Bosses Fail For Many Different Reasons

Published Date: 02 Nov 2017

DIPLOMA IN BUSINESS MANAGEMENT

INDIVIDUAL ASSIGNMENT

Business Environment

BM 502(09)

Name

:

Shaliny D/O Mathyalagan

IC

:

931008085922

Index No

:

PP102557

Batch No

:

1138

CAMPUS

:

PENANG

WORD COUNT

:

4112

TABLE OF CONTENT

TASK 1

INTRODUCTION 4-4

BODY 5-10

TASK 2

INTRODUCTION 11-12

BODY 13-17

TASK 3

INTRODUCTION 18-18

BODY 19-20

BIBLIOGRAFY 21-22

Task

Select an organization of your choice and present critical internal and external environment analysis based on the following task:

Give a meaningful definition of the context of business strategy and discuss a company’s external environment using Porter’s 5- Force Analysis and Pest analysis.

Discuss the company’s internal environment using value chain analysis and swot analysis.

Review the existing strategy or strategies practiced by this company and propose a better strategy for this company based on available options.

TASK 1

INTRODUCTION

Bosses fail for many different reasons. Some are just unlucky. Some are sunk by their lack of ambition. Of course, for best results, the company’s daily operations and functional capabilities must support their business strategy for survival and growth. The objective of business strategy is to ensure the continued economic growth of the corporate entity and to increase its market value through competitive positioning of the company and a close alignment between the business strategy and operational capabilities of the company ensures that the company makes a little progress every day in moving toward its stated business goals.

Strategy is fundamental to business strategy, but what is strategy? Defining strategy is not easy; the word has varied connotations and often requires a specific context to be understood. For this discussion, that context is business. But even when strategy is viewed within the context of business, the multitude of dimensions, the wide scope of business functions, long-term planning horizons, somewhat subjective forecasts of the business environment. All make the concept of strategy so abstract that it is difficult to nail down a single definition.

Normally a good strategy will have five components. The first two are closely intertwined: figuring out what winning looks like and which markets to play in when seeking that victory. The next component is figuring out how to win. The company’s distinctive strategy in any market it is trying to dominate. This in turn will be heavily influenced by the fourth and fifth components: identifying, and playing to, the company’s unique strengths relative to its competitors, and identifying those things that need to be managed for the strategy to succeed.

BODY

External environment is also known as the operating environment, this refers to market conditions, economic and political issues on the local and national levels, demographic factors, and other forces outside of a business that affect the overall success of that business. The external environment creates both risks and opportunities for a company. The main factors of external environment are called as PEST. Where P is for political, E for economics, S for social and T for technology. The Porter's Five Forces tool is a simple but powerful tool for understanding where power lies in a business situation. This is useful, because it helps you understand both the strength of your current competitive position, and the strength of a position you're considering moving into.

Figure 1: Porter’s 5 Forces Analysis

Source: (John Steinmetz 2012)

http://www.maxi-pedia.com/web_files/images/Michael_Porter_Five_Forces_Model.png

Figure 2: Pest Analysis

Source (Jessica Bell, 2011)

C:\Users\User\Downloads\pestanalysis-20111014T001517-x3rhav6.gif

The company that I have choose for explain about is Volkswagen. With Porter’s five forces model, we can analyze the automobile industry in China in which Volkswagen is engaged. This evaluation of the environment is useful since it directly impacts Volkswagen’s strategy to create a valuable position in the market. Porter’s five forces is a structure which consists of 5 factors, which together form a degree of competition and stability in the market (Jobber, 2007). First one is the threat of new entrants, it is considered low in the automobile industry. Manufacturers like Volkswagen mass-produce the automobiles so that they are affordable to the consumer. However some brands under the Volkswagen group such as the Lamborghini and Bugatti are slightly more tailored and customized, but also cost more in relation to the value of the car. Another barrier to entry is that it takes an incredible amount of capital to manufacture the automobiles, and of course the more tailored the vehicle, the more in manufacturing it will cost.

