External and Internal Analysis of the Fossil Group - Case Study Example

Name: Instructor: Course: Date: External and internal analysis of the Fossil group Fossil group primarily manufactures and distribute watches all over the globe; they are also involved in the production of leather and jewelry. Just like any other organization it has an external and internal environment that defines its operations. An internal analysis focuses on the strengths and weakness whereas the external environment is based on the opportunities and threats presented to the company. A SWOT analysis of Fossil group clearly indicates that the strength of its brand is instrumental in the success of the enterprise. The use of vertical integration also has helped it produce watches at a lower cost through Asian firms and having entered the Swiss market they have been able to increase revenue. Having that country of origin has an influence over consumer behavior and thus consumers have preferred their Swiss made watches because the best watches are known to be made in Switzerland. Fossil has a strong distribution network and their manufacturing; marketing and distribution has seen them sign contracts with Google and Intel in order to manufacture smart watches and expand their watch market. The Fossil group has internal weaknesses that may hinder their future operations, there deal with Intel and Google was a clear indication that it does not have the necessary skills to manufacture smart watches like apple. Its promotion cost in many retails has been on the rise recently. The leather business is declining and having that its number two business after watches fossil should be concerned. On the other hand, the external environment presents the company with opportunities and potential threats. Fossil face threats from a number of manufactured devices that can tell time and the development of wearable technologies is a big threat to its watch industry. Apple’s smart watch is an excellent example of the kind of threats that fossil faces. Swatch technologies the world’s largest watch manufacturer has a greater market share and distribution channels and therefore venturing into smart watches will prove difficult for fossil to surpass. On the other hand, Fossil has opportunities that it can exploit to expand. And this ranges from their financial power because they were able to overcame the recession and with the increasing demand for wearable technology. It has an opportunity to establish a division that can manufacture wearable smart watches having that they already signed a deal with Google and Intel who have the capability of making the production of smart watches a reality. Problem / issue analysis While analyzing Fossil’s inter and external environment, there were a number of strategic issues that we were able to note. The Fossil group has a problem with their expansion strategy on wearable technologies in that their partnership with Google and Intel will give this two giant manufacturers an upper bargaining hand. Which may hinder future operations of the company in case they decide to back out of the deal. Legal and political forces are a major problem on Fossil’s manufacturing strategies, and this will affect the sales of watches. Having that prices will be increased because Switzerland has passed a legislation requiring the production and assembling of watches be specifically in Switzerland. Therefore, this will need a lot of finances for Fossil to conduct research on development and how to start the production of parts for their watches which in turn will affect their pricing policies. The Fossil group seem to have a problem with their outsourcing and franchising strategies, Michael Kors accounts for over 60% of the total sales from fossil. But they only receive a 10 percent return on all products sold under their brand whereas others non-performing ones receive 20%. This shows a lack of consumer insights on brands by the top management on which brands are more profitable than others. Having that outsourcing contracts are controlled by law it will, therefore, incur a lot of losses in the future if it goes on making a lot of outsourcing mistakes. Their globalization strategy has seen the company lose a share of the domestic market having that it is concentrating mostly on international marketing that account for almost half of Fossil’s total revenue. Specialty brands are strategic to Fossil’s success but if not monitored Fossil will lose its bargaining power and incur a lot of losses. Alternative strategies The fossil group should use the SWOT analysis adequately in order to outline alternative strategies to be used that can produce the desired results when blended together. In order to effectively use a firms opportunities and threats and its strengths and weaknesses. SO strategies The