Introduction
According to Chandler, “strategy is the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals” (Campbell, Stonehouse, & Houston, 2002). In other words, it is the plan of action adopted by an organization to achieve its goals and objectives.
Company Profile:
Lifestyle furniture is a company which supplies high quality home furniture. We offer our customers an exquisite collection of beds, dining tables, sofas and coffee tables. We deliver well designed furniture made of solid wood and metal alloy. The company operates in a highly competitive environment and our goal is to become the world class leader by providing the best quality products to our customers.
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Our mission is to provide our customers with world-class products at smart prices. We aim to deliver our customers with a wide collection of exclusive products and satisfy them with our best services, and to provide our employees’ equal opportunity and motivate them to work efficiently. We also ensure a competitive environment in which our staffs learn something new every day.
A vision statement is concerned with what the organisation aspires to be (Johnson, Scholes, & Whittington, Fundamentals of Strategy, 2009). Our vision statement is “Aspires to build a dream house for a luxurious living”.
Current strategic position:
The current strategic position of the company is analysed in terms of internal and external factors (Appendix 1).
Internal Factors
Internal factors identify the quantity and quality of the company’s resources and capabilities and ways of building unique skills and company specific or distinctive competencies (Hill & Jones, 2007). The strategic capability is defined as the capability of an enterprise to successfully undertake action that is intended to affect its long term growth and development (Lenz, 1980). (Appendix 2)
The Lifestyle furniture resources
The company’s resources can be grouped into four categories:
Human resources: The research on the staff satisfaction under the management of J. Lawley from period 2- period 5 is satisfactory with the average achieved value of 42.83% with the minimal value of 30% however it falls behind the norm value: 65%. The change in the management to D. Wickham during the period 6 has resulted in the declining of the staff loyalty as per the Business Score Card (Appendix 12). During the period 7 it has fallen below the minimal value to 27.01%. Also the education level of the employees and the salary has had major impact on the satisfaction value (Appendix 12)
Physical Resources: The Company does not maintain a warehouse hence there is no additional warehouse maintenance costs. However, this also raises the issue of transportation costs, which is £14 per unit and also with the current large inventory of the company it also has to take care of the inventory costs.
Intellectual resource: The intellectual resource includes the brand image, patents, customer database and is a major asset in a knowledge based economy. The brand image of Lifestyle Furniture has been consistently at a impressive average value of 71.07% which is above the norm value (70%). (Appendix 3) this is mainly due to the high quality products provided by the Lifestyle furniture. Also the client database and the innovative products provided by Lifestyle products are unique resource to the company.
VRIN factors
Barney (1991) suggests that for a firm to achieve sustainable competitive advantage must have four main attributes:
Valuable i.e. it exploits opportunities and/ or neutralizes threats in the firms environment
Rare among the firm’s current and competitive environment
Imperfectly imitable
No equivalent substitute for the resource
Careful research and analysis indicates that the competitive advantage of the company is its market shares (Appendix 3) and also the innovative products and the well trained and educated staff. However the large amount of inventory poses problem for the company to take advantage of the “economies of scale”. With right planning for marketing the products and also proper staff management the company will be able to fulfil the “V-R-I-N” criterion.
Core Competences
According to Prahalad & Hamel (1994) core competencies represent the collective learning in the organisation, especially how to co-ordinate diverse production skills and integrate multiple streams of technologies. The organisations must consider themselves as portfolio of core competencies as they are focussed on growing the opportunity of the organization.
From the Lifestyle Furniture perspective, the innovative products (Appendix 12), well trained staff, market share can considered. Based on the portfolio model suggested by Hinterhuber et al., the Lifestyle Furniture can be placed in competence gap in the portfolio grid (Appendix 4). However, the strategic idea to focus on core competences is indispensably connected to the concentration of one s own strengths against competitors’ weaknesses (Snyder & Ebeling, 1992)
External factors affecting the Company strategy:
There are a number of different external factors that take place in the macro environment that affect a company’s business. Tax changes, new laws, trade barriers, demographic change and government policy changes are all examples of macro change (Gillespie, 2007).