Second is bargaining power of supplier. In the automobile industry, the bargaining power of suppliers is rather low. There are so many parts and technologies that are used to produce an automobile, that it takes several suppliers to accomplish this. According to Porter’s rules about the Bargaining Power of Suppliers - when there are many suppliers in an industry, they do not have much power. There are so many suppliers to the automotive industry that manufactures can easily switch to another supplier if it is necessary. (Aktiengesellschaft, 2011 )

Then the third is bargaining the power of buyer. The bargaining power of the buyers relates to the options available the buyers have amongst its manufacturers and within this industry - it is moderately high. The buyers make up for a significant share of the industry’s income. If the automobile manufacturers cannot keep the buyers happy, they risk losing them to competitors, and therefore Volkswagen can benefit from this, and seek to target competitors’ clientele. The buyers have low switching cost if they are not happy, which means buyers can easily sell the car they own and purchase a new one.

Forth one is the treats of substitute products. Within the automobile industry there are not many substitute products. Some of the substitutes are walking, riding bike or taking a train. Volkswagen does have substitutes except for India. Volkswagen does not have substitutes in India currently for its diesel offerings except for the recently launched GM Optra and Hyundai Sonata. But Volkswagen easily scores over these products due to the brand recognition and loyalty it carries in the country. VW offers the widest range of diesel cars. Niche products like Lamborghini & Bentley do not have competitors in the Indian market.

The last is intensity of rivalry among competitors. To gain market share in the automobile industry, Volkswagen must gain market share by winning over customers from their competitors. There is a lack of great differentiation within this industry and this leads to a high rivalry amongst the industry’s competitors. The price, quality, durability, and many other aspects of different manufacturers are greatly taken into consideration when deciding what type of vehicle to purchase. When the different manufacturers advertise they even compare their products to their competitors. Volkswagen uses the commercials to focus on areas where the company outperforms its competitors such as its unique design, durability and status. (Highfill, Copus, & Smith, 2004)

There are some explanations about Volkswagen external environment using Porters 5 forces. Now I want to explain using Pest analysis. The political factor that effect Volkswagen is it outsources a great deal of their manufacturing outside the Europe in continents such as Asia, Africa and South America. Due to these countries being considered as "booming economies", government may encourage local residents to try minimizing purchasing products from abroad, but instead use locally produced products in order to maintain the situation of the home market and make a higher value of the GDP. In certain countries such as Denmark and Norway car insurance and registration alone can amount to the price of the car itself. These rules and regulations are becoming ever-increasingly popular and pose a threat to sales of cars in other Scandinavian markets and places which seek to follow such a trend. Almost all of the regulations come from consumers increasing concerns for the environment and the concern for safer automobiles. (Highfill, Copus, & Smith, 2004) Skoda is the Czech Republic’s largest company by sales, with revenue equivalent to 5% of the country’s GDP, so its performance is an indicator for the country’s overall economy, which hinges on the export of cars, car parts and electronics. Foreign countries that seek to increase its GDP and employment, which offer cheaper labor and resources will therefore encourage the foreign direct investment from Volkswagen. So indirectly this factors or changes bring some toughness to Volkswagen.

Here is some economic factor of Volkswagen (VW). As an advantage to Volkswagen few markets which proved to show a decline in sales mainly in Spain, which proved to show a decline of 16.8 %.Taken as a whole, sales of VW however, were on the increase- despite overall motor industry taking a dive. Europe by 8.6 % improved sales figures. The main brands which contributed to the sales were Audi, Skoda, Bentley and the VW commercial vehicles. Sales of the VW passenger cars, such as the VW Sharan van grow tremendously in regions/ markets such as Central and Eastern Europe, Asia Pacific and North America. (Aktiengesellschaft, 2011 ) The percentage growth of the following markets is as follows:

Asia Pacific with 17.4 %

North America had a significant growth of 21.4 %

Central and Eastern Europe with a larger 29.7 %

When we talk about Volkswagen, Poland is the country we will think about. Poland is doing fine during economic crisis compare to other European countries. There are few reasons for this situation. Firstly, it is a big country with huge and cheap labor power. Taxation rate is relative low comparing it to for instance Denmark, France and other Asia Countries. Finally, location of Poland makes these countries competitive. It is completely naturally that differences in salary range occurs, consequently people are situated on different social levels where money and status are factors that decides about belonging to social group. Car is also a thing that distinguishes people from different social groups, so the poorest representative drives older and cheaper cars when the richest possess best and more expensive cars. To sum up car is a fair tool to judge in this case. Volkswagen brand as a car maker which produces stable, affordable and reliable cars. It is based on German hard-working spirit and precision, that is why Volkswagen cars are very popular nowadays also in aftermarket. Another advantage of having car from German manufacturer is the slowest ratio of value loss among other automotive companies. (Business in Poland – Law, tax and banking", 2006)

