The Forest Products Industry - Case Study Example

Case Study: Columbia Forest Products Columbia Forest Products (CFP) has emerged as the biggest producer of hardwood plywood and veneer in the forest products industry. This reflects the analysis of company positioning with the first section focusing on company mission, vision and stakeholders while the second section is on scenario and industry analysis followed by resources and capabilities and lastly, a section on business and corporate strategy. SECTION 1 MISSION, VISION, AND STAKEHOLDERS (20%) CFP identifies its mission in the company website as “Our ideas will be groundbreaking, and our stewardship will be forever mindful of the ground we live on” (CFP, n.d). Organizational vision relates to CFP quest to have value added to all the panels by having finished hardwood plywood and veneer. CFP offers state of the art hardwood plywood panels and interior hardwood veneers targeting customers in need of high-end cabinetry, architectural millwork, fine furniture and fixtures for commercial enterprises. While operating in the forest product industry, the company has identified the need for innovative approaches to meeting customer need while also focusing on meeting its sustainability objectives based on environmental friendly products (Tokarczyk and Hansen, 2006). Stakeholders in the organization in CFP include the employees who are also the owners of the organization. Existing employees bought CFP in 1976 gaining ownership from Columbia Plywood Corporation. Changes were in the ownership plan through introduction of Employee Stock Ownership Plan, which led to reorganization of the company leading to changing of name into CFP Inc (Reference for Business, n.d). Ownership by employees is an important step that ensures welfare of the workers remains an important concern of the company particularly when designing polices on worker remuneration and other important terms of service. Search for sustainability and meeting of various regulatory commitment means the United States Green Building Council (USGBC) is also a stakeholder in CFP. CFP is committed to working with USGBC to achieve organizational objective of producing environmental friendly products while also facilitating USGBC’s goal of ensuring accessible green building. The state and local government also plays a significant role that influences the operations of CFP with efforts directed at increasing the number of green buildings while also providing new ratings systems for products in the industry (Marshall, Anderson, Flax, Gambetta, Greene-Powell and Pullman, 2010). Forest Stewardship Council (FSC) is also a stakeholder in the operations of CFP based on the body’s role of offering certification related compliance with responsible forestry. Customers are the most important stakeholders that CFP seeks to satisfy through various company initiatives. Customers seek products that meet specific requirements related to quality and competitive prices. However, consumers have also demonstrated concern regarding the process of production to ensure companies meet their legal and ethical responsibilities (Lantos, 2010). Companies that adopt policies in these areas have a high chance of attracting more customers leading forging of customer loyalty. The community is also an important section of stakeholders influencing and affected by operations of CFP. Interests held by the community is based on the objective of ensuring companies undertake sustainable production that will ensure future generations also benefit from the existing resources. The role of the community in this case is because they face direct environmental outcome resulting from the activities of CFP. CFP ensures support of its operations in different regions where company harvesting is located by involving local communities in all stages of planning and management of various forest products for sustainable raw materials. Community power and interest is high as they have the voice to demand end production when they perceive organizational operations as being detrimental or causing harm to the environment and their survival. According to Hawken (2007), the power of communities has been enhanced by existence of multiple community-based organizations whose main role is to defend the social values and interests. SECTION 2 SCENARIOS AND INDUSTRY ANALYSIS (25%) Porter’s Five Forces Model provides an effective framework for conducting an analysis of forest products industry and understanding of power distribution among suppliers, manufacturers, contractors, retailers, and eventual consumers. The threat of entry into the forest product industry is low due to the significant amount of initial capital investment required to run a company. For new companies to be operational, they have to obtain forestry rights in addition to the purchase of important operational equipments. These requirements increase entry barriers for new firms. The industry is also mature meaning existing firms have already shared available market making it difficult for new firms to rival existing ones for the customers. The bargaining power of buyers in the forest products industry is high due to their need for specialized services that should also meet