Category: Competitive Strategy

Introduction

At the moment, the business environment is characterized by a high rate of dynamism as a result of technological advancement, coupled with a high rate of globalization. To survive in such an environment, firms operating in different economic sectors are increasingly considering ways through which they can develop a competitive advantage in the facing of the mounting competition.

A firm only attains a competitive advantage over its rivals after the implementation of a unique competitive strategy. A competitive strategy refers to the decision regarding how a firm intends to establish itself in a certain domain. The competitive strategy entails both offensive and defensive mechanisms which are aimed at dealing with the five competitive forces (Vallabhaneni, 2009, p. 15).

These forces include barrier to entry, rivalry from firms in the industry, the threat of substitute, supplier bargaining power and lastly, buyer bargaining power. There are a wide range of competitive strategies that firms may decide to incorporate in their daily operations. The main strategies include cost leadership, differentiation strategy, cost focus, broad differentiation, and low cost strategy (Schermerhorn, 2010, p.223).

Firms adopt different competitive strategies depending prevailing environment in the market. For example, Fiat Motor Company integrated a broad-line competitive strategy in its operations. This competitive strategy means that the car manufacturer is a regional producer of a wide range of automobiles.

Through an effective implementation of a competitive strategy, a firm is able to create value for its products. The resultant effect is that the firm attains a high competitive edge over its rivals in the market. On the other hand, to survive in the long run, it is important for firms to ensure that they implement a sustainable competitive advantage.

In the 21^st century, the purchasing behavior of consumer has undergone a major change and if at all firms do not keep pace with these changes, they are likely to lose a large share of their market to their dynamic rival companies that have embrace the changes.

The change in the purchasing behavior of consumers is worsened by the increase in the degree of complexity within the business environment as a result of technological advancement arising from innovation and the high rate of globalization (Hoskisson, et al., 2008, p.121).

To attain a high competitive edge, firms have deemed it appropriate to adopt the integrated cost and differentiation strategy. The research paper endeavors to examine whether or not it is suitable for forms to implement integrated cost and differentiation competitive strategy in an effort to attain competitive advantage.

Arguments for integrated cost and differentiation competitive strategy

According to Hoskisson, Hitt and Ireland (2009, p.147), a firm which has adopted integrated cost and differentiation strategy is more efficient in its operations compared to a firm that has incorporated only one business-level strategy.

For example, a firm that has incorporated an integrated strategy is able to respond to the changes in the business environment more effectively. This is due to the fact that the firm is not constrained in the implementation of its strategy. However, the firm can easily change its competitive strategy depending on the prevailing business conditions.

An integrated cost and differentiation strategy also provides a firm with an opportunity to enhance its human capital. For example, the firm’s employees can easily learn new skills. According to Ogbor (2009, p.254), developing the skills of a firm’s employees play a vital role in the firm’s efforts to attaining a competitive advantage in the market.

Alternatively, a firm can also easily take advantage of technological advancement in the industry. The acquisition of current technologies and new skills means that there is a high probability for firms to advance in their core competences.

The result is that the firms will be able to produce highly differentiated products that add value to the customers. Currently, consumers are increasingly demanding differentiated products and services at low prices (Manning 2001, p. 32).

Further, the integration of new technology may result in a firm undertaking its production cost effectively. Consequently, the firm in question is better placed to attain competitiveness owing to the low cost of its products.

Integrated cost and differentiation competitive strategy greatly enhances the attainment of competitive advantage through low pricing and ensuring that customers attain value for their money (Hoskisson, et al., 2008, p.121). For example, the differentiation strategy can enable a firm to adopt an integrated premium pricing strategy.

On the other hand, the cost leadership contributes towards a firm being effective in its pricing strategy. For example, a firm can be able to set the price of its products at a relatively low point compared to its competitors. This may culminate into an increment in the firm’s sales revenue considering that consumers are price sensitive in their purchasing patterns (Viney, Winchester & Boojihawon, 2010, p.244).

A study conducted by researchers revealed a strong correlation between a firm adopting integrated cost and differentiation competitive strategy and attaining above-average returns (Warner, 2010, p.105). Findings of other researchers conducted by different scholars revealed that firms that have adopted multiple strategies outperformed those which adopted only a single strategy (Hoskisson, Hitt & Ireland, 2009, p. 148). For example, the most successful firms in the Korean electronic industry are those which have adopted the integrated strategy.

Arguments against integrated cost leadership and differentiation strategy

Despite the fact that the adoption of multiple competitive strategies enhances a firm’s ability to attain above-average returns, there are a number of costs associated. According to Hitt, Ireland and Hoskisson (2009, p.120), integrated strategy may lead to a firm being inefficient in undertaking some of the primary and support activities.

These activities are core elements in the firms’ effort to attain competitiveness. However, undertaking these activities is costly. For example, in order to attain low cost in its operation, the firm may be required to enhance its process engineering activities and also undertake product changes.

On the other hand, to implement its differentiation strategy, firms may be required to improve its marketing and research and development activities. Improvement of these activities will enable firms to operate cost effectively which means that firms are able to undertake effective and cost efficient production.

The resultant effect is that firms are able to create value to the customers through differentiation and low prices. For a firm to effectively adopt the integration strategy, it must be effective in implementing reducing cost and product differentiation.

Failure to execute the various support and primary activities optimally may culminate into the firm being ‘stuck in the middle’ (Hitt, Ireland & Hoskisson, 2009, p.120). This means that the firms will not be able to implement either of the competitive strategies.

The resultant effect is that the cost structure adopted by firms will not be optimal enough to enable the firm implement a low pricing strategy. Additionally, firms may not be in a position to undertake effective differentiation. In the long term, the firm may not be effective in attracting its target customers thus limiting their ability to earn above-average returns.

For example, in its operations, South West Airlines has been efficient in undertaking its support and primary activities. This has greatly enhanced the success of the firm’s integrated approach to attaining competitive advantage (Hill & Jones, 2008, p.75).

Pursuing integrated cost leadership and differentiation strategy can be costly for a firm. This arises from the fact that the firm has to implement both differentiation and low cost strategy. To attain this, a firm may be required to undertake other corporate strategies such as partnering with other firms in the industry.

However, such alliances may not culminate in a firm attaining cost leadership. Additionally, the firms may be required to undertake acquisitions in an effort to enhance its ability to differentiate itself by increasing its product portfolio. For example, a firm may consider offering products that are not offered by competing firms.

In order for generic strategies to contribute towards a firm attaining competitiveness, Michael Porter asserts that the strategies should be given complete focus so as to ensure that the intended benefits are achieved. In the event of focus lacking, there is a high probability of competing firms taking advantage (2008, p.3).

Conclusion

The analysis illustrates that there are benefits and costs associated with the adoption of an integrated cost and differentiation strategy in firms’ effort to attain competitive advantage. Integrated strategy can contribute towards a firm attaining above-average returns.

This means that the integrated cost and differentiated strategy can enhance a firms’ probability of attaining its profit maximizing objective. Additionally, an integrated cost leadership and differentiation strategy can enable a firm to attain an effective market position.

According to Porter (2008), the attainment of an effective market position acts as a defensive mechanism against intense competition. As a result, a firm is able to improve its competitive edge. Integrated strategy can also contribute towards a firm’s competitiveness by ensuring that it is effective in its pricing strategy.

This is made possible by the firms’ ability to implement a low pricing strategy. Integrated strategy also contributes towards a firm satisfying its customers as a result of the differentiation strategy. For example, the differentiation strategy can enables a firm to deliver value. Considering the fact that customers are increasingly demanding differentiated products and services at a low price, integrated strategy can enable a firm to attract a large number of customers.

Despite the contribution of integrated cost leadership and differentiation strategy, implementing the strategy may be costly for a firm. A number of support and primary activities have to be undertaken for the strategy to be effective. However, these activities are costly.

Additionally, undertaking these activities requires a firm to have adopted a flexible organizational structure so as to establish a balance between the low cost strategies and differentiation strategies. In order to achieve flexibility, firms are required to adjust their systems, methods and procedures.

This will increase the firms’ effectiveness in responding to changes in the business environment. Failure to undertake support and primary activities may lead into inefficient implementation of the integrated strategy. The resultant effect is that the firm may lose on all the benefits associated with each strategy.

Considering the high rate of globalization and technological advancement, implementing integrated cost and differentiation strategy can enable a firm to attain a high competitive advantage compared to a firm that has undertaken a single competitive strategy.

Reference List

Hill, C. & Jones, G., 2008. Strategic management: an integrated approach. Houghton: Houghton Mifflin.

Hitt, M., Ireland, D. & Hoskisson, R., 2009. Strategic management; competitiveness and globalization; concepts and cases. Mason, OH: South-Western.

Hoskisson, R., 2008. Competing for advantage. Mason, OH: Thompson.

Manning, A., 2001. Making sense of strategy. Cape Town: Zebra.

Ogbor, J., 2009. Entrepreneurship in sub-Saharan Africa: a strategic management perspective. Bloomington: Author House.

Porter, M., 2008. On competition. Boston, Harvard Business School Press. Schermerhorn, J., 2010. Management. New York: John Wiley and Sons.

Vallabhaneni, D., 2009. Whats your MBA IQ? a managers career development tool. Hoboken, N.J: John Wiley and Sons.

Viney, H., Winchester, N. & Boojihawon, R., 2010. The strategy toolkit. Walton, Hall: The Open University.

Warner, A., 2010. Strategic analysis and choice: a structured approach. New York: Business Expert Press.

Abstract

Riordan’s strategic plan targets to enhance the strength of its competitive advantage. The manufacture of plastics is its core business. The firm needs to attract, recruit, and retain the most valuable person in the industry for its critical functional units. Riordan’s strategic plan will be based on three levels of output. Three critical areas have been identified in its strategic plan.

They include supervision, R&D, and financial risk management at the sales level. It will attract highly skilled personnel in the three critical areas using wage rates that are above the industry average. It will use a reward system and other non-financial motivation factors to retain targeted employees. The supervisors will be critical in promoting an organizational culture that eliminates goal displacement and sub-optimization. They will also encourage the forwarding of suggestions for improvement.

The financial risk management employees at the sales level will assess the potential for loan repayment. The loan has been used by competitors to increase sales. It is a form of benchmarking approach to increase market share in new segments. R&D will be responsible for the technical development of new products. Assessment of the effectiveness of the strategic plan will be conducted on a quarterly basis. The strategic plan has set realistic goals that are most likely to be achieved.

