Effectiveness of Techniques in Developing Strategic Business Plans - Example

Business Strategy Contents Learning Outcome 3 1 Organisational Background 3 2 Formulation of Strategic Plans 3 5 3 Effectiveness of Techniques in Developing Strategic Business Plans 6 Learning Outcome 2 8 2.1 Strategic Positioning of Lafarge Tarmac 8 2.2 Environmental Audit for Lafarge Tarmac 9 2.3 Stakeholder Analysis: 11 2.4 New Strategy for Lafarge Tarmac 13 Learning Outcome 3 13 3.1 Alternative Strategies 13 3.2 Limited Growth Strategy for Lafarge Tarmac 14 Learning Outcome 4 15 4.1a Strategy Implementation 15 4.1b The Strategy Practice Model 15 4.2 Analysis of Estimated Resource Requirements 16 4.3 Contribution of SMART Targets 18 Reference List 19 Learning Outcome 1 1.1 Organisational Background Lafarge Tarmac Limited is a leading construction company which has its headquarter in Solihull, Birmingham. The company is formed from the 50:50 joint venture between Anglo American and Lafarge (Miller, Besser and Malshe, 2015). The motive behind the venture was to extract the best from both the companies. It also includes innovation and technological up gradation, quality service to the customers so that they get positively influenced by this new venture company, high technical expertise, etc. ( Trkman, 2010). It plans to improve its economies of scale by implementing cost effective production techniques. Hence, to accompany optimal cost production methods, the company needs integrated supply chain so that the products can reach maximum customers through developed supply networks. In other words, it wants to create enhanced footprint. It has made strategies to generate synergies of £60 million via improved logistical operations and buying efficiencies and with the introduction of value-added products across globe (Harmon, 2015). It has the ambition of structuring better towns and cities which entails improved quality of city life and creates value for all the stakeholders. It also aims at implementing sustainable techniques in the production. The company is in the process of searching innovative methods for the manufacturing of sustainable goods using environment-friendly techniques. It also aims at maximising its profit by acquiring early contracts. It also intends to increment its market share in the cement industry. 1.2 Formulation of Strategic Plans Lafarge is known for its strength in cement products and high investment in research, development and innovation (Liu and Tian, 2015). Tarmac is famous for their strength in aggregates, creating national footprint, road contracting. Tarmac also has a high ethical customer service. This differentiates the newly formed company from the rest. So, the strategies have to be formulated keeping in mind the strengths and weaknesses of both the companies. Lafarge Tarmac also aims at building their supply chain management. The managers have to invigilate and monitor the functioning of all the strategies that have been planned (Zott and Amit, 2010). There are basically 6 zones where the managers need to focus that includes marketing, procurement, research and development, production, human resource and supply chain. Project management is required to be effective because high profit generating projects can earn revenues (Meyr, Wagner and Rohde, 2015). The operations management team is a key stakeholder who should be given the task of managing the production side of a company. Cement Industry often faces the problem of excess demand. To manage that short term and long term procurement plan should be implemented with negation of raw material proximity issues. When a company is aiming at expansion, it needs to develop its networks. Hence, a dynamic supply chain management should be introduced which can adopt innovative strategies that have revolutionised the method of selling cement in the country. It is necessary that the management pays attention towards analysis of efficiency of fuel in terms of calorific value and market price to gain optimal fuel mix. To increase the worth of the assets, it is required to keep the plant running for 24*7. Since the cement industry is known for its CO2 emissions, the company should optimize its power consumption to reduce cost. The strategy should involve increased utilization of generator to reduce consumption of power by supervising operations. The cement industry is known for polluting the environment. The company has highlight sustainability as the potential area of development. Hence, skilful and energetic R & D team plays a vital role here by introducing sustainable methods for producing sustainable output (Meyr, Wagner and Rohde, 2015). Carroll and Buchholtz (2014) believed that consumer satisfaction should be top priority for the company. For that, it is essential that it delivers cement on time and planning the shipment should be done before time to reduce