their price. Introduction of cheap products important from countries such as China means firms must meet the customer demands in order to increase sales. High bargaining power of buyers has also resulted in specialization of firms to ensure they provide products that meet specific demands of their customers. The bargaining power of suppliers varies depending on their ability to meet the need for green products. Suppliers of products that meet the set standards under Forest Stewardship Council (FSC) certification have a high bargaining power, as manufacturers prefer them to non-compliant suppliers. Additionally, suppliers offering FSC certified products are limited meaning companies are constrained in their quest to a hundred percent FSC certified products. Threat of substitutes exists in the industry although it is still low due to under development of the substitute industry. Continued improvement in technology in addition to the need to be environmental friendly has resulted in development of substitute products based on by-product from wheat, rye, rice, corn, and grass seed. Some customers prefer products made through the adoption of these by-products as they are marketed on the platform of being renewable. Competitive rivalry in the forest products industry is high as many firms produce products that are less differentiated from alternatives offered by competitors. Although threat of new entry is low, competitive rivalry is enhanced by the fact that the industry is mature with many existing manufacturers having established their markets. Additionally, competitive rivalry is high due to entrance of foreign-based firms whose cost of production is lower than manufacturers from North America. Blue ocean thinking: Strategy canvas CFP appears to be taking advantage of blue ocean strategy by introducing new concepts into the industry. High volume of sales for CFP has been driven by the company’s strategy of introducing innovative services to the industry. Introduction of formaldehyde-free panels into the market under the product name PureBond™ indicates CFP’s commitment to innovation (CFP, PureBond® Hardwood Plywood, n.d). This was an important blue ocean strategy as it led to creation of market that had not existed before. Blue ocean strategy requires companies to take invest in ideas that will lead to entrance into industries or markets that are not yet in existence and are therefore represent markets considered as unknown to other players in the industry (Kim and Mauborgne, 2005). CFP took this step through PureBond™, which was introduced before there were regulatory requirements for companies in the forest products industry to adopt strategies that support the use of formaldehyde-free products for interior designs. The decision taken by CFP Company represents a quest for value innovation by producing outputs that meet consumer needs for products that will not put their health a risk. In his case, CFP follows blue ocean strategy that calls for organizations to focus beyond competitors when designing their competitive strategies. Key Success Factors CFP’s key success factor is the company’s ability to produce high quality and innovative products that meet customer demands (Tokarczyk and Hansen, 2006). The company has always invested research that improves the quality of products while meeting the industry level demand for products to be environmentally friendly. Investment into development of new concepts and products such as PureBond has ensured CFP remains a head of competitors in attracting customers and driving sales. While other firms have cut production and chosen specialization to fight competition from foreign firms that have low production cost, CFP has focused on innovation as an important factor in ensuring the company gains competitive advantage. Introduction of high quality products have also been consistent with the company’s focus on offering affordable prices for the products therefore meeting customer demand for both quality and competitive prices. SECTION 3 RESOURCES AND CAPABILITIES (25%) Since its launch into the forest products industry, CFP has acquired a number of key resources and capabilities that drives the the company’s success in the competitive market. Several resources and capabilities including meeting the standards for FSC certification, introduction of PureBond brand and the organization being employee owned can be identified from CFP operations. An analysis of the resources and capabilities of CFP are presented below using the VRIO criteria Table 1 Valuable rare Inimitable opportunity Competitive impact Performance implications Relationships with buyers yes yes no no Parity Industry average Use of FSC-certified material yes yes yes yes Temporary Over industry average Leadership Yes Yes Yes Yes Sustainable Over industry average PureBond©™ innovation Yes Yes No No Parity Over industry average Employee- Ownership of CFP Yes Yes Yes Yes Sustainable Over industry average Manufacturing Yes Yes No No Sustainable Industry average R&D Yes Yes No No Parity Over industry average Like other companies in the industry, CFP has faced stiff competition from companies operating from China and other emerging countries where production cost is still low leading