Strategic Management and Leadership - Jaguar Land Rover - Case Study Example

Strategic management and leadership: Jaguar Land Rover BY YOU YOUR SCHOOL INFO HERE HERE TABLE OF CONTENTS 0 Introduction 2.0 Reasons underpinning lack of success 3.0 Justification for JLR’s lack of success 3.1 Value Chain Analysis 3.2 VRIN Framework 4.0 Evaluation of leadership 5.0 Recommendations for Jaguar Land Rover Success References 1.0 Introduction Jaguar Land Rover (JLR) is a subsidiary company of Tata Motors. Between the years 2012 and 2013, JLR sold over 310,000 Land Rovers and 58,600 Jaguar vehicles; much lower sales volume than other global automakers. In recent years, JLR has struggled significantly to build a brand that is highly demanded by consumer segments and has been financially burdensome to Ford Motor Company which was JLR’s historical parent company. Jaguar Land Rover’s most profitable markets, China and India, have contributed the most substantial revenues for the firm whilst the company struggles in other markets such as the United States and Canada, two nations that are highly saturated with competitive automakers and where the switching costs to consumers are quite low as a result of the high volume of competitors in these markets. In 2013, the company sustained revenues of £15.8 billion (Jaguar Land Rover 2013). This moderate increase in revenues is a product of brand repositioning in multiple markets. However, the firm’s net income in 2013 was only £1.2 billion (Jaguar Land Rover 2013). This represents a significant amount of high operating expenses which substantially depletes the firm’s total profitability. Based on an analysis of finances, operational strategy and leadership, Jaguar Land Rover should not be considered a success as a multi-national enterprise. 2.0 Reasons underpinning lack of success Innovation production, effective marketing, and research and development are the most fundamental aspects of operational strategy that will determine whether Jaguar Land Rover is a competitive success. In China, the company competes against a high volume of competitive automakers, including Dongfeng Motor Group, First Automobile Works, China Changan Automobile Group and SAIC Motor Group which are the country’s most profitable organisations. This is not inclusive of automakers that have foreign direct investment and exporting strategies. In North America, the company competes against such large names as Ford Motor Company, Chrysler, Honda, Toyota and General Motors. Why is operating in saturated markets so critical to understanding why Jaguar Land Rover has not established competitive successes? One can look at Ford Motor Company as one relevant example. In 2012, Ford was able to sustain revenues from all of its international operations of $134 billion USD (Ford Motor Company 2013). Ford has learned that its most effective marketing strategy is to first position the company in relation to its quality focus, emphasising product as the most viable aspect of the marketing mix. Ford has, through its long history, become proficient in using creative integrated marketing communications as a means of giving consumers the impression that the company maintains quality superiority over that of its main competitors. Ford is creating cars that both critics and consumers are frenzied about (Ritson 2010, p.2). Ford has developed a considerable amount of brand loyalty as a result of marketing and positioning whilst also understanding consumer behaviour patterns. Ford has established consumer demand through the Halo Effect phenomenon, a cognitive bias whereby consumer perceptions of a product or brand builds a preference for the perceived character of the marketing agent (Schiffman and Kanuk 2010). By consistently reiterating that the firm maintains a dedication to reliability and product quality, consumers build a loyalty to the company that is quite difficult for competitors to deconstruct (Boone and Kurtz 2007). Marketing, as part of operational strategy, therefore, has made Ford the second largest automaker in the world in terms of revenues. It is because Ford understands that consumer values endure over time (Tam 2004) and once the firm builds loyalty through branding strategy, they sustain a competitive edge over an elongated period of time. Ford has invested a whopping $3.9 billion on the advertising function in the year 2010 (Laya 2011), which illustrates how marketing underpins this company’s success. General Motors, in similar accord, as the number one automaker in the world, spent $4.2 billion on advertising which illustrates the commitment of multi-national automakers on using effective marketing to achieve competitive success and gain market interest and demand. Jaguar Land Rover, however, spent only $21.6 million on advertising in 2009 (Levere 2012). JLR, being a premium brand, instead relies on its reputation for providing luxury-centric products and has chosen not to invest considerable financial resources in the marketing function. As a result, building a competitive brand identity and reputation is significantly lacking in the international competitive markets, which explains its considerably lower revenues achieved in comparison to some of the world’s largest automakers that strongly recognise the importance of the marketing function in operations to achieve revenues and consumer loyalty. Additionally, Jaguar Land Rover is considerably less adept in research and development and innovation production as compared to other manufacturers. It was not until 2012 that Jaguar Land Rover established its first research and development facility that would be devoted to design improvements and model changes (Indian Express 2012). This was established through a joint venture agreement with the Chinese automaker Chery in an