Introduction

Riordan’s main objective is to enlarge its market share by expanding its customer base in existing market segments and capturing new market areas. Ethical and social responsibility has a strong influence on the firm’s choice of strategic plans. The firm’s main competitive advantage is its production of plastics. The firm’s plastics products are highly demanded. The firm should use the benchmarking approach to adopt the best practices that are used by competitors and industry leaders.

The first process in the measurement of strategy effectiveness is to determine the variables that need to be measured. Some of the most important factors to be captured in the assessment process include employee retention in critical areas, the number of suggestions for improvement, and the number of viable suggestions. Quarterly periods are used because they allow a considerable time for improvements to take place.

Corrective action will be taken when the implementation process fails to meet the set standards. Riordan needs to use both short-term and long-term measures in its control. Riordan should be able to carry out control and evaluation without distracting employees from their routine work. Goal displacement and sub-optimization will be eliminated through an organizational culture that recognizes teamwork and encourages coaching. If the short-term standards are achieved, then the long-term goals will also be achievable.

Riordan’s need for a strategic plan

Riordan’s main objective is to enlarge its market share by expanding its customer base in existing market segments and capturing new market areas. Riordan’s long-term strategic plan is to attract and retain highly skilled personnel. It will also seek to find ways to produce biodegradable plastics through its R&D section. Its short-term strategic plan is to improve stakeholder value. Riordan needs a strategic plan to keep and expand its market share. Riordan’s strategy focuses on plastic production, which provides its competitive advantage.

One of the strategies it can use is to target highly skilled personnel strategically. The workers will be responsible for assessing customers who are creditworthy in the new loan-to-customers program. The strategic workers will also be responsible for the innovation of new products. Innovation related to efficiency will be conducted at separate units and work stations.

Ethical and social responsibility considerations in Riordan’s strategic plan

Ethical and social responsibility has a strong influence on the firm’s choice of strategic plans. The major customers would like to be associated with a firm that cares for the environment. Its major customers are large corporations. They include automotive parts manufacturers, aircraft manufacturers, healthcare centers, beverage makers and bottlers, and appliance manufacturers.

Riordan is a firm targeting the global market. However, its major customer base is in the U.S. Environmental sustainability concerns have a stronger influence in the U.S. than in the global market. Companies’ operations in the global market have to indicate their effort towards a sustainable environment. It may be necessary to have a few CSR programs targeting environmental concerns. The U.S. customer base makes it essential for the firm to take care of environmental concerns.

A firm that cares about the environment may purchase products from a firm that shows little effort to reduce pollution. The purchasing firm may appear to support environmental degradation. The opportunities for growth are greater for a firm that incorporates environmental conservation in its strategic plan (Wheelen & Hunger, 2010). A CSR program that reduces potential pollution is likely to increase revenues.

Firms have been seeking new ways of innovating plastics that can easily be degraded into the organic matter when disposed of. The decrease in demand for plastic bottling may be caused by environmental concerns. Bottling companies may be using substitutes that can be easily recycled, such as glass bottles. If the firm targets the innovation of bio-degradable plastic materials, it can enlarge its market share.

Competitive advantage and strategies to improve innovation and sustainability

The firm’s main competitive advantage is its production of plastics. The firm has a high demand for its plastics products. Toyota and General Motors can be its major customers if the firm produces the best plastic products in terms of quality and price. Riordan can use plastic production to lower costs in its vehicle manufacturing division. The competitive advantage is sustainable only if Riordan carries out control to continuously improve cost and quality.

The right procedure is to develop new plastic technology, then reduce its cost continuously. The R&D section can be responsible for the development of new products. The corporate leadership will be responsible for evaluating its viability. The individual work stations will be responsible for continuous product improvement.

The firm should use the benchmarking approach to adopt the best practices that are used by competitors and industry leaders (Triantis, 2013). The best practices must be those that are not protected under intellectual property rights. The automotive division can imitate the best practices used by Toyota and General Motors. Wheelen & Hunger (2010) suggest that there is no need to reinvent what is already in use. Toyota and General are recognized as industry leaders. They are likely to have a wide range of practices that may improve Riordan operations through imitation.

Riordan can imitate from firms that are in other industries. Imitation of best practices does not need to be taken directly from competitors (Wheelen & Hunger, 2010). It can select elements of similar operations from other firms in different industries. Riordan can imitate Walmart’s automatic re-ordering system. The system is based on reporting sales in a timely manner. Riordan can also imitate Toyota’s Just-in-Time (JIT) system. It can use the Radio Frequency Identification (RFID) system for tracking its products. It can help prevent counterfeit products from becoming part of its supply chain.

Innovation and sustainability require a firm to attract and retain the most valuable talents in the industry. The firm has to use HRM metrics to evaluate and control employee satisfaction for the retention of critical talent.

Wheelen & Hunger (2010) explain that employee retention is a long-term goal that can be targeted if the firm has a system that evaluates and rewards units/ divisions for targeting long-term goals. One of the methods they suggest is to separate long-term goals’ expenses from short-term goals’ expenses. Individual units can indicate that their profitability has been affected by their investment in long-term goals (Wheelen & Hunger, 2010).

Measurement guidelines to verify strategy effectiveness

The managers need to determine measurable factors that affect the firm’s strategy. The first process in the measurement of strategy effectiveness is to determine the variables that need to be measured (Wheelen & Hunger, 2010). The first item that Riordan needs to measure is the retention of employees that support its critical sections. The firm will also need to measure employee satisfaction. Employee satisfaction is essential to attract highly skilled employees in the labor market.

The firm will need to attract highly skilled financial managers at lower levels of the sales and marketing department. They will be responsible for determining the creditworthiness of customers that require loans to make purchases. The firm also needs to retain highly skilled employees in the R&D department. The control system that forms part of the continuous improvement process will need the firm to retain highly skilled employees as supervisors. They can be the main role model in building an organizational culture that values suggestions for improvement.

Performance is another item that the firm will need to measure. The performance will examine whether the firm’s strategy to focus on critical employee retention has improved its competitive advantage. The performance will measure the retention rate and other HRM metrics, such as HR value-added and HR ROI (Jackson, Schuler & Werner, 2012). It will also involve forecasting the future personnel needs of the firm.

Riordan will follow Toyota’s method of using the number of improvement suggestions brought forward (Horaguchi, 2014). Riordan’s assessment will be done on a quarterly basis. It will consider the percentage of viable suggestions brought forward as a ratio of the total number of suggestions for improvement. It will look at the number of suggestions that were implemented and their ROI. It will look at the level of improvement made to make plastics more sustainable for the environment.

The second step is to set standards to measure the items that have been selected. There is a need to measure the actual performance against a standard.

The first standard is to retain at least 525 (95.5%) employees out of the 550 employees in the quarterly periods. It should retain more than 450 (81%) annually. However, the firm recognizes that retention should be strategically used to accumulate certain skills and abilities (Jackson, Schuler & Werner, 2012). As a result, the level of retention should increase as the firm accumulates the critical skills needed. In the short run, the firm will need to attract highly skilled personnel in R&D, supervision, and financial risk management.

The firm will target to have at least 25 improvement suggestions from the units and work stations. The firm will require that out of the 25 suggestions, at least 5 should be viable. When the suggestions are more than the minimum requirement, at least 20 percent should be viable. The performance of the R&D section will be measured by the number of new products they suggest for development, the percentage of viable products, and improvements made to existing products towards environmental sustainability.

Quarterly periods are used because they allow a considerable time for improvements to take place. They also allow for steps for corrective action to be taken before the end of year performance appraisals. Some attributes may be difficult to measure in periods that are shorter than the quarter of a year. Retention and R&D may require more time to reach quantities that are measurable or to have a trend.

Corrective action will be taken when the activities taken by the management to complete the strategic plan does not meet the above standards. Corrective action will seek to identify the cause of variation from the set standard. The first step will be to identify the levels through which the strategic plan is implemented. The second step is to categorize effective levels and ineffective levels. The next step is to find the cause of ineffectiveness in the levels identified as sources of unwanted variation (Wheelen & Hunger, 2010).

Riordan’s strategic plan involves the accumulation of workers with the right skills in critical areas. It will still need to ensure that failure to meet standards is not brought about by having the wrong people carrying out the plan.

The measures of performance will try to utilize three concepts. They include the economic value addition (EVA), balanced scorecard, and environmental sustainability. The EVA is the difference between after-tax operating income and the cost of investment (Wheelen & Hunger, 2010).

In Riordan’s case, the EVA has used caution to ensure that the investments in the strategic plan do not lead to recurring losses. The firm will invest in what it can afford. Wheelen & Hunger (2010) explain that EVA represents the difference in business value as a result of undertaking the plan. It is difficult to quantify the benefits of long-term strategies on a quarterly basis. However, the future flow of benefits can be estimated for the sake of making decisions.

The balanced scorecard approach is applicable to Riordan’s strategic plan because it considers non-financial measures. The balanced scorecard approach considers four areas for evaluation. They include financial performance, customer satisfaction, internal business perspective, innovation, and learning (Wheelen & Hunger, 2010). The four areas can be aligned appropriately with Riordan’s strategic plan.

Financial performance will involve estimating and evaluating the increase in income attributed to the strategic plan. Customer satisfaction will evaluate whether customers have experienced an improvement in product quality as a result of the strategic plan. An internal business perspective evaluates the effectiveness of the strategy in enhancing the competitive advantage. Riordan must excel in making quality plastic products as its core business.

The quality improvement is measured by their impact on the sustainability of the environment. One of the major concerns of plastic products is their inability to degenerate when disposed of in the environment. Riordan should seek to reduce the period that plastics take to degenerate in the environment. The internal business perspective is intertwined with innovation and learning.

The best way to survive in a very competitive market is to accumulate the most qualified personnel in the industry. It is costly to attract the best workers in the industry. Riordan has to select critical areas essential to its strategic plan. Employees in critical areas can be remunerated above the industry average wage rate when employees in other sections are paid using the industry average wage rate.

Non-financial factors can also cause the problem of employee retention. The impact of financial factors can be easily evaluated. Competitors should not be able to attract targeted employees using higher salaries. Riordan will need to use financial as well as non-financial factors of motivation to retain employees in critical areas.

Internal dynamics, cultural and structural leadership considerations

Unit/ divisional evaluation and control will be the most appropriate method for Riordan. The appropriateness is derived from the closeness of the unit/ division to the problems and opportunities they encounter in their daily operations.

Goal displacement and sub-optimization are the main challenges in unit control and evaluation. Goal displacement is when monitoring and evaluation become goals themselves (Wheelen & Hunger, 2010). When they strongly influence employee behavior, the real behavior cannot be effectively assessed. Riordan should be able to carry out control and evaluation without distracting employees from their routine work.