wastages in packaging. Application of Process Control Features can also help in increasing the potential of increasing revenue. Using planned shipment of goods by analysing freight and efficient logistics planning can help meet consumer demands. Here, the role of management comes into play. A top-down approach asserts the ideas and imperatives of the upper management. The flow of the goals and directives of Lafarge Tarmac trickles down from the top to the subordinates below. This also implies that this planning doesn’t involve the juniors in it. Owners of Lafarge Tarmac have generated the vision and missions of the company. Now, the next role is of the front line who will be translating these goals into actions. However, the company has to mine the knowledge about their employees which will help in ensuring sensible plans. So, this facilitates the need for a bottom up plan. Hence, the company uses the brainpower of the workforce with the aim of developing ideas. Though the objectives are defined by the company, but it is the workers who will be working, applying innovative techniques to achieve these goals successfully. This is the advantage of the bottom up planning where different management teams will be compiling all the idea of its team members so that it is easier for the top level executives to select the promising strategies. Lafarge Tarmac is considering building the sense of ownership and morale among the employees towards the company at all levels (Boselie, 2014). Ansoff’s Growth Vector Matrix Existing Products New Products Existing Markets Market Penetration Strategy Re-branding, Increase market share by gaining consumers from other cement companies, Involving new distribution channels, Proper advertising. Product Development Strategy Innovative approach towards sustainable products, High quality cement, Products manufactured through product automation, Increase economies of scale. New Markets Market Development Strategy Introducing two-tier distribution chains of manufacturers and dealers, Exporting overseas, Vertical Integration (vertically integrate core activities of cement), Focus on countries like Middle East. Diversification Strategy This method showcases the risk involved in introducing new product in a new market where the challenges that the company is going to face is completely unknown. Advanced technology here will play an important role. Concepts like portraying 3-D animation of the building prior to its construction, providing customer services through mobile technology. (Source: Martinet, 2010). Portfolio Analysis The portfolio analysis of Lafarge Tarmac is based on the 4Ps of marketing, i.e., Product, Price, Promotion and Place. Aggregates, Ready-mix concrete, Asphalt, Asphalt Surfacing and Cement are some of the products that it manufactures. However, there are problems that may occur in product mix like increased transportation costs and high competitions. In cement industry, price is used as a tool that differentiates various other brands. The price offered per kilogram is around £5.2 only (Fawcett, Ellram and Ogden, 2014). The price of the cement is dependent on the prices of its raw materials such as clinker. Taxes and Excise duties also impose additional costs. Lafarge Tarmac’s products are widely used by the road contractors, masons, architects, etc. It interacts with the distributors and retailers who act like channels between the company and the customer and also between the contractors and the company. The company also introduces merchandises. As a part of Sales Promotion Schemes, contractors and masons are given shirts, key chains and caps with the company’s logo. It also promotes via its billboards, its websites, newspaper ads, social networking media like facebook, twitter, linkedin, etc. The company is newly formed and aims at expanding its business through 17 local centres across the country (Harmon, 2015). 1.3 Effectiveness of Techniques in Developing Strategic Business Plans BCG Growth-share matrix Based on the combinations of the market share and market growth with respect to the largest competitor, the business units of a company can be divided into four categories. In this BCG model, there are two vital determinants that are market growth and market share. The market is divided into four groups: Dogs, Question Marks, Stars and Cash Cows. Dogs represent low market share and low growth rate. Question marks represent low market share and high market growth; Stars show high market share and high market growth, Cash cows reflect high market share and low market growth (Bettis, et al., 2014). Question Marks Stars Dogs Cash Cows Lafarge Tarmac (Source: Moreira, 2000) Hill, Jones and Schilling, (2014) mentioned that Lafarge Tarmac is placed under “cash cows” because it has established itself in the market since it is a merger between two most successful