Module 4 SLP Strategic Choices [1131 Words]

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Strategic Choices

Background

In the Module 4 SLP, you will be learning how to apply and integrate the results of your SWOT Analysis with the four generic business strategies discussed in this module.

Note: Before you begin the SLP, read the Required, Background and Previous SLP Assignment materials thoroughly.

Required Reading

If you are having trouble determining how to integrate the SWOT factors with different strategies, the following two readings may help.

1.The first article includes some examples of how RBV variables can be used to leverage a cost or differentiation strategy:

Competitive Advantage (2007). Retrieved on November 6, 2012, from:

2.The second reading demonstrates how a cost, differentiation, or focus strategy can help a company defend itself against Porter's Five Forces:

Porter's Generic Strategies. (2007). Retrieved on November 6, 2012, from:

Session Long Project ASSIGNMENT

In this module, using the Kraft Foods Group, we will be integrating the results of our SWOT with our chosen strategy.

Keys to the Assignment

•Step 1: Create a 5x5 table with the four strategies listed across the top and the four SWOT variables at left as follows:

Low costDifferentiationFocusPreemptive

Strengths

Weaknesses

Opportunities

Threats

•Step 2: Using your work in the Previous Assignment provided below and your research as it relates to the Kraft Foods Group, select one element from any of the analytical models we studied that contributes to each of the four SWOT variables. For example, for Weaknesses, you may want to choose an element from Porter's Value Chain (say, operations), while for Opportunities you may want to select something from the PEST analysis (say, sociocultural factors). Select one for Strengths and Threats as well.

•Step 3: Enter the elements you have chosen with the corresponding SWOT variable. Below, "strong competitive rivalry" has been chosen for Threats. Note that other choices could have been high barriers to entry, high bargaining power of suppliers or customers, high substitutability (from Five Forces analysis), or a specific political, economic, social, or technological factor (from PEST). Complete this process for all four SWOT variables.

Low costDifferentiationFocusPreemptive

Strengths

Weaknesses

Opportunities

Threats: Strong competitive rivalry

•Step 4: This is potentially the most challenging part. Indicate the impact each strategy might have on each SWOT factor you have chosen by offering a business action that will address the SWOT. For example, follow the threat “strong competitive rivalry” across all four generic strategies. How would a low-cost strategy address an industry environment characterized by intense rivalry? What about a differentiation strategy? Focus? Preemptive? In other words, you are considering the same industry threat, but addressing it differently depending on the chosen strategy. See the example below:

Low costDifferentiationFocusPreemptive

Strengths

Weaknesses

Opportunities

Threats: Strong competitive rivalryUndercut rivals on price through operational economiesBrand loyalty attracts repeat customersFind an underserved market segment that rivals are unwilling to serveBeat rivals out of the gate, establish dominant position

Thus, the strategic action you choose to fill in a given blank should do two things: 1) offer a tactic for taking advantage of a strength or opportunity or for managing a threat or weakness, and 2) follow the basic thrust of the strategy in that column.

PROVIDE ALL OF THIS INFORMATION IN a 4-Page Paper.

Utilize the background reading as references and sources as well as others off of the internet…

Assignment Expectations

The paper will be evaluated on the following seven points:

•Precision - Does the paper address the question(s) or task(s)?

•Breadth - Is the full breadth of the subject (i.e., the Keys to the Assignment) addressed?

•Depth - Does the paper address the topic in sufficient depth and include the background readings and other background resources as references?

•Critical thinking - Is the subject thought about critically, that is, accurately, logically, relevantly, and precisely?

•Clarity - Is the writing clear and are the concepts articulated properly? Are paraphrasing and synthesis of concepts the primary means of responding to the questions or are points conveyed through excessive use of quotations?

•Organization - Is the paper well written? Are the grammar, spelling, and vocabulary appropriate for graduate-level work? Are headings included in all papers longer than two pages?

•Referencing (citations and references) - Does the paper include citations and quotation marks where appropriate? Are the references from the background readings and assignment present and properly cited? Are all the references listed in the bibliography present and referred to via citation?

