In today's highly competitive business environment, it's crucial for new businesses to engage in a proper planning and management process. "New businesses fail usually due to poor planning and management, not because of the idea for the business." (Peter Drucker, internationally renowned management expert).
Strategic planning is a process of clearly defining an organization's goals and how to reach those goals within a specified time frame. It focuses on the entire organization. According to Bartol & Martin, strategic planning is normally targeted for a period of 3 to 5 years.
To convert the organizational goals into actions, strategic management is applied.
Strategic management is defined by Bartol & Martin as a process applied by managers to formulate and implement strategies to achieve long term goals. Five steps are involved in a strategic management process. The flow of the entire process is as below :
Source : Modern Management Pg.179, Samuel C.Certo & S.Trevis Certo, 10E, Pearson
Pearl Rubber Tiles Sdn Bhd
Pearl Rubber Tiles Sdn Bhd is a new manufacturing organization in Malaysia. It's business nature is manufacturing of raw natural rubber into Rubber Tiles. Rubber Tiles is one of the most advanced and modern flooring systems developed currently. One of its main features is that it provides protection against injury. Rubber tiles are durable, safe and comfortable. These are only some of the many unique features of rubber tiles.
Pearl Rubber Tiles Sdn Bhd plans to export rubber tiles into the EU market considering the usage and demand of the product in the European nation. In order for the organization to be sucessfull in it's business a comprehensive strategic planning and management has to be carried out. To start off, Pearl Rubber Tiles Sdn Bhd conducts an analysis on it's environmental conditions.
Environmental Analysis
According to Samuel C & Trevis C, the environmental analysis is done to identify environmental factors that can influence the organizational operations. This analysis will help the management team of Pearl Rubber Tiles Sdn Bhd to be aware of its surroundings thus increase the chances that the strategies developed will reflect the organizational environment. The organization's study includes its external and internal environments. According to Arie de Geis (1997), external environment is the key determinant of the success or failure of the organization. External environments are divided into general environment and operating environment.
General Environment:
a) Economy
Malaysia is the world's 3rd largest producer of natural rubber. Malaysia is also one of the leading suppliers of rubber based products to meet the world's demand. Referring to Table 1, in 2006 alone Malaysia produced 1.259 million tonnes of natural rubber and exported 90% of it. The table also shows an increase in the production and export of natural rubber over the past 7 years. This proves the sufficient supply of natural rubber in Malaysia. The overall Malaysian economy has also been showing steady growth over the years. Our inflation rate is under control by the government at an average of 3.8%.
Table 1: Malaysia's Rubber Position (Tonnes), 2000 - 2006
2000
2001
2002
2003
2004
2005
2006
Production of NR
927,608
882,067
889,832
985,647
,168,735
,126,023
,259,631
Export of NR
977,978
820,854
886,873
945,889
,106,086
,127,947
,134,351
Consumption of NR
363,715
400,888
407,884
420,775
402,769
386,472
376,345
Source: International Rubber Study Group (IRSG)
b) Technology
The rubber industry in Malaysia has grown and improved tremendously over the past 20 years. The Rubber Research Institute of Malaysia (RRIM) and Malaysia Rubber Board (MRB) are among the research and development (R&D) centres responsible for the technology growth within the rubber industry. The government is also playing its part to further enhance the rubber technology. In the Second Industrial Master Plan (IMP2), 2000-2005, R&D was carried out to develop ways resulting in an increase of efficiency in manufacturing processes and reduce cost. During the Third Industrial Master Plan (IMP3), the government has strategies of developing Malaysia as a regional centre for the testing and certification of rubber products, as well as to upgrade the existing technology especially in process automation and improving the skills of the workforce.
c) Socio-culture
According to Certo & Certo, two important values to look into under socio-culture are demographics and social values. Demographics are basically about the number of people in a population and the income distribution. These factors can influence the sales of a product within a population depending on how well the product is received by the people. Social values touch on aspects such as the norms, behaviours, beliefs of a society. It is important to study the overall socio-culture in the environment as it gives an impact on the sales of the product. Pearl Rubber Tiles Sdn Bhd export market is targeted to EU nations. Europeans are very much into environmental goods. With the increase awareness on the environment, EU has established the European Eco-Labelling Scheme favouring natural rubber products. This is a great advantage for Pearl Rubber Tiles Sdn Bhd as the organization in focused on using natural rubber as the raw material for the rubber tiles. Rubber tiles help ease fatigue and protects against injury. Its resilient nature helps absorb shock and reduce injury and physical harm. The market for rubber tiles is big in the EU as these tiles are suitable for golf courses, club houses, horse racing courses, jogging tracks, recreation parks, pedestrian paths, hospitals, nursing homes, school and kindergartens. The many shapes and colour would be an added value for the children's playground. Europeans and very health conscious and these tiles are environmental as well as user friendly product for all.