effort to improve its reputation for innovation production. Other automakers, including Ford, General Motors, and Toyota (to name only a few competitors) have invested substantial financial capital into the innovation and research processes, constantly changing body and interior design, improving engine capacity and efficiency, and even in hybrid product production that involves electric systems with less reliance on petroleum (Muller 2013). General Motors maintains R&D capacity that is inclusive of six different laboratories, six science offices, and alliances and other partnerships with universities, government and supplier networks devoted to recurring and efficient innovation production. Jaguar Land Rover waiting until the brand was eroding and after the business had caused credit problems for Tata Motors before attempting to become an innovative organisation. Hence, the company is not successful as compared to international automaker competition for its lack of expenditures and emphasis on building a proficient research and development system. 3.0 Justification for JLR’s poor success As a means of further justifying poor success for JLR, this section utilises a value chain analysis (Porter 1985), as a model to describe the different categories of inter-connected activities within the organisation. This section also utilises the VRIN framework which describes how a firm achieves competitive advantages with a variety of different intangible or tangible resources that are available to a firm (Crook, Ketchen, Combs and Todd 2008; Rumelt 1984). 3.1 Value Chain Analysis The Value Chain Model illustrates a set of inter-dependent activities that assist in understanding a firm’s strategic position. Activities are inclusive of two categories, which are primary activities and support activities. Primary activities deal with the tangible creation and delivery of a product. Support activities, though not involved directly with the production process, increase organisational competency and proficiency when these activities merge with a variety of primary activities. Figure 1: The Value Chain Model Source: Porter (1985). The company’s main assembly plants are in the United Kingdom, consisting of three plants in Castle Vale, Halewood and Solihull. The company also sustains another assembly plant in Pune, India. Ten different product models are produced in these assembly sites. At year’s end 2011, Jaguar maintained a distribution network that was inclusive of the United Kingdom, Europe, Russia, North America, India and China (Jaguar Land Rover 2012). Only 20.9 percent of sales stemmed from North America and only 4.9 percent in Russia (Jaguar Land Rover 2012). The United States market consists of a GDP of $17.4 trillion USD in which there are 156 million consumers actively employed with a median household income level of $50,502 in 2011 (Noss 2012). Hence, there are ample opportunities for JLR and other competitors to attain high sales volumes if they can create demand and build a positive brand perception. Canada also maintains a substantial GDP and consumer median household income level. However, the company has only been able to achieve a modest 20.9 percent of sales in these markets. The United States imposes a 25 percent tariff on all imported sport utility vehicles produced in foreign countries (Levin 1989). Hence, the logistics strategy of the company contributes to its lack of success and contributes to such a high disparity between revenues and total net income. The company has been unable to successfully determine which markets would be most viable for revenue growth and must pay substantial tariffs in North America where the company maintains limited brand loyalty and where the government and domestic automakers want to protect their own interests. Hence, marketing and logistics strategy as two primary activities are inefficient and are not aligned with proper strategic development. The company distributes its vehicles into Russia where tariffs are also imposed, however the company has only achieved 4.9 percent of sales in this modest market. Costs of logisitics along the value chain are not conducive to the sales volumes achieved and this provides evidence that Jaguar Land Rover should be seeking more lucrative markets for distribution where sales are proportionate to the costs of logistics. In terms of operations, the average salary for assembly workers in production is £27,700 (Average Salary Survey 2014). Jaguar Land Rover has established the majority of its production facilities in this country, hence giving the company cost disadvantages in terms of labour. If Jaguar Land Rover had considered the economic advantages of utilising more foreign labour by investing in foreign direct investment for production in countries such as China, India or other developing nations, the company could significantly reduce its labour expenditures that erode its revenues achieved. The currency exchange rate between the United Kingdom and countries such as India and China are favourable for this type of production investment. Operationally, Jaguar Land Rover is not successful for not taking advantage of the many different employment opportunities utilising substantially less-expensive foreign labourers. Competitors such as Ford and General Motors (as only two examples) have found these cost advantages by moving production into developing nations such as Mexico and Brazil. In terms of service in the value chain, Jaguar Land Rover is insufficient for capturing the attention and interest of higher resource consumers. A competitor, BMW, established its build it, dream it campaign which consists of a blend of e-commerce and consumer co-production. High resource consumers were invited to visit a company website and essentially build their