STRATEGIC MANAGEMENT EXAM Homework Help

Discuss strategic management exam…………….

SECTION. A

Question one

The environment facing Forest Essentials can best be reviewed by conducting a PEST analysis. This will entail analyzing the political, economic, social and technological factors that are faced by the company.

Political factors

The government of India has pledged to come up with the required legislations to control the spa industry. This will give the industry recognition that will make the players benefit from the known threats of unfair competition and unfair trade practices. India enjoys political stability and there are no unfair trade regulations. There has been assurance from the government that it will protect the industry which is considered to be one of the most growing industries at 70%.

Economic factors

Despite the company’s good performance locally it is lacking enough capital to open more stores in India so that it can compete more effectively with companies like Biotique and Shahnaz. The company is also experiencing high rates of custom duty on the raw materials it imports which the government has promised to review.

Social factors

The recognition of the spa industry by majority of Indians as a key component for good health has led to increased demand for Forest Essentials products. This has given the products a very huge local demand and this is what they want replicated in the international market. India is also one of the most populous nations in the world. This creates a good potential market for growth both in market share and revenues.

Technological factors

The company uses traditional methods of production in line with their policies. However it aims at integrating more research in its production methods to preserve quality and meet demand.

Question Two (a)

STRATEGIC RELATIONSHIP BETWEEN ESTEE LAUDER AND FOREST ESSENTIALS.

 

ESTEE LAUDER:

This company wants more presence in the Indian market using the Forest Essentials brand. A SWOT analysis reveals the following:

Strengths: Owning popular international brands Long experience in the industry Strong technological knowhow Availability of capital for investment Large infrastructure	Weaknesses: Low market share in the naturals spa market in India Low market penetration
Opportunities: Market penetration in the large Indian market Revenue growth	Threats: Increased competition Loss of already gained market share

 

The move by Forest Essentials to sell a 15% stake to Estee Lauder will give it a strategic relationship for strengthening its brand both locally and internationally. Forest essentials will be able to benefit from the valuable experience that Estee Lauder has internationally. A SWOT analysis of this reveals the following:

Strengths: High growth rates of 100% locally. Great acceptability and wide market share in the natural spa market. Unique production processes Strong niche market Huge demand for their products locally Favorite for professionals, corporate executives and international tourists.	Weaknesses: Low levels of international market penetration Lack of enough capital for expansion Few outlet stores Lack of experience many years of experience having been established in 2000
Opportunities: Availability of more capital Chance to expand internationally and become an international brand. Increase in their outlets locally Opening of own spas both locally and internationally Expansion of manufacturing units due to anticipated increase in local and international demand.	Threats: Intense competition both locally and internationally Lack of set standards in the industry Lack of data about the industry in most countries. Lack of qualified spa professionals and therapists for the industry Few governments recognize the spa industry.

 

Forest essentials will rely on the great technological knowhow of Estee Lauder and also their strong brand management and brand building expertise to penetrate international market.

They aim at expanding locally where they already have a good market share so that they can get more revenues to further invest in their expansion plans.

Question Two (b)

The move by the two companies is very strategic to both in the following ways;

The two companies will benefit from various environmental factors which are enjoyed by either of the parties or both. Estee Lauder will increase the speed of entry into the Indian market of its brands while Forest Essentials will gain entry into the international market using the Estee Lauder’s experience in that market. This will help both companies increase their market share in their target markets. Their union will give each company’s brands a lot of competitive advantage over the other market players and this will result to more market penetration for both products. This will result to more revenues due to increased sales volumes. The two companies will be able to attain market leadership and be in a position to control prices especially in the long run. Forest Essentials will also benefit immensely from the managerial experience of Estee Lauder. This exploitation of strategic capabilities will also be enjoyed by Estee Lauder who will also ride on the popularity of the Forest Essentials brand especially in the natural spa segment to sell its other brands which are internationally known like Tommy Hilfiger, MC and the others. Forest Essentials will also benefit form the capabilities of Estee Lauder in investing in research and development through its various laboratories which Forest Essentials will now have access to and be able to vertically integrate into the market through increase in its products range both locally and internationally. Forest Essentials will also benefit from the expertise of Estee Lauder in the international market. They will be given important insights and relevant evidence by Estee Lauder in the international market dynamics which will be very valuable to them.

Question Three

The strategy being pursued by Forest Essentials can be evaluated based on the benefits it will achieve and also the inherent risks it will be exposed to. The management of Forest Essentials has identified that retail outlets in India are a major revenue earner and therefore wants to increase them from the current seven to between thirty five and forty. This will require more capital and also more supervision. They also want to increase their manufacturing plants due to the growing demand for their products locally. These plants will play a crucial role in the production of more brands when the company goes international. This will also call for more capital injection to enable construction and investment in these plants and laboratories. This will also call for increased investment in research and development to ensure the brands produced satisfy consumer tastes and preferences. There will be a wider and broad market internationally with multiplicity of cultures and beliefs which will need to be taken into consideration at the production stages of the products. The company also aims at opening own spa shops in India due to their potential in driving up sales and increasing sales. Therefore Forest Essentials has a very ambitious plan to grow and its strategy of selling a partial stake to Estee Lauder will provide the required capital and expertise to pursue these objectives conclusively.

