Techniques For Analyzing Industries and Competitors - Research Paper Example

15-01-2007 Draper engineering ltd. (case study) Overview: Draper engineering ltd. is a medium sized IT company providing business solutions to 4 European car manufactures and 2 American truck manufactures. Most of the workforce of Draper is older than normal and working for last 20 years. The core group of technical and middle management staff comes under above category. Company has adopted new business way i.e. E-commerce to improve its business but facing some problem with employees loyalties and resulting in higher turnovers. Draper has a larger product development team that allotted to improve products and manage it and to handle customers' problems and queries also. Company is investing heavily to remain competitive in the market but the current business needs to revive. The out sourced IT division has been sold to Hardy media solutions eighteen months ago. Hardy's performance and poor services also dissatisfied the previous customers. Due to the problems faced by Drapes, it started developing its ERP system with the view that in future company has to remain competitive in the market place. It has to improve its services, launch new products, which should be cost effective as well as technologically best in the market. Recently company has more business options, which could be explored by the company and to motivate its managers to grab the opportunities, so that performance of the company could be improved. SWOT Analysis: As we already know that the said company draper is medium sized IT company. The company is in the business of providing technological solutions to its clients. It is a fast moving technologically complex and innovative industry dominated by lots of firms with well-developed communication and technological innovations. The firms which cannot be able to keep pace with innovations forced out of the business. So industry has been affected by external environment as well as internal changes. So any analysis or strategy, which could be formed in and around company, must follow the various strategic management paths. Companies must not only developed new businesses, but also carefully prune, harvest or divest tired, old businesses in order to release needed resources and reduce costs. The overall evaluation of a business's strength, weaknesses, opportunities and threats is called SWOT Analysis. SWOT analysis consists of an analysis of the external and internal environment. A SWOT analysis summarizes the key issues from the business environment and the strategic capabilities of an organization that are most likely to impact on strategy development. In general, a business unit has to monitor key macro-environment forces (demographic-economic, technological, political-legal and socio-cultural) and microenvironment actors (Customers, Competitors, distributors and suppliers) that affect its ability to earn profit (Johnson, & Scholes, 2002). Then, for each trend or development, management needs to identify the associated marketing opportunities and threats. Each business needs to evaluate its internal strengths and weaknesses in marketing, finance, manufacturing and organizational capabilities. In applying the SWOT Analysis it is necessary to minimize or avoid both weaknesses and threats. Weaknesses should be looked at in order to convert them into strengths. Likewise, threats should be converted into opportunities. Lastly, strengths and opportunities should be matched to optimize the potential of a firm. So applying SWOT analysis on draper engineering Ltd. as discussed above as follows: Strength: Draper Engineering Ltd. is an industry, which is growing and progressing all around world. In present circumstances, IT is an industry, which is an integral part of almost every industry, and human life cannot be thinking of without information technology. So being in an industry, which is growing, and progressing Draper Engineering Ltd. have an inherent strength of the industry as a whole. Draper has sufficient number of clients and market. It is a medium sized company and already has four major European Car makers and two American truck makers. So, it can easily serve and at present no immediate need to search for another business to survive. It also counts in its strength. It has very loyal technical and middle management work force. Any organization, which is highly technical in nature, have loyal technical work force working since last 20 years, is the strength. Middle management, which forms core for any organization because policy and strategic decision taken by Sr. Management must be conveyed and implemented through them in its true spirit and feedback of line managers to Sr. Management, is the main job of middle management. The Drapers have loyal and experienced middle management team, which could easily understand for the organization as well as rethink about the current policies, which have various weaknesses. What policies and strategies Sr. Management want to implement and could easily convey the feedback, so that policies could be improved or modified accordingly to carry out the businesses of Draper. Draper has large product development team, which could be used for developing new products. Draper started to develop Enterprise Resource Planning and associated Software. So it has been clear that Draper's Senior Management team is eager to improve and change and started towards it. It is also being counted as one of the strength of Draper. In the present circumstances where E-commerce has gained lots of importance for any organization and viable media to reach its customers, Draper must revamp its E-commerce wing and Sr. Management team of Draper have an opportunity to rethink about employee turnover, which is very high in respect to other section of the Draper. Having large member of product development team, which has been used for various other purposes must be used for new product development. Draper has an opportunity to use its workforce