PESTLE
Political:
Lifestyle Furniture is currently in a state of economic failure irrespective of its enormous inventory that the company withholds. It has been facing a heavy competition from the competitors and the lack of income has left the company in a state of dilemma. But nevertheless the current political policy passed by the government ensures loan facilities and investment opportunities to the business personals (Peston, 2011) this will give Lifestyle Furniture a chance to bounce back.
Economical:
Economic conditions affect how easy or how difficult it is to be successful and profitable at any time because they affect both capital availability and cost, and demand (Thompson J. , 2002) for the product. The rise in the inflation rates has inversely affected the price of goods (UK inflation rate rises to 4% in January, 2011). This sudden increase forced the company to lower the price of products which in turn reduced the profitability margin of the company. (Appendix 3).
Social:
The socio- cultural environment encapsulates demand and tastes which vary with fashion, disposable income, and general changes, can again provide both opportunities and threats for particular companies. (Thompson J. , 2002) (Pearson & Robinson, Strategic Management, 2005). The furniture industries throughout the country faced a transportation threat in the 4thstage of the game as there was an employee’s strike in the transportation sector. This resulted in the delay in deliver of the ordered furniture. But nevertheless, the sudden strikes didn’t have a strong impact on the Lifestyle Furniture as the company already had excess of inventory in hand. This helped the company in making additional sales in that particular period and also overcome the loss that it incurred due to inflation. The overall market share of the company has always been high throughout the game.
Technological:
The advancement in technology such as the Digital Marketing has enabled the company to reaching out to the customer in a more rapid manner.
Legal:
Lifestyle Furniture has always been able to keep up the laws and legal requirements of the British Furniture Confederation and the Anti Copy in Design- an organisation that ensures the intellectual property right (Confederation, 2011) .
Environmental:
According to Pearson and Robinson, there are five principle environmental factors that affect a company’s business. They are the competitors; creditors, suppliers, customers and the labour market (Pearson & Robinson, Strategic Management, 2002). Lifestyle Furniture mainly has four competitors: LEAF Furnishings, Green Furnishings, Spark Furniture and Enge. As explained in Ellis’s article Fast Company, there are six strategies to apply in strategy implementation and one of which is to understand the competitor’s weaknesses and exploiting it (Ellis, 2002). The competitive advantage that our company maintains over the other companies is the ability to deliver high quality products to our customers at low prices. This helps our company in retaining the customers and suppliers.
Porter’s Five Force Analysis:
According to Porter, the likelihood of firms making profit in a given industry depends on the five factors (Porter M. , 1980)
Threats of potential entrants
Bargaining power of buyers
Threats of substitutes
Competitive rivalry
Power of suppliers
Porter’s five forces can be broadly categorised as two: horizontal competition and vertical competition. Horizontal competition includes the threats from the substitute products, established rivals and the new entrants and the vertical competition takes place between the bargaining power of the suppliers and the customers (Matt, Five Forces Analysis – Porter’s 5 forces , 2009). In the case of Lifestyle Furniture, it faces a neutral risk from the new entrants as the chances of their entry are low but can also be possible with the new political policies favouring new investments in business but still the threats from the substitute products remains low.( Appendix 5)
SWOT
SWOT analysis helps in finding a relation between the organisational capabilities and opportunities in the competitive environment (Samar, 2009). According to Porter, three generic strategies are generated when applying the strengths: Cost Leadership, Differentiation and Focus (Porter M. , 1980). It is a choice that the company makes while deciding whether to keep its prices lower than the competitors or differentiate the offering to provide higher value while comparing it to the competitors (Samar, 2009).
Lifestyle Furniture initially followed a cost leadership strategy where standard, no-frills and exclusive products where supplied at the lowest price possible. But however, the income started declining and it reached a state where income growth was stagnant. At this stage, Lifestyle furniture revised its strategy and implemented it to differentiation this helped the company in gaining income. But however, with excess of inventory in hand, maintaining such a strategy was considered to be ineffective. After a series of trial and error methods, the company finally revised its strategy back to cost leadership. This has helped in improved the situation of the company from -17.70% to 8.97%.
Again, the company had the opportunity to utilise the economy during the 4th year when the crisis took place but was not able to sustain it due to the lack of income. Financial constraints and the lack of a proper HRM manager was the main weakness of the company that lead it to a state of bankruptcy (Appendix 6).