The last is technological factor. Volkswagen has 94 production plants worldwide and additional 8 in Americas, Asia and South Africa. Company intensively focuses on developing new technologies and innovation to become the most economical and ecological car producer in the world. Directly quoting words of board chairman, Martin Winterkorn it seems that company is aiming for the leader position within automotive industry. ‘Till 2016 we would like to invest 62,4 mld Euro for Research & Development to become number one.’ (Volkswagen Technology) Burdens of proof of Volkswagen steps could be developing completely new BlueMotion Technologies engines. Volkswagen put resources and effort to create TDI and TSI engines. Both are supercharged and by downsize strategy, main capacity was reduced by in the same time performance remains constant. In addition it is compulsory to state that company already offers cars with hybrid engines, which are running on electricity and allow reducing petrol consumption and CO2 emission to environment in further. Moreover, company aim also for renewable energy sources like water, wind and sun. Porter’s 5 forces analysis and PEST analysis help Volkswagen Company to know their weakness and to put more efforts to increase their profit every year.

TASK 2

INTRODUCTION

Swot is an acronym for Strengths, Weaknesses, Opportunities and Threats. By definition, Strengths (S) and Weaknesses (W) are considered to be internal factors over which you have some measure of control. Also, by definition, Opportunities (O) and Threats (T) are considered to be external factors over which you have essentially no control. SWOT Analysis is the most renowned tool for audit and analysis of the overall strategic position of the business and its environment. Its key purpose is to identify the strategies that will create a firm specific business model that will best align an organization’s resources and capabilities to the requirements of the environment in which the firm operates. In other words, it is the foundation for evaluating the internal potential and limitations and the probable/likely opportunities and threats from the external environment. It views all positive and negative factors inside and outside the firm that affect the success. A consistent study of the environment in which the firm operates helps in forecasting/predicting the changing trends and also helps in including them in the decision-making process of the organization.

Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings (John steinmetz 2012); primary activities and support activities. Primary Activities means those that are directly concerned with creating and delivering a product. Support Activities means the activities which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities. Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others.

Figure 3: Swot Analysis

Source: (Lyndsay Swinton 2011)

SWOT-analysis.gif

Figure 4: Value Chain Analysis

Source: (Dr. Mayer, Joseph 2013)

value_chain_analysis.gif

BODY

First primary activity of value chain analysis will be inbound logistics. . Volkswagen do not owe any mining subsidiaries therefore is addicted to suppliers. To secure production continuity company has to secure process of getting raw materials. This includes IT system called Central Procurement and Treasury System. Central Procurement and Treasury System was developed in 2007. It base on calculating raw materials risk which help to define and evaluate a long-term strategy for raw materials and production. Purpose is to secure a safeguard of raw materials delivery and in long-term production as it has huge impact on it. Raw materials risk analysis is a key tool in enabling more secure and economic supplies of raw materials to be assured for as long as possible. The operation, it is about the process of putting raw materials together and producing the final product. In this case Volkswagen operations process takes place in factories that company possesses. There are 94 production facilities in different locations. Company believes in systematic localization so productions plants can handle themselves the value added process. This process of international outsourcing allows reducing currency risks, transport and duties.

Outbound logistics will be the third point. This section focuses on delivering product to the retailers, outlets, or stores. Firstly it is important to state that company has own logistics department called Volkswagen Logistics which deliver products to Volkswagen outlets. As it was stated before different productions facilities produces various parts and models. From those facilities cars are ready to be transported into outlets. Volkswagen Logistics uses mainly road transport and big trucks to transport ready to use products. Outlets are franchised and in this project are considered as dealer’s network, as we can see every Volkswagen car dealer is called differently. Franchisers have to buy a car from factory, afterward it is only up to him how he can promote it locally to create brand awareness about actual products and promotions. Marketing and sales describes pricing, promotion and selling the final product within value chain. Volkswagen makes adverts spots independently. Usually spots describe specific product or new technology invented to the car. They are played on TV stations, Internet websites, YouTube. Social services where Volkswagen exists like Facebook and Twitter allow users to share experiences with Volkswagen brand. It is a great tool to create a relationship or brand loyalty with actual customers and acquire new one. Catalogs describe products, configuration, engines, innovation and assistance systems.

