For a company to succeed in the business environment, business strategy plays a vital role along the business operations. In discussing organisations??™ business strategy, we first deal with competitive advantage in the way the term first used by Michael Porter in the 1980s (Cowe, Mackeron, Moffat and Douglas, 2011). Competitive advantage defined as an advantage that a firm possesses over its competitors, it helps to generate better profits or margins and / or retain more customers than its competitor. Competitive advantages can establish by cost structure, production / operation process, product offerings, supply chain management and etc (Investopedia, 2012)
Michael Porter had indentified two basic types of competitive advantages, which is cost advantage and differentiation advantage. Cost advantage apply when a firm has the ability to produce a good or service at a lower cost than its rivals, this gives the firm the ability sell its goods or services at a lower price than its rivals or to generate a larger profits or margins on sales. A differentiation advantage is created when a firm provides products or services differ from its competitors and customers see the products better than a competitor??™s products. Meanwhile, company??™s operating environment and internal capabilities play a major role in building up the competitive advantages. A resource-based view highlights that a company creates competitive advantage by utilizing its resources and capabilities that ultimately results in greater value creation.
To enhance the understanding on competitive advantage, a Malaysia listed company, Silver Bird Group Berhad (SILVER), would be used as a case study to explain how the company??™s operating environment and internal capabilities advantage may or may not contribute to the attainment of competitive advantage. The company??™s strengths and weaknesses will be identified throughout the case study and we will discuss how competitive advantages help to sustain and enhance the company strengths. Lastly, recommendations will also be given on how to improve the company??™s weaknesses by building and strengthen their competitive advantages. Advantage is a better soldier than rashness. Thus, competitive advantage plays a crucial role in the company in order to survive and outperform in business environment.
2. Company??™s Profile
Silver Bird Group Berhad (SILVER) is a listed company dominant in bakery and confectionary manufacturing. SILVER was founded by Mr. Tan Chin Suan in 1960 as a Standard Confectionery. The group is made up by a few subsidiary companies whereby each specialized in a key bakery-related business, including Silver Bird International Sdn. Bhd., Standard Confectionery Sdn. Bhd., and Stanson Group Sdn. Bhd. The principal activities of the subsidiary companies include manufacturing of daily fresh and shelf stable bakery goods; sales and distribution of telecommunication products and bakery goods; marketing and distribution agent for financial related products (Silver Bird, .
SILVER has a wide range of daily-fresh and shelf-stable products, including sandwich bread, buns, swiss rolls, cakes, spreads, cereals, baking needs, snacks and energy drinks. Among these products range, SILVER is popular with its High 5 bakery goods in Malaysia. SILVER??™s products quality is recognized by Product Excellence Award and Food Safety Management System Standard. The company has also been awarded a contract to supply mooncakes and fruitcakes to Amway in 1990 and bakery products to Malaysia Airline System in 1992. However, in 2006, there was news regarding to the hygiene issues in Hi-5 Bread factory. The factory was raided for being dirty, employing illegal worker and using ingredients without ???halal??™ certificate. SILVER??™s image was badly affected with the release of the news (The Star, 2006).
The company??™s vision is to be one of the nation??™s leading players in the customer food market. And the new mission for the year is to place the ???High 5??™ bread as the No.1 bread of choice for Malaysians, the Group has recognized the need to reach out to Malaysians and to provide them with choices. The Group is also taking fresh new perspective into its existing distribution network and will be launching its new wheat germ bread to add to its existing range of bread. Meanwhile, the group will continue to improve on efficiencies in its operations, with more efforts put in the area of cost control without sacrificing quality and efficiency, to pursue better marketing and promotion activities, to strengthen brand equity, increase distribution and logistics channels in order to achieve greater results (Dato??™s Dr Gan Khuan Poh, 2011). 1. Current Issues
Recently SILVER was categorized as a Practice Note 17 (PN17) company when it was triggered to be suspicious and default in payment by its major subsidiaries in the audited accounts year ended Oct 31, 2011. The financial irregularities estimated to be around RM111.5mil. A ???forensic accountants???, PKF Advisory Sdb. Bhd, has been appointed to conduct a forensic review to ascertain the financial position of SILVER. Three of its key executives have been suspended from work during the investigation. SILVER wholly owned subsidiaries – Standard Confectionery Sdn Bhd,? Stanson Marketing Sdn Bhd and? Stanton Bakeries Sdn Bhd, revealed were in default of banking facilities repayments, amounting approximately to RM5.37bil. The company is now working on various options to regularize the default with the lenders. Meanwhile, SILVER was required to submit a regularization plan on its business direction and policy to Bursa Malaysia within 12 months from the date it was categorized as a PN17 company, or face delisting. (FPLC, 2012)3. Environmental Analysis
All organisations are linked to their environment in some way or the other, including SILVER. This makes organisation dependent on their environment. Notwithstanding, problems do not arise because organisations are dependent on their environment, but because the environment is usually not dependable. Given this, an organisation will only continue to survive and succeed as long as it makes every attempt to understand and adapt to its environment.
