MHA Lighting Ltd: Company Analysis - Case Study Example

MHA Lighting Ltd: Company Analysis By Executive Summary The project analyses the company MHA Lighting Ltd, which belongs to the LED lighting industry sector, in terms of its strategic competitive advantages. The industry segment itself is in a high growth stage. However, there are many competitors including global players in this segment, especially from China. MHA Lighting manages to sustain its competitive advantage by maintaining technological leadership and customer orientation. The Company mainly caters to corporate customers and keeps them extremely satisfied by offering optimal solutions with fast deliveries. Many testimonials for MHA Lighting’s customer satisfaction are included in this work. Various tools applied are PESTLE for macro-environmental analysis, VRIN for strategic group analysis, Porter’s 5 forces model for industry structure analysis and Ansoff’s matrix for product market development. Given the policy initiatives for achieving energy savings and energy efficiency, the lighting industry sector and in particular, MHA Lighting Ltd. is poised for quantum growth in the coming years. Introduction The success of a Company in the modern context is measured not by the financial returns to the shareholders alone. How far the company meets the needs and expectations all the other stake holders such as governments, employees, suppliers, communities and customers is equally important. Mission and vision statements by the company owners should reflect the needs of all stakeholders. Business ethics is about doing business with the rights of all stakeholders in mind. Corporate social responsibility requires that the Company conforms to pollution control and recycling norms and gives something back to the community from where it draws resources. Corporate involvement to solve social issues has become deeper with the Creating Shared Value concept, introduced by Michael Porter and Mark Kramer in 2011. Whereas CSR is a separate activity to share profit for social causes, CSV essentially means changing corporate policies and practices so that the core business model itself is modified to enable economic and social advancement of the society in which the business operates (Moore, 2014). Just as an individual has a personality, an organisation has a culture which sets it apart from other organisations, and we get an idea of what the organisation intends to do by observing its culture. According to Schien Edgar, organisational culture is the pattern of behaviour and problem solving methods which have been proved good for the organisation over the years and therefore taught to new employees also as the best way to respond under similar situations (Tharp,). Culture is evident from what the members of an organisation do and how they do it. A realistic assessment of a company’s success (or failure) should take all the above aspects into account. The company chosen for analysis is MHA Lighting Ltd., belonging to the LED lighting industry sector, which is growing globally at a very rapid rate. The low energy consumption of LED coupled with the possibility of immense variety in application design makes it the lighting solution of the future. Good quality LEDs save at least 75% energy and last 25 times longer than incandescent bulbs (US Department of Energy). It is estimated that switching to LED will result in energy savings equivalent to that of a 24 MW power plant in USA. It is estimated that by 2020 the total lumen requirement of Europe as well as the whole world will almost completely be met by LEDs (Denneman). MHA Lighting Ltd (Formerly MHA Luminanz Ltd.) was founded in 2009 and is based in Atherton, UK. It manufactures LED lighting products for various indoor and outdoor applications and caters to a vast clientele of public and private sector organisations (Bloomberg Businessweek). MHA believes that everyone is entitled to best lit environments- at work, public places and streets. They are committed to providing the best lighting solution to each individual customer and getting it right the first time (MHA website). Overall, they aim to provide value to the customer and society by giving the best quality product built with superior technology and enabling considerable energy savings. Sustainability of Competitive Advantage MHA Lighting has a patented technology which is very much superior to that of its competitors. It is fully accredited and unique and provides all the features of traditional lighting like uniform distribution, purity and freshness, freedom from glare, safety for the eyes coupled with the low power consumption from an LED lighting solution (Active Profile Ltd). This has enabled it to offer cutting edge solutions to its clients. The Company has always targeted Government departments, private and public organisations and institutions and offered them products and services beyond their expectations. In early 2011, MHA Lighting bagged a contract to supply LED lighting system at Manchester’s terminal 2 and terminal 3 car parks, against stiff competition. In Tom Harrison’s (Managing Director of MHA Lighting) words “We provide each client with a bespoke solution based upon a product, designed and made in the UK, and we are confident this approach will help secure more orders”(The Bolton News, 2011). Technology leadership, differentiated quality products and customer orientation are the foundations on which the Company’s competitive advantage is built upon. The Company has recently launched its End Lit Rod technology and Lodestar product range. The MD and the employees of MHA take pride in their capability to work tirelessly to develop technology, obtain patent and to realise marketable products. (Architects data file, 2014) .The Company is constantly working on improving its basic strengths and is capable of sustaining its competitive advantage. Macro Environmental Analysis A popular tool used for macro environmental analysis is PESTLE which stands Political, Economic, Social, Technological, Legal and Environmental factors within which a firm operates. It is a simple and easy to use framework which helps to reduce the impact of potential threats, develop strategic thinking, identify and