d) Political and Legal
Politically Malaysia is a stable country with no riots and other major political issues. Our government encourages entrepreneurs to venture into the rubber industry. There are many multinational companies investing in the rubber based industry. Malaysian Industrial Development Authority (MIDA) provides tax incentives by providing tax waiver for a period of number of years. Small and medium scale organizations are funded by Malaysian Rubber Export Promotion Council (MREPC) to enable them expend businesses overseas.
Operating Environment:
a) Competitors
Although Malaysia is the third largest natural rubber producer in the ...
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d) Political and Legal
Politically Malaysia is a stable country with no riots and other major political issues. Our government encourages entrepreneurs to venture into the rubber industry. There are many multinational companies investing in the rubber based industry. Malaysian Industrial Development Authority (MIDA) provides tax incentives by providing tax waiver for a period of number of years. Small and medium scale organizations are funded by Malaysian Rubber Export Promotion Council (MREPC) to enable them expend businesses overseas.
Operating Environment:
a) Competitors
Although Malaysia is the third largest natural rubber producer in the world, our competitors are the neighbouring rubber producing countries mainly Thailand and India (the two main natural rubber producers in the world). Weaknesses were identified in our main two competitors. Firstly, the production of natural rubber in these 2 countries is usually affected during the dry seasons. Second, countries like Thailand and India rarely emphasize on value-added services in their rubber based products. Their focus is more into quantity rather than quality. Third, these countries are politically unstable. Probability of riots and labour union disruption are high.
b) Customers
Our targeted market is the EU nations. Europeans are very much concerned about environmental and health issues. Our product is both environmental friendly as well as safe to use. That is not all, in order to survive in the competitive market our product will not only have to be of quality but also highly value-added to provide something extra to customers compared to competitors.
b) Suppliers
There are no shortages of natural rubber supply in Malaysia. Suppliers are also easily available. The price of natural rubber depends on the demand for it in the industry. As demand increases, price increases. Getting suppliers within a short distance from the organization will save the organization from transportation fee. It is important for Pearl Rubber Tiles Sdn Bhd to build long term relationships with its suppliers.
d) Labour
The labour intensive rubber products industry is faced with a shortage of local workforce due to its physical demanding work environment. There is high turnover among local workers. To overcome the problem, organizations are forced to employ foreign workers. To overcome the problem organizations have to take measures to reduce the labour component and improve productivity. This can be achieved by developing and adopting automated production processes.
e) Strategic partners
In order to penetrate the EU market, Pearl Rubber Tiles Sdn Bhd has to establish strategic partnerships and business alliances in European Union countries for warehousing and logistics purpose. Advertisement should be intensive for promoting the product. NATURAL RUBBER TILES FOR COMFORT AND SAFETY!
The next step for Pearl Rubber Tiles Sdn Bhd is to establish its organizational directions in terms of the organization's vision and missions based on the environmental analysis.
Vision
Pearl Rubber Tiles Sdn Bhd believes that formulating a clear vision of where the business is headed over the next 5 years is important. Peter Drucker in his " The Coming Of The New Organisation" says "today's companies, which are staffed by professional and other employees who largely control their own behaviour, require clear, simple, common objectives, a vision, that translate into particular actions". A vision is like a lighthouse. Even without much of the supervisions, employees can motivate themselves by the organization's vision. A vision expresses the organization's fundamental aspirations and purposes, appealing to all members of the organization's hearts and minds. Over time, traditional statements of missions may change, but the company's vision should endure for a long time.
Pearl Rubber Tiles Sdn Bhd's vision is to be the global leader in supplying quality and value-added natural rubber tiles.
Mission Statement
Stating a mission helps management focus on the human effort towards a common direction. It gives managers general but useful guidelines about how resources should be used to best accomplish organization's purpose.
Pearl Rubber Tiles Sdn Bhd's mission encompasses following:
) Strive to consistently maintain and deliver high quality and value-added tiles
on time.
2) Strive to optimize R&D and process technologies
3) To stay focused in utilizing environment friendly natural rubber.
Strategy Formulation
A strategy is a course of action. Effective strategies help organizations gain competitive edge over others. Strategies developed must be unique relative to the competitors, or they have to be similar to those of the competitors but in different ways. Michael Porter said: "Operation effectiveness means we are running the same race as our competitors, only faster. But strategy is choosing to run a different race because it is the one we are chosen to win. Strategy is not incidental. It is a purposeful process". (Management by Hellriegel / Jackson / Slocum ).