Sub-optimization occurs when the output maximization actions of one functional unit limit the overall returns of the organization (Wheelen & Hunger, 2010).

It also occurs when the apparent good results of one unit undermines the performance of another unit. It results in competition between units of the same firm. It limits overall performance. Firms, such as Toyota, have used smaller units to make improvements (Marksberry, 2013). The effects of sub-optimization and goal displacement have been eliminated through organizational culture. Toyota has a culture of teamwork.

The report of good performance should be shared by every employee. Riordan should develop an organizational culture where managers give credit to supervisors for good performance. In return, supervisors give credit to workers under their teams. Individual praise is most likely to be the cause of sub-optimization. Units should learn to report real performance improvement.

Recognizing the effort of others and seeking real improvement should be incorporated into organizational culture (Triantis, 2013). It is necessary to train employees on the risk involved when functional units manipulate results to obtain rewards.

Another reason for using smaller units to make improvements is that improvements made in small areas can jointly have a larger impact on the organization. If Riordan chooses to seek large improvements, it will need to have a larger R&D workforce. It will be more costly than using workstations to suggest areas for improvement. The R&D will be overstretched if it makes all improvements.

Riordan’s R&D will focus on the technical part of product development. The teams in the workstations will focus on improving quality and efficiency. Scenario analysis will also become part of the organizational culture when considering suggestions for improvement.

The structure of leadership will be more horizontal in the organization. A more horizontal leadership structure will ensure that the numbers of steps on the hierarchy are reduced between workers and supervisors, and between supervisors and divisional managers.

Daft (2009) discusses that the horizontal structure is “more appropriate when the organization has a high need for coordination among functions to achieve innovation and learning” (p. 125). However, a firm has to create some form of balance between vertical and horizontal organizational structures. The main advantage of integrating the horizontal organizational structure is that there is increased flow of information between managers and workers. Suggestions for improvement can be assessed for viability in a timely manner.

Assessment and feedback control that will be used to determine Riordan’s course of action

Responsibility centers can be used to assess the effectiveness of the strategic plan. Responsibility centers are functional units that isolate teams that are responsible for completing different tasks (Wheelen & Hunger, 2010). Riordan will need to use expense and investment centers to determine the cost of implementing the strategic plan and the expected benefits.

Wheelen & Hunger (2010) explain that most firms use a combination of different centers of responsibility. The profitability of the plan cannot be quantified in the short run. As a result, the firm will consider whether assessment areas have reached the set standards. A strategic audit of the entire organization will be conducted semi-annually to assess functional units that portray weakness to the organization (Wheelen & Hunger, 2010).

In Riordan’s strategic plan, information on the number of employees that were targeted for retention is one of the most important information. Control should involve collecting the minimum information that can be used to make reliable assessments (Wheelen & Hunger, 2010).

The percentage of retention in the R&D section, the financial risk management personnel at lower levels, and supervisors are the critical areas in Riordan’s strategic plan. Other important data include the percentage and number of viable improvement suggestions that come from employees in their functional units. The number of improvements and new products suggested by the R&D section is also crucial to assess the effectiveness of the strategic plan.

Some of the benefits of Riordan’s strategic will be difficult to quantify. However, Wheelen & Hunger (2010) suggest that firms must be willing to find estimates of meaningful activities despite the difficulty in quantifying the information. One of the reasons of targeting supervisors is that they are a critical resource in employee motivation. Supervisors can be used to incorporate employee involvement in making plans (Jackson, Schuler & Werner, 2012).

They can promote the use of non-financial motivation factors to increase employee satisfaction. Employee satisfaction is correlated with retention rates. When the rate of retention is high, the number of suggestions may also increase as employees understand their functional units better.

Riordan needs to use both short-term and long-term measures in its control (Wheelen & Hunger, 2010). Short-term measures are usually easy to assess because they are visible. Long-term measures are difficult to quantify because there is a lag in time between the cause of an event and the effect of the event to other areas (Triantis, 2010). In Riordan strategic plan, the short-term measures include items such as the number of suggestions for improvement and employee retention rate in critical areas.

The long-term measures will include the increase in revenues, size of market share, reputation, efficiency, and profitability in the entire organization. The effect of the strategic plan cannot be directly quantified because of the gap between cause and effect. However, there is a need to provide estimates of the strategic plan contribution to the success of the firm.

Wheelen & Hunger (2010) suggest that controls should be effective in highlighting activities that fall below the tolerance rate. When an activity falls far much below the set standard, it could be that the goal is unrealistic. It can also happen that the activities or the personnel used are not appropriate to achieve the goal (Wheelen & Hunger, 2010).

The last step in control and assessment is rewarding acceptable behavior and functional units for meeting the set standards (Wheelen & Hunger, 2010). The use of punishment in each assessment criteria is likely to result in goal displacement. The situation occurs when employees have no other business than finding ways of passing the assessment. Other activities and behaviors that might have benefitted Riordan will be abandoned because they are not recognized by the firm.

There are several levels of consideration when the strategic plan does not give expected results. The first step is to consider the area that causes the failure in implementing the strategic plan effectively. Communication of the plan to subordinates is usually the first area to assess (Triantis, 2013).

For example, the problem could be that Riordan failed to retain the right skills in the supervision levels and the R&D section. Riordan’s strategic plan is based on recruiting people with the right skill in critical areas. Riordan will consider whether the HRM section was aware of the organizational needs to attract, recruit and retain highly skilled employees in the mentioned critical areas. If the information was well undertaken, then the steps used to recruit and retain will be assessed for effectiveness.

If the recruitment followed the right steps, then it could be that the HRM was assessing the wrong qualities in the recruitment process. If the problem is the recruitment process, then Riordan will formulate new measures to be used to test the right level of competence during future recruitment exercises.

There are multiple levels that can cause failure. Inadequate financial resources committed to the strategic plan can be a cause of failure. In case of failure, Riordan needs to examine the level of commitment of managers to the strategic plan (Wheelen & Hunger, 2010).

It also needs to check whether the strategic plan is inconsistent with existing functional operations. The existence of an untimely feedback mechanism can also cause failure (Wheelen & Hunger, 2010). The strategic plan should only be altered if all requirements are met and the plan has failed to give expected returns.

Conclusion

Riordan’s strategic plan is realistic. Its failure can only occur as a result of poor implementation. If the short-term standards are achieved, then the long-term goals will also be achievable. Short-term goals will be measured by the firm ability to meet the set standards, such as the number of viable suggestions.

Long-term effectiveness will be measured by their contribution to the increase in revenues, size of market share, reputation, efficiency, and profitability in the entire organization. Functional units are the best areas for initiating improvement. Goal displacement and sub-optimization will be eliminated through an organizational culture that recognizes teamwork and encourages coaching.

References

Daft, R. (2009). Organizational theory and design (10^th ed.). Mason, OH: South-Western Cengage Learning. Web.

Horaguchi, H. (2014). Collective knowledge management: foundations of international business in the age of intellectual capitalism. Cheltenham, UK: Edward Elgar. Web.

Jackson, S., Schuler, R., & Werner, S. (2012). Managing human resources (11^th ed.). Mason, OH: South-Western Cengage Learning. Web.

Marksberry, P. (2013). A systems inquiry of the world’s most emulated and profitable management system. Boca Raton, FL: CRC Press. Web.

Triantis, J. (2013). Navigating strategic decisions: the power of sound analysis and forecasting. Boca Raton, FL: CRC Press. Web.

Wheelen, T., & Hunger, D. (2010). Strategic management and business policy: achieving sustainability (12^th ed.). Upper Saddle River, NJ: Prentice Hall. Web.

The quest for competitive advantage, for winning the warfare of business is ceaseless. At stake are dominating a business segment, corporate sustainability, continued employment (yes, even for the Chairman/CEO), market valuation, the admiration of one’s peers, the chance to tap into global markets, a legacy of fame, and CEO compensation beyond the dreams of avarice.

Over a century has elapsed since the end of the Industrial Revolution and scientific management came into the scene. Commencing with the productivity experiments of Taylor, dozens of theories, “best practices” and frameworks have been proposed. In their time, much was made of “management by objectives,” the “7 Secrets” (or were there eight after all?), human relations, Japanese-style consensus-building and continuous improvement (kaizen), total quality management, “intra-pioneering”, 360-degree management, etc. One notes that some of the admittedly inventive ideas advanced were not even theories but mere paradigms. An example is a work of Tom Peters (In Search of Excellence), which touted those corporations that successfully combined high-tech and “high touch”. The paradigm was faulty because the icons of success based on excellence have since floundered, e.g. Disney.

In 1986, Harvard professor Michael Porter published his seminal “Competitive Strategy” and the science of corporate planning was born. From where one stands 22 years later, Porter’s is truly a framework that stood the test of time precisely because it sprang from the level-headed scholarship. His antecedent is “Strategy and Structure” by Alfred Chandler (1962), in turn showing the influence of Max Weber’s breakthrough work “The Theory of Social and Economic Organization” published in 1924 (Cruz, 2007).

The most compelling case Porter makes for the strength of keeping an eye on the fundamentals that really matter was the collapse of the dot-com bubble in 2001 (Newing, 2002). Recall that the seemingly boundless potential of the Internet sparked the interest of many “angel investors” and venture capitalists in a dizzying array of applications touted to become the next Microsoft, Netscape, Yahoo or Oracle. The crucial mistake, according to Porter, was to lose sight of the fundamentals and believe that such performance metrics as “eyeballs on the website,” click-through’s, affiliate links and viewing time were legitimate business goals. Instead, this strategy guru maintained, the cases of those who survived brought home the timeless lesson that winning and retaining competitive advantage is always and ever based on creating value: offer something the market wants and is willing to pay for at a price that will ensure a healthy bottom line for shareholders.

There is no better example of this than the amazing story of Google. Started as a pipedream for an efficient search engine in 1996, market capitalisation had rocketed to US$138 billion as of January 2006 (Lanchester, 2006), bigger than McDonald’s and GM combined, on the strength of constantly-improved search algorithms and a hierarchical layer of portal and indexing server farms. Larry Page and Sergey Brin, now worth at least $10 billion each, offered Internet surfers the efficiency of fast search and advertisers relevant ad link placement based on the AdWords and Adsense pay-as-you-go business models. And never mind that, until recently, Google pages had no “eye candy” whatsoever. Today, Google dominates the search-engine marketplace in America and moves aggressively to attain a dominant position in the rest of the world with search and multilingual search. The also-rans have to be content with fractional market shares: Yahoo was born as a portal even though the company has improved its search functionality markedly, AskJeeves was bought out by Google, Netscape essentially disappeared within the folds of AOL, Lycos struggles and Microsoft still has to find its bearings with MSN Search.