The environment may be thought of as all the factors outside of management control which can affect the performance of the business and the success of its strategies. With the adoption of PEST analysis and the Porter Five Forces Model, it would assist SILVER to analyse the general and industrial environment which can influence their business activities in uncertain, dynamic, hostile or complex environments.
1. Analysis to General Environment ??“ PEST Analysis
The general environment comprises broad nonspecific elements of the organisation??™s surroundings that might affect the activities and operations of the organisation. The PEST framework is used to categorize general environment influences into four headings that can be used to assess the external factors that might impact on the SILVER??™s development in future. More specifically, the PEST analysis composes of the following elements or factors:
1. Political Factors
These are political or legal factors affecting the organisation, such as legislation or government policy, stability of the government, government attitudes to competition and so on. The political factors are vary between countries and often limit companies what can and cannot do. Generally, political factors have an influential impact on SILVER. Legal factors such as tax law (corporate tax, sales tax, and income tax), employment law, health and safety law and company law which govern directors and their duties, reporting requirements, takeover proceedings and shareholders rights can give an enormous effect to the Group if it is not compliance with these legislations. SILVER is mainly involved in bakery and confectionary manufacturing; this industry is strongly compliance with health and safety regulation. Environment of factory, hygiene of production equipments and workers, and health and safety training to workers are essential to ensure the compliance of these rules. Besides, SILVER needs to fulfill the HALAL regulations set by Malaysian??™s government. Breakage of the Halal regulations could bring the company into court issue. SILVER will only confer Halal status when the company passes the examination processes which cover the aspects of preparation, processing, handling, storage, transportation, cleaning, disinfection, and management practices (Halal Foods, 2005). As a responsible company, SILVER needs compliance with the (Malaysia Employment Act, 1995), basic employees??™ benefits must be fulfilled. Employment of illegal workers is strictly restricted by government. Violation in any of these political factors could involve the company into big trouble.
2. Economic Factors
Economic factors include the overall level of growth, the business cycle, official monetary and fiscal policy, exchange rates and inflation. The economic environment is an important influence at local and national level. There are some factors that SILVER must attend to. First is the overall growth or fall in Gross Domestic Product (GDP) in Malaysia. This factor would influent demand for packaged bakery goods. For instance, low GDP shown people tend to buy more packaged bread compare to artisanal bread due to lower price for packaged bread. The disposable income level would shape the trend of what customer would buy. SILVER could diversify its product range based on the current GDP. SILVER may come out some premium products when the disposable income level is rising. While the GDP goes down, the company could probably introduce value pack / promo pack in order to cater customers??™ needs. On the other hand, rising trend of commodities prices for sugar and wheat flour have caused higher production costs to SILVER. Thus, to control the costing issue, SILVER should consistently review its operation processes and those unnecessarily activity should cut down in order to save cost. However, this should not affect the quality of the final goods. Others economic factors which can affect the achievement of the company include inflation, interest rates, tax levels, and government spending. These factors would mainly affect SILVER in term of spending more and less for their business activities.
3. Social Factors
These are social, cultural or demographic factors (i.e. population shifts, age profile etc) and refer to attitudes, value and beliefs held by people; also change in lifestyles, education and health and so on. Social change involves changes in the nature, attitudes and habits of society. Social changes are continually happening, and trends can be identified, which may or may not be relevant to a business. Baked goods industry in Malaysia is growing due to the pace of life is picking up in Malaysia and people have less time to prepare breakfast, packaged baked goods would be the best choice for daily consumption. Besides, manufacturers have constantly launched new products to cater the mass market. This helps to increase market for packaged baked goods. In addition, nowadays customers have become more health conscious, the emergence of healthier variants within bakery goods such as wholemeal, high-fibre and high calcium bread helped to retain customer. SILVER??™s major competitor, Gardenia, has introduced a few variants of healthy bread, including Gardenia Enriched White Bread and Gardenia High Calcium Milk Bread, which help to prevent osteoporosis; Gardenia High Fibre White Breach which is fortified with the soluble fibre, inulin, as well as Omega 3 and Omega 6.There is also trend showing in (Euromonitor International, 2010) that share of wholemeal bread has been on the rise slowly from 23% to 26% since 2005.Therefore, for SILVER to compete in the market, it should also develop product range which focus on healthy prospect.