own customised BMW models, including various features, colours and other benefits. Customers who ordered vehicles using Internet technology were also allowed to view the production process of their vehicles using cameras linked to the World Wide Web. Innovative campaigns such as this being promoted by competitors give competition a positive brand identity as it relates to service excellence and competency. Jaguar Land Rover maintains no such service orientation which does not focus effectively on building relationships with consumers through co-production systems. With limited presence, additionally, on social media to better engage consumers and improve service presence, JLR is hard-pressed to compete effectively with companies that have more emphasis on quality of service delivery. Though not all factors of the Value Chain model are relevant for justifying the lack of success at Jaguar Land Rover, the company’s poor focus on operational strategy, marketing, service and logistics illustrate how the company is unable to maintain a potent competitive advantage. More shrewd competitors understand the benefits of exiting a market when it underperforms, especially when high tariff rates for exportation erode profitability. 3.2 VRIN Framework Another method for analysis of the strategic competencies of a firm using the VRIN framework introduced by Barney (1991) and the model’s four key features, inclusive of rarity, value, inimitability and non-substitutables. In terms of value, to maintain advantages, a company must be able to outperform competition or find a methodology to reduce its weaknesses (Amit and Schoemaker 1993; Conner 1991). Theory states that transaction costs that are directly associated with the financial or labour-related investment in the resource should not be higher than the rents that stem from a firm’s value-creating ideology. Jaguar Land Rover is not successful as it is unable to create this value. The firm fails to provide adequate innovations as compared to other automaker competitors that devote considerable investment and capital into new product design and benefits. Jaguar only maintains a limited variety of models available to consumers and fails to effectively promote these models as aligned with consumer behaviour patterns. In relation to rarity, Jaguar maintains no advantages. All global automakers have well-developed international supply chains that provide cost advantages in procurement of raw materials and other parts needed for production. Jaguar does not have access to any supply chain-related goods or alliances that are distinguishable or advantageous over that of competition in the international marketplace. Furthermore, management competency is not distinguishable or more rare than competitors and main international competition has well-developed executive teams well-versed in marketing, business development and operations. Research did not uncover any rare resources available at the disposal of the company that would provide any substantial competitive advantages, hence contributing to the justification for why Jaguar Land Rover is not successful. In relation to inimitability, Jaguar Land Rover does not maintain control over any particular resource that would give it competitive advantage. The company does not maintain any proprietary knowledge that is non-replicable by competition or sustain dominance that would provide the firm with higher benefits over competition. Finally, in terms of non-substitutability, competitors are able to outperform JLR’s value-creating strategy by providing substitutes. For example, Ford and General Motors produce high-cost luxury vehicles with many of the same features and benefits (and design) as Jaguar Land Rover. These companies have diversified their production systems and research and development in a fashion that makes them able to cater to multiple markets, both luxury-oriented and those with moderate resource availability. Jaguar does not maintain a finished product that cannot be replicated by main competitors, hence contributing to their lack of competitive success. 4.0 Evaluation of leadership Jaguar Land Rover’s values are inclusive of understanding, integrity, unity, responsibility and excellence (Jaguar 2014). Unfortunately, the company does not publicise its internal activities related to human resources or leadership as this could erode the company’s advantages (if available). However, it was noticeable through research that the company maintains a non-ethnically diverse Board of Directors. Why is this important? Research indicates that when Boards consist of ethnically diverse individuals, it produces better strategies and problem-solving (Watson, Kumar and Michaelsen 1993; Bantel 1993). Having ethnic diversity at the senior management levels of the organisation creates a greater knowledge pool and the ability to build more creative strategic solutions. This illustrates that by having all Caucasian Board members, the company limits its creativity and ability to develop more innovative strategic solutions that are necessary for guiding a business effectively. This also contributes to the lack of success of Jaguar Land Rover by not having emphasis on ethnic diversity in top management levels. This might, theoretically, be an influence in why the company is engaging in unproductive distribution strategy, market entry, and poor marketing focus. The company also does not maintain a non-replicable human resources strategy that is designed to build human capital advantages. The company invested a moderate £20 million in employee learning and development between the years 2012 and 2013 (Jaguar Land Rover 2014). The company considers that technical accreditation improves the competencies and knowledge of its employees (Jaguar Land Rover 2014), however this not a unique and valuable commodity over that of competition. Many companies in this industry invest considerable capital into training, human resources and employee development. The company, however, is unable to illustrate the achieved benefits of these modest investments in the leadership function which does not justify the expenditures or the volume of awards that the company has mentioned achieving in areas of diversity emphasis, equal opportunities, and leadership. Hence, there is no evidence that leadership has provided the firm with competitive advantages or improved human capital positions over that of main international competitors. This points toward further underperformance of the company despite its acknowledgement of being focused on leadership as a corporate strategy. 