Competitive advantage in high technology is a moving target. The success of eBay left only local auctions (e.g. Craig’s List) open to would-be competitors. Amazon.com, on the other hand, put so much store on growth that it forsook profitability for many years (Frey and Cook, 2004).

Value management presumes, of course, a profitable market or niche. The recent thinking about “red oceans” as awash with the bloodletting of head-on competition and “blue oceans” as wide-open new markets that afford a “value leap for both buyers and sellers” (Kim and Mauborgne, 2004) really reverts to that other cornerstone of Porter’s: SWOT analysis. There is any number of new markets created in the last century: internal combustion cars, hybrid and electric automobiles, commercial aviation, petrochemicals, health care, management consulting, mutual funds, mobile telephony, biotechnology, discount stores, private express couriers, SUV’s, snowboards, and coffee bars. Finding a need that the market will pay to satisfy and positioning strongly on it are among the essentials of gaining a competitive advantage. In the market aftermarket, for example, Nokia has forged global leadership with some combination or other of the blue ocean ERRC paradigm (eliminate hurdles to ownership, reduce cost, raise the value, and create new uses). That second-ranked SONY-Ericsson has a much better return on sales is a reminder of the Porter dictum: survival and long-term competitive advantage demand superior value creation for shareholders.

Bibliography

Cruz, Elfren S. (2007) Framework. BusinessWorld, p. 1.

Frey, C. & Cook, J. (2004) How Amazon.com survived, thrived and turned a profit. [Internet] Seattle Post-Intelligencer. Web.

Kim, W. C. & Mauborgne R. (2004) Blue ocean strategy: How to create uncontested market space and make the competition irrelevant. Harvard Business School Press.

Lanchester, J. (2006) The global id. [Internet] London Review of Books. Web.

Newing, Rod (2002) Crucial importance of clear business goals: interview with Michael Porter of Harvard Business School. While the internet brings new ways of trading, it does not change the old and proven laws of business, says the professor. Financial Times.

Sportsman Shoes has been a pioneer in the shoe industry and produces and markets athletic footwear for all sports. To continue its success, the corporation has followed a low-cost approach. They only provide a small selection of shoe styles, so they have kept prices down through efficient production and consistent procedures. However, low-cost imported shoes have become more widely available on the shoe market, endangering Sportsman’s ability to compete. Thus, the company decided to change its existing strategy to a differentiation plan by creating specialized athletic shoes.

It will be crucial for Sportsman to create a strategic human resource plan that will capture all the requirements necessary to assist the effective transition in competitive strategy if they want to succeed with their new strategy shift. In other words, the human resources department will need to consider some particular factors due to changes in Sportsman’s strategy. Moreover, Sportsman needs to consider employing skillful shoe designers because they will need to comprehend the demands of specialized markets and develop shoes to fit those needs. Additionally, the business will require the services of operations professionals to adapt their production processes to make the new shoe designs. In addition to employing new personnel, Sportsman must consider the effects on present workers to facilitate their effective transition.

Given that there will be new hires and the existing workforce, compensation might be a severe issue for the business. To entice new experienced personnel, the company will need to offer highly desirable and competitive salaries on the labor market. Since compensation must be uniform throughout all business operations, the organization must create and implement a successful compensation plan that simultaneously appeases all employees.

Coming up with a winning strategy in a market that is highly competitive may be very challenging. However, Goldman Sachs has come up with an effective strategy of doing exactly that. Being one of the leaders in the investment banking industry, it is always under pressure to protect its market share from the emerging competitors. Having an effective business strategy is critical in achieving success under such a harsh business environment. In this paper, the researcher seeks to determine the business model used by this firm and how its mission and vision are aligned with the business strategy.

Business Model Used by Goldman Sachs Group

According to Scherf (2014), Goldman Sachs uses Multi-stakeholder Business Model in its operations. The stakeholders defined in this strategy are the customers, the shareholders, and the employees. In the strategy, this film tries to ensure that the interests of all its customers are met at all times. It offers a wide variety of products targeting customers in different social groups. The firm understands that its clientele base is highly diversified and as such it has to offer a wide range of products that will meet various market segments. Research by Ellis (2008) indicates that this firm is often devoted to offering high value for its clients as a way of gaining a competitive edge over its market rivals.

The firm has also been keen on meeting the needs of its shareholders. The firm appreciates that its shareholders play a critical role in ensuring that it is successful. As such, the company is determined to ensure that they get value for their investment. It has been paying dividends to the shareholders regularly (Hoskisson & Hitt, 2008). The massive expansion projects of this company are also meant to increase the value of an investment for the shareholders. To the employees, the company has been treating them as important partners who play a significant role in its success. A study by Syrett (2007) shows that this organization is one of the best paying firms in the country. Employees are also given the freedom to make decisions within their areas of jurisdiction, often making consultation with their superiors whenever it is necessary.

Mission and Vision Statements

Goldman Sachs has not developed a clear mission and vision statement as evident in its website. However, it has a set of values that guide its operations in the market. As stated below, these values are primarily focused on ensuring that the stakeholders’ interests are properly taken care of at all stages of this firm’s operations.

Objective Evidence that Supports the Strategy

According to Rumelt (2011), developing a business model is one thing, and making it work is another completely different thing. To ensure that this firm successfully uses the model discussed above, it must pass the following tests.

Competitive Advantage Test

Competitive advantage test can only be passed if the model is enabling the firm to have better strategic performance (Mandis, 2013). A study by Scherf (2014) shows that since the end of the 2008 economic recession, this firm has experienced improved performance, a sign that the model is appropriate for it in this industry. The company has expanded its operations beyond the borders of the United States. Its successful entry into the Middle East, Asia, and Africa is a clear indication that this firm is making impressive progress in its effort to capture new markets. This approach makes it easy to deal with stiff competition in the market.

The goodness of Fit Test

The goodness of fit is another test that helps in determining the appropriateness of the model. This strategy fits perfectly well in Goldman Sachs’ situation as a global company. The investment and finance industry is not only competitive but also delicate. Investors want to put their money in firms that promise them the highest return and the best security. Customers want to engage with financial institutions that they believe offer them the best deal in the market. The best employees also want to be hired by firms that will effectively protect their interests. Choosing a multi-stakeholder model fits so well for this firm because it meets the needs of these three stakeholders. It ensures that as the firm seeks to expand its operations in the global market, all its stakeholders remain contented at all times.

Performance Test

The final test is the performance of the firm based on the model that it is using in the market. There must be indicators that show that the firm is registering impressive performance following the adoption of a given strategy. In many instances, this test is often based on the financial performance of the firm. A study of this firm’s performance shows that after the 2008 global economic recession, the firm has registered impressive performance till 2014. In 2015, the revenues dropped, but the value of its assets increased (Williams, 2016). It shows that this firm has passed this test.

References

Ellis, C. D. (2008). The partnership: The making of Goldman Sachs. Hoboken: Wiley & Sons Publishers.

Hoskisson, R. E., & Hitt, M. A. (2008). Understanding business strategy: Concepts and cases. Mason: South-Western Cengage Learning.

Mandis, S. G. (2013). What happened to Goldman Sachs? An insider’s story of organizational drift and its unintended consequences. New York: Cengage.

Rumelt, R. (2011). Good strategy, bad strategy: The difference and why it matters. London: Profile.

Scherf, G. (2014). Financial stability policy in the Euro zone: The political economy of national banking regulation in an integrating monetary union. Wiesbaden: Springer Gabler.

Syrett, M. (2007). Successful strategy execution: How to keep your business goals on target. London: Economist in association with Profile Books, Inc.

Williams, E. F. (2016). Green giants: How smart companies turn sustainability into billion-dollar businesses. New York: Cengage.

Introduction

Major manufacturers of sports gear, including Under Armour (UA), Nike, and Adidas face significant market competition from other industry players. The buyer power is very high in the industry because the manufacturers target powerful buyers such as teams and successfully advanced sports personnel for markets. Such individuals or teams realize the kind of influence they have on their global fans, thus they have strong bargaining power when it comes to signing deals (Lear, Runyan & Whitaker, 2009). The ease of venturing into the market is low because of the high number of brands. Firms such as Nike have established themselves elaborately, including a well-built brand loyalty among the buyers. This makes it difficult for new ventures to thrive.

The supplier bargaining power is equally low because the industry has numerous dealers who compete to win contracts with the major manufacturers. Overly, the competitive rivalry is high because of the many competitors in the market offering equally attractive merchandise in terms of quality (Giannoulakis & Apostolopoulou, 2011).

How Under Armour Sustains Competition

Under Armour’s, greatest competitive strength is in the differentiation strategy pursued by the company ever since its inception (Giannoulakis & Apostolopoulou, 2011). Kevin Plank’s original idea of business in 1996 when he founded Under Armour was to avail a unique type of sports gear that would provide comfort to athletes competing under any kind of weather. Under Armour’s competitive power is currently supported effectively by the strong profit margins because of the ever-growing revenues for the company. The elaborate expansion that has seen UA-branded merchandise spread across the rest of North America and parts of Europe has increased sales. This has, in turn, expanded the revenue base. The firm uses this strong revenue base to sustain the differentiation strategy.

The strategic partnership deals that the company targets and maintains with highly renowned athletes in various fields are critical in enhancing its competitive edge in the market (MacIntosh et al., 2012). These star athletes are considered to be special models by many global admirers and fans, thereby making them the important marketing agents.

However, rapid international expansion could also be the company’s major undoing in terms of sustaining growth and competition. Under Armour has not conducted any elaborate market research to determine the specific customer tastes in the Canadian or European markets that it has ventured into. Instead, it assumes its great market success in the local US market will automatically be replicated in these international markets. Any slight changes in customer tastes and preferences in these markets could end up being costly for the company given the huge revenues that it has spent on the expansion program (Eagle et al., 2003).

Under Armour has a great opportunity of registering substantial growth and significant expansion in the international market because of the rising globalization trend. Greater opportunities are presented by the emerging economies of China, India, and Brazil, which have a fast-growing middle-class population.

Significant Elements of Under Armour Strategy

Under Armour focused on manufacturing sports merchandise for every discipline without limiting focus on a single or only a few activities. This helped the company to capture a wider market, resulting in huge revenues. The retail marketing strategy has equally been critical in spurring growth and expansion of the company. The Under Armour “concept shops” idea provided a great opportunity for educating buyers about the brand, as well as achieving a more-engaging manner through which customers could shop for the UA merchandise.