companies. However, the market is stagnant and the opportunities of growth for the cement industry are limited. It is generating more revenue than it can devour so that it can invest in its R&D and sustainability programmes. Directional Policy Matrix The health of the market and the strength of the company to pursue it are measured by the Directional Policy Matrix. The outcome indicates the company in which way it should invest in future. The proposal may be to invest, grow or divest (Wong, Tseng and Tan, 2014). Figure: Directional Policy Matrix Market Attractiveness (High, Invest) High Business stamina and High market attractiveness. Lafarge Tarmac (High, Grow) Low Business Stamina and High market attractiveness. Market Attractiveness (Low, Harvest) High Business Stamina and low market attractiveness. (Low, Divest) Low business stamina and Low market attractiveness. High Low (Source: Hill, 2008). Learning Outcome 2 2.1 Strategic Positioning of Lafarge Tarmac SWOT Analysis Strength: It is considered as the market leader with a global presence. It is known for its huge investments in R&D and advanced technological approaches. The team has got accurate knowledge about the market. It also has acquired Orascom Cement (Egypt) (Clark, et al., 2014). Weakness: There is not promotion of this new venture. So it lacks visibility. Not much awareness has been created regarding its products. Opportunities: It is expanding in developing countries. Since population is growing, there is an increasing demand of MGB industries. It has shown concern towards environment and accordingly is taking measures to prevent further degradation. Threats: There are other new companies in the market which are imposing some threats. Value Chain Value chain comprises of the primary activities like Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales and Services. Inbounds include 100 million tons of limestone is needed to fulfil the demand (Yang, Hon. and Modi, 2011). It uses its own transportation facilities to carry raw materials to the cement plants. It also aims at promoting local diversity, building tourist pars, agricultural and residential redevelopment. It uses mobile equipments in its plants. The plant is operated from one central room which has high level technology where the whole operation is closely monitored. The basic methods are: mining, blending and crushing, grinding of raw materials, kiln feed and blending, kiln cooling and pre-heating, milling of the cement, bulk loading and cement storage packaging. Its product is highly volume sensitive. Warehousing is a costly component, but it is essential. Main tasks include packaging and shipping. Marketing includes focus on branding, efficient public relations, price differentiation and strong distribution channels. The service in this industry is basically after service facility that the company provides (Boselie, 2014). Benchmarking and Demographic Influence The benchmark procedure is applied by the company to compare its features with its competitors to understand where it lacks and what steps should be taken to improve its functioning (Zott and Amit, 2010). So, it needs to focus on its key business drivers that are high production line speed and quality products. It is also important to identify the company against whom it is benchmarking. Thus, a firm with similar objectives and size and comparing their strategies will help the company to excel. It is also of equal importance to analyze customer feedbacks so that the performance can be improved in the future. The company is located in a developed country where customers have high level of income. The country has high rise buildings and the company’s products can be used in constructing roads, parks, corporate offices, etc. (Trkman, 2010). 2.2 Environmental Audit for Lafarge Tarmac PESTLE: Political: The Company is mostly present in the developed countries where it does not have to encounter important political conflict. However, the business needs political assistance for building permit. Economic: Economics crisis adversely affect the construction business in advanced nations because they spend huge money. Socio cultural: Increasing world population. Technological: Extraction of raw materials for the production of cement is at the state of art. For sustainable production, advanced technology is needed. Environment: Our society is concerned about the scarcity of natural resources. So environment friendly methods have to be implemented for sustainable products development. Legal: The Kyoto Protocol has to be respected by the companies of the developed countries regarding the CO2 emissions. Different laws and policies of various countries have to be maintained properly by the visiting company (Collings and Mellahi, 2009). Porter’s 5 force Analysis This simple yet powerful instrument is used to understand the existence of power in a