Services describes after sales services and hotline. To start with Volkswagen produce original spare parts for own cars. Customer can order it through website or local dealer. It is a great advantage because no misunderstanding appears comparing to ordering car parts by customer who do not know so much about cars. Another thing is that original Volkswagen services are located in most cases next to local dealer’s network. Basically after ordering a spare part it can be mounted into the car directly afterwards by specialist crew. Garages are located next to saloons; it is easy way for customers to find a best place to service a car due to staff that knows models. In the other hand it brings additional funds for the company and it is also a best way to collect primary data as staff can also make survey among users of Volkswagen. Products offered by company have also a guarantee period, when can be serviced under Volkswagen garages.

The other part will be the support activities. First will be procurement. Location of factors makes an impact on procurement. There are three examples of successful production facilities that also have a huge impact on suppliers. For instance: Puna in India, Kaluga in Russia, Chattanooga, Tennessee in United States of America. Puna besides creating 12,000 new workplaces also allowed creating an agreement between Volkswagen and 58 new local and regional suppliers. Kaluga production facility gave 4,370 new workplaces created indirectly through secondary employment effect and allowed to create business relationship with 12 new local suppliers. Finally Chattanooga, Tennessee made an agreement with new 17 suppliers. Volkswagen uses innovative IT systems and localization factor to make sure that there will be enough raw materials to carry on with production. (Aktiengesellschaft, 2011 ). Technology development processes within Research & Development and strategies with it. Volkswagen continue to develop new technologies, as an example could be downsizing all turbocharged TDI diesel and TSI petrol engines, but still remaining performance and improving ecology and economic of products offered. BlueMotion Technologies engines still are being improved, so we can expect more efficient power units in future. Another example could be assistance services like Park Assist which makes car automatically seeking for the space to park and park afterwards.

This section describes Volkswagen approach to employees, motivation, expectations and what company can offer. Firm seek for a people who can give best performance out of them, but still maintain demand and ability called ‘flow-channel’ as it gives best results and performance to allow company boost up. Cooperation and leading by example is another aspect of Human resources department in Volkswagen. Principle says: ‘Lead, Demand and Promote’ which means in order to achieve success company need to have stable cooperation between different departments for instance management and workforce. (Volkswagen Human Resources ). Volkswagen introduced tool called ‘mood barometer’. It is a kind of anonymous survey among all employees within company, so everybody has a possibility to give a feedback about current situation, tasks and assignments etc. firm infrastructure is managed by Board of Management which is issued by the Supervisory Board which consists of 20 people including chairman, top managers and shareholders. Top managers are elected by workforce. Their role is to secure Volkswagen business areas and make sure that company is on track. Besides company has all possible departments including Procurement, Logistics, Production facilities, Research & Development, Human resource management, Marketing, Sales, Advertising, After sales services. Taking everything to the consideration, Volkswagen controls almost all sections within value chain, starting from gathering raw materials then production and finishing on sales & advertising of ready-to-use products. Company focuses on instant improvement and wants to make the newest technology available for customers. After sales garages help to maintain car in good shape and provides original parts. Finally, broad Human resources department counts on people in the entire process.

When we talk about the strength in swot analysis, one of the biggest advantages of Volkswagen is brand name. Moreover, company has a long history and successful products like The Beetle which Product Life Cycle stands for almost half of century. Company has a broad portfolio. Products offered can demand almost every customer. Price of cars is also very affordable which make it available for most of potential customers. Volkswagen control almost entire value chain thus has production facilities, research & development department and dealers network. Firm control entire process from creating a product, to production and in the end sales to customer and advertising. A company with great weaknesses often has to resort to a survival strategy. Volkswagen (VW) could have seriously considered the option of a joint operation with Chrysler or American Motors. Another alternative would have been to withdraw from the American market altogether. Although in difficulties VW did not have to resort to a survival strategy because the company still had much strength. Consequently, a more appropriate strategy was to attempt to overcome the weaknesses and develop them into strengths. Specifically, the strategy was to reduce the competitive threat by developing a more flexible new product line that would accommodate the needs and desires of the car-buying public.