The outsourcing of manufacturing services significantly enabled Under Armour to maintain low production costs, while ensuring high quality was observed all through (Ghausi, 2002). Under Armour managed to build a strong competitive power against its competitors in terms of price because a majority of the company’s external manufacturers are in Asia where labor is cheap and readily available.

Issues Requiring Management’s Address

The sports merchandise market is increasingly getting saturated as a result of the high competition between the rivals. Thus, the company will need to effectively spend more on research and development activities for any sustained competitive performance in the future (Serapio, Dalton, & Phyllis, 2000). Although Nike, which is the industry’s biggest player in terms of market share, spends significantly in the area of research and development, Under Armour does not emulate this worthy marketing effort. This is likely to affect the company’s performance in the area of innovation, resulting in negative growth.

Any further international market expansion should only be approved after conducting extensive research on specific markets. This will protect the company from spending heavily on expansion programs and end up registering poor sales as a result of failure to determine the exact market requirements and tastes. Although Canada and the UK have positively embraced the brand even without any prior market research and customization from the Under Armour’s management, it is critical to note that such results may not be automatic.

It is also important for Under Armour’s management to give priority to the emerging economies, while also considering international market expansion. Countries such as China, India, and Brazil are registering phenomenal economic growth each year. This highlights the lucrative nature of these markets. Under Armour is likely to make faster and higher profits in these countries than the other international markets. However, as noted earlier, the management must conduct prior market researches in these countries before venturing into them.

References

Eagle, L., Kitechen, P. J., Rose, L., & Moyle, B. (2003). Brand equity and brand vulnerability: The impact of gray marketing/parallel importing on brand equity and values. European Journal of Marketing, 37(10), 1332-1349.

Ghausi, N. (2002). Trends in outsourced manufacturing–reducing risk and maintaining flexibility when moving to an outsourced model. Assembly Automation, 22(1), 21-25.

Giannoulakis, C., & Apostolopoulou, A. (2011). Implementation of a multi-brand strategy in action sports. The Journal of Product and Brand Management, 20(3), 171-181

Lear, K. E., Runyan, R. C., & Whitaker, W. H. (2009). Sports celebrity endorsements in retail products advertising. International Journal of Retail & Distribution Management, 37(4), 308-321.

MacIntosh, E., Nadeau, J., Seguin, B., O’Reilly, N., Bradish, C., & Legg, D. (2012). The role of mega-sports event interest in sponsorship and ambush marketing attitudes. Sport Marketing Quarterly, 21(1), 43-52.

Serapio, M., Dalton, D., & Phyllis, G. Y. (2000). Globalization of R&D enters new stage as firms learn to integrate technology operations on world scale. Research Technology Management, 43(1), 2-4.

Executive Summary

Burberry Plc is a strong brand in the UK and throughout the world, which sells luxury products. Its range of products includes women, children, and men apparel, as well as cosmetic products and other non-apparel products. Growth in the company has been realised in the recent years mainly due to its international market expansion. Burberry presently operates in emerging economies, including China and India, through its established stores in these locations.

This strategy was of particular importance to the company as it has survived the economic recession scare that began in 2008. Competition is high in the industry as quality is the main basis of winning customer loyalty. Internally, the company has continuously pursued a differentiation strategy, which has seen the market perceive its products as unique.

Burberry invests in information technology, a fact that has seen it introduce the 3D technology in the live stream streaming of its fashion show. Developments have been extended further to the social network front where the company maintains close contacts with its consumers. There is need for the company to maintain its spending on technological investment to give an edge over its competitors.

Introduction

Burberry Plc is a renowned manufacturer of a variety of luxury products that range from apparel, to cosmetics and other non-apparel products. The company is based in the UK though it has a worldwide market presence. Through its worldwide wholesale, retail, and stores network, the firm manages to reach an expansive international market that includes Europe, Asia, the USA, as well as the Americas.

Burberry is an iconic brand within the UK where it has existed for more than 125 years. It manufactured courts that soldiers wore during the First World War. Additionally, the company has twice been feted with Royal Warranties, first by Queen Elizabeth II and by Prince Charles.

This means that the royal family chose on the firm to be their official supplier of apparel. The internationalisation strategy has seen the company its sales volumes in the recent years despite the negative effects of the recession. This report analyses the strategy of Burberry Plc in detail and offers recommendations on the way forward.

Strategic Analysis

Profile of the industry and company

Burberry Plc deals in the fashion industry, where it distributes clothing, a variety of fashion accessories, as well as licensing fragrances. The company sells a variety of products, which include makeup, skincare, fragrances, bath and body, and hair care products. It also deals in men’s products that include cleansers, moisturizers, shaving equipments, and facial treatment (The Telegraph 2011, para 1).

The non-apparel products of the firm that include large leather goods and other men’s non-apparel occupy the most important product position of the firm. In the 2011/12 annual report of the company, the non-apparel products’ revenue totalled £689m, followed by women’s wear revenue of £583m at position two. Men’s wear recorded £410m while children’s wear had the least performance at £66m (Bueberry.com, 2013, para 3).

External environment

PESTEL Analysis

Political factors

Burberry’s operates in international markets, which makes it important to consider the regulations and policies in those countries. The company also sources its materials from different suppliers worldwide, which subjects its operations to varying regulations and policies.

There is need for the firm to consider political stability as this has potential negative impacts on revenues. In the emerging markets where Burberry has set sights, such as China, there exist numerous legal systems whose manipulation can end up being retrospective to business performance of the firm (Moore & Birtwistle 2004, p. 412).

Burberry relies on its risk assurance department in monitoring market developments before making decisions. Thus, the feasibility of a given market is evaluated and its business prospects analysed before the company makes decisions to venture into such a market (Johnson 2008, p. 112).

Economic factors

The United Kingdom’s economy contracted in 2008 following the onset of the global economic crisis. Further slow down at 4.9% ensued in 2009 as the effects of the global economic crisis worsened. The economic slow-down negatively affected job creation in the UK in the subsequent years.

The resulting inflationary rates can potentially weaken the market as most of Europe’s economy continues to experience poor economic results and general performance (Hartwich 2009, p. 36). As the economy remains weak, buyers reduce their spending on luxury goods and consider limiting their spending on basic commodities like food and shelter.

Socio cultural

The Burberry brand is associated more with Britishness, given Burberry’s foundational background. Other features strongly associated with Burberry include innovation and intuition, authentic outwear heritage, democratic luxury positioning, as well as historic icons such as the trench coat and the iconic check Prorsum trademark (Design Council 2012, para 4).

These features make the brand popular, especially among the UK buyers. As Burberry expands its market to include the emerging economies, the social cultural factors of the new markets will affect how the firm conducts business. The generally conservative Indian and Chinese markets, for instance, poses challenges to the brand as buyers in these markets consider other features different from the Britishness associated with Burberry.

Technological factors

With the development and improvement in the information technology front, Burberry has focused its attention on exploiting the benefits of social networks for growth. The company launched a new website, Burberry.com to help online buyers make purchases.

It has also extended its leadership position in the luxury industry by making forays in both Facebook and Twitter, to maintain contacts with the large, mostly young market base. The Burberry brand continues to undergo digitization, having pioneered live streaming, in 3D technology, of a fashion show (Kowitt 2012, p. 68).

Environmental factors

Different countries in which Burberry operates have different laws and policies concerning environmental management. This poses a challenge to the company, as meeting all the environmental regulation laws is also expensive. A renewed focus on environmental management by the company has seen it produce car door insulating material from the recycling of its raw materials and product samples (Burberry, p. 7).

Legal factors

Burberry has encountered the challenge of market imitations of its products. The infringement of the official Burberry trademark has seen the country spend huge sums of money fighting the counterfeits (Burberry Case Study’ 2012, p. 1). To protect the Burberry trademark from further counterfeiting, the company works in collaboration with the law enforcing agencies to keep track of the counterfeits and sue the perpetrators.

Internal Environment

Strength Factors

Global footprint

Burberry has an international outlook, with its products having a presence in numerous countries. Thus, the company caters for a broadened market, which helps it mitigate the associated business risk of a single market. The four major global regions with Burberry’s presence include Europe, Americas, Asia Pacific, as well as the rest of the world.

Specifically, the company operates in the UK, Latin America, the US, China, Eastern Europe, Middle East, Brazil, Russia, and India. Additionally, Burberry has a presence in South Africa and in several South East Asia regions. This strongly diversified global market helps in cushioning the organization against any instances of market volatility in particular countries or regions.

Diversified operations

Because of its wider geographical reach, the firm stands a better chance in reaping added benefits, subsequently leading to improved profit margins. It also enables the company achieve economies of scale advantages in addition to a global recognition (Bussey 2009, p. 1).

The company sells its products through retail, wholesale, licensing distribution, and e-commerce channels. Customers gain access to the company’s products directly through the Burberry retail segment. Established wholesale networks also serve these global market regions to maintain steady supplies. In 2011/12 period, the firm operated 208 concessions in department stores, 192 mainline stores, as well as 44 outlets in its retail sector.

Additionally, Burberry runs digital commerce related activities in 27 different countries. Besides its franchisees, the company renders to speciality stores and department stores its products (Rohwedder 2009, p. 45). Operations in countries such as Japan run through licensed agreements. The diverse nature of business endows Burberry with stronger brand presence, wider customer base, and growth in the emerging markets.

Weakness factors

Trade accounts receivable

The profitability and competitive position of the company is affected by the increasing accounts receivable. In 2012, the accounts receivable grew to £131.90m compared to the 2011 figure of £119.20m. Several factoring agreements between the company and its consumers resulted especially through credit providers.

These increasing doubtful debts, together with the accounts receivable, are indicators of the company’s inefficiency in as far as credit management is concerned. With the increasing economic recession, the likelihood of credit defaulters also increased. This may influence negatively the company’s overall financial position, extending even further to its profits (Ahrendts 2013, p. 39).

Competitive environment

Porter’s five-force analysis

Power of buyers

The power of buyers varies depending on their economic power. The super-rich customers, considered as high net worth, are powerful as they are less affected by economic cycles such as the global economic crisis. Equally, there is some marked growth in the size of this category of buyers, increasing their bargaining power further. On the other hand, middle-market customers, despite having comparatively lesser bargaining power, put a lot of pressure on trends and designs.

The fact that they also belong to the upper-middle class implies that their market has huge potentials as well. In general, therefore, the industry is in a difficult equilibrium because of the two different groups of buyers who, on the other hand, are not automatically compatible. A difficult trade off can result from this scenario because of pressures to either satisfy a huge number of customers who are also highly volatile, or satisfying few customers who are loyal to the brand (Cool 2002, p. 7).