Fossil group banks heavily on its brand and this can be used to counter the growing demand of wearing technologies. Therefore there should be alternative strategies to develop wearable technologies. The Fossil group should develop appropriate social media strategies to keep in touch with the changing needs and preferences of customers and how they communicate for example having a Facebook and twitter account where customers can interact freely. This will help cut down on advertising costs and save money for the company on the contrary it may lose its older clients who don’t fancy social media. Another strategy is to capitalize on the Swiss watch making capabilities, Switzerland is known to produce quality watches and having that Fossil has a permanent base in Switzerland it can capitalize on that to attract more customers and retain the market base. Swiss watch making capabilities may affect the prices of the watches hence they may lose customers who don’t value spending a lot of man on watches. Product and brand awareness through motion pictures is another strategy the Fossil group can use to market their product and reach far wide markets. The Fossil group can therefore use buildings and highways to advertise their products by use of motion pictures. This helps reach a wider group of customers, on the downside the operation cost may be huge having that emotions pictures require a lot of finances to run. WO strategies Capitalizing on their weaknesses and opportunities, the Fossil group should recruit skilled employees with knowledge on the development of wearable technologies. This will help overcome their competency problems and at the same time help the company produce smart watches with a lot of ease. On the contrary skilled employees are hard to get and their salaries may be so high that they may cripple an organization’s functionality. Coming up with strategies for effectively link the fossil brand with other specialty brands. This will help in limiting the influence of specialty brands which may be detrimental to the company’s revenues. On the other hand strict measures may make the brands to opt out hence weakening the brand .Developing functional strategies and how to adjust so as to capitalize on the financial power of the Fossil group and brand. This will help the group use well established supply chain that don’t need finances for advertising while on the contrary this will affect the company’s image in that some customers may be unable to access those high-end supply chains ST strategies The Fossil group enjoys a global network, and this should help it counter the threat of Switzerland limiting the sales of Swiss parts that are used in the manufacturing of reputable watches. Being a global brand, the Fossil group can effectively use horizontal integration strategies to acquire competitors or develop strong mergers. This strategy can be effective having that Fossil has a strong brand which is more attractive to investors so as to counter the threat posed by swatch technologies’ acquisitions and its smart watch developing capabilities. Horizontal integrations are always a gamble with a lot of uncertainties. Strategies to counter increasing research and development expenses. The Fossil group’s partnership with Google and Intel helps in minimizing R&D expenses having that this two are giants in the field of developing phones and computers and thus they won’t spend a lot of money researching on smart watch technologies. They also have the capabilities of keeping up with constants innovations to help maintain their market base. On the contrary this partnership may bring u undue influences from strategic partners. WT strategies Despite having competency issues, the Fossil group can use vertical integration strategies to over their competence issues and keep up with innovations in the industry. Vertical integration will help acquire technological advanced companies but it this strategy may also cripple a company if a proper investment is not made Another strategy is to consider hiring employees from their partners this will help shield the Fossil group from uncertainties incase Google and Intel decide to back out of the deal. Hiring employees from partners may ruin the relationship and may lead to contract termination. Developing operational strategies in china, this strategies will help maintain a market share that is under threat from government’s legislations. This operational strategies will help the Fossil group sell watches to genuine customers as compared to the past where they had to rely on people buying watches as gifts or kickbacks. There will be a challenge of telling who the real customer is and who is not. Grand strategy analysis Like the SWOT strategy the grand strategy, matrix helps an organization develop strategies for business and