3.1.4 Technological Factors
Technological factors have implications for economic growth overall, and offer opportunities and threats to many businesses. Technological change is rapid, and SILVER must adapt itself to it. Technological change can affect the activities of SILVER by the way in which the business operations are carrying out. With rapid development in Internet and Intranet technologies, packaged solutions like MS, Point of Sale (POS) and enterprise resource planning software, and supporting telecommunication services such as broadband Internet access and logistics technology has become easier and more cost effective than ever before. SILVER may use software to control its inventory level or it may utilize technology to perform analysis work for its company. Social media like Facebook could also be a way to market its brand and products. Other than that, IT helped in the reduction of management layers between the senior managers and the workforce. Advancement of technology can bring both benefits and costs to the Group. Whether it is benefit or cost it depends on how SILVER utilize the IT for their business operations. Technology factors could be a powerful tool to succeed the business.
3.2 Analysis to Industrial Environment ??“ Porter??™s Five Forces Model
Thus, corporate strategy is the essential tool in creating competitive advantage, whereby this strategy could be affected by internal and external factors. To analyse competition in the industry, Porter??™s Five Forces Model can be used. The five forces which has established by Michael Porter, could be used to appraise business environment. These forces are illustrated as below.
3.2.1 Threat of New Entrants
Profitability of SILVER will be affected if there is new entrant into the same industry. The most common strategy that adopted by new entry is lowering its production price or create differentiation in order to attract customer. The threat of new entrants to SILVER is low as high investment and expertise are needed in order to open a bakery manufacturing factory. However, it does not mean SILVER does not need to alert with the potential new entrants. To create barriers for new entry, SILVER has differentiated itself by providing variety types of baked goods to its consumers. Recently SILVER had introduced custard bun which is totally new in the market. To create higher threats of new entry, SILVER needs to be creative and innovation in product development while maintaining its quality. The major players in bakery manufacturing industry are Gardenia, SILVER and Massimo. Massimo emerged in the market in 2011 as an ???Italian??? brand. Massimo create differentiation by creating itself an Italian brand image, the packaging of the bakery goods are same colours found on Italian flag, which is green, white and red. This helps to create a premium brand image for Massimo and consumers presume the brand as ???Italian??? bread. In the coming year Massimo could have the potential to exceed SILVER and Gardenia.
3.2.2 Threat of Substitute Products
Substitute products are the products that providing the same need to consumer in different form of production. The profitability of SILVER would be affected by substitute products and services due to relative price and performance of substitute products. Due to their convenience and availability, bakery goods have become more popular as breakfast or snacks among Malaysians. In addition, Malaysians have moving toward to healthier lifestyle. Substitute for bakery goods shall be convenient, variety of choices, and healthy such cakes, pastries, breakfast cereal, oat, yogurt, and etc. If the relative price for the substitute is lower and providing better or equal needs, consumer will for sure switch to substitute and therefore result to sales drop in SILVER. Rising of disposable income has increased consumers??™ demand on better lifestyle. Consumers would go for artisanal pastries and cake as an indulgence. Although packaged bakery goods are the main focus in SILVER, the company also offers chilled cake, chilled pastries and cereal which are also substitutes for bakery goods. SILVER might consider focusing more on these ???substitutes??? in the market.3.2.3 Bargaining Power of Buyers
The bargaining power of buyers to bakery goods is relative low as these are the primary necessity to consumers. In reality, consumers would like to trade around to seek for lower price or improvement of products and services. Due to the healthier and fast pace lifestyle in Malaysia, it led to more consumers to have bread for breakfast instead of local delicious such as nasi lemak and rote canai which perceive as ???fatty??? foods. Consumers were unable to avoid consuming bread and therefore they responded by accepting the higher price of bread or trading down to cheaper alternatives such as economic or promotion pack (Euuromonitor, 2011). However, it is easier for consumers to switch brand for their bakery goods as the price for bakery goods is sensitive to consumers. For example, both High5 and Gardenia white sandwich bread are selling at RM2.30. Yet, the High 5 bread offers additional 3 pieces in the pack. Consumers might switch their brand from Gardenia to High 5 with the addition pieces of bread since both are selling at the same price. However, it also depends on the consumers??™ brand loyalty to the bakery goods. On the other hand, bargaining power of buyers is slightly lower for packaged baked goods due to its convenience packaging and it is easy to get. For example, somebody in a rush may grab a pack of High 5 bun from the convenience shop without consider the too much on the price for the bun.