5.0 Recommendations for Jaguar Land Rover success As illustrated by the research, the most fundamental failures at Jaguar Land Rover are ineffective marketing and inappropriate expenditure in advertising. Main competitors invest considerable capital into the marketing function which creates positive brand perceptions with consumers. Marketing theory states that when a brand is able to give consumers a perception of self-expansion, they develop strong attachments to the brand (Zhang and Chen 2009). BMW accomplishes this with consumer co-production in the service function, Ford accomplishes this by linking quality with consumer lifestyle, and General Motors builds marketing-related advantages by using the consumer social condition as a tool to personify its vehicles in the advertising function. Figure 2 illustrates competent marketing by a competitor. Figure 2: Ford advertising for creating consumer perceptions of self-expansion Source: Rapoza, K. (2013). Ford India apologises for advertisements it never ran, Forbes Magazine. [online] Available at: http://www.forbes.com/sites/kenrapoza/2013/03/25/ford-india-apologizes-for-advertisements-it-never-ran/ Jaguar Land Rover has not built a positive brand identity that caters to the lifestyle or socio-psychological needs of its consumers. Coupled with poor service ideology and structure, the business is unable to maintain any recognisable or important competitive advantages. As illustrated by Figure 2, Ford is adept in marketing its diverse products aligned with not only quality, but through social-related engagement that builds strong brand attachments and loyalties. It is therefore recommended that Jaguar Land Rover either consult with a marketing agency that is knowledgeable and experienced in providing creative content or establish a joint venture for advertising to build internal competencies in the marketing function. The company is simply not adept in the advertising function and does not appear to believe that a higher expenditure in advertising and other marketing activities will bring sufficient profit results. However, theory of marketing and the history of Ford’s brand loyalty illustrate that Jaguar Land Rover is ill-equipped in effective promotion and brand positioning. Furthermore, it is recommended that the company consider diversifying its Board of Directors after the existing Board’s terms are completed. Jaguar not only must work with diverse employees with various ethnic backgrounds, but also operate and create business-to-business relationships with ethnically diverse suppliers, customers and partners. Based on the literature on ethnic diversity and its proposed benefits to strategic development, Jaguar Land Rover could possibly become more innovative and creative in problem-solving that better positions the company competitively. This would likely improve its human resources focus and provide measurable benefits in HR that would illustrate a better organisational culture and human development focus. A final recommendation, based on the research, is for Jaguar Land Rover to begin researching markets that would be more viable and cost-effective for entry and distribution of product. Clearly, in a market like the United States and Canada with very high consumer incomes and GDP level, the business should be capturing higher sales volumes, especially as a premium product producer. In Russia, with a meagre 4.9 percent of sales stemming from this market, market exit should be considered. The company maintains opportunities for foreign direct investment in countries such as Brazil which now have a thriving middle class, quality infrastructure for distribution of products, and a healthy corporate environment. In North America, with tariff rates reaching 25 percent (as in the United States), it might be more viable for the company to create new manufacturing facilities in foreign countries and then utilise the advantages of labour costs and distribution (supported by favourable currency exchange rates) in order to build a positive brand in these countries. It does not make rational sense to remain in markets that impose high tariffs on product exports and are not contributing to sales volumes conducive to strategic expectations. The company should immediately begin making environmental analyses for potential market entry strategies and consider exiting markets with highly saturated competitive forces (that have brand loyalty). The company simply has too high of a disparity between modest revenues and high operational expenditures that must be altered to bring the firm a competitive cost advantage. If the company begins seeking opportunities for foreign direct investment in countries with a growing consumer audience and where tax incentives are provided over an elongated period of time, the company can expand its marketing presence whilst also enjoying greater net income through the reduction of many operational expenses. 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