exploit new opportunities and assess worldwide market potential (Team FME, 2013). Politically, whether it is a Labour or Conservative Government, the policies are more or less consistent and no sharp reversals need be expected. As such the policy of encouraging energy saving initiatives is beneficial to the company, as more and more businesses are going for energy efficient LED lighting solutions. Economic factors that are likely to affect the company are inflation, taxes and duties, cost of living and globalisation. However, these factors have minimal effect on the Company’s prospects, since the major customers are from corporate and government segment. Cheap import from countries like China is a threat, but the Company can hold ground on superior quality. The products are not likely to be affected by social and cultural beliefs. However, the company needs to follow popular fashion trends and changes in aesthetic values, and redesign lighting fixtures accordingly. Technologically, LED lighting sector is advancing dramatically. To stay ahead, the Company has to constantly update and improve upon its designs and continue to provide cost-effective solutions, maintaining the quality standards. The Company is already complying with the legal requirements fully. However, being in the semiconductor industry, it has to particularly address e-waste disposal stipulations from time to time. LED products help save energy and reduce carbon emissions considerably. It can be considered as a green product. As environmental regulations become stricter, the relevance of LED lighting will be increased, adding to the business prospects of all companies operating in this segment. Industry Structural Analysis The competitive environment of a company is decided not just by the other companies making the same product. Michel Porter’s five forces model is widely used to analyse the competitive structure of a company. In addition to rivalry among existing competitors, the long-run profit potential of a company is decided collectively by the bargaining power of suppliers, the bargaining power of customers, threat of new entrants and threat of substitutes (Porter, 2007). In the case of MHA Lighting, the barriers to new entrants are the Company’s patented technology, vast loyal customer base and high output volumes. LED itself is a substitute threatening to extinguish the CFL market and there is no research indication of a replacement for LED in the near future. Suppliers of parts to MHA are mostly long term partners and more likely to co-operate. The critical component, the LED chip has to be of the best quality and only few companies like Nichia and Osram are making LEDs of acceptable quality conforming to European standards. This may be perceived as a threat, but these companies also depend on quality conscious partners to use their LEDs. As far as bargaining power of customers is concerned, MHA Lighting enjoys the confidence and loyalty of its customers in large measure. To cite an example, Chris Brookes, HSE Officer at Hellermann Tyton was all praises for MHA Lighting when they completed their project within two weeks as promised without much disturbance to their regular activities (Industry Today, 2014). Strategic Group Analysis There are many big and small LED lighting manufactures in the UK. Apollo Lighting Ltd, Zeta Specialist Lighting, LED Roadway Lighting and LED Lighting Engines UK are some of them. MHA Lighting is not the biggest among them. However, its unique technology differentiates MHA Lighting from others. In a way it has created a specialist niche for itself, which is not easily accessible to others. The Company has vast opportunities in the corporate segment, as many establishments are yet to switch over to LED lighting. Where others are concentrating on the retail consumers, the Company has to concentrate on stores, offices, malls, parking lots and such establishments, as its strength basically is in providing total solutions. The Company’s Strength is its innovative technology and no other company has come up with a similar one. Its weakness is also that it banks on this technology for its sustenance. If a similar or better technology is invented, the Company will lose its market share drastically. However, till that time, the opportunities abound in the form of umpteen factories, business establishments, government and private offices which require LED lighting solutions. Also the Company has to constantly work to refine its technology and also to look out for better technology, so that it can maintain its technological leadership. The Company has a culture of customer relation and orientation which adds considerable value. Apart from the quality of the product, the other factors that add value are timely completion of projects and efficient handling of problems that may arise during the changeover to LED lighting. Whether Strategic capabilities can form basis for sustainable competitive advantage may be assessed by applying four key criteria value, rarity, inimitability, non-substitutability (VRIN, a technique suggested by Jay Barney in 1991). A strategy, in the least should create value with reasonable returns to both the company and its customers. If this strategic capability is available only with a few companies then it is a rare one. If it is not possible for other firms to imitate this capability then it is inimitable. If a substitute for the capability cannot be found by others, then it is non-substitutable. Obviously the capability will contribute to sustainable competitive advantage highest when it is non-substitutable (Johnson et al 2011). In the case of MHA Lighting, its technology is of immense value, is rare and inimitable and appears to be non-substitutable at this point of time. The extent of its customer orientation is of value and also rare, but not inimitable. The customer base it has built is of value and rare to find with other firms, but others can follow the example and succeed. The value-creation process is analysed through the concept of value-chain. Primary activities that add to the value of a product are activities in manufacturing, marketing, delivery and after-sales support. Support activities that add value are company