Corporate and Competitive Strategy for Lifestyle Furniture
Strategy is the link between what the organization wants to achieve- its objectives- and the policies adopted to guide its activities. It is defined as the match an organization makes between its own resources and the threats or risks and opportunities created by the external environment in which it operates (Bowman & Asch, 1987).
Strategies exist at a number of levels in an organization namely corporate level, business level and operational level.
Corporate Level Strategy
According to Andrews (1971 as cited in Lynch, 2000), corporate strategy is the pattern of major objectives, purposes or goals and essential policies or plans for achieving those goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or is to be.
Corporate strategy links the organization’s internal resources and its external relationships with its customers, suppliers, competitors and economic and social environment in which it exists (Lynch, 2000).
According to Ansoff (1988) matrix (Appendix 7), Market Penetration is the most ideal strategy for Lifestyle Furniture. Our company focuses on selling existing products into existing markets by finding new and potential customers. This strategy helps us maintain and secure increased dominance in our market compared to the other competitors as we focus on the market and products that we are good at. To attain a large market share, our firm had to set low prices for our products.
Business Level Strategy
Business strategy is concerned with how an operating unit within the corporate whole can compete in a particular market. The strategies of Strategic Business Units (SBUs) can be regarded as the parts which require and define the organizational whole (Bowman & Asch, 1987).
There are four types of generic competitive strategies ( Appendix 8) namely:
Cost Leadership
Differentiation
Focus
Stuck in the middle
In the initial periods, we chose cost leadership as our generic strategy. According to the competitive strategy principle, the competitive power of cost leadership is greatest when rivals products are essentially identical, price competition dominates, most buyers use the product similarly and want similar features, buyer switching costs are low and large customers shop aggressively for the best price (Thompson S. , 1993).
Our company offers better value for the customer’s money by providing them with high quality products at lowest possible price. To achieve goal of offering the low cost range of products our company makes trade with the supplier by buying in large amounts so that overall cost of purchase is reduced. Although there involves little differentiation in the products the main emphasis is made on selling products with the price that is acceptable among majority of the customers. The main goal is to provide selected number of high quality products at acceptable price to attract large stable set of customers that provides economies of scale to reduce costs.
In subsequent periods we changed our strategy to Differentiation as the competitive power of differentiation strategy is greatest when buyer needs are diverse, there are many ways to differentiate that have value to buyers, few rivals choose the same approach, and the firm’s product cannot be quickly or cheaply imitated (Thompson S. , 1993).
We followed both cost leadership and differentiation in different periods of simulation in response to the changes in the market situations.
The Strategy Clock
According to Bowman model a firm can differentiate between Differentiation strategies, Low Price Strategies and Risk Strategies (Appendix 9).
A low-price strategy seeks to achieve a lower price than competitors whilst trying to maintain similar perceived product or service benefits to those offered by competitors (Scholes, Johnson, & Whittington, 2005). So our Company follows a low price strategy compared to our competitors. We believe in maintaining a low cost base through our various cost reduction activities such as the low cost logistics, efficient store operation methods such as accepting low margins in return for high volume of purchase, following a customized product method etc. and above all we have been able to maintain a cost reduction by keeping up our competitive advantage in the market. We achieve this by developing new products and services that satisfy and delight our customers in the market and through this we restructure and improve our business processes to improve quality and reduce cost, which in turn adds value to our product. We follow the total quality management system to sustain our market and customers and this has helped us improve our product value, quality, productivity that is it has helped reduce waste and increase customer satisfaction.
BCG Matrix
From the BCG Matrix (Appendix 10) of our products, we can see how our products changed from ‘Question mark’ in Year 3 to ‘Star’ in Year 5. Question marks are businesses that operate in high growth markets but have low relative market shares. It requires a lot of cash. The products that come under star are considered as market leader in a high growth market. If question mark business is successful, it becomes a star. Therefore, it can be concluded that the business level strategies of cost leadership and differentiation adopted is beneficial for our company.