Background Information

In Module 4, we will concentrate our efforts on strategic alternatives at the corporate, business, and functional levels. Companies follow strategies at each of these levels, as well as at the global level.

•At the functional level, strategies are short term in nature, and refer to company functions such as marketing, manufacturing, materials management, customer service, and R&D.

•At the business level, strategies are of medium range. They include the company's market positioning, geographic locations, and distribution channels.

•At the corporate level, strategies are long term, and include options such as horizontal and vertical integration, diversification, strategic alliances, and mergers and acquisitions (M&A).

Open and refer to the provided presentation on Strategic Choices by Professor Anastasia Luca.

Competitive Advantage

In this module, we will focus on the strategic options available to companies at the business level. Companies select business strategies to obtain Sustained Competitive Advantage (SCA) against competitors. SCAs are advantages that cannot be easily copied or imitated by competitors. A few years ago, strategists talked in terms of Porter's generic strategies (basically cost and differentiation). Today, we have four distinct strategies we use to analyze strategic options, although there are various approaches to achieving these strategies. They are:

•Cost Leadership

•Differentiation

•Niche/Focus

•Preemptive Move (or first-mover advantage)

Cost leadership

Most people think of economies of scale when they think of low-cost strategies. McDonald’s and Wal-Mart notwithstanding, high volume is not the only way to achieve low prices. Here are some other approaches to implementing a low-cost strategy:

No frills: Southwest Airlines eschewed big airports and cut costs by flying to smaller airports. Competitors such as Delta and American were too heavily invested in the hub business model to change.

Product design: Masonite developed an alternative to expensive wood products by using sawdust and woodchips. Some telecommunications companies "bundle" products, offering cable/satellite TV, high-speed Internet and telephone service for one low price. Hershey's shrank the chocolate bar to keep from raising its low price.

Operational economies: Firms can save money by eliminating high costs in the value chain. Amazon was able to significantly cut costs by eliminating physical stores, inventories, and cutting the 30% return rate of bookstores to just 3%.

Economies of Scale: With higher sales, fixed costs such as R&D, overhead, advertising, and even legal support can be spread over a larger revenue base.

Experience: Costs decline at a predictable rate with a firm’s accumulated experience. Such declines are attributed to the learning curve, technological improvements, and product redesign resulting in product and process efficiencies.

Here is another way of looking at low-cost strategies:

Algasae (n.d.) Promoting thought leadership ... Customer focused low-cost strategy. Retrieved on November 6, 2012, from:

Differentiation Strategies

If a company positions itself as offering a product or service that is different from its competitors in a way that customers value, it is following a differentiation strategy.

A successful differentiation strategy will create customer value that is perceived as such by the customer. Many so-called "new-and-improved" products have fallen flat because the customer simply didn't care. In addition, a successful differentiation strategy will only build Sustained Competitive Advantage to the degree that it is difficult to copy.

There are many ways to add value to any aspect of a business through differentiation:

•Ingredients/components: Healthier, "greener," longer-lasting ingredients/materials (e.g., Maytag appliances, Healthy Choice frozen dinners).

•Product offering: Better-designed products (e.g., BlackBerry touch screen, Dell “Ultrabook" computers).

•Combining products: Two is better than one (e.g., Colgate 2 in 1 toothpaste and mouthwash).

•Added services: Extra services beyond the basic purpose of the product or service (e.g., concierge service with American Express cards).

•Breadth of Product Line: Extra convenience in dealing with fewer vendors (e.g., Wal-Mart offers one-stop shopping, eliminating the need to go to multiple stores).

•Channel: Offering items or services through a medium or channel unavailable in that form anywhere else (e.g., eBay offers instant access to hundreds of individuals worldwide, simultaneously or asynchronously).

•Design: Product or service is unique (e.g., bed-and-breakfasts offer a more ''homey" alternative to standardized hotel rooms).