3.2.4 Bargaining Power of Suppliers
Undeniable, suppliers are the core to an organisation. Company??™s performance would be affected because suppliers??™ main power is to raise their prices to the industry and hence take over some of its profit for themselves. Thus, company should not depend solely on one supplier unless the supplier has proprietary product differences. For SILVER, it is slightly different as the price increase for the raw materials are mainly due to the fluctuation of commodities price such as wheat, flour and sugar. Apart from that, commodities price is control by Malaysia Government and supplies of these raw materials could not simply increase the price to raise their own profit. This gives protection to SILVER to secure its raw materials price. The only thing that SILVER needs to emphasize on the supplier is the raw materials quality. It doesn??™t matter for SILVER to stick with one supplier as long it can provide SILVER good quality of raw materials with good service level. For packaging part, in order to achieve optimum result, SILVER should not rely on one supplier in supplying its packaging material. Suppliers who supply packaging materials do not have proprietary product differences. Thus, SILVER could have few supplies for packaging materials to prevent stop supply resulted by factory breakdown, price increase issues and so on.3.2.5 Intensity of Competitive Rivalry
Every type of business is having its competitors. Numerous rivals in industry will cause corporate suffer lose or even collapse if it could not sustaining from the price war. Besides that, low differentiation or switching costs is encouraging customer approach to competitors too. Rivals create higher level of threats to SILVER. For instance, Gardenia is the largest player in bakery manufacturing industry in Malaysia with 21% value share during 2010, follow by Stanson Bakeries Shd Bhd (SILVER??™s subsidiary) with an 11% value share. Both Gardenia and High 5 are widely available and perceived as being excellent source of balanced nutrition. Value share of Gardenia is higher than High 5 in the market. This could be due to the strong brand name and customer loyalty build by Gardenia since establishment. Gardenia also launched its new Breakthru bread in the end of 2010 and this bread is claimed to reduce cholesterol levels as the bread contains beta-glucan. The launch of this healthy bread helps to capture more health conscious consumers in the market. Besides that, SILVER??™s profitability could be diminished by increasing of artisanal bakery shop and in-store bakeries present in supermarkets / hypermarkets like Jusco, Giant, Tesco and Carrefour. Both artisanal and in-store bakeries continue to grow in the market due to the freshness and wide variety of choices. Furthermore, in-store bakeries offer convenience to shoppers while doing their grocery shopping. In depth, in-store bakeries also offer promotion to shopper whereby the prices are lower than branded packaged baked goods. Therefore, it can conclude that threat of competitive rivalry is high to SILVER due to the existing of strong competitors.
4. SWOT Analysis
SWOT analysis is an acronym for Strengths, Weaknesses, Opportunities and Threats. It is useful technique to understand the Silver Bird??™s strengths and weaknesses and to identify both the opportunities open to the company and the threats the company face. Strengths and weaknesses are within the company??™s control. However, opportunities and threats are factors that beyond the company??™s control and it could affect the performance of the business and the success of the company??™s strategies. For a company??™s strategy to be well-conceived, it must be matched to its resource strengths and weaknesses, to capture the best market opportunities and manage / eliminate threats which could place the company at risk. The SWOT Analysis for SILVER is summarized as below:|SWOT Analysis for SILVER |
|Strengths |Weaknesses |
|Strong Brand Name (Well known Hi5 Bread) |A week balance sheet, burdened with too much debt |
|Wide geographical coverage |Weak company??™s reputation |
|Core competencies in bakery manufacturing |Lack of internal trainings |
|Diversification of products range | |
|Product innovation capabilities | |
|Strong marketing | |
|Opportunities |Threats |
|Sharply rising demand for the industry??™s product |Likely entry of potent new competitors |
|Serving additional customer groups or market segments |Increasing intensity of competition among industry |
|Expanding the company??™s product like to meet a broader range of |Volatility of commodities price |
|customer needs | |Table 1 (Full explanations refer to Appendix A)5. Financial Rations & Interpretations
Ratios analysis are mainly categorized into 4 type according to the financial aspect of the business which the ratio measures. It includes leverage ratios which show how heavily the company is in debt, liquidity ratio which is used to measure a firm??™s ability to meet its current obligations as they come due; efficiency or turnover ratios measure how effectively a firm is managing its assets; and profitability ratios show the combined effects of liquidity, asset management, and debt on operating results, and thus give management an indication of what investors think of the company??™s past performance and future prospects. The financial ratios for SILVER are as below:1. Profitability Ratios
