Strategy Formulation Essay
Yeo’s compete directly with one another at what is called the business level of strategic management. Competitors may be individual business units of a larger corporation or they may be stand- alone businesses. Because competition takes place at the business level, strategic management here is crucial to the overall success for Yeo’s . Accordingly, the concept of competitive advantage is both the focus of the three subsequent on strategy formulation. There is three parts that reflect the three major considerations in formulating a business- level strategy.
The first part is to discuss alternative competitive advantages (Overall cost leadership, differentiation and focus group) and the strength and limitation of each. Yeo’s company has competitive advantage whenever it can attract customers and defend against competitive force better than its rivals. Successful competitive strategies usually involve building uniquely strong or distinctive edge over rivals. Some example of distinctive competencies are superior technology and product features, better manufacturing technology and skills, superior sales and distribution capabilities and better customer service and convenience.
Competitive strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver an unique mix of value. (Michael E. Porter). The essence of strategy lies in creating tomorrow competitive advantages faster than competitor mimic the one you possess today. (Gary Hamel & C. K. Prahalad). Overall cost leadership strategy The classic cost leadership strategy involves offering a no-frills product aimed at the most typical customer in a large target market.
Anything to do with cost which related to money example raw material is cheap, workers salary is low facilities that Yeo’s can bite with the competitor. Because cost can usually be lowered as a product become more standardized, low-cost manufacturing strive for long production runs and low- cost uniform packages. By targeting broadly defined markets with standard products, production technique can be used to create the greatest possible benefits from economies of scale and experience curve effect. Such as price sensitive customer do not mind about the price but customer care about the taste and uality like Maggie and Kraft. In this case Yeo’s should apply leadership strategy low- cost producers are protected from customer pressure to lower prices. Competitors cannot consistently price below what is known as their survival price, that which allow profit margins just adequate to maintain a business. The low- cost leader has a lower survival price than other competitor does, so customer will not be able to play one competing supplier against another to force prices below a level at which the cost leader can still make profit.
Yeo’s would force less efficient suppliers out business, leaving the low-cost supplier with a monopoly. New entrants competing on the basic of price must face the low-cost leader without having the experience necessary to become efficient. Yeo’s company cumulative volume of production increase and the company gains experience in providing a particular good or service, production costs tend to decrease the experience curve effect. To the extent that experience affects costs in a particular industry, the low-cost leader is likely to have already moved far down its experience curve.
New entrants lacking this experience will not enjoy a comparable cost reduction benefit and may be forced to enter market using some of the competitive advantages not related to low pricing. Holding the low-cost position may convince rivals not to enter a price war. Price wars can be ruinous to all competitor involved. Customer do not mind of the price whether is cheap or expensive, they only care about good quality and good taste which they trust on Yeo’s product. Differentiation Differentiation strategies can help the company to differentiation their products offering by customizing product to suit consumer specific requirements.
Appealing to broad cross- section of the market through offering differentiating features that make customer willing to pay premium price. Example quality, prestige, special features, service and convenience. Success with this type of strategy requires differentiation features that are hard or expensive for competitor to duplicate. Sustainable differentiation usually comes from advantages in core competencies, unique company resources or capabilities and superior management of value chain activities. Some condition that tend to favor differentiation strategies by Yeo’s company: * There are multiple ways to differentiate the product and ervice that buyers think have substantial value. * Buyers have different need or uses of the product and service * Product innovations and technological change are rapid and competition emphases the latest product features. Corporate Level Strategy In this aspect of strategy, we are concerned with broad decision about the total organization scope and direction. Basically, we consider what changes should be made in growth objective and strategy for achieving it, the lines of business we are in, and how these lines of business fit together.
It is useful to think of three components of corporate strategy a) growth strategy b) portfolio strategy and c) parenting strategy. Growth strategy All growth strategies can be classified into one of two fundamental categories: concentration within existing industries or diversification into other line of business. When Yeo’s company current industries are attractive, have a good growth potential and do not face with serious threats, concentrating resources in the existing industries make good sense.
Diversification tends to have a greater risk but is an appropriate option when a company current industries have little growth potential or are unattractive in other way. When an industry consolidates and becomes mature, unless there are other markets to seek, a company may have no choice for growth but diversification. Portfolio Analysis The experience curve is based on the concept that costs are a direct function of accumulated market share. Market share equates to profitability and cash flow.
Market share equates to profitability and cash flow. Yeo’s company that successful in sub business unit and product lines will generate large cash flow as the sub business or products move toward maturity as contrasted to large cash requirement of sub business units and product lines in Yeo’s growth and development stages. As sub business units and products lines decline, cash flow will diminish and fade away. Effective utilization of cash flows and the nurturing of the most productive units requires management constant surveillance.
The diversified company with multiple product lines has the opportunity to balance cash flows and channel investment into the most promising areas of its portfolio. Diversified portfolio enables a company to control its internal allocation of resources. The ability to utilize tax losses from one units as an offset against a profitable one is an important advantages. Investing funds from a profitable maturing unit and product into the growing and cash- demanding part of Yeo’s, which show a tax loss, effectively lower the cost of the capital and provides an avenue for future growth through internally generated funds.
The basis for portfolio analysis and the channeling of available investment funds into the most promising and productive units of the firms is based on the structure and philosophy of management. Its approach to control sub business unit and product lines, its attitude toward risk and growth and its interpretation of its life- cycle position are factors which have an impact on the effective use of portfolio management.
Yeo’s which structure its diversified units into separate independent profit center entities with each area depending on its own resource may factors out the flexibility and advantages inherent in its diversification. Concentration on short-run profit and ignoring the potential growth sectors of the portfolio because of the initial lack of cash flow and profitability can lead to cash-draining in the defensive stage of the company Yeo’s life cycle and eventual movement into the decline. International strategy Mergers The threat of takeover was management of companies targeted for acquisition.
The threat of takeover was more likely for companies which had low price and earnings ratios. The relatively low prices of the stock of Yeo’s company in relation to earning was attractive to aggressive expanding enterprises, particular the conglomerates. These predicated Yeo’s growth mainly on effecting financial synergy by trading the stock, which had high multiple of price to earnings, for the stock of Yeo’s company with significantly lower price. Many effective strategies were developed by vulnerable companies to prevent unwanted takeover.
Compatible mergers in such instances may provide an increase in the economies of scale and an increase in market share for the combined unit without the fear of cutthroat competition. The nature of the industry is an important factor determining the likelihood of acquisition and mergers. The mature industries which are generally dominated by large companies are less likely to have industry acquisitions and mergers. The new industries, which still lack dominant size in individual companies and are technologically oriented and most likely to have industry acquisitions and mergers.