Power of suppliers

Suppliers’ power is highly dependent on the existing market segments. Tendency to raise the bargaining power potentially results in vertical integration and concentration trend within the industry. The reason for this is to lower supplier’s bargaining power. The industry generally has limited instances of concentration among suppliers. However, established players can purchase the small-scale suppliers in a bid to deprive their competitors from supplies (Cool 2002, p. 7).

Level of rivalry

There is relatively high competition in the industry. However, the competition is not price-based owing to perceptions by customers about price and the generally high margins. Image perception and quality form the main basis of the competition. The capability to attract skilled designers also partly forms the basis of the industry’s competition (Cool 2002, p. 8).

Threat of entry

New designers pose the threat of entry into the industry. However, the major, highly established industry players quickly absorb the small scale but successful designers. The companies offer the designers with the infrastructure, which offers them an opportunity for growth.

New entrants, nevertheless, pose a threat especially because they can easily capture volatile customers who are in the middle class (Cool 2002, p. 9). The fact that customers go after brand names, which take a lot of time and effort to develop, leaves the established firms such as Burberry less threatened with new entrants.

Threat of substitution

Real substitutes in the luxury industry literally do not exist. The option open to buyers is failure to purchase the goods, as their necessity is small (Cool 2002, p. 9).

Basis of competition and key success factors

Burberry boasts of unique resources, which include its trademark coat product with the signature check design, and the high brand equity. This particularly results from the fact that firm enjoys a long history since its establishment. The Burberry brand initially focused on serving World War 1 soldiers with adapted warfare coats.

The company has twice been feted by a Royal warrant by both Queen Elizabeth II and Prince Charles. This implies Burberry can publicize itself as the royal family’s suppliers of products (Instyle para 4). This achievement affords the company great competitive advantage over its industry rivals (John 2012, p. 14).

The overall market positioning of Burberry is also unique. The range of products manufactured by the firm are considered ‘continuity products’, meaning their life cycle is short, including only a few years. The company also focuses on ‘fashion products’, which implies they manufacture goods specifically for purposes of meeting the fashion trends over some period. The firm targets its entire market base by using ‘functional luxury’ as its common theme (International Business 2013, para 6).

Strategic Development

Existing strategies

Corporate level strategy

Burberry pursues an international expansion strategy for purposes of widening its market outreach and increase profitability. Because of this strategy, Burberry owns several stores in its international market, including its main stores in London, Barcelona in Spain, and New York, in the US.

The international market expansion has also included Japan in the Asian market (Lee 2012, p. 29). The focus on internationalisation of the market has further seen Burberry enter emerging markets in China, India, the Middle East region, as well as in Russia. According to the official website of the company, new stores have come up in the recent past in Egypt, Israel, Armenia, and Mongolia (Burberry.com).

Business level strategy

Burberry has mainly focused on leveraging the franchise and accelerating the growth of its retail network to pursue the business level strategy. Additionally, the company has also intensified the development of non-apparel products to expand its business in general.

Burberry has also explored development in the information technology front as a way of expanding and improving business performance (WWD: Women’s Wear Daily, 20112, p. 1). Social networks, such as Facebook and Twitter, now enable the company to maintain a close touch with its customer base without having to deal with the challenges of physical location. The word-of-mouth advantage spreads first especially in the social network, which was the firm’s initial target when it launched the strategy (Edgar).

Because of the powerful influence of the social media, Burberry has remained largely unaffected with the negative effects of the recent recession. The company also pioneered the digital strategy where Burberry became the first company in the luxury market and industry to stream live a fashion show that was in 3D technology (Farrar 2011, p. 4).

Organisational strategy

Burberry has persistently sought for operational excellence through the numerous initiatives that it has followed. Elliott (2012, p. 29)points out that Burberry has introduced new information technology systems, including SAP, which has enabled a single SAP-based human resource database to hold information huge numbers of employees in several countries. This new practice replaces the scattered distribution centres, which existed previously and relied on the regional hubs for coordination.

Generation of strategic options

Viewing strategy based on the resources available enables a company to focus more on its internal capabilities and thus enabling it address the aspect of achieving sustainable competitive advantage. Equally, it gives the organisation an opportunity to tackle its competitive advantage.

In other words, a better strategy for any company begins by analysing the internal environment. The current successes recorded at Burberry are sustainable through a resource-based strategy, which also helps in increasing the company’s competitive advantage.

In this regard, therefore, the company should put emphasis on maintaining the iconic luxury brand significance while also building upon the brand equity (Instyle 2012, para 2). With the long history of existence, this including serving the British soldiers during the First World War, and having been feted with two Royal Warrants, the company has a competitive advantage. These factors underline the strong sense of ‘Britishness’ that the brand wishes to continuously associate itself with (Cool 2002, p. 7).

Apart from the brand equity, Burberry’s specialised product line, mainly its ‘trench coat’ trademark plays a more significant competitive role. Additionally, the presence of a marketing communication platform that consists of a unique complimentary social media also makes the Burberry brand more specialised. The introduction of fashion shows by the company is unique in its own ways. It serves as both a sales means as well as a marketing channel.

The brand needs to sustain efforts in promoting its products and continuous innovation. The signature check design, which is a symbol of the firm, coincides well with the luxurious and classic status of the brand. It is important that Burberry hold onto this signature check design, extending its application on other new product lines that it continues to manufacture (Wireless News, 2012, para 2).

Evaluation and ranking of options

The Ansoff Matrix

Market share

Implementation

Burberry Plc should continue with its expansion to other new markets, which it has not covered so far. This is important for the company because it helps in the minimization of risk. The recent economic recessions that remained particularly pronounced in Europe would have severely affected the company if its operations only focused on the European market (Harris, Syrianos & Martin n.d, para 8). However, it is worth noting that Burberry remains as one of the few companies that remained unaffected by the recession.

The company should invest further in technologies, particularly on the on-line front to build consumer relations further. With the information technology capabilities expanding almost on a daily basis, focus on this aspect will provide the firm with the opportunity to cover an even wider geographical location irrespective of physical presence. Investment on in-store marketing should be sustained further to increase on customer service.

Because the UK is Burberry’s home country, the company should consider moving its manufacturing activities into the country. This is because the brand enjoys a strong identity in the country and it is easier building from this strong identity even as the focus remains on internationalisation (Stocks Challenge 2012, para 2).

Conclusion

Burberry Plc is a company that deals in the luxury industry, where it sells a wider variety of products that include women, men, and children apparel. The company also sells cosmetic products, some of which are through franchise agreements. Burberry brand has a strong market appeal, especially in the UK following its long history since formation. Its ‘Britishness’ philosophy ties it to a majority of the local buyers. One of the brands strengths lies in the fact that it has a wider global presence, a fact that helps in mitigating the market risk.

There is a generally low threat of entrant into the market as new entrants are individual small-scale designers. The company should consider increasing its investment on market expansion, including entry into new markets. Pursuing strong innovation in technologies will offer the opportunity for the company to explore new markets via online capabilities. Burberry’s main competitive advantage lies in the fact that the company’s resources are strong as compared to its competitors in the market.

List of References

‘Burberry’ 2009, Marketing, p. 7.

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Executive Summary

The modern business strategy consists of identifying and adopting appropriate methods for tackling market competition and achieving and retaining market leadership in the long term. This means that the firm must possess a clear competitive advantage against its nearest competitors and necessarily implies that it must strive to add economic value continuously and along the entire corporate value chain through product differentiation, cost leadership, or selective focus on any one or more market segment. This paper studies the financial performances of three close competitors and the top three companies in terms of gross revenues, net incomes, etc., in the Canadian oil and gas industry. These companies, viz EnCana, Imperial Oils Ltd and the focus of this study, i.e., Petro Canada, are the top three companies in consecutive Energy Surveys (2007 & 2008) conducted by renowned global consultant Price Waterhouse Coopers which compares performances of 100 leading oil and gas companies in the market in 2005, 2006 and 2007. The three representative companies are studied in the course of this paper to find out whether Petro Canada has a competitive advantage or disadvantage in the oil and gas industry in Canada, what are the financial indicators that point out to this, what are the major reasons for such competitive advantage or disadvantage of the company, what strategy the company has adopted to gain competitive advantage in the given market and how successful or appropriate such strategy has been in gaining it a competitive advantage, if at all. The paper tries to establish that there is as such no clear leader in a complex market, where one company may have one advantage while another has another advantage. The paper also notes that Petro Canada still needs to adopt a further strategy for consolidating its hold on market shares and also develop suitable measures to resolve problem areas in its overall competitive strategy, considering the strengths and weaknesses of other competitors and the nature and synergy of the given regional oil and gas industry.

Introduction

The modern business strategy consists of concerted efforts on the part of operational management to evolve strategies designed to achieve competitive advantage and, once this is evolved, to sustain the same. The business strategy essentially consists of identifying and choosing appropriate mission and objectives, analyzing external and internal environments, identifying, selecting, and implementing suitable methods, and consistently assessing and driving business performances. Any competitive advantage which may be desired to be gained through such strategy essentially means that more economic value by the firm as compared to its competitors needs to be created. Charles Stabell (2001) says, “Effective competitive strategy is the search for a position where the firm can achieve and sustain above-average economic returns…Competitive advantage is achieved by being able to offer the same product at less cost while achieving above-average returns” The firm may be competitive with regards to value, cost, or price. Creation of value implies that any one or more of the firm’s logistics, operations, sales & marketing, services, materials management, technological development, human resources, and infrastructural activities are more efficient, more innovative, of better quality, and more responsive to customer requirements. More the value added by the firm along its value chain, the more competitive it will be. Whether a firm is having a competitive advantage or not in its primary given market can be judged by evaluating the efficiency and quality of its operational activities, how innovative it is, and how responsive it is to its customers’ needs. Such assessment requires an analysis of available company data and comparing this with those of its competitors. Whether a company actually has a competitive advantage or not vis-à-vis its key competitors, what are the key indicators of this, what reasons can be ascribed to its such competitive advantage or disadvantage, what strategy the company has adopted to maintain and improve its competitive position in the market and why the strategy is appropriate or inappropriate, these are the main issues that this paper attempts to analyze, based essentially on a comparison with its competitors.

