A successful business strategy is the pre-requisite of a successful firm. The companies are striving for more and more profits and maximization of their shareholders’ wealth. The numbers have become more and more important as it is not merely required to be in the corporate race but to win it has become the part and parcel of the corporate game. The three levels of planning for are firm involves corporate and business strategy which comes under strategic planning and functional strategy which comes under operational planning.
A corporate strategy is the strategic plan for managing multiple lines of business. In essence, there is more than one business with in the corporation. The strategic plan for handling is a corporate strategy one line of business.” (Kourdi 2003) Thus firms having a single product line will only work with business strategy, or in other words, its corporate strategy will be same as its business strategy. However, firms working with multiple product lines will have a business strategy for each type of product and an over all corporate strategy.
An integrated corporate strategy starts with a mission statement. “The mission statement is the foundation for all the strategies and plans in which your organization will invest its resources.”(Verardo 2000) The organization’s mission is the purpose of its formation and existence. A mission statement cover what type of business the firm is in now and what will the business the firm will be in the future. The firms should know exactly what business they are in, who their customers are and who their potential customers are. After the mission statement is another crucial step for the business strategy which involves all sorts of scanning.
The scanning process also known as the situation analysis involves assesses the factors that directly affect the firm’s options and opportunities. The analysis is a three part step in which the firm analysis its industry and competition, company analysis and identification of a competitive advantage. All three parts are interlinked with each other and need careful assessment. In the industry analysis the widely used model is the porter’s five forces model. It identifies the buyer power, the supplier power, the barriers to entry in an industry, rivalry among competitors and the threat of new entrants. After analysis the industry comes the turn of the company, where firstly financial numbers are assessed to analyze the current position of the company. Then a SWOT analysis is conducted assessing the strengths, weaknesses, opportunities and threats for the firm. Also a PEST study is conducting explaining the political, economical, social and technological changes that will affect the firm. This analysis is followed by the competitive situation analysis in which the core competencies of the firm and comparison of its products with that of competitors is done. Having done all the analysis comes the tough part of setting goals and objectives.
The goals and objectives are the framework over which the strategy will be formulated. Care and analysis should be done in order to formulate appropriate goals and objectives. Goals are broad targets and objectives are more specific and measurable ones. These goals are then used to develop the corporate strategy. The corporate strategy can be the growth strategy, stability strategy, turn around and retrenchment strategy or combination strategy.
Volkswagen Group – Strategic Analysis
Mission Statement: Our aim is to make Volkswagen group the leading automaker by 2018 – economically and ecologically.
The automobile industry is a highly dynamic one. For the analysis we have used the five forces model. The buyer power of this industry is very high with the customers always staying ahead. The reason being few numbers of firms have major shares and the automotive parts are standardized. So the supplier power here is low. The rivalry among the firms is intense and with the declining market shares and growing costs this is sure to increase. The probability of substitution is low because the other one transportation vehicles are no mach for the convenience and usage of the cars. This industry faces high barriers to entry because getting into this business requires huge capital expenditure.
The strength of Volkswagen is that it is people’s car and its target is the mass market as well as the elite niche. The weakness for the firm is its financial figures. The firm faces the threats of decrease in market shares; however, its diversity approach is a great strength for the company.
The goal for the firm is to increase its share and sales by the year 2018. However, more specifically the firm has an objective of bringing newer and more diversified model in the market. The firm is using the growth strategy. In my opinion, the firm’s corporate strategy is “concentration’ strategy. The firm plans to increase its market share and become the leader in its industry by introducing newer models and technological advancement. Thus will good planning and focused strategy the firm is all set to take the future by storm.
Volkswagen Business Strategy
The formulation of company strategies is one of the most critical facets of the corporate environment and corporate success.. The word strategy has a broad meaning and has been used at different places with different references. In a broad sense “a strategy is a plan for pursuing a mission and achieving objectives.” (Lussier 2009) The planning in any organization is broken up into three planning levels: corporate, business and functional. The corporate and business strategy comes under strategic planning and the functional strategy is the domain of operational planning.
“A business strategy is the plans, choices and decisions used to guide a company to greater profitability and success.” (Kourdi 2003) The firm’s main objective behind formulating a business strategy is to constantly provide their customers with goods and services that have performance characteristics different or better from the competitors.
A successful business strategy is important for the going concern of the firm. The firm should improve upon its net wroth as it grows because these days the race is not of survival but of success. The planning hierarchy for any organization depends upon its product range. The firms, large or small, having a single product line will have a business strategy. However, any firm that has a wide variety of product has a business strategy for each type of product and an overall corporate strategy for the entire firm. Thus a business strategy is the individualized version of corporate strategy. The more the products lines the more business strategies would be formulated, one for each product. These multiple business strategy would be integrated by a single corporate strategy.