4 tools are available for formulating strategies. They are critical question analysis, SWOT analysis, Business portfolio analysis, and Porter's model for industry.
Most organizations employ multiple strategies that serve to complement and support each other. Such an approach is consistent with systems view of most organizations.
Pearl Rubber Tiles Sdn Bhd applies 2 of these tools to formulate the organization's strategies.
. SWOT analysis
Managers use SWOT analysis to consolidate information regarding the organization's internal strength and weaknesses, and external opportunities and threats.
Pearl Rubber Tiles Sdn Bhd's SWOT analysis is as below:
Strengths
> Easy access to high grade natural rubber
Weaknesses
> No past history in the rubber tiles business as this is a new business venture.
> Brand name not established in the EU nations.
> Lack of key distribution channels for the organization in the EU nations.
Opportunities
> New overseas markets like Europe, Japan, Australia, Korea, but the organization shall concentrate on EU nations.
> Fall in international trade barriers enable the company to explore all the entrances in EU with ease.
> Potentially wide customer base in EU nations favouring environmental friendly products.
> Plans by the government to develop Malaysia as a regional centre for the testing and certification of rubber products.
> Financial funding provided by Malaysian Rubber Export Promotion Council (MREPC) to small and medium scale organizations.
> Tax incentives provided by Malaysian Industrial Development Authority (MIDA)
Threats
> Foreign competitors from India, Indonesia, and Thailand marketing rubber tiles in the EU market at low cost. Pearl Rubber Tiles Sdn Bhd can overcome the issue by delivering high quality and value-added products at a competitive cost.
> Emerging of substitute products. Pearl Rubber Tiles Sdn Bhd has to strive to continuously enhance the quality of rubber tiles as well as be alert of the changing market and its preferences.
> Shortage of local workforce in the rubber industry due to its physical demanding work environment. To overcome the problem, organizations are forced to employ foreign workers.
> Loyalty suspicion of foreign business partners. To overcome this, the organization has to build and maintain a good rapport with its business partners and continuously deliver promises made in terms of quality, on-time shipment delivery and services.,
Upon completion of the SWOT analysis, a SWOT matrix is used to construct strategies. 4 types of strategies can be developed using a SWOT matrix. They are:
* SO strategies: Combines strengths and opportunities. The organization uses its strengths to take advantage of its opportunities.
* WO strategies: Combines weaknesses and opportunities. The organization takes advantage of its opportunities to overcome weaknesses.
* ST strategies: combines strengths and threats. The organization takes advantage of its strengths to overcome threats.
* WT strategies: Combines weaknesses and threats. The organization acts to minimize the effect of its weaknesses and threats.
Taking into accounts the results of the above analysis, Pearl Rubber Tiles Sdn Bhd uses a SWOT matrix to develop WO strategies to take advantage of the opportunities available to overcome its weaknesses. The strategies the organization came up with are as below:
i. Establish business alliance with Carrefour in EU market to promote Pearl Rubber Tiles
ii. Obtain funding from Malaysian Rubber Export Promotion Council (MREPC)
2. Porter's model for industry analysis
Porter's model concentrates on the five forces, the relationship between these forces and the competitiveness of the forces within an industry. The five forces are rivalry, bargaining power of customers, bargaining power of suppliers, threat of new entrants and threat of substitute product.
Rivalry
Rivalry happens when competitors with the same product base affects the market by using tactics like price competition, frequent advertising, increase customer services or warranties if it applies. These tactics are able to lower down profits of other competitors with the same product base by either forcing them to lower down price or increase the cost of business to compete. Rivalry can't be avoided but to help minimize the impact of rivalry upon sales of Pearl Rubber Sdn Bhd's rubber tiles, the organization has to concentrate on building a strong long term relationship with business partners as well as customers in the market. One way of doing so is by creating business alliances with well known malls in the EU nation such as Carrefour to promote its product. It also should concentrate on maintaining upmost quality, on time delivery; and delivering something extra, value-added such as creative product packaging for instance.
Bargaining power of customers
Customers have the power getting competitors to compete with each other by forcing price down or bargaining for higher quality for instance. Customers become powerful when they purchase in large quantities or when the product is easily available in the market. According to Bartol & Martin, the greater the bargaining power of the customers, the lower the profit potential in the industry. To minimize this impact, Pearl Rubber Sdn Bhd should study the competitiveness of the market before getting into it. A plan of action would be to concentrate on a specific market segment instead of the entire market.