|Profitability Ratios |? |? |
|Gross Profit Margin |36.94% |45.41% |
|Operating Profit Margin / Return on Sales |5.87% |5.47% |
|Net Profit Margin / Net Return on Sales |2.12% |1.91% |
|Return on Total Assets |2.17% |2.53% |
|Return on Stockholders??™ Equity |2.31% |1.84% |
Table 2.1 (Calculation refer to Appendix B)
Gross profit margin for SILVER is declining from 45.41% to 36.94% in 2011. This show the revenues available to cover the operating expenses is dropping and SILVER yield lesser profit compare to year 2010. Although the revenue generated in 2011 is higher than 2010, the increase of the cost of goods sold is higher than the growth of revenue generated in 2011 and this resulted a decline in gross profit margin. The operating profit margin in 2011 remain at 5% as per in 2010, this indicate the profitability of current operations without regard to interest charges and income taxes have no improvement in 2011. The net profit margin shows a slight increase from 1.91% to 2.12% in 2011. The slight increase trend in net profit margin show SILVER actually has higher after-tax profits per dollar of sales compare to year 2010. Return of total assets helps to measure return on total investment in the enterprise. The return of total assets for SILVER has slightly decreased from 2.53% to 2.17% in 2011. The return on total investment for SILVER means to decline as well. The return stockholders are earning on their investment in the enterprise could be analyse by return on stockholder??™s equity ratio. A return in the 12 to 15% range is average and the trend should be upward. The return on stockholder??™s equity for SILVER has increased from 1.84% to 2.31%, however the percentage is much more lower than the average of 12%. The overall interpretations for profitability ratios do not show a healthy prospect to SILVER. The trend for profitability ratios should be upward every year, unfortunately SILVER is now on the converse trend and management of SILVER should start to revise on the company??™s strategies in order to sustain and grow its profitability.
2. Liquidity Ratios
|Liquidity Ratios |? |? |
|Current Ratio |0.94 times |0.85 times |
|Quick Ratio / Acid-Test Ratio |0.85 times |0.73 times |
|Working Capital |(RM 9,046) |(RM 20,548) |
Table 2.2 (Calculation refer to Appendix B)
Current ratio shows a firm??™s ability to pay current liabilities using assets that can be converted to cash in the near term. Ration should definitely be higher than 1.0; ratios of 2 or higher are better still. The current ratio for SILVER in 2010 and 2011 is 0.85 and 0.94 times respectively. There is an increase of 9% from year 2010. Yet, the current ration for SILVER still below 1.0 ratio. Quick ratio is a tool to examine a firm??™s ability to pay current liabilities without relying on the sale of its inventories. The quick ratio for the company is 0.73 times in year 2010 and 0.85 times in year 2011. The current ratio and quick ratio for the company has increased and it may due to the amount increased under the items of current liabilities are lower than the amount in increased in current assets??™ items. Working capital helps to indicate the availability of internal funds in the company to pay its current liabilities on a timely basis and finance inventory expansion, additional accounts receivable, and a larger base of operations without resorting to borrowing or raising more equity capital. Thus, the bigger amounts of working capital, the better it is. Working capital for SILVER is at the negative of RM20,548 and RM9,046 for year 2010 and 2011 whereby this show that the company do not have sufficient funds to pay it current debts and this is strongly relate with the reason why SILVER fall under PN17 in Bursa Malaysia. Nevertheless, SILVER has reduced down the its negative working capital from RM20,548 to RM9,046 in 2011. Significantly the management team in SILVER is working very hard on reducing down the debts.3. Leverage Ratios
|Leverage Ratios |? |? |
|Debt-To-Assets Ratio |0.46 times |0.46 times |
|Long Term Debt-To-Capital Ratio |0.10 times |0.12 times |
|Debt-To-Equity Ratio |0.86 times |0.85 times |
|Long-Term Debt-To-Equity Ratio |0.11times |0.14 times |
|Times-Interest-Earned |1.73 times |1.54 times |
Table 2.3 (Calculation refer to Appendix B)
Debt-to-asset ratio measures the extent to which borrowed funds have been used to finance the firm??™s operations. Low fractions or ratios are better, big fractions indicate overuses of debt and greater risk of bankruptcy. SILVER??™s debt-to-asset ratio maintains at 0.46 times for 2010 and 2011 and this is relatively low and this shows that SILVER do not overuse its debt. Long-term debt-to-capital ratio is an important measure of creditworthiness and balance sheet strength, indicates the percentage of capital investment which has been financed by creditors and bondholders. Fractions or ratios below 0.25 or 25% are usually quite satisfactory since money invested by stakeholders account for 75% or more of the company??™s total capital. SILVER??™s long term debt-to-capital ratio is at 0.10 times and 0.12 times in year 2010 and 2011. This indicate around 90% of the company??