The corporate strategic planning is an integrated process with every step being linked to the other. The first step of the strategic planning process is the mission statement. A mission statement identifies current and future business of a firm. It explains the vision of the firm, i.e. exhibits the direction in which the firm is headed. A good mission statements show cases the expectations of where the firm will be in the future. Its power motivates people to achieve what is planned. It gives a clear and concise framework of what the firm should do now and what should be its future endeavours. Strategic analysis is part of this phase of the strategic planning process, i.e. what the organisation wants to do 10 to 15 years from now.
The mission is followed by analysis, which involves environmental scan this analysis is important because a business strategy should be congruent with the capabilities of the firm and its external environment. This scan involves industry and competitive analysis, company analysis and identification of competitive strategy. For analysing the industry environment porter’s five forces model is used. The rivalry among firms identifies the extent of competiveness, strength of barriers to entry, buyer power, supplier power and the threat of substitute all are analysed and listed as a part of the industry analysis. In the company analysis the present strategy is assessed based on the performance indicator and financial analysis. A SWOT analysis is conducted identifying the strength, weaknesses, opportunities and threats for the firm. Also PEST analysis, involving the political, environmental, social and technological changes affecting the firm, is also conducted. Lastly identifying competitive advantage involves core competency and benchmarking. Core competence is what a firm does best and benchmarking is comparing ones products and services with that of the customer in order to add any improvement to the existing product and services.
After the situation analysis is the step of goals and objectives. The goal setting and objectives formation is a crucial part of the strategic process. Goals are broad target of what is to be achieved which are then translated in to more measurable, workable, achievable and specific targets know as objectives. After this step comes the grand strategy or the corporate strategy formation. The corporate strategy can be the growth strategy, stability strategy, turn around and retrenchment strategy or combination strategy.
“The four dimensions define a business strategy: the product market investment strategy, the customer value proposition, the assets and competencies, and the functional strategies and programmes.”
(McLoglhin & Aaker 2010) The first of these dimensions state where to compete and the rest state how to do that. The firms invest in being low cost or putting their resources to a specified use in the first dimension. “For the customer value proposition the first step is to research the customer.” (Kotler et al 2009) The research is done to align what the firm is providing to what is desired by the customer. Then comes aligning the assets with the strategy and evaluating their strengths and weaknesses. Finally the crux is developing the functional strategy and putting all things to perspective.
Let us analyse all the above description in terms of the Volkswagen group. The mission for Volkswagen stated on their official website is: Our aim is to make Volkswagen group the leading automaker by 2018 – economically and ecologically.
Studying the industry through porter’s five forces model gives a good picture of the automotive industry. The rivalry among firms in this industry is high due to the great diversity of rivals culture, slow market growth, high fixed costs and low switching costs for the customer. The threat of substitute to this industry is low because all other transportation vehicles don’t offer the same utility, convenience and independence. Owing to high entry barriers, the industry has high barriers to entry capital requirements and the specialized nature of the industry. The power of supplier is less as compared to that of the buyer. The buyer of the automotive industry is very high. The fact is that few firms hold large stakes and the automotive parts are standardized commodities. However this industry is very dynamic and the forces intensify its ever changing nature.
Talking about the company, the Volkswagen group was formed in 1937 in Germany with the word literally meaning people’s car. It is the largest European car manufacture today. Its strength is its appeal as a people’s car and the weaknesses is the decline results due to decreasing market share. The company faces threats from the competitors who are gaining market share but has an opportunity of coming up with newer and novel model like the hands free driving.
The goal for Volkswagen is to bring diversity and new models to their product line. The objective is to introduce newer models like the hands free driving and bring technological advancement in their product line. The corporate strategy for this company is a combination of growth and stability. The company plans to use concentration strategy and bring new models to the same customers. Also in order to grow they will maintain their sales and grow slowly out of their declining profits. The product marketing strategy for VW is affordable price car for everyone so as to increase it market share from the existing one. The company has carried out focus group researches to identify the needs of customers and develop a price that adds value to the customer purchase as a part of VW’s value proposition. The company has upgraded its plants in China as well as in Europe thus enhancing the strengths of its assets. As a part of its functional strategy the firm has made acquisitions in order to improve its market share. Thus with careful planning and product innovations the company is all set to become the largest market leader by 2018.