Bargaining power of suppliers
Suppliers can affect businesses by threatening to raise price or reduce quality of their goods. They can only do so when there are few of them supplying goods to many businesses or when there are no substitutes to their goods in the industry. According to Bartol & Martin, the greater the bargaining power of suppliers, the lower the profit potential of organizations within the industry. Pearl Rubber Sdn Bhd's main raw material is natural rubber. Malaysia being the 3rd largest producer of natural rubber in the world, has sufficient amount of natural rubber for the rubber industry. Thus, there are many natural rubber suppliers competing against each other in the industry. Therefore in this case, being the customer to these suppliers, Pearl Rubber Tiles Sdn Bhd has more bargaining power compared to the suppliers.
Threat of new entrants
The threat of new competitors entering the market with the same product base always exists. This results in price war, business cost increase to upgrade quality, extra cost for advertising and promoting organization's product and so on. The threat of new entrants depends on the market barrier. When barriers of entry are high, threats of new entrant are low because it would be difficult to penetrate a high barrier market. For the case of Pearl Rubber Tiles Sdn Bhd, new entrants can easily penetrate the EU market due to the fall of international trade barriers. This is a potential threat to the organization and it has to conduct R&D on ways to overcome this threat.
Threat of substitute products
This threat occurs when other businesses offer substitute products to replace an existing product in the market. According to Bartol & Martin, the availability of substitutes tends to reduce the industry's profit potential. Pearl Rubber Tiles Sdn Bhd uses natural rubber to produce its rubber tiles. Due to the natural raw material used, its rubber tiles are environment friendly and safe. Furthermore, Europeans are extremely environmental and health conscious plus EU has established the European Eco-Labelling Scheme favouring natural rubber products. Therefore Pearl Rubber Tiles Sdn Bhd don't have to worry much, as the potential customer base for natural rubber substitution to synthetic rubber tiles or even plastic rubber tiles will not affect the organization.
Considering the results of the porter's model analysis, Pearl Rubber Tiles Sdn Bhd adopts the focus strategy.
Focus strategy concentrates on a narrow market segment and within that segment attempts to achieve either a cost advantage or a differentiation. Pearl Rubber Tiles Sdn Bhd initial plan was to target the EU market. After considering the five forces and how they affect the organization, Pearl Rubber Tiles Sdn Bhd decided to narrow down the targeted market form the entire EU, and start off with one EU country. The focus strategy is suitable for Pearl Rubber Tiles Sdn Bhd as it specializes in one product namely rubber tiles and plans to be able to provide high quality rubber tiles at a reduced price to gain competitive advantage over other competitors.
Cost leadership emphasizes on the efficiency of an organization to lower down the overall organizational cost. Lower cost means organizations can offer a lower price for its product hence providing it with a competitive edge over others. However, according to Bartol & Martin, for a cost leadership strategy to work, lower cost will have to result in reduction of quality. Pearl Rubber Tiles Sdn Bhd cannot afford to compromise on the quality of its product. At the same time the organization wants to be able to sell its product at a lower price by maintaining the quality standards. Focus strategy helps Pearl Rubber Tiles Sdn Bhd overcome the threat of new entrants by developing core competencies within its market segment that can act as an entry barrier for new entrants. The strategy will also help reduce the bargaining power of customers as there will be fewer alternatives to the organizations rubber tiles in a narrow market. Threats of substitutes will also be reduced further due to the specialized product (rubber tiles) and the developed core competencies protect the organization against substitutes.
Strategy Implementation
According to Samuel & Trevis, strategy implementation is a process of putting the formulated strategies into action. This is done by breaking down the strategies into specific departmental functions. This way it will be easier for the management team to track and monitor the progress done. It also helps by providing a clearer picture on how each department is responsible in achieving the goal.
In order to keep track on the progress made by individual departments, Pearl Rubber Tiles Sdn Bhd can make use of a tool named Balanced Scorecard. The Balanced Scorecard is a measurement tool used by widely in organizations to help measure progress of a department as well as individuals in the department. Once strategies are broken down at departmental level, they are broken down even further into smaller task to be executed by individuals in the department. In other words, the strategies are cascaded throughout the organization down to an individual level, thus linking the activities of the individual employee with the strategic objectives of the organization.