™s total capital is funded by investors. Debt-to-equity ratio should usually be less than 1.0. Ratio above 1.0 signal excessive debt, lower creditworthiness, and weaker balance sheet strength. Debt-to-equity ratio for SILVER remains at average 0.86 times in 2010 and 2011 which is less than 1.0. Long-term debt-to-equity ratio shows the balance between debt and equity in the firm??™s long-term capital structure. Low ratios indicate greater capacity to borrow additional funds if needed. SILVER??™s has a very low long-term debt-to-equity ratio in 2010 (0.14 times) and 2011 (0.11 times). Lastly is the times-interest-earned ratio which measures the ability to pay annual interest charges, Lenders usually insist on a minimum ratio of 2.0, but ratios above 3.0 signal better creditworthiness. Silver??™s times-interest-earned ratio at 1.54 times and 1.73 times in 2010 and 2011 shows that the company do not have the ability to pay its annual interest charges.
4. Efficiency Ratios
|Efficiency Ratios |? |? |
|Asset Turnover Ratio (in times) |0.58 times |0.52 times |
|Average Collection Period (in days) |205 days |148 days |
|Inventory Turnover (in days) |24 days |34 days |
Table 2.4 (Calculation refer to Appendix B)
The asset turnover ratio shows how hard the firm??™s assets are being put to use. A high asset turnover ratio indicates that the firm is working close to capacity. It would be difficult to generate further business without additional investment. For SILVER, the asset turnover ratio has increased from 0.52 times in 2010 to 0.58 times in 2011. The increase of 10% in ratio shows that SILVER was efficient in using its total assets to create sales revenue or the company is operated in a suboptimum capacity level. Average collection period is to indicate the average length of time the firm must wait after making a sale before receiving cash. It expresses accounts receivable in terms of daily sales. On average SILVER clients pay their bills in about 148 days in 2010 and 205 days in 2011. The credit terms of trade receivables for SILVER range from 30 to 90 days. Base on the average collection period ratio, the company is not efficient in collecting debts. A comparatively high figure often indicates an inefficient collection department. Sometimes, however it is the result of a poor credit policy, whereby the firm often offers credit to customers without considering the payable ability of the customers. Inventory turnover measures how fast inventory is sold out and restocked in a year, i.e. how fast can company turnover its inventories. The performance of the company can be measured by inventory turnover ratio. The shorter the inventory turnover days, the better it is because it indicates increase in company??™s revenue and thus turnover of the inventories are getting faster. The inventory turnover ratio had a decrease of 29% (10 days) from 34 days in year 2010 to 24 days in 2011. It was result by the increase in sales by 18% from year 2010 to 2011. When sales increase, more inventories are required for the business. The increase of sales might be due to the increase in demand baked goods in the market.6. Value Chain Analysis
Value chain analysis has been defined as:
???A systematic approach to examining the development of competitive advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. The organisation is split into primary activities and support activities.??? [http://www.marketingteacher.com/lesson-store/lesson-value-chain.html
The primary and support activities that identified by Porter are shown in the following diagram: [pic]
Source: From Sources of Competitive Advantage, Third Edition by Andy.C et alThe primary and secondary activities of SILVER are as below:|Primary Activities |Secondary Activities |
|Supply Chain Management |Quality Control |
|Recipe Development and Testing |Human Resource Management |
|Mixing and Baking |Administration |
|Packaging | |
|Sales and Marketing | |
|Distribution | |
Table 3 (Full explanations refer to Appendix C)7. Key Success Factors of SILVER
This session is about discussing SILVER??™s Key Success Factors and sources of competitive advantages. Yet, we will go into details whether these competitive advantages are sustainable and how would they develop in the future. SILVER??™s KSF and sources of competitive advantages are as below:
1. Innovative in new product development
SILVER is fast in development of new innovative products. To excite its consumers, SILVER has continuously introduced variety types of bakery goods to consumers. Innovative bakery goods for SILVER include buns filling with sambal ikan bilis, spicy tuna and sardine, coconut, kaya, red bean, custard and etc. Success of this factor is due to strong R&D team in SILVER and also their expertise in bakery manufacturing. Excellent communication within the organization and passion to deliver the needs of consumers also drive the company succeeds in innovative product development.Sustainability: Sustainable. Somewhat it relies on other intangible sources of advantage such as its secret recipe which are difficult for competitors to copy and also effectiveness of organizational communications.Potential Future Development: Competitors could use technology to assist in their development of new recipe. On SILVER??™s part, it must continually put effort to gain and utilize feedback from target customers. Furthermore, attracting and retaining talented staff in product development is important to SILVER as well.