to significant loss of market. Historically, products from North America and Europe had dominated the forest product industry with manufacturers from countries such as USA, Canada and Germany having large shares of the international market. This has changed over the years as a combination of factors including globalization and financial crisis making it possible for emerging economies to take advantage of their capabilities to produce products with low cost (Laaksonen-Craig and Toppien, 2008). This business environment requires the company to invest in resources and capabilities that can translate into value creation that will keep the CFP ahead of competition. The analysis of CFP recourses and capabilities based on Table 1 provides important information about the performance of the company. The adoption of innovative and sustainability initiatives by CFP has been an important area of competitive advantage for the firm. However, the success attained by initiatives such like PureBond and production of products that comply with standards provided under FSC certification will only be temporary. These initiatives have room for competitions to imitate, which will result in flooding of such products in the market. Therefore, future sustainability of CFP as a market leader in the industry will depend in continued investment in R&D and production of innovative products and concepts not accessible or those that competitors do not have the necessary capability to produce. SECTION 4 BUSINESS AND CORPORATE STRATEGIES (25%) CFP has employed different business and corporate strategies since launching business in the forest product industry in 1957. Analysis of corporate level growth strategy reveals the company’s preference for horizontal integration although the company has also expanded due to internal restructuring. Internal restructuring of ownership resulted in change of ownership with employees taking full ownership through introduction of Employee Stock Ownership Plan Through horizontal integration, CFP has a number of firms that has resulted in expansion of production capacity while strategizing in markets considered profitable for the company. Horizontal integration has made it possible for CFP to maintain production of hardwood plywood and hardwood veneers and panels. Therefore, the resultant growth has not disrupted the operations of the company as it maintains manufacturing facilities that have almost similar functioning. Maintaining of standards across the manufacturing facilities is also easy considering the ease of applying deferent technologies in the entire CFP system. Given CFP’s corporate-level strategy involving horizontal integration, the company has focused in increasing production in order to reach status as the highest producer of hardwood plywood in North America (Champs Analytics n.d). The Ansoff matrix analysis indicates the company has greatly focused on market penetration when dealing with existing markets. After the company became fully owned by workers, business and corporate strategy focused on increasing the market share controlled by CFP. Internal growth and acquisition of smaller firms operating in the industry has resulted in the company increasing production while also retaining its brand names. This strategy has significant impact on the growth strategy as customers continue purchasing the products under brand names of CFP products, which is necessary when the company seeks to maintain customer loyalty. References CFP, n.d. About Columbia Forest Products. [Online] Available at: http://www.columbiaforestproducts.com/us/the-columbia-story/ [accessed 21 Dec. 2014] CFP, PureBond® Hardwood Plywood, n.d. [Online] Available at: http://www.columbiaforestproducts.com/product/purebond-classic-core/ [accessed 21 Dec. 2014] Champs Analytics, n.d. Leading Manufacturer of Wood Products Slices Data Accurately. [Online] Available at: http://www.champsanalytics.com/images/successes/Columbia_Forest_Products_Success_Story.pdf [accessed 21 Dec. 2014] Hawken, P., 2007. Blessed unrest: how the largest movement in the world came into being and why no one saw it coming. Toronto: Viking Canada. Kim, W. C., & Mauborgne, R., 2005. Blue ocean strategy: How to create uncontested market space and make competition irrelevant. Boston, Massachusetts: Harvard Business Press. Laaksonen-Craig, S. & Toppien, A., 2007. Profit persistence in globalizing forest industry companies. Internation Forest Review 10(4), 608-618. Lantos, G. P., 2010. Consumer Behavior in Action. Armonk, NY: M.E. Sharpe. Marshall, S., Anderson, Z., Flax, M., Gambetta, D., Greene-Powell, J. & Pullman, M., 2010. Sustainability amidst Uncertainty: Columbia Forest Products’ Pursuit of Sustainability in a Changing Market. [pdf] Portland State University. Reference for Business, n.d. Columbia Forest Products Inc. - Company Profile, Information, Business Description, History, Background Information on Columbia Forest Products Inc. [Online] Available at: http://www.referenceforbusiness.com/history2/23/Columbia-Forest-Products-Inc.html [accessed 21 Dec. 2014] Tokarczyk, J. & Hansen, E., 2006. Creating Intangible Competitive Advantages in the Forest Products Industry. Forest Products Journal, 56 (7/8), 1-13. Read More