The Strategy Process: Concepts and Contexts - Assignment Example

Defining the Context

• The Blue Sky is a software-consulting firm with a successful fifteen-year experience in the market.
• The firm’s main competitive advantages are the three software programs, which are a Machine Tool Software, HR Software, and Health Payment Software.
• Max Blue is the firm’s founder and a Board Chairman.
• Jim Willis, a former Vice President for the HR Software Division, is a new firm’s CEO.
• Karl Counts is a CFO, who has been with the firm for the last ten years.
• Susy Hubres is a Director of Planning and Marketing, has been with the firm for one year, suggests to introduce a ten-year strategic plan in order to form a deliberate strategy and address the firm’s concerns.
• The firm’s organizational structure includes the corporate headquarters (60% of the headcount) and five regional offices (40% of the headcount), each supervised by a director in charge of technical output and client service in the region.
• The firm comprises three divisions: Machine Tool Software (with 100% of the staff in the head office), HR Software (with 80% of the staff in the regions), Health Payment Software (with the staff in the head and regional offices), each headed by a Vice President.
• The Blue Sky does not have a strategic planning as the firm’s leadership finds it inexpedient.
• The firm corporate culture tends to be passive and risk averse due to the autocratic management practices applied by the former CEO and the fact that part of the top executives do not want any changes and plan their retirement in the near future.
• Regional directors, unlike headquarters’ top executives, are service oriented (as compared to the technical support) and see business opportunities in taking a risk to attract new clients and develop new product lines.
• The Machine Tool Division has been experiencing a rise in expenditures for several years. To maintain the unit profits on the same level, management has to raise charges and has asked a few senior employees of the Machine Tool Division to retire in order to save some funds.
• The CEO is intended to apply a more aggressive marketing strategy aimed at attracting new clients for the existing software products and developing new products for other clients.

Key Issues

Several issues concerning all business lines can have a potential impact on the Blue Sky’s performance and need to be resolved in the near future.

• The Blue Sky does not have a unique deliberate strategy or a strategic planning as a process meaning that corporate goals (both mid-term and long-term) are uncertain and blurred. Executives’ vision on the firm’s future is inconsistent and causes internal conflicts.
• The firm’s management cannot define an effective approach to manage regional offices, in particular, the unresolved issues involve responsibilities in terms of HR software service, the level of autonomy and centralization of the regional functions, their involvement in the decision-making process.
• The firm’s corporate culture is passive and some executives do not make efforts to contribute to the business success.
• Issues related to the Machine Tool Division:
  • • • decreased volumes of sales due to the decline of the auto industry on the national level and reduced contracts with some auto companies in favour of the cheap Indian supplier;
      • the pricing policy does not cover the increased expenditures leading to losses.
• Issues related to the Health Payment Division:
  • • • legal and business risks of an ongoing federal grand jury investigation of allegations made regarding illegal contributions to the Governor as a quid pro quo for state contracts (Southern Regional office);
      • a prospect of a new product (an information system module for hospitals’ medical records) is questioned by the CFO because of the risk to take on a significant technical and financial investment for the project execution.
• Issues related to the HR Division:
  • • • an incident with a serious coding error that has nearly destroyed business relationships with the major client (Best Dollar);
      • insufficient control of decentralised functions in regions;
      • the business line is focused only on one retail client which is deemed as an ineffective marketing strategy;
      • uncertainty concerning the business line expansion due to a possible resistance of the key account to share the HR software system with its competitors.

The Blue Sky Software Consulting firm has been an outstanding performer and a fine employer for the last fifteen years using the developed software programs as its competitive advantages. The company utilised an emergent strategy and was governed by a singular person, who was the Board Chairman and the CEO. However, recently, it encountered financial problems in the Machine Tool Division, caused by the declining auto market and emerging cheap services of competitors. Besides, the Blue Sky is facing legal and operational risks due to the ineffective system of controls. The company’s competitive position weakens and it needs to expand its services in the market by introducing innovative products and finding new clients. Development of a new software and attraction of new clients require significant financial and technical investment, as well as a collaborative and loyal corporate environment. Strategic planning is also an essential (for success), but missing element in the Blue Sky’s management. In order to restore the company’s top position in the industry, the Blue Sky’s executive team should agree on strategic goals, set up a strategic planning process including mid-term, and long-term targets, review its budgeting process in terms of investment activities, assess and improve internal controls. One of the key objectives for the CEO should be establishing an effective leadership and creating a beneficial corporate environment based on the common vision and unique goals.