Company Information

The company which is considered for this study is well known and one of the largest such companies in Canada, Petro Canada Inc. The company is a major presence in the integrated oil and gas sector. It primarily extracts and sells petroleum oil and related products and services and operates in Canada and internationally both in the upstream and downstream industrial sectors. It is headquartered in Calgary, Alberta in Canada, and its shares are traded on both the New York and Toronto Stock Exchanges. As per details provided on the company website, it supposedly produces 350 premium quality lubricants, special fluids, and greases in addition to around 99.9% pure base oil of capacity of 900 million liters annually from its refinery at Mississauga, Ontario, Canada (it states that it is the world’s largest producer of pharmaceutical white oils) (Petro Canada, 2008). Originally a full petroleum refinery, it was converted into a lubricants plant, expanded, and its capacity enhanced. The company website also states that its products are used by customers across diverse industries like food, manufacturing, transportation, power, mining, agriculture, forestry, and plastics, with its supply chains selling its products mostly outside Canada to more than 60 countries. The company’s mission statement reflects its objective of achieving leadership in pure oil production by value addition through product innovation, pricing strategy, and improved customer trust. It professes its innovative products that provide ‘tangible cost savings, enhance productivity and effect cost savings, its commitment to quality, and its focus on customer trust and satisfaction through enhanced profit fit for individual client/industry needs.

Major Competitors

Petro Canada is one of the largest oil and gas producing and exporting companies in Canada. Alberta region is rich in oil deposits. Canada is one of the richest sources of oil and natural gas globally. The country There is many Canadian oil and gas exploration and producing companies competing against Petro Canada in Alberta and other provinces, and this competition has driven Petro Canada into adopting various strategies relating to product innovation, cost efficiency, product pricing, and quality enhancement. Major competitors include Encana, Syncrude Canada Ltd, Suncor Energy, Canada Natural Resources, Shell Canada, and so many other senior and junior oil and gas producer and services companies located in Alberta and other parts of Canada.

Financial Data-Comparative Figures, Methods & Information

A few key financial parameters and information relevant to this study were compiled and are provided in the Appendix to this paper. A representative comparison of the competitive strategy of all the present competing companies could be performed by sourcing data relating to a few selected companies from leading Canadian oil and gas journals, Canadian government websites like Industry Canada or Sedar, leading industry experts, and watchdogs like Sayer Energy Advisors, Cera, IHS, and John S. Herald, or even a global consultancy like Price Waterhouse Coopers, and all such sourced data can be safely considered reliable, authentic, up-to-date and appropriate for this study. The study itself could be effectively performed by comparing corporate ROCE, gross margins, revenue growth, proportionate market share of the principal competitors, etc., which get value additions through corporate strategies for enhancing product and services innovativeness, efficiency, quality, and responsiveness to customer needs. The comparative analysis of the income statements, balance sheets, and capital markets may be enumerated in the following paragraphs for an understanding of the issue.

Analysis of Annual Reports

A comparison of the audited financial statements of 3 top companies based on gross revenues in the Price Water Coopers Annual Energy Survey 2007 and 2008 reports, namely, Imperial Oil Ltd, Petro Canada Inc., and EnCana Corporation, could yield some concrete results, which are given hereunder.

Sales or Revenues

1. Imperial Oil: The gross revenues of Imperial Oil were 27,797,000 in 2005, which went down to 24,505,000 in 2006 and then went up to 25,069,000 in 2007
2. Petro Canada: In 2005, gross revenues were 17,585,000, which went up to 18,911,000 in 2006 and up to 21,710,000 in 2007
3. EnCana Corporation: In 2005, EnCana recorded gross revenues of 17,656,647, which went up to 18,596,466 in 2006, which again went up to 24, 066,844 in 2007. (Compared in figures in 1,000s of USD as of 31^st March each year).

Relative Revenue Growth

We find that among the three companies, only Petro Canada and EnCana show consistent growth year on year. But whereas from 2005 to 2006 the gross revenues increased by 5.3% and from 2006 to 2007 by 29.4% for EnCana, in the case of Petro Canada, the corresponding increase was 7.54% and 14.8% respectively. Thus, the percentage of y-o-y gross revenue increase in the case of Petro Canada was much less than that of EnCana. The consistent increase in the case of both companies does reflect their abilities to satisfy customer needs, whereas the inconsistency in gross revenue growth in the case of Imperial Oil could point to the failure of business strategy.

Percentage Gross Sales as compared to Inflation Rate

Using the Bank of Canada’s historical data on inflation, we find that the year-end core inflation in 2005, 2006, and 2007 was 1.5% (2005), 2.3% (2006), and 1.6% (2007). The gross sales of Imperial were 27,797,000 in 2005, 24,505,000 in 2006 and 25,069,000 in 2007 while the corresponding figures for EnCana and Petro Canada were respectively 17,656,647, 18,596,466 and 24,066,844, and 17,585,000, 18,911,000 and 21,710,000. Thus percentage increase in gross sales for EnCana, Petro Canada and Imperial Oils would work out to 5.32 (2006) & 8.79 (2007), 7.54 (2006) & 14.8 (2007) and -11.84 (2006) & 2.30 (2007). Although all companies show an increase in this parameter, yet Petro Canada seems far ahead of its competitors in quantum of increase every year.

Comparison with Industrial Growth Rates/GDP

The gross domestic product GDP at basic prices by industry (in millions of chained dollars 2002) for the oil and gas industrial sector was 55,672 (2004), 55,796 (2005), 56,699 (2006), 57,288 (2007) and (2008) in a total GDP of 1,124,998 (2004) 1,155,681 (2005), 1,189,661 (2006) and 1,219,327 (2007). Thus the percentage increase in GDP rates for 2005, 2006, and 2007 for the oil and gas sector over the previous years was 0.22 (2005), 1.6 (2006), and 1.7 (2007). The corresponding gross sales improved by 7.54% in 2006 and 14.8% in 2007 in the case of Petro Canada and by 5.3% in 2006 and 29.4% in 2007 in the case of EnCana. Thus, in all cases, the sales improvement was at least equal to the growth or GDP rates of the oil and gas industrial sector viz. 1.6 in 2006 and 1.7 in 2007, comparing identical periods.

Cost of Sales (CGS)

The costs for Petro Canada were 10,868, 13,377, 14,697, and 16,343 for years 2004, 2005, 2006, and 2007 respectively, and costs are thus consistently increasing. Sales show a marked increase, i.e. 14,270 in 2004, 17,585 in 2005, 18,911 in 2006 and 21,710 in 2007. Hence the cost as a percentage of sales works out to 76.16% in 2004, 76.07% in 2005, 77.72% in 2006, and 75.28% in 2007. Other than in 2006, the figures seem to be continually decreasing, which could signify the growth of business owing to economies of scale or other such factors.

The company included figures for the sale of assets in Syria in 2005 in the 2006 annual financial statements under discontinued operations, and this was worth $ 134 million. This could be the reason for the erratic figures for 2006 as above.

Gross Profit Margins

Net Incomes in 1,000s of $ for EnCana in 2005, 2006 and 2007 were respectively 4,150,942, 6,393,596 and 4,200,160 while for Petro Canada, the corresponding figures were 1,791,000 in 2005, 1,740,000 in 2006 and 2,733,000 in 2007. The same for Imperial Oil Ltd were 2,600,000 in 2005, 3,044,000 in 2006 and 3,188,000 in 2007. Among these, only Imperial showed a consistent increase in income. However, the gross margins percentages for EnCana, Petro Canada, and Imperial Oil were as follows:

2005 2006 2007

EnCana 23.51 34.40 17.45

Petro Canada 10.18 9.21 12.59

Imperial Oils 9.35 12.42 12.72

It appears from above that only in the case of Imperial is there a consistent increase in Gross Margins, while in the case of Petro Canada, the figure in 2006 is inconsistent and may be due to discontinued operations in Syria or elsewhere.

Return on Capital Employed (ROCE)

The ROCE figures for Petro Canada were 16.0 in 2005, 14.3 in 2006, and 19.8 in 2007, while the corresponding figures for Imperial Oils were 23.9 in 2005, 19.7 in 2006, and 28.3 in 2007, which although higher each year than that of Petro Canada, was nonetheless inconsistent and non-linear. EnCana, in contrast, recorded a ROCE of 25 and15 for 2006 and 2007, respectively. It appears that in the case of all companies, the figures in 2006 lie between values in 2005 and 2007. In any case, there appears to be no clear leader in this parameter, at least. However, the figures for Imperial are healthier.

Operating Costs

(Per BOE where BOE is Barrels of Oil Equivalent in 1000s):

2005 2006 2007

EnCana $ 30.72 $ 35.12 $ 39.32

Petro Canada INA $ 12.41 $ 12.05

Imperial Oils $ 15.11 $ 15.22 $ 16.04

As per the above data, the operating costs for EnCana are much more than that of either Imperial or Petro Canada, and while Imperial shows a gradual increase in costs over the years, costs are actually reducing in the case of Petro Canada, which implies a successful cost control and profit enhancement strategy on the part of the company management, giving Petro Canada a clear competitive advantage by way of lower costs, thus enabling it to sell its products at relatively lower prices and still maintain its level of operations.

Return on Equity (ROE)

Imperial Oils had ROE of 40.2 in 2005, 43.5 in 2006, and 41.6 in 2007, while EnCana had ROE of 34% and 21 % respectively in 2006 and 2007. Petro Canada had ROE of 19.7, 17.5, and 24.5 in 2005, 2006, and 2007 respectively. Of the 3 companies, Imperial appears to have higher ROE over the three-year period.

Cash Flows

The cash flows on operations in case of EnCana were 8,997,342 in 2005, 8,120,574 in 206 and 8,967,897 in 2007 and in case of Petro Canada these were 3,787,002 in 2005, 3,687,000 in 2006 and 3,762,000 in 2007. The same in case of Imperial Oils were 3,891,000 in 2005, 3,799,000 in 2006 and 3,905,000 in 2007. Higher cash flows imply higher net incomes. In the case of all companies, it is observed that cash flows decline in 2006 from 2005 and then increases in 2007.

Earnings per Share (EPS)

The EPS for the three companies could be studied, which could indicate a measure of increasing or decreasing profits

2005 2006 2007

EnCana 4.79 7.81 5.14

Petro Canada 3.45 3.45 5.59

Imperial Oils 2.54 3.12 3.43

Of the 3 companies, the EPS increase is steady in the case of Imperial Oils, while it is erratic in the case of EnCana. In the case of Petro Canada, a stagnant EPS followed by a sudden increase denotes unprecedented returns by way of share earnings, which may have been an effect of global economic turmoil, continuing till date. In this respect, Imperial appears more competitive than Petro Canada.