In general, there are two ways to build SCA through differentiation strategies. Most of the methods of adding value mentioned above can be related to either quality or brand recognition.

Quality Strategy: In this type of differentiation, a company tries to set its product/service apart on the basis of superior quality. It is probably the most widely used method of attaining Sustained Competitive Advantage. Usually, quality means superior performance, and a premium brand as opposed to discount or economy brands. Such top-of-the-line offerings command a high price tag. However, quality does not always mean expensive. Both Mercedes (expensive) and VW (less expensive) connote high-quality German engineering.

Branding: Brands build SCA through customer familiarity, loyalty, and trust. Aspirin is aspirin, but Bayer continues to thrive against low-priced generics due to the power of the brand.

Blue Ocean: An Alternative Approach

A combination of low-cost and differentiation strategies has created a buzz in the recent business press. Known as "Blue Ocean" strategy, it is a new idea that challenges the standard classifications of strategy.

The following is the official Blue Ocean website. Check out some of the links to view the tools and frameworks for Blue Ocean strategic planning:

Kim, W. C. and Mauborgne, R. (2009), What is BOS? Nine key points of Blue Ocean Strategy. Retrieved on November 6, 2012, from:

Niche/Focus Strategies

Niche or Focus strategies are really variations of a cost or differentiation (or both) strategy, only concentrating the company's efforts on a single or limited product or market. By focusing its efforts, the firm is able to realize the following advantages:

•Avoid distraction or dilution: All of the firm’s efforts are directed toward a single end, and competitive pressures are diminished. All company resources and capabilities are matched to the market needs, creating SCA (remember RBV?).

•Maximize limited resources: When resources are tight, they will go farther and create a greater impact when the target is limited.

•Circumvent competitors’ resources and capabilities: By operating in a niche market, say, private-label manufacturing, a firm does not have to contend with the big advertising and distribution capacities of the brand names. Competitive pressures are diminished overall as there are likely to be fewer competitors.

•Establish a unique identity: Offering a narrow product line, or operating in a limited geographic area can confer a certain cachet. In-N-Out Burger, for example, competes successfully with the huge fast food franchises by refusing to offer anything but hamburgers, made with the freshest site-prepared ingredients, in California, Nevada and Arizona only.

There are basically three ways a firm can establish a focus strategy. It can concentrate on one of these approaches, or a combination.

Focusing the product line: Firms that focus their product line often do so because they possess some expertise and special interest that often translates into technical superiority. These products excite and electrify. Take Bose Corporation, for example. It manufactures a small line of exceedingly high-quality audio products that are based on astonishing technology. If Bose broadened its offerings to all kinds of consumer electronics, it would run the risk of sliding into mediocrity with ho-hum products.

Targeting market segments: This is essentially "snob appeal" broadly defined. Gucci handbags target high-end fashionistas, Harley-Davidson targets rebellious non-conformists (at least in their own minds), and Castrol motor oil, which is not even sold in service stations, targets independent male do-it-yourselfers.

Limited geographic area: We have already considered In-N-Out Burger, but many other products are conferred a kind of cachet because you cannot get them just anywhere. Other examples include small breweries (e.g., Shiner Beers in Texas), coffee shops (independent and locally owned), or bakeries (Tim Hortons donuts in Canada and the northeast United States).

For another take on niche strategies, including some important caveats about potential pitfalls, read:

Iansiti, M. and Levien, R. (2004). Strategy for small fish. Harvard Business School Working Knowledge. Retrieved on November 6, 2012, from:

Preemptive Strategy

By being the first entrant into a new market or business area, a firm can establish competencies or assets that competitors are not able to copy or develop on their own. The first-mover advantage can create high switching costs for customers, erect high barriers to entrance for competitors, and tie up contracts with suppliers. Thus, a preemptive strategy can confer SCAs both from internal and external sources.

Preemptive strategies are usually implemented in one of three ways:

Product opportunities: The first product offered in a new market can generate advantages in terms of dominant position that can be hard for competitors to later dislodge or overcome. A company can establish the "standard" for an industry, such as Intel did with microprocessors and Microsoft with operating systems. Of course, firms must continue investment in improvements lest an upstart come up with a "better mousetrap."