Concepts for Analysing the Firm’s Context and Environment

To create a strategy, it is necessary to examine the firm’s resources, capabilities, liabilities, strengths, and weaknesses. A SWOT analysis will uncover competitive advantages and weaknesses of the Blue Sky. It is much easier to reach the company’s goals when the strategy is based on its strengths and does not expose weak sides of the business.

Strengths:

The Blue Sky has been a successful business by selling business software and support services for the last decade.

The products are diversified in three market segments: machine manufacturing, clothing retailers, and Medicaid providers.

The distribution channels are spread over the country, 40% of the company’s headcount accounts for employees of the Blue Sky regional offices.

The personnel are loyal to the company and trust the company’s leadership.

The firm owns its own research and development office that allows developing new software products.

Regional directors are ready to support the headquarters’ executives in taking a risk of business expansion.

Weaknesses:

A rise of expenditures in the Machine Tool Division results in increased prices for products and services.

The Blue Sky’s outstanding reputation has been spoiled by the technical error in the major client’s software.

The system of internal controls at the processes’ level seems to have downsides and requires improvement.

The organizational structure does not ensure an effective decision-making process.

Financial sources for investments in innovative software are not defined.

Opportunities:

A prospect of the increased market share through expansion of a healthcare software product line.

An opportunity to attract new clients by offering HR software to the retail industry businesses other than the Best Dollar.

A possibility to reduce expenses of the Machine Tool Division by revising the remuneration fund of the unit (investments in the declining market segment are unjustified).

Threats:

The market that serves auto industry experiences decline and, as a consequence, creates greater competition.

There are new service providers of the machine tool software that offer services at much lower costs, leading to loss of the Blue Sky’s competitive position in the market segment.

The risk of legal issues exists in the healthcare segment resulting from an ongoing federal grand jury investigation.

Reputational risk can arise because of the coding error in the Best Dollar system.

The SWOT analysis revealed that the firm has to review its business structure due to the changed market environment, introduce organizational changes in terms of internal controls and a decision-making process, invest in existing business opportunities, and take care of legal and reputational risks.

Next, the Blue Sky’s management should analyse the targeted market share and agree on the optimal marketing mix. To define the marketing mix, it is needed to make a choice of 4 Ps: products, places, prices, promotion, for all market segments of the company.

Machine Tool Division:

No new products and promotion are needed as the auto industry life cycle is in a decline phase. Cost reduction is advised in order to make prices more competitive. Sales personnel should look for new distribution channels to restore the decreased market position.

Health Payment Division:

A decision on a new product development should be made after finding new sources of financing. The new software will require market analysis in order to set a competitive price fit for the distribution area. The selling team should promote the developed software through existing distribution channels and seed for new ones.

HR Division:

No new efforts in research and development are required. The company should focus on finding new clients for the existing HR payment module. The pricing policy should fit the targeted area. The Blue Sky should inform the Best Dollar on its marketing strategy and resolve all the issues that can arise during the discussion of the issue.

To see the future business prospective of the Blue Sky based on the software industry structure and existing competition, the Porter’s five forces model is applied. The model reveals which of the competitive forces threat the profitability of the business today and anticipates forces that will help the Blue Sky influence its market position over time.

The threat of new entrants:

The design of new software products requires large capital costs on research and development and advertising, hence, the possibility of new national suppliers is limited in the software market.

However, there is a threat of new entrants from the emerging economies (e.g. India), where product development costs are not as high due to a lower labour cost.