2. Branding and Marketing
SILVER is positioned as the second larger player in baked goods manufacturing industry after Gardenia. High 5 brand has been a very popular brand among Malaysian. The popular brand recognition is built by product quality and customer loyalty. SILVER is now focusing on social media and road show to promote its brand to young generation. SILVER also developed a High 5 Bread Town to educate visitors of all ages to understand the bread manufacturing process. Meanwhile it helps to promote its High 5 brand bakery goods.Sustainability: Sustainable. Customer loyalty builds by brand equity. However, the brand would dilute when the market generally shifts upward. Consumers would prefer artisanal bakery goods rather than packaged bakery goods which consider as cheap.Potential Future Development: The biggest threat comes from the major player, Gardenia. SILVER should strengthening its brand equity via heavy advertisement and maintaining its product quality.
3. Operations, Logistics and IT
SILVER is excellent integration of activities with its management system. Upgrading of its Management Information System (MIS) and install of enterprise wide system helps the company to control its inventory level. The system would assist in predicting the production level according to the sales frequency of the product. This would help to reduce waste for over producing products which could not sell well.Sustainability: Not Sustainable. Competitors would copy the implementation and integration of systems that SILVER has done. Also they could acquire a more superior system which exceeds the performance of SILVER??™s system.Potential Future Development: SILVER can benchmark against the integration of IT and efficient operations of its competitors like Gardenia and Massimo in order to improve its current systems. SILVER also needs to continually look for opportunity to enhance and build its advantage within and outside the industry.
4. Distribution channels
SILVER??™s products cover wide geographical areas in Peninsular Malaysia, including hypermarkets/supermarkets, convenience shop, grocery stores and Chinese medical halls. High exposure of its products in market helps to widespread its target customer in different geographical area.Sustainability: Not sustainable. Wide coverage of geographical are an important source of increase sales, but Gardenia and Massimo could also do the same.Potential Future Development: New entrants and existing competitors will distribute their products as where SILVER does. On the other hand, distribution cost for SILVER could be tremendous if it does not manage it well. SILVER could also distribute its products via different channel such as hospital and fitness centre where the current competitors do not have.
SILVER is an organisation which possesses different business activities (E.g. manufacturing of bakery goods; sales and distribution of telecommunication products and bakery goods; marketing and distribution agent for financial related products.) Each business activity is unique and has its own particular strategic plan to execute. Given this, each segment will approach the process of strategy implementation in a different way in order to achieve goal congruence for SILVER. For the Group to enhance shareholder value maximization, both in terms of dividend flow and capital appreciation, recommendations are given as below to improve the portfolio performance:
One of the recommendations to SILVER is implementation of benchmarking, which is a method of comparing the operational performance of a company with other companies, often competitors that are considered to be the ???best in classes??™. The purpose of benchmarking is to carry out position audit in term of assessing company existing position, and provide a foundation for setting up standards of performance. Therefore, improvement in key areas and challenging but achievable target could be set in SILVER in order to enhance company profitability as well as maximize shareholders??™ wealth. .
However, there are always pros and cons in strategies implementation. Accurate information regardless internal and external is required to perform benchmarking. In other words, it is cost and time consuming which is an expense to SILVER. Besides that, management might reluctant to perform it because they are getting used to the ???comfort??™ situations. Hence, SILVER management must plan wisely in implementing benchmarking in order to overcome these problems. For instance, briefing and training are provided to employees so that they could accept it and familiar with the process.
