Table of Contents
1.1. SWOT analysis of KBB Resources Group. 2
1.2. Evaluation of Strategic Options. 3
2.1. Vision, Mission and Value Statements. 5
2.2. The Four Actions Proposed by Kim and Mauborge. 5
2.3. Porter’s Five Forces is Irrelevant 5
4.1. Incremental vs. Quantum Change. 7
4.2. You Don’t Manage Change, you create the conditions for it 7
1.1. SWOT analysis of KBB Resources Group
SWOT analysis involves the study of strengths, weaknesses, opportunities and threats that affect the strategic management and performance of an organization. Strengths and weaknesses are internal factors while opportunities and threats are external factors (Saloner et al, 2001). Strengths and opportunities are positive factors that contribute to the success of the organization while threats and weaknesses are negative challenges that hinder the success of the organization.
Positive factors Negative Factors
| Strengths
· International presence · Management changes · Leader in terms of Market share in Malaysia |
Weaknesses
· Financial problems · Decreasing profit margins |
| Opportunities
· Trade liberalisation · High purchasing power in Middle East · Potential markets of New Zealand, Australia and the Pacific Island |
Threats
· High costs · Differences in Cultures and lifestyles · Piracy and crime · Legal restrictions in Middle East · Competition from foreign firms |
One of the key strengths of the company is international presence. International expansion enables the company to use emerging markets’ growth potential to increase its scale and profitability (Saloner et al, 2001). The management changes involving hiring a manager also leads to new decisions that could reverse the poor financial performance. With a market share of 60% in Malaysia, the company has great potential to compete effectively.
In terms of weaknesses, the company is facing significant financial problems. Its profit margins are declining and dividends might be cut. This may lead to a negative reaction from shareholders and create a negative image for the company.
There are certain opportunities for the company, especially international expansion opportunities. Coming into 1990s, markets in Asia and Middle East were liberalised. Market liberalization allows the company to expand into international markets and find new customers for its products (Hitt et al, 2009). The rise of middle income consumers in Malaysia and the Middle East has also caused an increasing purchasing power and demand for products in the Middle East. The markets of New Zealand and Australia have also developed a good relationship with Malaysia, forming important destinations for Malaysia’s products and MNCs.
Several weaknesses also hinder the strategic management of KBB. Economic factors such as competition and high costs of operation in foreign countries cause poor performance of the company. Legal government restrictions in some Asian countries also hinder the company’s growth potential (Hitt et al, 2009). Furthermore, social factors such as crime/piracy and cultural differences across Asia and Middle East cause difficulties for the company’s international expansion strategies. Locally, the company also faces stiff competition from foreign firms entering Malaysia.
1.2. Evaluation of Strategic Options
According to the case study, the strategic options available for KBB include: Foreign Direct Investment (FDI), Exporting and Diversification. The author uses the transaction cost theory to explain the suitability of foreign direct investment and export strategy. If transaction costs in the home country are higher than those of foreign country, it is better to use FDI than exporting strategy because it involves shifting production to the low-cost foreign country. On the other hand, if domestic costs are low, then it is more effective to produce locally and export internationally (Saloner et al, 2001). With a leading market share in Malaysia, it is clear that the company has an advantage producing at home. Establishing new production plants in foreign countries would also face problems of entry due to restrictions. However, this is not a major issue because most countries in Middle East have liberalized their markets. The markets of New Zealand and Australia are also open to foreign investors. Foreign Direct Investment is suitable for companies producing food products compared to exporting. The food produced in Malaysia may not meet the local demands in foreign countries. Foreign direct investment ensures that the company produces the right products that meet the local demand (Hitt et al, 2009). It is also clear that cultural diversity is a hindering factor for business expansion in Asia and Middle East. Foreign Direct Investment can solve this problem because it ensures that the company uses the local cultural diversity and its core competences to produce superior products that meet the local tastes and preferences of consumers.
Diversification can also be another option. Instead of expanding its markets, the company may also expand its products by producing new lines of products. The case study proposes the production of hot and cold beverages focusing on middle and low income earners. Producing new products for a specific market segment is an important diversification strategy that enables the company to minimize risks and meet different tastes and preferences of customers (Saloner et al, 2001). Another advantage of diversification is that the company does not have to start a new production plant and incur foreign transaction costs. However, diversification may not allow the company to take advantage of the growing demand from the middle class societies of Asia and Middle East.
KBB is well established in its domestic market with a leading market share. Therefore, diversification may not be an appropriate strategic option because it already has a large market for the current products in the local market. Its option should be to internalise. Choosing between exporting and foreign direct investment should consider the advantages and disadvantages of both strategies. Foreign direct investment is suitable for KBB because the company deals with food products which are sensitive to local cultures, tastes and preferences. Considering cultural diversity of Asia and the Middle East, the company should use foreign direct investment to establish new plants in foreign markets and produce products that meet local demands.
2.1. Vision, Mission and Value Statements
Vision, mission and value statements are the objectives of the organisation that give it a specific direction (Hitt et al, 2009). The vision, mission and value statements of a blue ocean focus on reconstruction of the market boundaries while those of red boundaries focus on achieving competitive advantage. A mission statement explains the existence of a company and how it should relate with its stakeholders (Saloner et al, 2001). For a Blue Ocean strategy, a mission explains that the company exists to create new markets and relate with stakeholders by creating value. A Red Ocean’s mission entails concurring competitors head-on (Kim and Mauborge, 2005). Vision is a statement of purpose and aspirations that declares the future direction of the company. A Blue Ocean vision sets a purpose that directs the company to a new marketplace, rendering competition obsolete. For a Red-Ocean strategy, a vision statement focuses the company’s aspirations on overcoming direct competition. Values of the Red Ocean strategy also tend to rely on attaining competitive advantage while the values of a Blue Ocean strategy focus on enhancing innovation, customer value and alternative product offerings.
