Firm Protect Itself And Grow In An Industry

Published Date: 02 Nov 2017

Midterm Exam Questions

Please answer ONLY four of the six questions. Your answers should be complete, concise, original, and insightful. The answers should be loaded as a word document into the midterm exam Turnitin assignment on Angel. If required your answer should reflect APA style, it should also be doubled spaced and formatted using Times Roman 12 point font. The exam is due 3/13/2013 by 11:59pm.

How could a firm protect itself and grow in an industry characterized by low barriers to entry?

Barriers to entry refer to anything that deters firms from moving into a specific industry. Occasionally when an industry earns a return on capital, more so than its cost of capital, firms may be lured and attracted to the presented opportunity. When new competitors occupy an unrestricted industry, and have success, the rate of profit will likely drop to a more competitive level. As a corporation it is important to determine the level of barriers to entry before implementing a strategy. If there are significant opportunities for profits within the industry it is likely that outsiders will eventually find a way in. There are a numerous restrictions that can provide a barrier of entry for firms outside the industry. They consist of legal restrictions, economies of scale, technological superiority, entry-deterring behavior, control of scarce resource or input, financial requirements, and patents (Nilsson). It is important to note that almost all barriers to entry are temporary. Ultimately the restrictions will either disappear or outsiders will eventually break the high barriers to entry.

It could be considered very risky if a firm decides to enter an industry characterized by high barriers to entry. Many organizations strive to preserve high profitability in the long run and continue to build entry barriers to make it as close to impossible as they can for new entrants. However, if a firm does decide to enter itself in an industry characterized by low barriers to entry then it must thoroughly comprehend the trends within the industry. Recognizing the trends for the future will help implement a successful strategy and more importantly serve as protection against other potential entrants. Additionally, the firm needs to be vibrant, innovative and find an ‘attractiveness’ that consumers can’t live without. To do this successfully a company must understand the potential for product differentiation and customer base, more so than the competition; overcome economies of scale and obviously have some sort of financial backing. It is vital to understand what drives your customer and how to make your product more appealing than competitors. A prime example of this is Chick-fil-A. Chick-fil-A have been around for decades, however of recent years they have excelled. As of 2010, Chick-fil-A "topped the highest average sales per store with $2.7 million per unit. Overtaking fast food giant McDonalds, which earned average sales per store of $2.4 million. (Jandi, 2012)" Chick-fil-A realized they had a specialized product and established a niche in the market. A company entering an industry characterized by low barriers to entry must visibly segregate precisely what makes their business superior than the competition.

With that being said, a firm must be proactive and adaptive. A ‘dynamic strategy’ that is shaped by competitive forces is essential if a firm wishes to enjoy a long term sustainable competitive advantage. A ‘dynamic strategy’ must include the positioning of the firm so that its competences offer the best protection against competitive forces; refining the firms position in the market by prompting the stability of the forces through tactical moves and anticipating shifts in various factors and being able to effectively respond. The firm needs to be aware of other opportunities and not rely on previous accomplishments. Therefore, recognizing an opportunity and seizing the opportunity are both just as important to the success of a newly established firm. Consistent evaluations are also required to help monitor the success or failure in both the short and long-term cycle of the firm. It must be understood that these are merely guidelines that organizations that enter an industry with low barriers to entry should adhere to, not a guarantee for success (Kooner, 2011).

Question 2: What can companies, departments, and individuals do to not get stuck, in order to create realistic and dynamic strategies?

Creating a dynamic strategy can be a very difficult and complex process. Preparing a strategy for an organization that incorporates external factors and internal factors is like preparing for the unknown. However, preparing for the unknown does not suggest a corporation has to go blindly into the future. No company is perfect at anticipating and forecasting evolving strategic innovations. "A lack of certainty is no excuse for inactivity" (Markides, 1999). Many corporations become static when trying to move forward. The majority of the time corporations are using all of their resources to try and create the next ground-breaking product. However, successful product cycles can involve creating and expanding from pre-existing products. Firms must also consider that once it is competing in its present position and they have reached an attractive distinctive strategic position, it must continuously search for a new strategic position; it is a perpetual process.

Companies must consistently and proactively develop the next strategic innovation. This means a firm must organize itself effectively so that it is concurrently investigating with new technologies and ideas – finding a balance between old and the new. It is up to the higher level managers of a company to introduce a highly innovative and creative culture. This must be highly emphasized and transitioned throughout the company into different departments. Higher level managers set the standards and examples, which the employees must follow. Therefore, departments must do an effective job of ensuring the employees they hire do not lack required core competencies. An organization must constantly monitor any changes that may alter the competitive market. For instance; if there is a new technological innovation, the organization and various departments must ensure their employees can adapt, take advantage of the innovation and manage the organizational transition when introducing a new technology.

Companies, departments and individuals can effectively prepare themselves realistic and dynamic strategies. This can take place in the form of:

An initial monitoring structure to identify minor problems/distractions before a major crisis occurs,

Prevent cultural and structural inertia – Emphasize on a culture that welcomes change and wants individuals to be innovative,

Cultivate techniques/actions that allow individuals to investigate with new ideas,

And effectively manage the transition.

