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201601131 – 600552 – Business Strategies – Assignment 1 – Word Count: 2624
Strategy Project: Woodlands Group
For
Harry Symons - Tyzacks Ltd
Prepared by
Bradley Allison University of Hull
November 2019
201601131 – 600552 – Business Strategies – Assignment 1 – Word Count: 2624
Executive Summary
Tyzacks Ltd have recently acquired the Woodlands Group. Therefore, this report intends to provide their newly appointed Managing Director, Harry Symons, with a detailed insight into Woodlands’ internal and external environment. This review will then be used as a foundation for recommendations for a new business strategy.
The Woodlands Group are currently experiencing operational challenges that are impacting the overall efficiency and profitably of the organisation. Lack of efficiency in Woodlands’ supply chain has caused Surface Stockists to fail to meet current demand by 30%, whilst not being able to satisfy the future demand of 15,000 boards. Profitability is being impacted as a result of compensation payments for supplying a sub-standard product and through engaging in external contracts with competitors. It is estimated that these external contracts are costing the organisation £1,954,400 (35,000 heavy boards at a cost of £55.84 each) in lost revenues each year and £107,492 (5.5% profit margin on heavy boards) in lost profits. The loss of revenues combined with the compensation payments is costing Woodlands approximately £150,000 per year. While this figure is likely to be much higher when considering the lost revenues due to the inability to meet demand. These issues can be resolved by implementing a variety of short-term measures that address the underlying collaboration issues between the three separate business units and their managers. Such measures include implementing clear, defined roles for each manager and introducing regular meetings to improve communication. Furthermore, the implementation of large-scale strategies such as smart manufacturing will ensure Woodlands continue to grow and become a market leader in the future.
201601131 – 600552 – Business Strategies – Assignment 1 – Word Count: 2624
Introduction
This report provides a comprehensive insight into Albian Mill, Bettafinish and Surface Stockists’ business activities. The report will consider these three entities as one business unit, the Woodlands Group (Woodlands). Six months ago, Tyzacks appointed Harry Symons as their new Managing Director. Therefore, the core purpose of this report is to provide Harry with an understanding into Woodlands’ operations. The report is divided into five distinct sections. This includes a situational analysis, an external environment review, an internal business review and an overall assessment of Woodlands’ competitive performance. Throughout the project various analysis models and concepts have been applied to provide a detailed and wide-ranging understanding into Woodlands’ current situation. The report concludes with the results of the analysis and a range of recommendations for short-term and long-term strategic business decisions.
Methodology
The methodology in this report contains a four-step analysis approach that intends to inform Tyzacks Ltd with a thorough understanding into Woodlands’ competitive environment. The methods utilised are displayed in the project diagram below. Stage one of the analysis provides a broad understanding into Woodlands’ current situation. A rich picture has been used to explore and acknowledge Woodlands activities in a visual format. The fundamental issues have also been included in the rich picture as these will be central when generating a solution. Furthermore, Woodland’s stakeholders have been investigated to identify all of the individuals and third parties involved, focusing on their interests and their ability to influence Woodland’s actions. Stage two reviews Woodlands’ external environment using Porter’s (1989) five forces framework, a PEST analysis and identifying Woodland’s opportunities and threats. The PEST analysis will be used to discover and evaluate the macroeconomic factors that may have an impact on Woodland’s operations. Whilst Porter’s (1989) five forces will be used to understand the competitiveness of Woodland’s external environment.
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Stage three explores Woodlands’ internal environment using a business model analysis and through reviewing their strengths, weaknesses, resources and capabilities. This analysis will identify where value is added and explore opportunities to enhance their competitive advantage. Lastly, stage four contains a strategy canvas analysis and a review of the first three steps to evaluate Woodlands’ overall competitive performance.
Analysis Step 1 – Situation Mapping Stage one of the analysis reviews Woodlands current situation from a holistic viewpoint. This includes a rich picture, a stakeholder analysis and a summary of the key issues that Woodlands are facing. Rich Picture and Key Issues Checkland’s (1989) rich picture technique has been tailored to form a visual representation of Woodlands’ complex business environment. This is portrayed in the image below. The rich picture clearly identifies the separation between Albian Mill, Bettafinish and Surface Stockists. The three separate business units operate semi-autonomously to produce, cover and sell processed wooden boards. The rich picture recognises that the three individual companies have their own core proficiencies including Albian Mill’s professional experience, Bettafinish’s technical expertise and Surface Stockists customer service skills. However, the three entities are operating within their own interests and this
201601131 – 600552 – Business Strategies – Assignment 1 – Word Count: 2624
seems to be detrimental to the group’s performance. Further key issues are noted in the top right corner of the rich picture. The most significant ones being poor communication and collaboration between managers, insufficient supply chain and not enough machinery to meet demand. Stakeholder Analysis A stakeholder analysis has been used to identify and prioritise any person or third party that has an interest in Woodlands’ actions. An adapted version of Medelow’s (1991) stakeholder analysis matrix is displayed below. The stakeholders in the bottom right of the matrix are the key players, these include the owners, investors and senior managers at Woodlands. These stakeholders should be involved from beginning of the project and kept informed with any progress. The top right section includes Woodland’s customers, employees and competitors. This group have high interest in the project but a low level of influence. The bottom left section displays the stakeholders with high influence but low interest. These include politicians and regulatory bodies. These stakeholders have a high degree of power as they have the ability to set new trade laws or environmental regulations that could impact Woodland’s activities. Therefore, their actions will need to be carefully monitored to ensure Woodlands are acting within the necessary guidelines. Lastly, the top left section shows the stakeholders with low interest and low influence. These include suppliers that we do not have much information about, but their involvement may increase in the future.