to its optimum level. Weaknesses: Recently Draper Engineering Ltd. is going through rough patches. Drapers products are not seem to be cost effective. It has been quite clear that all the customers of Drapers are not satisfied with its price structure and most of the time wants price reduction and not willing to guarantee for providing contract of new warehouse management business which they are willing to be started by Draper. Recently started E-commerce section is not working well. Employee turnover in this section is very high with respect to other parts of Draper's business. Their initiative to stop turnover resulted in failure. The technical & management section, which have lower employee turn over recently experienced notable departures due to new director (operations). Drapers have large product development team, but of no use because Draper's priorities are not product development rather the product development team has been involved in improving existing products, solving customer's complaint and customer's support. So, it is not using its manpower properly. Draper has invested heavily to gain its market share. Draper's financial position is not seems good. It has sold it outsourced IT Division. It received enquiries about poor services and lack of suppliers' involvement in new projects. Opportunities: Draper has opportunities to further expand its business. The company has twenty credible leads for new business opportunities. Further company has an option to develop new warehouse management system, which could be proved beneficial for the company in the near future. The present condition of the company could be treated as opportunities for the organization and its senior management team to think of various business options. Threats: Draper is facing various threats from its external environment as well as from its internal shortcoming. Internal shortcomings have already been discussed in the weaknesses part. As we know that Draper is in IT Sector, which is changing very fast world over. Almost each and every part of IT industry is subject to change whether it is technology, skills or manpower, which ultimately affect Draper. If Draper has to remain in the competition it has to change according to needs of the customers and the market. Draper is facing threats from its customers about its pricing of products. Due to bad relationship between Draper and its consumers its new venture of warehouse management system development cannot be assured of further contract. Improper Human resource management policies, heavy investment to retain current position and market share etc. are the various threats, which Draper is facing right now. After SWOT Analysis of the Draper Engineering Ltd. it has been quite clear that it has to address the following five main issues: - 1. Pricing for its existing products. 2. High turnover in its e-commerce wing & recent appointment of Director (operations) led two notable departures from other sections. 3. Product development team management. 4. Improper investment (heavy investment to retain market share and current position) leads to weak financial position. 5. Large number of old staff (especially technical and managerial staff) having lesser training and updating of knowledge. All corporate undertake four planning activities: defining the corporate mission; establishing strategic business units, assigning resources to each unit; and planning new businesses, downsizing or terminating older businesses. There are several strategic tools available in management theories to manage any organizations. Organisation's condition and its senior management have to decide which tools are appropriate for company's growth and profitability. These tools could be applied to the various organizations to decide their strategic path to achieve profitability and strength. First tool is establishing Strategic Business Units (SBUs)* the second is Porter's* five forces Analysis, third is Mckinskey's 7- S analysis, fourth is value chain management, core competency and so on. In the Drapers case study we will apply two strategic tools, i.e. Porter's five forces Analysis and the second is strategic business unit (SBU) which has been adopted and named is Boston Consulting Group Model and the General Electric Model (Kerin, Mahajan, & Varadrajan 1990). These above two tools will be used in the case study because porter's five forces competitive model is probably one of the most used business strategy tools and particularly strong in thinking outside-in it. Michael Porter's (1980) Five Forces Model, which is described below: Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability. These five "competitive forces" are The threat of entry of new competitors (new entrants) The threat of substitutes The bargaining power of buyers The bargaining power of suppliers The degree of rivalry between existing competitors In analyzing and applying the Porter's model on Draper case study, would result in analyzing the external forces, which have the potential of affecting the organization. Similarly in strategic business unit, whole business has been termed as collection of SBU. A SBU can either be an entire mid Size Company or part of large corporation. It analyze current business portfolio and decides which SBU's should receive more or less investment, develop growth strategies for adding new products and businesses and decide which businesses or products should no longer be retained. So Draper Engineering Case Study will be evaluated on the above basis. Draper is in an industry largely influenced by external environment. Condition of Draper has been influenced by its suppliers, buyers, entry of competitors, threats of substitute and rivalry among existing players. Draper's buyer's bargaining power could be analyzed because their price cutting pressure has affected Draper adversely. Draper can also analyze the suppliers bargaining power because it helps to know about position of sellers, no. of suppliers and their weakness and