Sustainability
Sustainable competitive advantage is said to be the heart of a corporate strategy. It enables the maintenance and enhancement of a company’s cut-throat position in the market (Barney, 1991). The sustainable competitive advantage of a company can be categorised as Sustainable Price based Advantage and Sustaining Differentiation – based Advantage (Johnson, Scholes, & Whittington, Exploring Corporate Strategy :Texts and Cases, 2008)
Lifestyle Furniture follows a price based sustainable strategy. With the excess of inventory in hand, the company aims at increasing the sales of its products by reducing the price and making it attractive to the customers. Lifestyle Furniture aims at market segments where low price is valued by the customers. This has helped the company gain more customers and reduce the competition for a longer period of time (Appendix 11).
Conclusion
The theories of strategic management are put into practice in the game of business simulation. After a thorough analysis of the strategies adopted by Lifestyle Furniture, we came to a conclusion that Cost Leadership was the best option for our company to sustain in the market. As we changed our strategy from cost leadership to differentiation, we lost our market share and went into losses. At the end of Period 5, Lifestyle Furniture entered into the stage of decline. The best solution to overcome this situation is to adopt any of the two alternative strategies, namely Harvest or Quick Divestment.
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Bowman, C., & Asch, D. (1987). Strategic Management. Macmillan Education Ltd.
Campbell, D., Stonehouse, G., & Houston, B. (2002). Business Strategy. Butterworth Heinemann.
Confederation, T. B. (2011). ACID links up with BFC. North Yorkshire: The British Furniture Confederation.
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Gillespie. (2007). Foundation of Economics. Oxford University Press.
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Appendices
Appendix 1
The resource based model and the model for industry attractiveness
Source: Barney, 1991
Appendix 2
Strategic Capability and Competitive Advantage
Source: Johnson, Scholes & Whittington, R.,2010
Appendix 3
Market Share
Appendix 4
Portfolio of competences
Competence Standards
Competences within this category have low customer value and relatively low competence strength hence it does not create a competitive advantage.
Competence Potential
The company is superior to its competitors but does not have high value for customer demand.
Competence Gaps
In this category, customers attribute high significance to competences in this field. Yet the competence strength of the company is rather poor compared with that of its competitors. Thus there are competence gaps between what the market demands (competence requirement) and what the enterprise is able to do (existing in-house competence).
Core Competences
Real competences that determine the corporate profile exist only in the following cases:
– If the competence strength of a company is high in relation to that of its competitors.
– If the competences can be attributed a high present and future customer value.
Source: Friedrich, Handlbauer, Hinterhuber, & Stuhec, 1996
Appendix 5
Porters 5 forces
Threats of potential entrants:
Threat of new entrants in the furniture industry is minimal as the initial cost to set up the company is high. It is also difficult for new companies to compete with the existing big companies in the market as they already have a reputation and close customer – supplier relationship which the new entrants lack.
Bargaining power of buyers:
Bargaining power of buyers is low as there are very few substitutes of the products we offer and there are few big sellers in the market offering the same product range.
Threats of substitutes:
Our company offers furniture made with wood and white alloy metal. However, there are other companies that offer products that are produced using similar raw materials and are in the market for a much cheaper price. This serves as a substitute for our products and it leaves the company with high threat of substitutes.
Competitive rivalry:
Our company has a competitive edge over our competitors as we provide best quality products at affordable prices. However, larger organisations with the capability to provide wide variety of products with different price range prove to be a threat to the company. Also the advancement in technology has made competition more tougher with the customers being able to compare the price between the various companies.
Appendix 6
SWOT-analysis
Strength
• High quality and diverse product line
• A well trained and experienced management team
• Motivates the employees even if there is no turnover
• Ability to provide products at affordable price even after the increase in Value Added Tax
• Reducing the gap between the Company and the suppliers by establishing strong buyer-seller relationship through trade commitments.
• Digital marketing has helped the company to gain loyal group of customers.
Weaknesses
Limited quantity to showcase as it mainly develops the products according to customer need.
Lack of access to key distribution channel as the key players in the market are linked to them.
Inefficient HRM Manager
Excess of Inventory in hand
Opportunities
Lifestyle furniture aims to moving into new market segments that offer improved profits
We try to occupy untapped market and markets vacated by ineffective competitor. This is mainly made effective in times of strikes when inventories are unavailable to the competitors.