business situation. Ambrosini and Bowman, (2009) said that it is characterised by five forces such as: Supplier Power, Buyer Power, Competitive Rivalry, Threats of Substitution and Threat of New Entry. In supply power, it is assessed how easily suppliers can drive the prices. It depends on the number of suppliers are present in each input, the unique service of the product, cost involved in changing suppliers, etc. They become powerful if the company has few choices. Buyer power implies the power that the buyer company carries. This is also influenced by the number of buyers in the market, importance that each buyer has, etc. The fewer the buyers, the more power they gain. In Competitive Rivalry, the capability and the number of competitors matter a lot. If the industry is marked by the presence of perfect competition, then it is likely that the company has power in their hands. Threat of Substitution exits if there is large number for substitute goods available. This may confuse customers. Threat of New Entry explains how the power of an existing company gets affected when other firms enter the market which not only influences the prices but also weakens the company’s position. (Source: E. Dobbs, 2014) 2.3 Stakeholder Analysis: Stakeholder Significance Grid For the success of an organisation it is required to properly analyse its stakeholders. This grid projects the method of influencing the stakeholders by interests and influence (Zott and Amit, 2010). Influence/Power of Stakeholders Meet their Needs It is advisable to increase their interest. Engage them in their areas of interest. Aim: To move into right hand box. Key Player Consult and engage them regularly, Key players must focus on stakeholders, Involving them in management committees. Influence/Power of Stakeholders Least Important Inform through newsletters, websites, etc. Aim: to move into right box. Show Consideration Potential supporter/ goodwill ambassador, Utilize interest via involvement in low risk areas, Discuss with them on their areas of interest. Interest of Stakeholders Interest of the Stakeholders (Source: Mah, et al., 2014). Stakeholder Mapping It is considered as an integral part of a growing business. The stakeholder mapping is done in four steps: defining the stakeholders, analysing them with the help of influence and impact, plan good communications between them and employ a reporting system, connect with them. So basically, the purpose is to keep the stakeholders happy and satisfied so that they can give their best effort (Casadesus-Masanell and Ricart, 2010). Power (High, low) Keep Satisfied (High, high) Manage Closely Power (Low, low) Monitor (Low, High) Keep Informed (Source: Daigneault, 2014) 2.4 New Strategy for Lafarge Tarmac The new strategy that Lafarge can opt for is Corporate Social Responsibility (CSR). Companies are basically business bodies which run with the motive of profit maximisation. However, they also carry some responsibilities to their customers, workers and suppliers. Corporate Social Responsibility (CSR) is a model applied in management in which companies integrate environmental and social concerns in their interactions with their stakeholders and business processes (Christensen, et al., 2007). CSR can bring advantages to Lafarge Tarmac. The cement industry creates pollution by releasing pollutants in the environment in the form of particulates and gaseous pollutants. Since the company wishes to apply sustainable techniques, then this strategy will surely prove to be fruitful. This means that the company will follow the path of innovation. This also means that cost reducing techniques are also applied. CSR adds value to the organisation and society. Different programmes like scholarships for teenagers, awards and internship programmes also help in building a healthy relationship with the customers. It can be an aid to retention and recruitment of workers. It can limit the risks of corruption scandals or environmental accidents (Liu and Tian, 2015). Laudal (2011) discussed that an appropriately implemented CSR strategy can bring competitive advantages like increased access to markets and capital, rising profits, improved quality and productivity, savings on operational costs, proficient human resource base, enhanced decision making. This in turn will improve brand reputation and image and hence, will increase customer loyalty. Embracing CSR creates brand differentiation. Through CSR programmes customers can be engaged which will help create promotion of the brand It also involves employee’s participation in such programmes. This helps in determining their needs and increases labour productivity ((Boselie, 2014). Learning Outcome 3 3.1 Alternative Strategies On 1st April, 2014, Tarmac Building Products (TBP) came under the control of Lafarge Tarmac. On the basis of turnover test, the Competition and Markets