Some Important Data on Petro Canada

1. The net earnings of Petro Canada in 2005, 2006, and 2007 were respectively CND 1,791, 1,740, and 2,733. The net earnings from discontinues operations were CND 152.98 (Shown in Annual Report, 2006). The figures were thus showing consistent improvements y-o-y
2. Of the total net earnings, net earnings from continuing operations were CND 1,693, 1,588, and 2,733 in 2005, 2006, and 2008 respectively. This, too, showed healthy and consistent performances and gradual improvement y-o-y.
3. The Earnings per Share (EPS) in 2005, 2006, and 2007 (Basic, CND) were 3.27, 3.15, and 5.59 respectively, whereas the same (Diluted, CND) for the same period were 3.22, 3.11, and 5.53 respectively. The dip in EPS in 2006 was in part due to dismal company stock performances that year.
4. The actual EPS in CND for all operational activities (Consolidated/Basic) were 3.45, 3.45 and 5.59 in 2005, 2006 and 2007 respectively (Basic) whereas the same when diluted were 3.41, 3.41 and 5.53 respectively for an identical period
5. The total cash flows from continuing operational activities were CND 3,783, 3,608, and 3,339 for the years 2005, 2006, and 2007 respectively while the same as a percentage of the share-$ for continuing activities were 7.30, 7.16 and 6.83 in the identical period. This showed thus a consistent decline in cash flows over the given period.
6. The Debt for the year ended 2005, 2006, and 2007 were 2,913, 2,894, and 3,450, respectively. This was thus seen to be gradually increasing over the period.
7. The Cash & Cash Equivalents for the year ended 2005, 2006 and 2007 were respectively 789, 499 and 231 which thus showed a gradual decline over the period.
8. Average Capital showed a gradual increase over the years, with CND of 11,860, 12,868, and 14,328 in 2005, 2006, and 2007 respectively. His figures show a consistent increase in capital employed.
9. The Return on Capital Employed or ROCE in 2005, 2006, and 2007 were respectively 16.0%, 14.3%, and 19.8%
10. The Return on Equity or ROE were 19.7%, 17.5% and 24.5% in 2005, 2006 and 2007 respectively

In 2007, the continuing operations figures did not include the payment of CND 1,145 post-tax affected by the company in order to settle Buzzard contracts in derivatives exposures.

Efficiency, Quality, Innovation, and Customer Responsiveness

A firm needs to be efficient in its activities and support services, ensure quality of the same, often resort to innovation in product technologies, and also be successful in getting appropriate customer responses to its products and services if the firm is to become a market leader and also remain so. It is required to examine whether Petro Canada actually has a competitive advantage as regards value, cost, or product pricing. That the company has value is indisputable as it boasts of quality and innovative products, records y-o-y revenue growth, consistently improves its sales to customers, and declining cost of operations which do give it a competitive advantage in respect to improved economic value by way of reduced costs, the economy of scale, better customer responses by way of sales, etc. Petro Canada does have differentiated products like ENVIRON, Pure Spray Spray Oils, PURETOL White Mineral Oils, PURITY Base Oils, and oils which are 99.9% pure, afford ‘tangible net savings’ and even adopts special processes like HT Severe Hydro-cracking. In addition to product innovation, Petro Canada also boasts of innovative new marketing tools like Super Pass Cards, Super Pass Club Cards, and Pre-paid Cards to rope in selected retail and corporate customers as its loyal clientele. The company has also resorted to pricing strategies like the Rack pricing structure in addition to its range of specialized plastic cards.

Petro Canada maintains that it manufactures lubricants that are specially made so that they maximize equipment performance, protect machinery, reduce downtime, improve productivity and also effect substantial savings for the customer. The company has a special range of heavy-duty engine oil DURON-E made for ’07 EPA compliant engines with low emissions. It also boasts a No-nonsense Warranty that it says is a reflection of its commitment to quality. It has been awarded ISO 9001, ISO/TS 16949, and ISO 14001 registrations, which confirm its commitment to quality. Petro Canada also spends substantial amounts on R&D, science and technology, sets store by its innovative abilities, and is conscious of its duty to ensure a pollution-free environment. It believes in environment conservation, has a functional Quality and Environmental Management System in place, and wishes to contribute to a sustainable, environment-friendly energy solution. All these are in keeping with modern trends and comparable to the policies and philosophy of all of its competitors in the Canadian oil and gas industry.

Competitive Advantage

While Petro Canada is a clear cost leader, innovator, quality producer, and market differentiator, it still needs to address its weakness in areas like improvement of net incomes, EPS, and optimum use of the capital invested, meaning that its efficiency of operations needs to be streamlined, at the very least. Differentiation of products has also contributed to its edge in technologically advanced product lines as compared to its competitors. However, any advantage gained therefrom needs further detailed analysis based on primary data sourced from the company, which is beyond the scope of this study.

The competitive strategy of Petro Canada is clearly based on three distinct areas of consolidation, namely cost leadership through the economics of scale, ability to leverage its resources for lower-priced innovative products catering to a niche market, and a level of product differentiation targeted at the upstream, downstream as also international markets. The strategy is sought to be supported by its commitment to industry benchmarking, quality of products line, customer satisfaction by way of tailor-made warranty clauses, and environmental conservation through specialized energy solutions. In this respect, it appears to have a distinct advantage over its nearest competitors like EnCana and Imperial Oils and enjoys some degree of competitive advantage and hence value additions through carefully crafted business strategies. While this strategy is well motivated and somewhat successful, the company does need to address certain gray areas and conclusively prove many of its declarations of deep commitments customer quality and service so that such policies translate into a convincing and clear competitive advantage sustainable in the long term in the competitive and difficult oil and gas industry in a bear economy.

Miscellaneous Factors

The financial indicators for identifying the competitive strategy adopted by a company, the advantages gained by it in its primary or other activities, the indicators of such competitive advantages gained by the adoption of such strategy, and the effectiveness of adoption of such strategy for deriving the competitive advantage, all these have been studied in some detail in the preceding paragraphs. The key factors may have been so outlined in those paragraphs, but there exist other factors and indicators of competitive advantage like the amount of R&D spends in a company, the net income as a percentage of net profits, the variations in working capital sourced, the volume, quantum and outstanding of short and long term debts sourced by the company, debt to equity and other financial ratios, fluctuations in and comparative levels of shares prices in the stock exchanges, the ratio of share prices to share earnings, the degree of market capitalization, and dividends paid by the company over the years and as compared to competitor companies, may indicate or give some idea of the success or failure of business and competitive strategy of a company. Analysis needs to be performed on the basis of relevant data sourced from official websites, as has been done in the preceding paragraphs. However, in this particular study, all these factors have not been considered. The reason for this is that these indicators are not as conclusive in determining whether a company has a competitive advantage in a given market or not. Also, the study has only focused on relevant and important factors that directly impinge on the core considerations of the study. For example, unless a company has significant R&D spends, which signifies that its investments in technology and hence the quality of products and services may be improving, the same may not be considered any significant indicator of competitive advantage. It is also felt that any indicators like Dividends payouts by a company are dependent on stock value fluctuations which are generally due to external factors and the economic environment. As for the various leverage ratios, as long as these are equal to or more than the industry average and consistently improve over time, these do not significantly influence business strategy and maybe safely neglected in the study.

Differentiation and Cost Leadership

Arguably, the most important considerations for a company are cost leadership and product differentiation that can add value to a company across the length and breadth of its value chain. Thus it may try to cut its costs by streamlining its operations like inventory management, process flow modifications, etc. In the case of Petro Canada, economies of scale, a strong and higher capital base, a strategic product pricing structure, and comparatively lower operating costs have contributed to its cost leadership over its closest competitors and allows it to target a higher market share in a growing and competitive market. Since every company is primarily driven by the profit motive, cost assumes paramount importance, particularly in a competitive market where the prices of products like petroleum may be semi-elastic in a global or large market. Petro Canada could now target an improved market share based on its advantageous cost of operations and sales positions.

Companies in a competitive environment resort to product Differentiation where price variations may not be feasible or where the company sees very small leeway in cost gains. In the case of Petro Canada, which is a cost leader, the company has also chosen to sell well-differentiated products and has woven its product pricing around segmented markets viz. upstream and downstream retail and corporate markets. It thus has the special Rack pricing of its products, which are again broken up as daily, weekly or monthly lines. It has also strived to incorporate quality and utility-specific properties into its products, which again is a unique characteristic of the oil and gas industry where oils are chosen or supposed to be chosen by customers depending on the productivity, efficiency, tangible net savings, and other such properties that oil gives to machinery and equipment. Petro Canada is also conscious of its obligations to society and the environment and is quite well adaptive in policy to the changing global environmental and societal considerations. It is thus a Product Differentiator. Although how successful it is as a market maker is to be analyzed based on further concrete data.

Petro Canada has also, through carefully planned business strategy, sought to target selective markets through the so-called niche marketing. By this strategy, it has tried to adapt itself to the demands of the various sectors of the market viz., retail and corporate as also for upstream and downstream operations. In this respect, it has only followed a clearly defined strategy of market-making and consolidation whose efficacy can only be born out through consistently improved financial performances over the coming years. However, it can be said to be somewhat successful in gaining some competitive advantage against its closest competitors like Imperial Oils Ltd and EnCana. If it can successfully counter competition from its nearest competitors and record better profits, revenues, EPS, and productivity levels, then it can very well emerge as the undisputed industry leader, even if only in the regional oil and gas industry based in Canada. However, with the global economy facing impending recession and faced with bleak oil and gas sector performances, it may well need to redesign its strategies and refocus itself on its short-term and long-term goals, based on, of course, its mission values and overall corporate objectives.

Conclusion

A successful business strategy achieves a competitive advantage over nearest competitors in any difficult market situation and helps sustain such leadership in both the short and long runs. If at all Petro Canada is to achieve a distinct and comprehensive competitive advantage against its nearest top-level competitors, it needs to introspect and adapt and change its strategy based on changes in its internal and external challenges. It also needs to identify any new opportunities in a world faced by the prospect of economic recession. The stock market operations need to be based on both entrepreneurial and risk-focused portfolio mix strategy and in a close market like the Canadian oil and gas industry where so many capital-rich operators function in a resource (crude oil) rich base, it is essential that Petro Canada build up its market intelligence focused on tackling any and every challenge to its position among top Canadian oil and gas majors. Another parameter, i.e., that of market capitalization, only indicates the size of the company or even its ability to raise debt from the market. Also, although dividends increase with EPS, there appears to be no particular link between these two financial indicators that may relate to the competitiveness of a company. The P/E Ratio may not be rationally determined and only denoted how the public or market perceives the company; a high P/E Ratio may indicate growth prospects but in no way relates to the company’s competitive strategy. Another indicator, like the Prices of company shares, may be seen as the public perception of the business as a value proposition and in no way relates to the competitive advantage of the company, nor is it rationally determined.

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