Analysis Step 2 – A review of Woodlands’ External Environment Stage two of the analysis evaluates Woodlands’ external environment. Three analysis tools have been utilised including a PEST analysis, Porter’s (1989) five forces and an examination into Woodlands opportunities and threats.
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Opportunities and Threats The opportunities and threats from a SWOT analysis have been analysed to examine Woodland’s external environment. This can be found in the table in appendix one. Woodlands have several external influences contributing to their success. These include a large demand for furniture, an increase in the demand for medium and heavy boards, opportunities for diversifying their product range and developments in manufacturing technology, specifically smart manufacturing. However, there are also several significant threats that could impact Woodland’s performance. These primarily involve regulation changes as a consequence of Brexit. Additionally, the significant forecasted decrease in the demand for light boards may be a serious threat, as this is Woodlands most profitable product. PEST Analysis A PEST analysis has been used to identify the political, environmental, social and technological factors that could have an impact on Woodlands’ operations. A table summarising these factors can be found in appendix two. The PEST analysis reveals that Woodlands political environment may be having a detrimental effect on their performance. This is due to the uncertainty caused by a general election in the UK and the ongoing delays to Brexit. The economic environment has been recovering from the financial crisis but has further been disrupted due to Brexit. Additionally, social concerns are influencing changes to environmental regulations regarding the use of plastics. This may have future implications concerning the raw materials used in the vinyl covering. However, Woodlands have the opportunity to capitalise from the advancements in manufacturing technology. Smart manufacturing technology could enable Woodlands to be more profitable and operate more efficiently. Porter’s Five Forces Porter’s (1979) five forces framework has been used to assess the competitiveness of the wooden board industry. An adapted version of Porter’s (1979) framework can be viewed in appendix three. The framework has identified that supplier power is extremely low. This is because Albian Mill is the main supplier for Surface Stockists raw and processed boards, allowing them to control the supply chain. The bargaining strength of buyers is medium. Surface Stockists have four main customers buying 55% of produce. However, there are no switching costs for Woodlands’ customers, and they are able to source cheaper boards elsewhere (Lavers heavy boards are £1.12 less). Though, this isn’t a big concern in the short run as Lavers are operating at full capacity. The threat of new entrants is rather low. This is owing to the expensive machinery needed for wood production and the requirement of expertise needed to cover the boards. However, the threat of substitute products is high. This is because there is no brand loyalty
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and the end products are not dissimilar from competitors’ products. Lastly, competitor rivalry is medium to high. Although Lavers appears to be Woodlands’ sole competitor, they are competing on price and undercutting Albian Mill’s prices.
Analysis Step 3 – A review of Woodland’s Internal Environment Stage three of the analysis considers Woodland’s external environment. This has been done by exploring Woodlands’ strengths and weaknesses, a business model analysis and an analysis into their key resources and competencies. Strengths and Weaknesses The strengths and weaknesses from the SWOT analysis address Woodlands’ positive and negative internal attributes. These have been identified and are displayed in the table in appendix four. Woodlands greatest strength is their two hundred years’ worth of experience and their highly skilled workforce. These factors give Woodlands a competitive advantage over their competitors. However, Woodlands have several weaknesses. Their most substantial issue is not being able to fulfil demand caused by a lack of machinery and not having enough warehouse space to store their existing stock. This is preventing Woodlands from being able to supply 30% of demand. Furthermore, Bettafinish are buying boards from external suppliers, causing Albion Mill to lose out on £1,954,400 (35,000 heavy boards at a cost of £55.84 each) in lost revenues each year. These issues appear to be generating tensions between the separate companies that are heightened by a lack of collaboration and communication between the three managers. Business Model Analysis Woodlands’ business model has been analysed using Osterwalder and Pigneur’s (2012) business model canvas framework. This is displayed in appendix five. Woodlands’ current business model utilises their industry leading machinery and skilled workforce to produce, cover and distribute processed wooden boards. This creates a distinctive value proposition of high quality, expertly covered wooden boards. These are then sold directly to furniture manufacturers through direct selling channels, whilst deploying high levels of customer service. Woodlands’ key partners, Tyzacks Ltd and their suppliers enable revenues to be earnt charging a fixed price per finished board. Resource and Competencies Woodlands currently possess serval resources and competencies that add and generate value. A list of these resources has been analysed using Hesterly and Barney’s (2010) VRIO (value, rarity, imitable and organisational support) analysis (appendix six) and Grant’s (2016) resources and capabilities analysis (appendix seven).