infrastructure, R&D, materials management etc. (Hill & Jones, 2001. p. 132). A company has to obtain higher value from the customer than the cumulative value addition due to the activities performed by the business. Evaluation of Business Strategy  For many firms a strategy is good if the business performs well. But strategic evaluation should go beyond the current scenario and evaluate what strategies are required for achieving consistent results in future also. Strategy must broadly conform to the criteria of consistency, consonance, advantage and feasibility (Rumelt, 1980). The strategy must be consistent within it and must be responsive to external environment and changes in it. It must result in creation and maintenance of competitive advantage in the sphere of activity chosen and should use resources within available limits. MHA Lighting’s strategy is consistent with its technological advantage and provides competitive edge over the others and is also well within its resource capabilities. The UK lighting sector strategy aims at reducing power requirement for lighting in the country from the current 18% to between 4% and 6% by employing LED lighting solutions (Lighting Industry Association, 2014), which means a huge demand for LED products is assured. MHA Lighting is adopting a combination of differentiation strategy and focus strategy to tap into this requirement. Differentiation means to make unique products and to educate the consumer about their advantages. Focus means custom design for a particular geographic segment or buyer group (Strategy Train, 2009). It is not practical to follow a pure price domination policy or a pure differentiation policy (Bon). So MHA should adopt a hybrid approach. Identification of Major Strategic Issues Facing Organisation The Company is concentrating on corporate customers and not mass consumers. They are working with a limited, elite niche market and in the long run, the capability to generate higher profits will be affected. To generate sufficient orders for running to full capacity, the Company has to bag enough contracts. This involves high technical selling skills. The Company must have a flexible manufacturing plan to accommodate short delivery orders. With a customer-oriented strategy, the Company has to frequently reschedule at short notice. With the high technology content, it is not in a position to cater to low end requirements. The company cannot expect to monopolise the corporate segment for ever. Competitors may offer cheaper variants and obtain contracts. The strategy adopted by the Company calls for technically trained, dedicated employees. The Company has to successfully retain its employees for a long period. Employees moving to other manufactures will be a serious setback. OLED (organic LED) technology is advancing rapidly and power efficiencies in the vicinity of 87lm/W have been realised at the laboratory level (OSRAM). Further improvements in power efficiency may lead to substitution of LED by OLED devices. Conclusions On the whole, the LED lighting industry is in a boom phase all over the world. With government regulations requiring businesses to contain their energy consumption and thereby contribute to reduction in carbon emissions, there is an increasing demand for LED lamps and LED lighting systems. The added advantage of reduced energy bills also drives businesses towards these green initiatives. Seeing the huge demand for LED products, many hundreds of firms manufacturing or supplying LED firms have come up all over the world. Most of these firms in China and Thailand produce very cheap LED products, but the quality levels are very poor. In the end only companies with technical competence producing to international quality levels will survive. Companies in the UK are facing the onslaught of competition from the Chinese manufactures, but in the long run, only quality and technical competence can sustain. MHA Lighting Ltd has achieved great success during its short period of operation. Technology, innovation and customer orientation are its main resources and it is capable of building and consolidating upon its core competencies. Considering the advantages of LED lighting, governments should make it mandatory for new constructions to use only energy efficient LED systems. The governments should also provide sufficient infrastructure for testing and certifying LED lighting systems, so that the consumers are able to make informed decisions and choices. Also minimum standards for quality and safety should be strictly enforced to encourage and promote genuine, technically competent manufactures. Recommendations For MHA Lighting, the recommendation would be to continue with the current strategy of concentrating on the corporate customers. But they should also partly address the mass requirement by having a separate line for a few standard products. This will help fill their capacity during slack periods. They should further expand their business to overseas locations partnering with the local leading lighting companies, so that the advantage of premium technology has global reach. A matrix developed by Igor Ansoff for helping managers to identify appropriate marketing strategies is relevant in this context. A safe approach is to sell more of existing products in the current market by increasing the market share (row1, col1, table below) Trying to sell new products in the established market involves medium risk (row1, col2). Offering existing products to a new market also involves medium risk (row2, col1). It is highly risky to launch new products to entirely new markets ( row 2, col2) (Business case studies). 1.1 Market penetration-Lowest risk 1.2 New products for existing market- Medium Risk 2.1 New Market with existing products- Medium risk 2.2 New products for new market- High risk (Source: Business case studies, n.d.). MHA Lighting is operating in the quadrant 1.2. It has the capability to take the higher risk of operating in quadrant 2.2, i.e. it can offer new products to hitherto unexplored market. References Active Profile Ltd. Department of Climate Change Case Study: MHA Lighting – providing lighting solutions for a low carbon economy. 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