helps the company grow steadily while evaluating a company’s competitive strengths and weaknesses. Maintaining growth strategies With the fossil group's substantial competitive advantage, they should seek a strategy of increasing the market share through the development and production of smart watches having that the demand for smart watches is on the rise. Therefore by partnering with Google and Intel, Fossil should use this as an entry strategy. Rapid growth strategies Growth strategies can help maintain the market share and financial power of the group through sale revenues. Some growth strategies may be so aggressive and prove detrimental to the company’s ethics. Weak competitive position strategies Adopting strategies that can help them overcome apple’s influence in the smart watch category having that they have a weak competitive position will help maintain the image of their strong brand. This can be achieved through diversification of product with various ranges Strategies of strong competitive attributes with a slow market growth Being a global company with presence everywhere it should have a pricing strategy that is effective to attract more customers because the market is experiencing a slow growth. Having production plants in countries like china and India will help reduce the production cost hence prices. Recommendations My recommendations are drawn from the quantities strategic planning matrices QSPM that points out that the fossil group should consider reviewing its strategies on brand contracts more the specialty brands. The Fossil group’s IFE and EFE clearly indicate the strengths of the company and the weakness, opportunities, and threats. The grand strategy gives ways of deals with competition, slow markets, and competitive and rapid growth markets. Brand awareness strategies will help create a strong brand and the Fossil group’s partnership with Google and Intel will help strengthen the message to the target consumers. It will help in cutting costs spent on advertising in stores in that this a partnership between three known brands and thus marketing won’t be a challenge strength 5. This will help shield the Fossil group from high level substitutes that want a market share of the already established brands threat 6. There should also be an effective research and development strategy so as to help the group keep up with innovations being witnessed in the watch industry threat 4. Research and development strategies will help overcome high operational costs and make it easier for mergers and acquisitions in that they have the resources needed to start production immediately. This strategy will help minimize internal threats like employees not being skilled enough to handle innovations and productions of products more so smart watches weakness 1. Fossil’s strategy of partnering with Google and Intel will not help it develop smart watches but will also have customers that are loyal to Google and Intel buy the smart watches in significant volumes (opportunity 1). In the technology industry, customer loyalty is very high and having that most people prefer computer with Intel technology then it will be paramount for the fossil group. Google, on the other hand, will play a major role in invoking customer approval having that apple’s IOS, and Google’s android are constantly innovating (opportunity 2). Hence, their dominance will bring a healthy competition and set a stage for other players who may want to enter into the smart watch industry (strength 3). Capturing and maintaining marketing share strategy is vital in developing markets in that Fossil has to constantly innovate through its research and development department in order to maintain its market share (strength 1). And seek to expand to other markets to generate revenues from an increased market share. Diversification of their product ranges will help provide a good alternative strategy to maintain market share. The Fossil group should implement employee training strategies on core competencies to enable their employees acquire knowledge on how to produce a number of products (weaknesses 1). A training strategy will help the Fossil group venture into appropriate strategies of acquisition and mergers to avoid the possible threats that its partnership with Google may present. Google has the technical ability of developing operating systems, and therefore other watch manufacturers may require Google to share the technology with them (threat 3). Production on smart watches should be given priority so as to cut Apple’s influence, having that apple is known for constant innovations and productions thus it will be difficult to catch up with them (threat 2). The Fossil group can establish a strong research and development unit to come up with strong brands with a global image (strength 2). In