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The VRIO analysis in appendix six displays a list of Woodlands’ fundamental resources and capabilities. Woodland’s technically skilled staff are an important human resource, as they are hard for competitors to replicate. Woodland’s tangible assets, including Albian Mill’s factory, Surface Stockists warehouse and the manufacturing machines are valuable but are available to competitors. Moreover, Bettafinishs’ innovative mind set and Albian Mills’ working traditions are of high strategic importance but are currently being underutilised.
Analysis Step 4 – Assessment of Overall Competitive Performance Woodlands internal strengths and capabilities make them highly competitive when compared to the industry average. This is owing to their highly skilled staff and their industry leading machinery. Appendix eight shows Woodland’s performance compared to the industry average. They are outperforming the industry on the majority of indicators including delivery performance, board quality, marketing, reputation, customer service and product availability. However, the findings show that Woodlands need to be more price competitive and/ or more innovative. Moreover, Porter’s (1989) five forces has revealed that Woodlands external competitive environment is medium. The threat of new entry is low due to the expensive machinery and technical expertise needed to produce wooden boards. However, the threat of substitute product is high as brand loyalty and product differentiation is low. However, the strategy canvas in appendix nine reveals that Woodlands typically perform better than Lavers. Woodlands score higher across price, delivery, reputation, customer service and product availability. These strengths should be exploited further to be more competitive.
Recommendations The research conducted in this report has identified that there are some underlying issues regarding the working relationships, collaboration and communication between John, Tony and Daisy. These issues appear to be having a detrimental impact on Woodlands’ overall performance whilst effecting accounting practises, ordering systems and the supply chain. These issues should be resolved to make a new business strategy as successful as possible. Strategies to resolve these issues include team building exercises, allocating clear and defined roles to each manager, introducing standard accounting practises for the group and/ or introducing regular meetings to improve collaboration. Once these core issues have been resolved, the following short-term strategies may be implemented.
1. Implement one of Porter’s (1980) three generic strategies, cost leadership, differentiation or focus. The strategy canvas analysis in appendix eight implies that it would be more effective to differentiate products. This is because the industry average scores 60 on product differentiation compared to 70 on price. Perhaps Tony’s technical skills could be utilised to improve the product range.
2. Supply a more superior product by increasing the fiberglass content. This will
improve the strength of the boards and will result in 45% of customers being more satisfied. This will also decrease the risk of having to pay compensation payments.
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3. Improve communication and collaboration between John, Tony and Daisy. This will improve supply chain issues and reduce the need to invest in a new warehouse.
4. Focus on the production of heavy and medium boards due to their significant forecasted growth. Despite this having the lowest profit margin of 5.5%, this will significantly increase revenues. The cost price can be lowered by finding a cheaper supplier or through economies of scale.
The following strategies are recommended for the long-term:
1. Introduce smart manufacturing. This is a computer-integrated manufacturing process that utilises advanced robotics that will enable economies of scale, eliminate inefficiencies and optimise the supply chain. A new business model with the suggested changes to implement smart manufacturing is presented in appendix ten. This new business model could create an opportunity for global business.
2. Introduce a ‘make to order’ manufacturing system where customers can order and customise the product they want to buy. This can be done by implementing a hi-tech IT and manufacturing system. This will significantly improve Woodlands delivery performance, making it far superior to Lavers and the industry average.
3. Use a blue ocean strategy by utilising Tony’s technical expertise to develop a diverse
product range. This product differentiation will create a new market with less competition and allow Woodlands to charge a higher price.
Summary Woodlands are strong competitor within their industry with several core strengths and abilities that are enabling them to excel compared to the industry average. However, these strengths are currently being hindered due to poor collaboration within the group. It is recommended that these underlying issues are resolved before implementing a new strategy. Several short-term strategies have been suggested to solve these immediate issues, these will result in increased efficiencies and higher profits. Furthermore, a range of long-term strategies have been suggested including differentiating the product range or using smart manufacturing. This will involve changing the business model but will ensure Woodlands are an industry leader in the future.
201601131 – 600552 – Business Strategies – Assignment 1 – Word Count: 2624
Reference List
Checkland, P., (1989). Researching systems methodology: Some future prospects. In Systems Prospects (pp. 9-15). Springer, Boston, MA. Grant, M., G., (2016). Contemporary Analysis, 9th Edition. John Wiley & Sons Ltd. Hesterly, W. and Barney, J., 2010. Strategic management and competitive advantage. Upper Saddle River, NJ. Mendelow, A., (1991). Proceedings of the 2nd International Conference of Information Systems, Cambridge. Osterwalder, A. and Pigneur, Y., (2012). Designing business models and similar strategic objects: the contribution of IS. Journal of the Association for information systems, 14(5), p.3. Porter, M E (1980) Competitive Strategy, The Free Press, New York. Porter, M.E., (1989). From competitive advantage to corporate strategy. In Readings in strategic management (pp. 234-255). Palgrave, London.
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Appendix 1
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Appendix 2
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Appendix 3
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Appendix 4
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Appendix 5
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Appendix 6
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Appendix 7
Appendix 9
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Appendix 8
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Appendix 9
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Appendix 10