The opportunities are innovation and increasing resources in research & development definitely help company in future and pay off. New technology, more efficient engines and new assistance services will not only make cars better, but also bring new customers. Volkswagen does not exist on all available markets yet. Thus it is a great opportunity for company to enter new markets with actual products. On markets that Volkswagen exists it is advised to use market penetration strategy. It means to take active actions to increase market share on current market by for instance by wise pricing strategy, aggressive advertising and sales promotion. The threats for Volkswagen is high level of rivalry among the Volkswagen Group can affect Volkswagen brand in future quite badly. For instance Skoda brand which is perceived as cost leader and number one if it comes to sales in Poland can slowly push out Volkswagen brand by reducing market share and substituting products with cheaper alternative. So for the last line, the value chain analysis and SWOT analysis encourage Volkswagen Company to ensure where is their company’s disadvantage are and help to overcome it.

TASK 3

INTRODUCTION

Planning allows an organization to anticipate change and prepare for it. Planning also helps an organization deal with dramatic changes in its environment. In fact, by anticipating and planning for change, instead of just reacting to it, an organization can determine how to deal with the change. With a strategic plan in place, day-to-day decision making and problem solving will be directly related to long-range and short-term goals. Planning reduces stress by making decisions easier. When choices are made within the context of a strategic framework, the organization’s direction is clearly defined. If there is no strategic framework, the future of the organization is in the hands of whom ever is making choices. Strategic decision making and problem solving assure that the organization’s vision will be achieved.

Strategies provide the framework for plans by channeling operating decisions and often pre-deciding them.  If strategies are developed carefully and understood properly by managers, they provide more consistent framework for operational planning. Strategies focus on direction of activities by specifying what activities are to be undertaken for achieving organizational objectives. They make the organizational objectives more clear and specific.

Strategies ensure organizational effectiveness in several ways. The concept of effectiveness is that the organization is able to achieve its objectives within the given resources. Thus, for effectiveness, it is not only necessary that resources are put to the best of their efficiency but also that they are put in a way which ensures their maximum contribution to organizational objectives. Strategies contribute towards organization effectiveness by providing satisfaction to the personnel of the organization.

BODY

One of the strategies practiced by this company is Porter’s Generic Strategy. Volkswagen means peoples-car; continue to make cars affordable for everybody. Even though competition in automotive sector is relative high and tough, company put efforts to maintain the idea and keep product in affordable and competitive price. But in the same time Volkswagen keeps improving actual products and applies process of instant innovation. New technologies, more efficient engines and completely unique assistance systems are only significant examples of implementing differentiation leader approach. Another thing that needs to be taken to the consideration is existence in many markets. Volkswagen as an international company focuses to keep their products available everywhere in the world by overcoming many cultural barriers. Therefore company uses broad market scope.

Due to broad portfolio German car manufacturer can meet demand of all customers. Potential customer has variety of choice between many product and options offered by Volkswagen for instance interior version, capacity and type of engine and extra equipment. Moreover, Volkswagen differentiates from other competitors by having long developed value chain including after sales services and financial consultancy due to Volkswagen Bank and Volkswagen Financial Services. It also has an impact on automotive market, because there are many other car companies that can provide car from same sectors. High rivalry in the industries keeps all mayor players under pressure. In order to maintain on the market firm became a differentiation leader and should continue this strategy on every market, not only Poland. (Jobber, 2010)

Although Volkswagen has expertise their strategic plan, it still has some options to improve it. The company has to increase their skill in designing product for efficient manufacturing, for example, having a small component count to shorten the assembly process. Then they can work more to make more sufficient channel distribution and in processing engineering. They also can make a strong sales team with the ability to successfully communicate the perceived strength of the product corporate reputation for quality and innovation.

For the last few words, all the internal and external factors of Volkswagen Company have given a good perspective on it. It has all the qualification to be owned by every person. The thing is they should have some confident and put on some effort to purchase this car. I’m sure it worth for it.