Analysis of Strategic Planning - Essay Example

Analysis of Strategic Planning Introduction Business organizations usually formulate strategies depending on the size and nature of their business. However, according to the generic strategy concept, a business firm has two determinants to be followed in the industry. On the one hand, it has to be in an attractive industry; and on the other hand, it has to strive for maintaining a considerable position in the industry. According to Porter (as cited in Eldering, 2009, p. 6), competitive strategy is the search for a favorable competitive position in the industry; and a firm can improve it depending on a firm’s choice of strategy. He explained that the success of the company depends on the strategy they chose such as cost leadership, differentiation, and focus; and a firm, for its smooth running must chose one of the strategies and work on it. Cost Leadership The cost leadership strategy helps the firm to remain as a low-cost producer in the industry. To achieve the maximum result, this strategy must be utilized on a standardized product by trying to make maximum use of the cost sources. When there is a price war, or when the industry matures, a firm with cost leadership can remain profitable for longer period than the competing firms. Differentiation Strategy Differentiation strategy means uniqueness within the industry, having specific dimensions that buyers are ready to value and willing to pay a price premium. Even if there is an increase in the price of the product, the producer still gets the profitability, because the product has the unique attributes and the consumers are not able to find a substitute product easily. Focus strategy This strategy tries to achieve either cost advantage or differentiation advantage, concentrating on a narrow segment. The focus strategy focuses entirely on the needs of group, and so enjoys a greater customer loyalty. The following part of the paper will discuss how some prominent retail firms have been implementing the above said strategies in their business operation. Tesco Tesco, a world famous retailer firm, refers to generic strategies as a tool to determine the characteristics of retailers’ response to industry structure. Big concerns like Tesco can obtain the reasonable cutthroat benefit by following any one of the three generic strategies of Porter. By utilizing the first strategy of cost leadership, Tesco can try to have the lowest production cost in the whole industry and can offer their products and service to the market at the lowest cost. The cost leadership strategy shows the ability of the firms to control their operating costs so well that they can price their products competitively. Having a greater degree of competitive advantage, they are able to generate high profit margins. If differentiation strategy is to be established, Tesco has to offer products and services which has unique feature that are not offered by any other firm. If so, the firm gets a brand loyalty and inelasticity of price. Between these two strategies, Tesco choose to follow the cost leadership strategy. To select between the strategies, the management had made use of the last porter’s focus strategy. For the implementation of the strategy they introduced different tactics, such as focusing on the internal efficiencies which helped Tesco to resist the outer force from the other firms. On the way to control their cost of production, they had regular communication with the suppliers, government, and the regulatory authorities. They made a policy to supply the specific products to the broad market. These helped them in attaining a high position and profitability. Bang and Olufsen Bang and Olufsen distributes hi quality hi-fi devices in the market. While evaluating B&O’s financial strategies, we find that it make use of the competitive benefit of differentiation. The company offers surprising products to the consumers which set new standards for the company, because it always aims at “product improvement and modernization” to differentiate its products (Lundanes & Kremmling, 2009). One of the techniques used by the company to sustain their profitability is that they overcame the problem of significantly high rate of labor cost by alternative methods. The fact was that the labor cost in Denmark, where the company is situated is much higher than that of the Asian countries where the competing companies are situated. B&O therefore controlled the cost price equilibrium by aiming at producing special products, and the consumers were ready to pay for such products. Secondly the differentiation strategy cannot preserve a forceful advantage for a long period of time. So the company always maintained a superior brand value in order to charge higher prices. McDonalds: McDonalds is one of the largest fast food providers around the world. They have the so much advantage of low cost production which no other firm in this field can claim. They follow one of the generic strategies of low cost production strategy. This strategy has helped them in attaining low-cost leadership in the industry because of their economies of scale. Although there are competitors trying to offer low priced products or at the same price of McDonald’s, they are not able to sustain their profitability equilibrium. Though McDonald’s products are copied by other firms, McDonald’s price would not differentiate because they are still able to perform as the best low-cost producer with their substantial brand value. One of the techniques used by the MacDonald’s in keeping their brand high is the consistent quality in the food served. They give their menu completely and limited with the slogan, “we do it all for you”. As Buffa, and Sarin (2007, p. 761) point out, in the recent years they hold about 35percent of the market share which shows how effective can a cost leadership strategy be in a firm. In total, a firm’s profitability depends on the some determinants such as, the attractiveness of the industry in which it operates and the economic standard of the firm within the industry. A firm even with a low profitability can generate high returns when any of the strategies are utilized. So a firm can place itself in a better position by leveraging its own strength. Reference Buffa, E. S & Sarin, R. K. (2007). Modern Production/ Operations Management. Delhi: Wiley-India. Eldering, J. (2009). Porter’s (1980) generic strategies, Performance and risk, an empirical investigation with German data. Diplomica Verlag. Lundanes, P & Kremmling, M. D. (2009). “Strategic accounts analysis and valuation of Bang & Olufsen”. Department of Business Studies, The Aarhus School of Business 2009. 1-86. Retrieved from http://pure.au.dk/portal-asb-student/files/5503/Afhandling Read More