It is the job of the entire organization to adapt an innovative culture. With that being said upper level managers must pave the way for departments, and departments must then pave the way individuals to feel the sense of belonging and trust in an ‘innovative’ and ‘dynamic’ culture (Markides, 1999).

Question 5: How do firms develop new capabilities? What are the consequences of the distinction between knowing about and know-how? In other words why is knowledge creation important?

Capabilities refer to the distinctiveness of a company and how it is observed by both your employees and customers. Companies must be able to build distinctive capabilities more promptly than their competitors to build upon success. Developing new capabilities in dynamic terms is crucial for a strategic advantage. During typical, everyday operations of a business, it is important to note, if managed correctly, capabilities become stronger and increasingly challenging for competitors to comprehend and emulate. In regards to competitive advantage, it is important that a capability isn’t simplistic to the point where it can be easily imitated. The complexity should also be managed to the point where it is always thoroughly controlled, but given the chance to flourish. A ‘sustainable competitive advantage’ can be reached by constantly developing existing, and generating new innovative resources and capabilities in reaction to swiftly fluctuating market conditions. The techniques of those at the center of the facilitation are essential to fast-track the emphasis of capability building and an increase in core-competencies. Often a change in mindset, experience or creativity can result in the development of capabilities for a firm. For instance, leaders are essentially responsible for building organizational capability. Leaders should have the will to stimulate a culture for innovation, and can therefore display a high level of organizational direction through a process of vision, action and purpose (Kotelnikov, 2001). Ultimately organization capabilities are measured by a ‘firm’s capacity to deploy resources for a desired end result.’ Generally, the challenges for management lie in being able to develop existing capabilities, acquiring or creating new ones and using them to create strategic intent (Grant, 2010).

Furthermore, ‘knowledge creation’ ties directly into the emphasis of the development of organizations capabilities. Often an organizations ability to create knowledge will determine how effective its competitive advantage will be. Additionally, a corporation needs to understand the important insight knowledge management can add to the ‘strategic intent’ of resources and capabilities (Frost, 2010). According the SECI model created by Ikujiro Nonaka, ‘knowledge creation’ refers to the development, continuous transfer, combination and conversion of new ideas through interactions between clear and tacit knowledge in individual human minds (Nonaka, Toyama, & Konno, 2000). It is worth noting that ‘know-how’ is principally ‘tacit’ in nature; therefore involving skills that are conveyed though their performance. On the other hand, ‘knowing about’ is primarily ‘explicit’ and ‘consists of facts, theories and sets of instructions’ (Grant, 2010). Explicit knowledge is able to be easily repeated among countless users. For instance; the ability to share information over the internet has reduced the costs of distributing explicit knowledge for firms. However, tacit knowledge must be observed through its application and acquired through practice (Grant, 2010). Therefore, because it cannot be directly expressed, its transfer amongst people and employees is vastly uncertain and unpredictable.

The purpose of successfully transferring ‘knowledge creation’ from a possession, to an act of practice, action and interaction is ultimately at the organizations discretion. This discretion will determine how effective the company is at conveying driving forces amongst employees into the creation of new knowledge. Levels of innovation and creativity are able to flourish within the organization if work environments are structured properly and highly emphasized around the development and interplay of knowledge and creation (Kotelnikov, 2001). The continuous development of knowledge is learning. If there are no restrictions or limits placed on ‘knowledge creation’ than the possibilities are endless (Temple, 2009).

Question 6: Using IRON AGE or ALLIED SIGNAL AUTOMOTIVE analyze the current competitors and market for either specialty industrial/workplace boots and shoes or automotive product like those presented in the case. Provide information on at least 3 competitors (current data or best you can find). Discuss the strategies of each and identify and explain if any of the competitors have a competitive advantage.

There is an assortment of successful companies within the United States who produce industrial/workplace boots. It seems that firms, who offer higher quality boots, for a higher price, are usually produced in the United States. Additionally, the cheaper, frailer boots are produced overseas, evidently in China. The industrial protective footwear markets are currently ‘intensively competitive’. The average product quality is high and high quality firms such as Red Wing Shoes differentiate themselves by ‘offering superior or unique services’ (Frost & Sullivan, 2005). Occupational safety regulations continue to play a key role in manipulating the demand for protective footwear. For instance PPE (personal protective equipment) standards continue to change to reduce the risk of injury as times change with technology and in the environment. The OSHA (Occupational Safety and Health Act) and ANSI (American National Standards Institute) are establishing firmer regulations and even expanding these regulations into the service sector, where the concern for hazardous materials and injury prevention is on the rise. While the market has primarily been concerned with heavy duty factory environments, there is a sudden push for safety footwear markets to be ‘revitalized by incitement from new applicants and industries, rather than further development within the old.’ (Frost & Sullivan, 2005)

Red Wing Shoes are traditionally homegrown industrial/workplace boots that specialize in heavy workplace activities. Red Wing Company LLC has emphasized an ‘American made’ boot since World War 1. In fact, Red Wing Boots were the official providers of footwear to American soldiers fighting in World War 1 and World War 2 (Funding Universe, 2000). Red Wing Shoes has a very rich background, one that stretches back to 1905. Therefore, because of their emphasis on quality and tradition, Red Wing Boots have become very reputable. Their boots are one of the most famous and increasingly worn boots in heavy workplace operations.