8.2 Implementation of Activity Based Costing System
For every business segment, costs that are assigned to cost objects can be divided into two categories ??“ direct costs and indirect costs. Cost allocation is essential to distinguish between profitable and unprofitable activity. For accurate assignment of indirect costs to cost objects, cause-and-effect allocation should be used. The activity-based-costing (ABC) system can be used to assigned indirect costs to cost objects. One of the major aims of ABC system is to use only cause-and-effect cost allocation.
SILVER has a huge amount of unallocated liabilities for the business segments. This could reduce the efficiency and effectiveness of SILVER in utilizing their liabilities to finance their related assets of the business portfolio. SILVER may not able to differentiate between profitable and unprofitable business segments to the company. If the cost system in SILVER does not capture sufficiently accurately the consumption of resources by each business segments, the reported segment costs will be distorted, and there is a danger that managers may drop profitable business activities or continue operation of unprofitable business activities.
8.3 Execution of Management Audit
Management team is playing a vital role in an organisation in carry out the business operations and led the company to succeed in term of profitability and maximize the shareholders??™ value. To attain these goals, management audit can be carry out in assisting the company toward the bright direction. Management audit is concerned with the appraisal of management??™s accomplishment of organisational objectives. Management audit assesses the management functions of planning, organizing, directing and controlling; and the adequacy of management??™s decisions and actions in moving toward its targeted objectives. The main focus of the management audit is on appraising the quality of management??™s ability to manage.
SILVER is a listed company with different principal activities. Every activity is managed and organized by different management team with specific skills. The Group might suffer losses due to the inefficient management functions in the business segments. It is important for SILVER to look over the whole management functions of each business segments in order to ensure the every business segments in the company are well organize. The performance of the principal activities would contribute to the total profitability of SILVER. Thus, inefficiency in one of the business could probably reduce the profitability in the Group. Thus, this will then affect the shareholders??™ value both in terms of dividend flow and capital appreciation. By executing management audit to each business segments in SILVER, it could help the Group to monitor its progress toward achieving its specific objectives.
8.4 Capitalizing on Technology
As far as technology concerned, it is rapidly altering the nature of industries, competition, and the manner in which organisation develop and implement their strategy. Technology not only provides an organisation the opportunity of a source of competitive advantage, but technology also forms one of the forces that can drive strategic change in organisations. Therefore, superior utilization of technology is an important ingredient for strategy implementation and determining the success of an organisation.
Realizing the importance of technology, SILVER should be sure organisational objectives go beyond technological awareness. Look for obstacles that have crept into the organisation??™s policies and operating manuals and change those things that may impede technology. Inevitably, SILVER also need to revaluate the organisation proposed capital acquisition against what the market has offer, whether it is useful to the company. This is to ensure the company is well utilise its liability to finance the related assets.
Competitive advantages has increasingly been recognized and emphasized as an important priority for organisations throughout the world. Porter states that competitive advantage ???arises from discovering and implementing ways of competing that are unique and distinctive from those of rivals, and that can be sustained over time??? (cited in Sources of Competitive Advantages, 2012). Sustainable competitive advantages help the management of organizations effectively to their environment, accomplish their organizational objectives and improve their performance.
Each organisation is linked to the other by way of federations, associations, customer-supplier relationships, competitive relationships, social-cultural relationships, and political-legal mechanism for defining and controlling the nature and limits of these relationships. Organisations, therefore, must transact with these elements in order t acquire and maintain the resources that they need. Thus, environmental analysis is an important requirement of the strategic management process.
On the other hand, internal assessment and understand of company??™s financial status are curial to sustain and expand its competitive advantages. According to Louis V. Gerstner, good strategies are long on detail and short on vision. They lay out multi-year plans in great quantitative detail: the market segments the company will pursue, marker share numbers that must be achieved, expense levels that must be managed, and resources that must be applied. These plans are then reviewed regularly and become, in a sense, the driving force behind everything the company does.
The strategic evaluation and control process is essential to organisations, particularly those operating in uncertain and competitive environment where key external and internal factors often change and affect them directly. Even though these organisations may have formulated and implemented the best of strategies, the key external and internal factors may cause their strategies to become obsolete or ineffective. Competitive advantages generate greater value for the firm and its shareholders and it give a company an edge over its rivals. A sustainable competitive advantage would prevent competitors to neutralize the advantage. Firm without sustainable competitive advantage is hardly to compete and survive in the industry.10. ReferencesCowe, A., Mackerron, G. Moffat, A. and Douglas, T. 2011. Sources of Competitive Advantage,
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