Production systems: When a firm invents a better or more efficient production system that expands capacity, reduces cost and/or improves quality, they have created SCA.

Customer advantages: First movers have an advantage with customers—creating brand loyalty and increasing switching costs. Customers become used to a familiar product or brand and see no reason to switch. Some companies get customers to make long-term commitments—as in long contracts for the latest in iPhone or BlackBerry technology. Banks may vie to get first-mover advantage in online banking because such systems involve substantial switching costs for customers who pay all their bills online. Here is a brief article discussing the first-mover advantage in practice:

Liang, T., Czaplewski, A., Klein, G., & Jiang, J. (2009). Leveraging First-Mover Advantages in Internet-based Consumer Services. Communications of the ACMe, 52(6), 146-148. Retrieved from EBSCO.

Required Reading

Algasae (n.d.) Promoting thought focused low-cost strategy. Retrieved on November 6, 2012, from:

Kim, W. C. and Mauborgne, R. (2009), What is BOS? Nine key points of Blue Ocean Strategy. Retrieved on November 6, 2012, from:

Liang, T., Czaplewski, A., Klein, G., & Jiang, J. (2009). Leveraging First-Mover Advantages in Internet-based Consumer Services. Communications of the ACM, 52(6), 146-148. Retrieved on November 6, 2012, from EBSCO.

Iansiti, M. and Levien, R. (2004). Strategy for small fish. Harvard Business School Working Knowledge. Retrieved on November 6, 2012, from:

SLP Reading

Competitive Advantage (2007). Retrieved on November 6, 2012, from:

Porter's Generic Strategies. (2007). Retrieved on November 6, 2012, from:

PREVIOUS MODULE 3 SLP ASSIGNMENT

Resource Based View Analysis

Resource Based Value analysis is a combined evaluation of the internal resources of a given firm with its competitive surrounding (Henry, 2007). This paper analyses the RBV of Kraft Foods to recognize its strategic resources and determine its ability to compete with other firms in the industry. Kraft Foods is a multinational firm which specializes in the selling of beverages, groceries, snacks and other common food products. The food brands of the company are famous in the American market and other nations in the Northern America. An evaluation of RBV for Kraft Foods will outline its resources and organizational abilities that offer its competitive advantage.

Tangible Resources

Physical Resources

The tangible resources that provide Kraft Foods with a strategic advantage over other firms are very vibrant. The capital base of Kraft Foods is highly diverse with subsidiaries in more than 70 countries globally. The company has also managed to create mergers and take over other leading snack and food firms, making it the biggest food outlet in America. The Kraft Foods Company has branches with millions of product brands. The firm’s latest acquisition of Cadbury PLC, which is a UK based snack firm, asserted its position as the single most producer and distributor of food products across North America. This huge market distribution minimizes the business risk while at the same time solidifying its presence in the industry in comparison to its rivals. The globalization and acquisitions make the company the second biggest food firm globally (Harvard Business Review (Cambridge Mass, 1999).

Financial Resources

In the year 2010, the company bought Cadbury for approximately $18.5 million. The Kraft Foods branch in North America is presently estimated to be worth $19 billion. The global division Mondelez is estimated to have a value of $36 billion in yearly revenues. The expansive financial resources provide the company and its global branches with a competitive advantage over their rivals in the food industry. This also enables the firm to finance its research on new and better practices in the food industry. Based on the huge capital base, the firm currently operates its stock on NASDAQ and can increase the business operations in new lines like the latest frozen foods operations.