SECTION B

Question Two

Creating a strategic plan for Coca-Cola Company;

The first step will be to review the current position for the company and the external and internal developments influencing the company’s performance. This will enable strategizing on how to change, shift or stick to the current strategy. It will be important to conduct a SWOT analysis to know the company’s main areas of strengths, weaknesses and also any possible opportunities to be exploited and the threats the company may face from competitors, government regulations or nay other possible risks. The main areas that are to be reviewed using a SWOT analysis include the following;

• The mission statement: This should clearly say what the reason for founding the company is and what it does. It should also say what the company seeks to attain in the short run through its activities.
• The strategy should also incorporate the values of the organization. These are the principles that guide the operations of the company on a daily to daily basis. They are also the core beliefs of the company and all its procedures and processes are geared towards preserving these values.

The second stage will be to know where the company is headed to. This will be done by outlining the future objectives through imagination. The vision statement should be incorporated here. It’s a picture of what the company will look like in terms of performance and service delivery to the consumers in the next ten years or more. We should identify the company’s competitive advantage over others. This is simply asking; what is the company best at in comparison with others in the same industry? This will help in the identity of the company’s competitive advantage. We should also know what the company can be best at.

This will help in identifying what is unique about the company.

The third and final stage will entail how the organization will reach where it desires. This stage consumes a lot of time due to the availability of many routes that the company can use to attain the desired objectives of moving from the current position to the vision. This will entail the following

• The company must have clear long term strategic objectives. They should be holistic and encompass the four main areas that an organization aims at; these are financial performance, customer satisfaction, operational capacity and external compliance. The strategic objectives should define the activities the company must engage in order to achieve their vision.
• There should be a clear company strategy which will seek to turn the strengths of the company with market opportunities. The strategy that the company adopts must match with its strengths and this must translate into value for the consumers.
• There should be set short term goals and objectives that the company wants to achieve. These short term goals and priorities will be transformed into specific performance targets for the company. There should be specific timelines for each goal and objective. This can be months, one year, two years or three years. Each of these goals set should be measurable so that there can be continuous review periodically to assess progress.
• There should also be action items that are set to guide the progress of the implementation of the set goals and objectives. Each goal should have a start by date and end date and there should be a person who is in charge.
• There should be a scorecard to monitor and measure the progress of set goals. The performance indicators should be identified and measured.
• Execute the plan by identifying who will manage what part of the plan. Commitment from the company must be sought through finances.

STRATEGIC MANAGEMENT EXAM -MAY 2011

Question One

The environment facing Micropathology can be reviewed using the Porter’s five forces model.

Threat of new entrants (low)

The company does not face any threat of new entrants because of the requirements of the industry. The industry requires qualified personnel who will be involved in the day to day operations and also those to do research. This makes the industry unattractive to many business people. The provision of subsidies to the National Health Service labs makes the industry less attractive to any potential entrants. This is because the subsidies will give them power to attract customers since they will be bale to charge low prices. The industry also requires special equipments which are installed in the laboratories and they cannot be used in another industry. This makes potential investors fear any potential losses that they could incur if they decide to engage in another business venture.

Buyers bargaining power (high)

The service seekers in the laboratories are many and they have no power to control the prices. The service being offered by Micropathology is a necessary service and they must get it.

Sellers bargaining power (low)

Micropathology faces severe competition from the NHS labs. This will make these private providers of lab services to focus on quality of services because the NHS has an upper hand in setting the prices because of the subsidies they are getting from the government.

Threat of substitutes (High)

Micropathology faces a huge threat from the National Health Services Labs which due to their strong financial power they want to adopt same testing applications used by Micropathology. This will make Micropathology have no competitive advantage over their rivals and this will impact negatively on their business.

Degree of rivalry (high)

There is high rivalry between Micropathology and the NHS laboratories. Due to large capital requirements and the costs of exit in the business, there have been few interested investors who have ventured into this industry. This has left the NHS labs and Micropathology to be the main competitors in the industry. The NHS laboratories want to develop the rapid diagnostic kits that will pose a real threat to the business of the competitor. They also want to use the funds saved through subsidies to adopt same testing applications that are used by Micropathology. 