strength. Drapers present products are mostly modified older products and have lesser numbers of new products, but due to change in buyer's need and consumer's changed preferences, they need new products. So Draper must be analyzed on the basis of threats for substitute i.e. can Draper's product be substituted for other products, especially cheaper products Draper customers complaining for prices of its product, so Draper has to analyze its products on the basis of prices and its substitution availability. By analyzing its products on the basis of pricing, Draper must analyze its product prices competitiveness in the market. First of all Draper has to set its products prices properly so that it should be competitive in the market and customer's may not complaint or pressurize for price cutting. Products price's follow a six step procedure i.e. Selecting pricing objectives (Survival, maximum current profit, max. market share, maximum market skimming or product quality leadership), determining demand, estimating costs, analyze competitors costs, prices and offers, selecting pricing methods and selecting the final price (Kotler, 2003). On the basis of above theory Draper has to analyze the pricing of the products. Draper should improve its performance and efficiency, so that cost cutting should be done. Draper could manage the Higher Employee turnover by adopting certain techniques. First of all specific career path should be provided to employees. In job training and development of employee's should be provided to its employee's of E-commerce section. They must be motivated enough to reduce turnover mindset. Product development team should be again involved in hardcore product development. Priorities for Draper should be changed and they must emphasize on developing newer products, adopting price-cutting solutions, providing training to employees needs judicious investment. These techniques could bring positive results to Draper. Lastly most of the staff in technical and management wing is more than 20 years old, newer recruitment has to be done because IT is an industry in which knowledge and skills are changing very fast and newer employee comes with updated knowledge & required skills. Older staff must be provided knowledge of recent market changing situations and consumer's preferences so that they could adapt to new changing situations. By adopting above-mentioned path Draper must develop its growth strategy. . The second strategic tool is a strategic business unit, GE model framework. As we discussed earlier business could be divided into small SBU's and 3*3 grid GE matrix could be used for the organizations on the basis of market attractiveness and competitive strengths divided into low, medium and high parts. Draper must take six-step to implement the GE matrix tool for strategic planning. First Draper has to define different SBU on the basis of particular units strength and competencies, market share & growth, customer's loyalty, relative cost position and profit margin, technological innovations, quality, financial & investment resources and management strengths. After analyzing each SBU carefully, Draper must analyze its Market attractiveness (Industry attractiveness). It must analyze its products on the basis of its market size, growth rate, profitability, pricing trends, opportunities to differentiate products and technological development. After going through various strategic tools, we find that among all, GE business model based on strategic business units (SBU) is one of the best strategic models, which could analyze and provide leads to Draper growth and development. It is a model, which could analyze and provide leads to Draper. It is a model, which looks almost every perspective of an organization. It divides a business into small units having independent strength and weaknesses and on the basis of overall internal and external situations decides further strategic path. Draper is facing the precarious situation so it needs specific and effective model, which could analyze its overall situation and provide specific growth route. As earlier analyzed Draper have specific customers like major car & truck makers but pricing of product is the problem area which could be sorted out with analyzing Drapers costing system of products, production system of products and if any shortcomings found it should be modified accordingly. External affects on pricing must also be evaluated to analyze and decide the product pricing. The second strategic business unit could be Human Resources of Draper. It has to be analyzing for its strength and weaknesses and subsequently according to needs of the organization, it must be put into optimum utilization. It could be improved by providing knowledge and skills, which is needed by the Draper. The third SBU must be formed in Draper as products development. It has to be analyzed that according to market needs & consumer preferences which products are needed, how the product must be managed and developed and how much investment it cost to the organization. After considering all strategic factors and analyzing SBU, Draper Sr. Management has to take decisions on all of the above issues. So in the same way Draper's business could be divided into various SBU's and has to be analyzed accordingly and strategic paths could be decided. So this SBU model is one of the models, which could be applied to Draper to improve its performance. *************************************************************** References: 1. Kotler, P. (2003), A Framework of Marketing Management, Pearson education (Singpore) pte. Ltd. 2. Johnson, G. & Scholes, K. (2002), Exploring corporate strategy, Pearson education Ltd. 3. Kerin, R.A., Mahajan, V. & Varadrajan , P.R., (1990), Contemporary Perspective On Strategic Planning ( Boston :Allyn and Becon). 4. http://www.valuebasedmanagement.net Accessed on 13-01-2007. 5. Porter, E. M. (1980), Competitive Strategy: Techniques For Analyzing Industries and Competitors, New York Free Press. Read More