Human Resources

In Canada and the United States only, Kraft Foods hires approximately 25,000 staff (Kraft Foods, 2013). The firm aims to offer a secure working place for its employees while ensuring that the employees are well committed and motivated to the firm’s objectives and goals. Kraft Foods top executives are among the most experienced and well knowledgeable in the Food and Snack industry. For example, the CEO of the company, W. Anthony Vernon has been in the management of the company since October, 2012. Previously Vernon has been in charge of other senior positions in reputable companies such as Ripplewood Holdings, Johnson-Merck joint venture, McNeil Consumer products and Johnson products. His diverse experience in consumer products helps the CEO to provide the firm with a better competitive strategy over his rivals in the food industry.

Intangible Resources

Technical Resources

The employees in Kraft Foods are very talented and skilled in their duties. The 25,000 employees were picked to work for the company because of their efficiency in their various lines of occupation. The company conducts a yearly marketing study that helps them to have a better understanding of the needs of the customers (Magwood, 2011). The employees have effective knowledge on the basic elements of customer service. The company has worked with other consultants with the aim of developing a good customer related service delivery podium.

Intellectual Resources

Kraft Foods has established product brands that have acquired fame in major markets across the globe. The company has acquired patents for most of its famous brands and has a sequence of differentiated products, which target the segmented markets. For instance, Planters Nuts is the popular brand of nut in Northern America that has continued to grow in popularity amongst the packed nuts customers. There are over ten famous brands in the North American divisions of the business. This type of brand earns the firm about $500 million in sales revenues per year. All these products are under the trademark of the company while others are under the license of other firms. The most instrumental patented brand such as Cadbury, have offered the company tremendous market ability in the food industry.

Kraft Foods enjoys significant goodwill amongst its customers in North America, particularly in USA, Canada and Puerto Rico. The company has been reliable and honest in relation to safety as well as quality. The company’s products which are formulated to appeal to the specific market and customer requirements have defined their own particular market niches. The company does also enjoy plenty of professional goodwill, unique designing of its products and its exemplary customer service.

Cultural Identity and Strategic Alliances

The parent company of Kraft Foods began from Illinois in United States. Most of the customers to the company identify with the firm given that it has sustained its good tradition for many years. In recent years, the company purchased stakes in the UK based Cadbury Company, which is one of the biggest firms in the world. This take-over increased the market share for Kraft, improving its image in the global market. Another notable strategic shift was the split of the company into a global branch and a northern American-based branch. This strategic move guaranteed that the market segments got the needed attention.

Distinctive Capabilities

Architecture

The logo of Kraft Foods is blue and red and it has its appearance on each product of Kraft. The red and blue logo has been the conventional Kraft emblem since its beginning. All of its divisions are different in plan but with the company’s logo on top. The differentiating feature of the company’s divisions; the colors and unique logo makes the company easily noticed.

Reputation

The position of Kraft Foods as one of the top most grocery and snacks companies is not disputable. It has sustained its reputation as one of the top innovators. Kraft Foods Company is also recognized for its sustainability and quality in the industry. The firm has positioned itself as the best firm in the region. It is a member of the Ethibel and Dow Jones Indexes. The firm has global fame with over half of its income coming from exterior borders of the continental North America.

Innovation

Innovation is one of the major technical potentials of the company. The company has often dedicated itself to give out products that have high quality and sustainability within the market. Kraft Foods Company through its innovative segment, works in cooperation with other distributors to offer the peel and seal packages that are friendly to the environment and easy to dispose of. Additionally, the company has active research and development departments that aims at offering the company with new and simple methods of production. The Research and Development Centers help the company to improve on its food and safety as well as nutritional awareness of the company. Most resources have been diverted into efforts to minimize the use of energy, emissions of carbon dioxide and wastage at the factory in the processes of production.

References

Kraft Foods Corporate Information. (2013). Kraft Foods Group. Retrieved from

Harvard Business Review (Cambridge Mass.). (1999). Harvard Business Review on corporate strategy. Boston Mass: Harvard Business School Press.

Henry, A. (2007). The Internal Environment: A Resource Based View of Strategy. Understanding Strategic Management. Oxford University Press. Retrieved on February 10, 2014, from

Magwood, J. D. (2011). Kraft Foods and Managing the Customer Relationship. Retrieved from

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