Question Two (a)

Micropathology Ltd has chosen to pursue organic development due to the nature of the industry they are in. The industry involves the development of highly technical services for provision to the customers. These products are developed through investment in research activities. This company has that capability since the two founders are medical practitioners and they also have recruited research personnel to work in their laboratories. The company also has required equipments and machinery and they have been able to offer meaningful competition to the NHS laboratories. They have invested in the rapid diagnostic kits which allow their customers quicker services where they access results within a short time compared to NHS laboratories. Despite majority of their competitors receiving subsidies from the mother hospitals, Micropathology has developed a competitive edge through the creation of personal contacts with their customers mainly through networking and word of mouth. One of the founders is mainly involved in the marketing of their products. The use of their own founder in marketing activities gives the organization valuable skills and knowledge about the market that are retained by the organization to act as a guide in their plans. They have therefore cultivated a lot of customer loyalty and the quality of their services has been recommended by many. They have been able to reinvest the revenues earned back into their operational activities which have made them be debt free. The option of them not seeking funds through loans makes them experience slow organic growth which is sustainable in the long term. There are few disruptions in their growth plans and the only major areas they concentrate in are improving quality of services and research.

Question Two (b)

The competitive advantage being followed by Micropathology is sustainable because there is high possibility of success since the management team is lean and critical management decisions can be made quickly. The company also uses internally generated funds for growth rather than taking loans, this reduces the risk levels that the company’s assets may be exposed to. This will allow the attainment of set goals and objectives since the company will be basing them on the internal capacity at their disposal which they have control over. There will also be maintenance of the cultures and norms that pertain to the business as opposed to mergers and acquisitions where there could be clashes in these cultures. Maintenance of business cultures will provide continuity, progress and also harmony among the various business segments. This is because there will be less organizational stress in trying to accommodate different norms and ideas in the business. The strategy adopted by Micropathology also provides a conducive environment for innovations due to the various opportunities it offers for staff development. However the business may take a long time to grow due to lack of capital injection and management expertise that may be provided by other businesses if it was a merger or acquisition. The company is also exposed to all the risks involved in the business and may be edged out if any of the competitors merge.

Question Three

Micropathology has many competencies that have placed in a strategic place in the market.

The two founders of this company are professionals in the medical industry. This brings a wealth of experience to the business and since they are engaged to the business full time, they provide guidance in making of key decisions especially in research and operations departments.

The company also has invested in research and they have their own laboratories which are manned by qualified personnel and this also aIDs a lot of quality in their work. Their provision of quality services has created customer loyalty and many people value their service and they keep coming back. This coupled with their customer care skills of personal contacts and networking has worked to increase their customer base and increase in revenue. The company has also relied on its own generated funds to carry out their activities and this has left them with no obligations on debt servicing and loan repayments. This has increased the capital available for investment which could otherwise have been used in paying interests on loans.

SECTION B

Question Four

There are three main methods used by companies and organizations to pursue growth.

1. 1.      Organic Development

The company decides to use its own capabilities and resources to achieve its growth objectives. This method is mainly suitable in an industry where the products and services on offer are not readily available.

Strengths

The company that pursues this strategy eliminates the risks involved in borrowing capital for investment. It also provides good opportunities for the growth of the skills and knowledge of its employees due to strong attachment. This is mainly through the non interference in the company’s culture as there are no outsiders coming into the company as usually witnessed in acquisitions. The company is able to slowly experience growth which is more sustainable in the long term. The company is also able to make quick decisions since the management teams are small and effective.

Weaknesses

The company is exposed to a lot of risk as it shoulders all the operational responsibilities involved on a daily basis. The achievement of the set goals and objectives can take a lot of time since most of the available funds may be directed to other operations. This is mainly experienced in highly competitive markets where firms may be required to invest a lot of resources in advertising campaigns leaving little capital for investment in research and development. The company could also take a lot of time to expand due to long time that may be taken to recover the initial investment.

1. 2.      Mergers and acquisitions

A merger is the coming together of two or more businesses on mutual consent to exploit competitive advantages available to each. Acquisition is the process of one business being taken over by another but not necessarily under mutual consent.

 

 

Strengths

There is quick market penetration of the products being produced by the companies. The firms on coming together benefit from the combined market share for their products and this enhances quick market penetration. This is due to the enhanced competitive advantage that each firm comes with. These will include high managerial ability, high rates of market penetration, more investment in research and development and also increase in product range. They benefit from the resource combination because one firm’s weakness is the strength of the other. The shareholders will be guaranteed a return on their investments due to increased revenues.

Weaknesses

The coming together of firms through mergers and acquisitions does not guarantee success. This is due to the high expectations and also the large capital investments made. The market being targeted by these companies may shrink due externalities like political instability and the returns expected could take longer to be realized. There could also be a clash of cultures as the firms coming together could be from different continents. This may cause management inefficiencies and losses to the company.

