 2009 from 4. Factors Affecting Managerial Discretion, (no date), Part 3 - Strategic Actions: Strategy Implementation, Chapter 12 - Strategic Leadership, retrieved on January 30, 2009 from 5. Layers of the business environment, (no date), The External Environment, retrieved on January 30, 2009 from 6. Management Extra, (2005), Pergamon Flexible Learning, Inc NetLibrary, Elearn Limited (Great Britain), Published by Elsevier, 2005. ISBN - 075066679X, 9780750666794, retrieved on January 30, 2009. 7. Robert M. Grant, (1998 A), Contemporary Strategy Analysis: Concepts, Techniques, Applications, Figure 3.3: Porter's five forces of competition framework, Publisher: Blackwell Pub, Williston, Vermont, ISBN - 13:9780631207801, 0631207805, retrieved on January 30, 2009. 8. Robert M. Grant, (1998 B), Contemporary Strategy Analysis: Concepts, Techniques, Applications, Table 3.1: The Profitability of US Industries - 1999-2005, Publisher: Blackwell Pub, Williston, Vermont, ISBN - 13:9780631207801, 0631207805, retrieved on January 30, 2009. 9. Porter M.E., (1980), Competitive Strategy: Techniques for Analyzing Industries and Competitors, Published by Free Press, 1980, Original from the University of Michigan, Digitized 23 Aug 2007ISBN 0029253608, 9780029253601, retrieved on January 30, 2009. Read More