Threats
• No proper up-to-date analysis of the market
• Current government policies such as Value Added Tax and Inflations have a great impact on the rise in price of goods. In order to attract the customers, the products have been made available at lower rates but this may project items as lower quality.
• Several well established stores co-exist in the market
• Shift of customer tastes from the company’s product to the competitors
• New regulations imposed by the government
• Emergence of substitutes for our product
Appendix 7
Ansoff Matrix
It is the most commonly used model to analyse the possible strategic directions that an organization can follow. It has four alternatives:
Market penetration: In this strategy, existing products are sold in existing markets to increase the market share.
Market development: According to this strategy, companies sell existing products in new market segments. It requires development of new competencies that serve particular need of customers in the new market segments.
Product development: In this strategy, new products are sold in existing markets to attract new customers, retain existing ones and to increase market share.
Diversification: It is the strategy in which new products are sold in new markets. It is an appropriate option when current markets are saturated or when products reach the end of their life cycle.
(Campbell, Stonehouse, & Houston, 2002)
New
Markets
Existing
Existing
New
Products
Products
New
Existing
Existing
Markets
Products
New
Products
Existing
Products
New
Existing
Existing
Products
New
Existing
Markets
Products
New
Existing
Existing
New
Source: (Campbell, Stonehouse, & Houston, 2002)
Appendix 8
Generic Competitive Strategies:
Every company’s aim is to attain competitive advantage and achieving it requires the company to take a decision. It has to choose what type of competitive advantage it wants to attain and also the scope within which it wants to attain it. There are four types of generic competitive strategies:
Cost Leadership: In this strategy, the company decides to become the low cost producer by finding and exploiting all sources of cost advantage. The companies minimize the cost of their products in areas such as overheads, R&D and overall cost of production.
Differentiation: In this strategy, a company tries to differentiate its products from its competitors using some dimensions that are considered important from buyer’s perspective.
Focus: In this strategy, a company selects a market segment or a group of segments and completely focuses on that group by achieving competitive advantage over its competitors.
Stuck in the middle: As the name suggests, stuck in the middle strategy is adopted when a company has the need to follow more than one generic strategy at the same time. It means that a company can follow cost leadership for some of its products and differentiation for rest of the products as and when the market requires.
(Porter M. E., 1985)
Appendix 9
The Strategy Clock
A Strategy clock represents different positions in the market where customers have different requirements in terms of value-for-money and also a set of generic strategies for achieving competitive advantage (Scholes, Johnson, & Whittington, 2005).
Bowmans Clock.jpg
Source: (Options for a competitive strategy, 2008)
According to the Bowman model of strategy clock, there are three types of strategies, Differentiation strategies, Low price strategies and Risk strategies (or strategies destined for ultimate failure) which can be further divided as follows:
Differentiation Strategies-
Hybrid- Low cost of production and reinvestment in differentiation
Differentiation- The customers perceive an added value of the product
Focussed differentiation- Added value to the customers allowing the price to be much higher than the competitor’s price.
Low Price Strategies-
No frills- Low cost and low prices in a specific market segment. Only basic requirements of customers are satisfied.
Low price- Companies are cost leaders to be competitive in the market. Risk of price wars and low margins is high.
Risk Strategies-
Increased price/low value- It is possible only in a monopoly market and customers have to pay a high price.
Increased price/standard value- Higher margins are possible if competitors do not follow.
Standard price/low value- Loss of market share for the companies.
(Thomson & Baden-Fuller, 2010)
Appendix 10
BCG Matrix:
year3.ashx
BCG Matrix for Year 3 of Simulation
year5.ashx
BCG Matrix for Year 5 of Simulation
Source: Business Game Simulation- Market Analysis
Appendix 11
Sustainable Competitive Advantage
A firm is said to have a sustainable competitive advantage when a firm implements a value creating strategy not simultaneously being implemented by any other current or potential competitor and when the other firms are unable to duplicate the benefits of this strategy
(Barney, 1991)
Sustaining Price – based Advantage
Sustaining price based advantage is a competitive advantage through which lower price is maintained in a number
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