1. 3.      Strategic alliances

This is the coming together of firms which are endowed differently and each hopes to grow through the utilization of the competitive advantage of the other in a given time. This strategy is mainly used by companies who may be operating away from home mainly in a foreign country.

Strengths

The companies utilize mutual knowledge in their strong areas for mutual benefit. This may lead to filling of any gaps that may exist in a particular firm’s technical expertise which could result to improved quality of products and also increased production capacities which could lead to economies of scale. The sharing of facilities and distribution networks implies that the companies will be cutting on expenses which can be reinvested in research and development activities. The companies can also combine their competitive advantage force for the defeat of any mutual rivals in the market. This will translate to more market share for their products hence more revenues.  The companies can easily set standards for their products market. This is because when combined they have more bargaining power and can easily convince the authorities for assistance.

Weaknesses

There could be clash of cultures since the companies involved could be from different backgrounds with varying norms and beliefs. Due to their origin, the company could have conflicting operational practices due to their diverse cultures which may jeopardize their operations. This is also known to cause conflicts due to different egos and company cultures. Where the two companies are involved in the same market, there could be suspicion and mistrust in competitively sensitive markets. This dependence on each other can cripple the operations of one firm if the other pulls out.

 

 

SECTION. A

Question one

The environment facing Forest Essentials can best be reviewed by conducting a PEST analysis. This will entail analyzing the political, economic, social and technological factors that are faced by the company.

Political factors

The government of India has pledged to come up with the required legislations to control the spa industry. This will give the industry recognition that will make the players benefit from the known threats of unfair competition and unfair trade practices. India enjoys political stability and there are no unfair trade regulations. There has been assurance from the government that it will protect the industry which is considered to be one of the most growing industries at 70%.

Economic factors

Despite the company’s good performance locally it is lacking enough capital to open more stores in India so that it can compete more effectively with companies like Biotique and Shahnaz. The company is also experiencing high rates of custom duty on the raw materials it imports which the government has promised to review.

Social factors

The recognition of the spa industry by majority of Indians as a key component for good health has led to increased demand for Forest Essentials products. This has given the products a very huge local demand and this is what they want replicated in the international market. India is also one of the most populous nations in the world. This creates a good potential market for growth both in market share and revenues.

Technological factors

The company uses traditional methods of production in line with their policies. However it aims at integrating more research in its production methods to preserve quality and meet demand.

Question Two (a)

STRATEGIC RELATIONSHIP BETWEEN ESTEE LAUDER AND FOREST ESSENTIALS.

 

ESTEE LAUDER:

This company wants more presence in the Indian market using the Forest Essentials brand. A SWOT analysis reveals the following:

Strengths: Owning popular international brands Long experience in the industry Strong technological knowhow Availability of capital for investment Large infrastructure	Weaknesses: Low market share in the naturals spa market in India Low market penetration
Opportunities: Market penetration in the large Indian market Revenue growth	Threats: Increased competition Loss of already gained market share

 

The move by Forest Essentials to sell a 15% stake to Estee Lauder will give it a strategic relationship for strengthening its brand both locally and internationally. Forest essentials will be able to benefit from the valuable experience that Estee Lauder has internationally. A SWOT analysis of this reveals the following:

Strengths: High growth rates of 100% locally. Great acceptability and wide market share in the natural spa market. Unique production processes Strong niche market Huge demand for their products locally Favorite for professionals, corporate executives and international tourists.	Weaknesses: Low levels of international market penetration Lack of enough capital for expansion Few outlet stores Lack of experience many years of experience having been established in 2000
Opportunities: Availability of more capital Chance to expand internationally and become an international brand. Increase in their outlets locally Opening of own spas both locally and internationally Expansion of manufacturing units due to anticipated increase in local and international demand.	Threats: Intense competition both locally and internationally Lack of set standards in the industry Lack of data about the industry in most countries. Lack of qualified spa professionals and therapists for the industry Few governments recognize the spa industry.

 

Forest essentials will rely on the great technological knowhow of Estee Lauder and also their strong brand management and brand building expertise to penetrate international market.

They aim at expanding locally where they already have a good market share so that they can get more revenues to further invest in their expansion plans.

Question Two (b)

The move by the two companies is very strategic to both in the following ways;

The two companies will benefit from various environmental factors which are enjoyed by either of the parties or both. Estee Lauder will increase the speed of entry into the Indian market of its brands while Forest Essentials will gain entry into the international market using the Estee Lauder’s experience in that market. This will help both companies increase their market share in their target markets. Their union will give each company’s brands a lot of competitive advantage over the other market players and this will result to more market penetration for both products. This will result to more revenues due to increased sales volumes. The two companies will be able to attain market leadership and be in a position to control prices especially in the long run. Forest Essentials will also benefit immensely from the managerial experience of Estee Lauder. This exploitatio