Authority (CMA) considered the parties to be one (Siegel, 2010). The CMA assessed the merger against the conditions of competition existing before the merger. While TBP focuses on the downstream markets, LT mainly engages its business activities on the production and supply of heavy construction materials, like, bulk aggregates, bulk cement, bulk lime and ready-mixed concrete (RMX). Vertical relationship also existed between the parties. The parties’ post- merger share of supply will only be [20-30%] with significant constraints from alternative suppliers (Hill, 2008). In 2012-13, it formed small and medium sized acquisitions. It had affirmative impact on its revenue of 187 million Euros in 2013. In 2013, the company along with Elementia created a new entity in Mexico. In the same year, it disposed of its asset in Honduras to Argos. It also did the same in Ukraine to the CRH group. Also, in Oklahoma and Missouri, it sold its cement and assets to Eagle Materials Inc. It also sold of its Gypsum Operations in the US to Lone Star Investment Fund (Siegel, 2010). During 2013 and 2012, Lafarge passed out several small-to-medium sized divestments. Due to this, divestitures reduced the Group revenue by 277 million Euros during the last two years. In December 26, 2013, Lafarge stated the sale of its 20% minority stake in European and South American Gypsum Operations to Etex. The transaction got closed on February 12, 2014.It also sold five aggregates quarries and related assets in Maryland (USA) to Bluegrass Materials. However, the transaction was closed on February 12, 2014 (Hamel, 2008). 3.2 Limited Growth Strategy for Lafarge Tarmac Growth is often considered as a sign of success by many organisations. However, it is recommended that Lafarge should adopt limited growth strategy (Zott and Amit, 2010). Since it is a newly formed organisation, it is profitable for the company to avoid large debt that is associated with rapid growth. Fast growth also accompany extensive burden for management who are required to maintain a balance between existing operations and managing expansion of business (Boselie, 2014). Firstly it should aim at building their brand reputation with quality products. Once, it establishes itself and increases its consumer base then it can aim for higher goals by opting for different growth enhancing techniques like market penetration and market development. Learning Outcome 4 4.1a Strategy Implementation Strategy Implementation Business Operation Culture Work culture is modern, Power gap between employees and management is low, High ethical norms, Open to International structures, Frequent reporting system. Structure Although the structure prevailing is rigid but it still becomes flexible when the situation demands. System System is upgraded, It is advanced, Competitive, Highly methodological. (Source: Siegel, 2010) 4.1b The Strategy Practice Model Strategists (Who?) Activities (What?) Methodologies (Which?) Administrative Plan long term strategies, Strategies are crucial, Administer functioning of the business body. Timely conduct of meetings. Managerial Provide guidelines to the employees, Set up rules and regulations, Acts as a medium between administration and employee, It communicates the objectives of the administrative body and from that it constructs more plans. Proper discussions and intellectual planning, implementing healthy work culture. Employee Execute their respective roles, Carry out small strategic duties, Work towards the achievement of company’s missions and targets. Maintaining discipline. (Source: Trkman, 2010) 4.2 Analysis of Estimated Resource Requirements Types of Resources Required Availability of Resource Constraints Finance There is financial stability, There is increase in rate of free cash flow, Net earnings per share have increased. Negative impact of foreign exchange fluctuations. Human Resources Strong leadership traits in the HR management which successfully manages 6600 employees Providing common platform for employees of different background when it will expand geographically. Physical Resources Skilled employees are recruited and proper trainings are given to them. More employees are needed since the company plans to expand. Time Required Construction of planned schedule. Different interruptions and issues like excess demand might crop up. (Source: Hill, 2008) 4.3 Contribution of SMART Targets Targets SMART principles Tools of evaluation High Quality Cement Application of improved methodologies and technological innovations. Scientific and cost efficient techniques. Sustainable outputs Reduction in emissions of CO2 and other harmful chemicals that degrade environment Power and cost efficient production techniques. Integrated Supply Chain Experienced and skilled supply chain management. Proper planning and execution. 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