The threat of substitute products or services:

The demand for enterprise management software and its support services is expected to grow in the future, therefore, this force should not threaten the Blue Sky.

Bargaining power of suppliers:

A significant number of software consulting companies (producers and distributers) limits overall bargaining power within the industry.

In the machine tool sector, the decline of the auto industry and a new entrant (an Indian supplier) have decreased the suppliers’ bargaining power.

It is likely that the federal grand jury investigation will result in banning some of the providers (unfairly selected), leading to the increase of the bargaining power of remaining software suppliers in the healthcare organizations’ segment.

In the HR software segment, the bargaining power is influenced by the key account that can refuse from sharing the software with other clients.

Bargaining power of customers:

In the machine tool software segment, the Blue Sky’s customers include major manufacturing companies and suppliers of parts and components. The bargaining power is high due to the decline of the auto industry and emergence of a new Indian provider.

In the healthcare segment, a bargaining power is low, as the software was developed in particular for state governments and is used in 15 states.

In the HR software segment, the Best Dollar network holds a bargaining leverage as this is the only Blue Sky’s customer in the HR business line, and it was close to substitute the provider with a different one due to a precedent with the coding error.

Competitive rivalry:

The Blue Sky faces intense competition in the machine tool software sector because of the emerged Indian competitor and the auto industry decline.

Competitors that have larger financial and technical resources (compared to the Blue Sky) can gain an increased market share by introducing new products to the market.

Companies with effective internal control systems have a competitive advantage over other software providers.

The intensity of the Porter’s five forces is summarized in the table below.

Porter’s five forces

Machine Tool

Healthcare

HR

The threat of new entrants

Medium

Medium

Medium

The threat of substitute products or services

Low

Low

Low

Bargaining power of suppliers

Low

Medium

Low

Bargaining power of customers

High

Low

High

Competitive rivalry

High

Low-Medium

Medium

The Blue Sky should consider the ways to influence the key forces that can improve its competitive advantages and incorporate specifics of the industry structure in the corporate strategy.

Alternative Strategies

Based on the above analyses, the Blue Sky should identify strategic options as follows: differentiation strategy, focus strategy, and pioneering strategy.

Differentiation – The firm has to offer unique software and support services in its segment. Customers should choose the product based on that differentiation even at greater costs compared to the competitors.

Focus – The firm should appeal to a narrower segment, e. g. governmental organizations. The Blue Sky should develop by focusing on certain buyers, types of software, or areas. A focus strategy could lead to differentiation or/and cost leadership advantages.

Pioneering – The strategy implies to be the first with the product or services in the market and, thus, brings a leading position to the company. This approach relies on the innovation and creativity of the business team and may require significant investments.

A Course of Action

The Blue Sky should consider the following strategies for its business lines:

the focus strategy - for the Health Payment Software;

the differentiation strategy - for the HR Software.

The possibility of applying a pioneering strategy should be also considered for the above segments; innovations alongside with the organizational creativity can bring the Blue Sky a competitive market position. The firm should find a complex approach of the suggested strategic options for its future development. Currently, the company should stop investing in the Machine Tool Division due to the decline phase of the targeted industry and the Blue Sky’s limited investment opportunities.

An Action Plan

In order to choose the best way to move forward, the Blue Sky should perform the following steps.

• Analyse the suggested strategic options and develop a complex business strategy.
• Establish a budget that would allow the firm’s management to accomplish strategic objectives.
• Revise the existing organizational structure. The structure and the personnel are essential for the fulfilment of the company’s strategy.
• Install internal systems of administrative support. Company’s policies and procedures should enable the desired corporate behaviour and guarantee that necessary information, internal services, and resources will be provided in a decent manner.
• Establish motivation system that will link incentives and rewards with the company’s objectives.
• Develop a detailed action plan, assign responsible employees, and agree on the timelines.

Work Cited

Mintzberg, Henry, James Quinn, Sumantra Ghoshal and Joseph Lampel. The Strategy Process: Concepts, Contexts, Cases. London: Pearson, 2014. Print.