Red Wing Shoes have a very clear and unique strategy. They provide high quality boots for a steeper price than what their competitors offer. However, not many companies can strategize this way and are effective. Because of its long lasting reputation, consumers would much rather pay the extra dollar for a smooth, comfortable and reliable boot that stresses quality and longevity. Their strategy was one of stability for the average U.S worker. They adopted quite an interesting concept of "selling U.S. made-shoes to the U.S occupational market at a time when 90% of the nation’s shoes are made overseas." (Manning, 1997)

Furthermore, factories in the United States and overseas also make casual and outdoor shoes. The Red Wing Shoe brand also manufactures shoes under Irish Setter Boots, Vasque, Carhartt and Worx Brands. While the majority of these models are manufactured in China; the Red Wing Shoe brand is still primarily handmade in the USA. While Red Wing Shoes still produces their icon boots within the USA; they introduced an international production strategy (outsourcing) in China to reduce manufacturing costs and increase its product lineup (Funding Universe, 2000). This is very common practice with companies around the world and is a sufficient way to reduce production costs.

Moreover, two of Red Wing Shoes’ closest competitors are the Timberland Company and Wolverine World Wide. The Timberland Company is popularly known for being the pioneer and inventors of commercial fashion amongst industrial boot manufacturers. Timberland Company adopted an elegant and stylish approach to the industrial boot. Their first major boost came when Italian innovators introduced Timberland hiking boots as ‘the ultimate in stylishness and sophistication’ (Funding Universe, 2001). This strategy of ‘appealing to the upscale buyer’ paid off significantly and Timberland began to develop into a ‘lifestyle brand’ on a global scale. Since the late 90’s Timberland has had a ‘dynamic strategy’ that has continued to improve its product line by adding watches, backpacks and kids’ footwear.

It is interesting to note that with a slight downturn in the mid-1990’s Timberland Company were forced to close all its factories within the United States and therefore, ‘made a commitment to get back in touch with its customers’ (Funding Universe, 2001). In its efforts to outsource its production abroad the firm officially announced its first loss. However, this was short lived and its new strategy was successfully executed when in the early 2000’s the Timberland Company released sales of just over $1 billion, approximately $700 million more than Red Wing Shoes.

While the Timberland Company boots are considerably regarded as fashionable, in the late 90’s it released a professional series of work boots that have become rather successful. Timberland has persisted as the leader of the U.S. "brown shoe" (nonathletic footwear) sector. The corporation had effectively progressed from a manufacturer of ‘robust, subdued work boots to become the leader of the ‘rugged outdoor footwear market’ (Funding Universe, 2001). One of the most intriguing aspects to this company is that they were named number 78 in Fortune’s 100 Best Companies to Work For. Timberland Company insists on ‘doing things differently’. With that being said; workers can devote 40 hours per year of paid time off to volunteer wherever they like. (Fortune, 2007)

Wolverine World Wide has a strategy similar to that of Timberland Company. Wolverine World Wide is a slightly smaller company then Timberland Company. It has roughly just over 4,000 employees, compared to Timberland Company’s 5,600; and generates sales of just under $1 billion. Wolverine World Wide have purchased a substantial amount of subsidiaries over the last few decades, emphasizing a strategy based on an aggressive type of diversification, similar to that of Timberland Company. The most notable of them is Hush Puppies. Wolverine World Wide recently added to their list of subsidiaries; after acquiring the Performance Lifestyle Group of Collective Brands as a joint venture with Capital Partners and Golden Gate capital for just over $1 billion. Furthermore, Wolverine World Wide also produces footwear for companies such Patagonia, Caterpillar, Harley-Davidson and the Military. (Wolverine World Wide, 2013).

According to their vision they want to be recognized as "The World’s Premier Non-Athletic Footwear Company". To achieve this Wolverine World Wide have placed emphasis in ‘building the strongest brand portfolio in the industry’ and ‘accelerating growth in the women’s segment of the market’. Furthermore, Wolverine World Wide follows a market-driven consumer-focused operating philosophy and strives to provide "Best in Class" service to consumers. (Funding Universe, 2013)

It is evident that all three industrial boot powerhouses are unique in their own way. Red Wing Shoes have kept on a very straight forward initiative by focusing on quality and customer responsiveness. Timberland Company and Wolverine World Wide distribute their industrial boots for approximately half the price of Red Wing Shoes. While their quality assurance is not quite on the same level as Red Wing Shoes, it is still significantly evident. Timberland Company and Wolverine World Wide have large portions of the market share through their abilities to create unique, well-developed and well-executed ‘dynamic strategies’ that enable them to flourish in other avenues of the industrial boot industry.

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