order to be successful, they should limit their operational cost by retrenching incompetent employees and bring on board skilled employees who can stir their smart watch program (weakness 1 and 2). They should consider acquiring some employees from Google and Intel through strong clauses in the partnership deals. Table 1 A quantitative strategic planning matrix (QSPM) for the Fossil group Alternative strategies 1 2 Mergers and acquisition capture and maintain Market share Key factors Weight AS TAS weight AS TAS Opportunities 1. Consumer preference for smart watches 0.26 3 0.78 0.18 4 0.72 2. Untapped markets in third world countries 0.17 3 0.51 0.27 2 0.54 Threats 1. A lot of substitutes 0.20 4 0.80 0.08 1 0.08 2. Apple venturing into the watch market 0.13 2 0.26 0.28 3 0.84 3. Rapid changes in technology 0.24 3 0.72 0.19 3 0.57 Total 1.00 1.00 Strengths 1. A global presence 0.27 4 1.08 0.28 4 1.12 2. Liquidity power 0.20 3 0.60 0.23 4 0.92 3. ability to manufacture with Swiss technology 0.20 4 0.80 0.26 4 1.04 Weaknesses 1. incompetent employees 0.23 0 0.00 0.07 1 0.07 2. high operational costs 0.10 1 0.10 0.16 2 0.32 Total 1.00 Sum total attractiveness score 5.65 6.22 Table 2 A quantitative strategic planning matrix (QSPM) for the Fossil group Alternative strategies 1 2 Brand awareness Research and Development Key factors Weight AS TAS weight AS TAS Opportunities 3. Consumer preference for smart watches 0.18 2 0.36 0.28 4 1.12 4. Untapped markets in third world countries 0.32 4 1.28 0.21 3 0.63 Threats 4. A lot of substitutes 0.30 4 1.20 0.18 1 0.18 5. Apple venturing into the watch market 0.13 - 0.22 6. Rapid changes in technology 0.20 4 0.80 0.11 4 0.44 Total 1.00 1.00 Strengths 4. A global presence 0.22 2 0.44 0.21 4 0.84 5. Liquidity power 0.24 1 0.48 0.24 4 0.96 6. ability to manufacture with Swiss technology 0.23 4 0.92 0.26 4 1.04 Weaknesses 3. incompetent employees 0.15 3 0.45 0.19 4. high operational costs 0.16 2 0.32 0.10 4 0.40 Total 1.00 1.00 Sum total attractiveness score 6.25 5.61 Table 3 SWOT analysis of the Fossil Group Strengths Weaknesses 1. Strength of Brand 2. Watch Manufacturing 3. Global Network 4. Swiss Watchmaking Capacity 5. Partnership with Google 6. Partnership with Intel 1. No internal competency for smart technology 2. Michael Kors License up for renegotiation 3. High Promotional costs to drive low sales in US stores 4. Leather retail has been declining 3.4% Opportunities SO Strategies WO Strategies 1. Growth in disposable income per capita 2. Wearable technology demand is growing 3. High entry barriers for new entrants 4. Heavy cultural influence of Social Media 5. Motion picture product placement 1. Developing wearable technology for Fossil Smart Watch (S1, S5, S6, O2) 2. Opening Facebook and Twitter accounts; developing certain social media strategies (S3, O4) 3. Capitalizing on their Swiss watch making capabilities (S4, O3) 4. Increasing awareness by showing products in motion picture products 1. Recruiting high skilled employees with knowledge of wearable technology (W1, O2) 2. Placing Fossil Brand in a more important place to balance the development of Fossil and other licensed brands 3. Adjusting functional strategies (W3, W4, O1, O3) Threats ST Strategies WT Strategies 1. Apple introducing the iWatch 2. Swatch is developing wearable technology 3. Switzerland cutting off sales of Swiss Parts 4. Demand for speedier innovation 5. Chinese anti-corruption laws 6. High level of substitutes 1. Horizontal integration i.e. acquiring competitors through mergers or acquisition (S1, T2) 2. Acquiring Swiss parts manufacturers (S2, S3) 3. Increasing R&D expenses ( S5, S6, T4) 1. Vertical integration through mergers with technological advance companies (W1, T4) 2. Hire employees from Google and Intel (W1, T2, T4) 3. Introducing more advanced watches e.g. smart watches (W1, T1) 4. Adjusting operational strategies in China Table 3 Grand strategy matrix for the Fossil group Rapid market growth Quadrant 2 Constant renovations of products i.e. watches. Penetration of unexploited markets in third world countries. Maintaining strong financial power for constant research and development. Weak competitive position Quadrant 1 Product diversification i.e. develop smart watches Forward and backward integration. Development of markets and selling their products there Strong competitive advantage Quadrant 3 Strategic partnerships Cheap substitutes Constant product innovations Quadrant 4 Swiss manufacturing plants Strong brand image amongst consumers Capitalizing on wearable technology Leveraging on their distribution channels and marketing capabilities Slow market growth Reference David Ingram, The Link between the SWOT matrix and The Grand Strategy Matrix, demand media Robert kreitner, (2003) Management. 9th Ed, Arizona state university Read More