2.2. The Four Actions Proposed by Kim and Mauborge
The four actions proposed by Kim and Mauborge are: eliminate, reduce, raise and create (Kim and Mauborge, 2005). A company can take these actions on the competitive factors of the market. In this case, a company should eliminate those factors of the industry that are taken for granted. The company should also identify factors that should be reduced below the industry standard and those that should be raised above the industry standard (Kim and Mauborge, 2005). Lastly, those factors that the industry has never seen before should be created. Using the four questions of Cirque du Soleil, a company may be able to identify the competitive factors that are no longer relevant.
2.3. Porter’s Five Forces is Irrelevant
Kim and Mauborge (2005) suggest that Porter’s five forces model is irrelevant because it encourages firms to compete head-on with rivals, causing the Read Ocean. Porter’s five forces include competitive rivalry, threats of new entrants, threats of substitutes, bargaining power of buyers and bargaining power of suppliers. Companies use these forces to study the level of competition in the market. As a result, they are able to develop strategies that can be used to overcome competition. This shows that companies using the five forces strategy are likely to face competition head-on by developing strategies that are likely to win more customers than competitors. The Blue Ocean strategy provides an alternative strategy of winning customers through value creation and innovation rather than confronting competitors. This Blue ocean strategy is more successful in winning customers than the five forces’ strategy; therefore, it is true to say that Porter’s Five Forces is irrelevant.
Values and Norms of the Organization
An organisation’s culture includes the beliefs, values and norms that determine the operations and management of the company. Organisational culture determines the ways of doing things in the organisation (Burnes, 2005) Therefore, it affects the company’s ability to change effectively. A company with a flexible organisational culture can adapt easily to waves of change. However, in most cases the norms and values may lead to rigid processes, policies and procedures which are difficult to change. Burnes (2005) suggests that organisational culture creates a mutually reinforcing system which binds different parts of the organisation and causes resistance to change effectively.
Changes within an organisation are often determined and communicated from the top leadership. The effectiveness of these changes depends on the ease with which the culture in the entire organisation may adapt to the changes. Leadership tools, management tools and power tools may be used to enhance effective change in an organisation. Leadership tools include vision, mission and value statements while management tools include definitions, control and measurement tools (Denning, 2011). Power tools such as punishment and coercion may also be used to implement changes as a last resort. These tools work effectively to implement changes if the organisational culture can accommodate such changes (Denning, 2011). Organisations need to appreciate changes and be ready to develop new skills and experience with new changes in the organisation. Culture determines the values and norms that enable employees to appreciate or reject changes. Good communications from the management can break the cultural resistance of change. Therefore, culture has a significant influence on the effectiveness of change.
4.1. Incremental vs. Quantum Change
Incremental change is a smooth gradual change that occurs slowly over a long period of time while quantum change is a radical change that occurs fast within a short period of time. Barbara Waugh prefers incremental change to quantum change because she believes that fruitful transformation begins with small steps. She argues that deep-seated change can only be achieved through small incremental improvements. This can be achieved by helping people to achieve small but important goals. Managers who prefer quantum change tend to focus on the desired results of change rather than the process of achieving change (Sundarasaradula et al, 2005). Gradual improvements help the company to change the attitudes of its members and gain support from the entire organisation. On the other hand, quantum change is likely to face a lot of resistance. Therefore, Waugh git it right by suggesting that incremental change is better than quantum change because it changes the entire processes and gains support from all stakeholders in order to enhance effective change in the long run.
4.2. You Don’t Manage Change, you create the conditions for it
By saying that you don’t manage change but create conditions for it, Barbara Waugh meant that leaders should guide his or her followers to implement change. In other words, leadership tools of change are more effective than management and power tools of change (Erakovic and Powell, 2006). The leader of change should just communicate the vision, mission and the need for change and leave the employees to work through their own means to achieve the desired change and goals. The leader should also provide knowledge, resources, motivation and other factors that create a good environment for others to implement changes.
People should understand why they are changing in order to change. They do not need to be coerced into making changes because such a change will not be sustainable. For example, a change manager may encourage people to change by explaining to them the importance of change and building a strong relationship based on trust and understanding for a sustainable change (Abramovici et al, 2010). Therefore, creating an environment or conditions for change throughout the organisation is the most important element in initiating change within the organisation.
References List
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Burnes, B. 2005, “Complexity theories and organizational change”, International Journal of Management Reviews, vol. 7, no. 2, pp. 73-90.
Denning, S. 2011, How Do You Change An Organizational Culture? Forbes, Accessed August 18, 2015 from http://www.forbes.com/sites/stevedenning/2011/07/23/how-do-you-change-an-organizational-culture/
Erakovic, L., & Powell, M. 2006, “Pathways of Change: Organizations in Transition”, Public Administration, vol. 8, no. 1, pp. 31-58.
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. 2009, Strategic management: Competitiveness and globalization : concepts & cases, South-Western, Mason, OH.
Kim, W.C. and Mauborge, R. 2005, “Blue Ocean Strategy: From Theory to Practice”, California Management Review, Vol. 47, No. 3, pp. 105-121.
Saloner, G., Shepard, A., & Podolny, J. M. 2001, Strategic management, John Wiley, New York.
Sundarasaradula, D., Hasan, H., Walker, D. S., & Tobias, A. M. 2005, “Self-organization, evolutionary and revolutionary change in organizations”, Strategic Change, Vol. 14, No. 7, pp. 367-380.