There are 5 factors to be considered strategy implementation:
Technology
According to Bartol & Martin, technology consists of knowledge, tools, equipment and work techniques. Pearl Rubber Tiles Sdn Bhd must ensure that the workforce from the management level to the assembly line have knowledgeable background and experience in the rubber industry. The organization has to ensure that adequate and intensive training sessions are provided to all staff. The tools and equipment used should be up to date and the organization has to invest in high technology automated processing machineries to boost production, and at the same time reduce the assembly line labour cost. At the same time the organization should take advantage of the R&D done by Malaysian Rubber Board as well as during the Industrial Master Plan (IMP2), 2000-2005, where R&D was carried out to develop ways resulting in an increase of efficiency in manufacturing processes and reduce cost.
Human Resources
It is crucial for Pearl Rubber Tiles Sdn Bhd to employ the right individuals with the right skills in the right leverage slots. These individuals will be an asset as well as the strength of the organization. According to Bartol & Martin, a skilled workforce usually has greater ability to find ways to reduce costs compared to a less experienced staff.
Reward Systems
Reward systems are ways to motivate and boost performance of employees. This can be done in ways such as bonuses, promotions or even by recognizing employees' efforts and passing complements. One way Pearl Rubber Tiles Sdn Bhd can apply the reward system to its advantage is by offering productivity bonuses where these bonuses are given based on target achieved which is measured in terms of number of quality rubber tiles produced. This will motivate employees to work harder towards achieving the set target.
Decision Processes
Decision processes talks on how managers solve problems in an organization. For a manufacturing organization like Pearl Rubber Tiles Sdn Bhd, resource allocation is very important in implementing strategies as the organization is dependent on its resources in order to operate. The management of Pearl Rubber Tiles Sdn Bhd must be able to come up with fast and prompt decisions. If an issue arises within a department then the departmental manager should attempt to solve it. If the issue concerns the entire organization then the upper management should be the ones to come up with the solution.
Organizational Structure
According to Bartol & Martin, an organizational structure is the formal pattern of interactions and coordination designed by the management to link the tasks of individuals and departments in achieving organizational goals. The organizational structure should match the strategy of the organization to achieve optimum effectiveness. Pearl Rubber Tiles Sdn Bhd has adopted the focus strategy. Therefore the structure that is a best match for the focus strategy would be a functional structure. A functional structure is a structure in with the organization is divided in to individual departments specializing in a particular area of scope. Example: Human resources department is responsible for recruiting skilful employees, retaining them and enhancing their effectiveness. Production department is responsible for manufacturing rubber tiles. Research and Development department is responsible for introducing new ideas and methods that will lead to improved product in terms of quality and added-value. The functional organizational structure will help Pearl Rubber Tiles Sdn Bhd facilitate efficient use of resources since it would be easy to shift an individual from one department to another when the individual's expertise is needed. Besides that, it also results in ease of coordination within departments since activities are inter-related. A functional structure also increases the potential for developing specialized technical competencies that can be an advantage over competitors.
Strategy Control
The final step in strategic management is strategy control. According to Samuel & Trevis, strategy control is the process of monitoring and evaluating the strategic management process as a whole to ensure that it's operating properly. One way of implementing strategy control in Pearl Rubber Tiles Sdn Bhd is by reviewing the entire plan quarterly at the initial stage. There are a few reasons why it's important for organizations to review plans. First, to be aware of the need to either allocate or reallocate strategic resources. Example, the need to recruit an experienced R&D analyst to assist the R&D department. Second, to assess performance of individuals as well as departments. Third, to suggest solutions issues that might have popped up during implementation. Reviews are done to reemphasize the organizational vision and missions to employees and motivate them through recognition and praises. Finally, to ensure that implementation of actions are aligned with the organization's vision.
Conclusion
Organizations have been relying on strategic planning and management process for decades. Strategic planning and management is crucial especially in new businesses. Through proper planning and management, managers formulate and implement strategies to help guide the organization towards its vision. The overall process assists organizations identify and develop an edge in the competitive market.
Pearl Rubber Tiles Sdn Bhd has gained tremendously by applying strategic planning and management. The organizational journey is much clearer now. By analysing its environment, Pearl Rubber Tiles Sdn Bhd identified factors that can influence its operational functions. Through the SWOT analysis, the organization recognized its strengths, weaknesses, opportunities and threats. Porter's model introduced the organization to the five forces and competitiveness of these forces within the rubber industry and how these forces hinder the growth of the organization. Being aware of its surroundings, threats, weaknesses, strengths and opportunities Pearl Rubber Tiles Sdn Bhd adopted the focus strategy to help the organization reach its goals. To put the strategy into action, implementation was done and finally strategy control to monitor and evaluate the progress of the strategy. This completes the entire process of strategic planning and management. Pearl Rubber Tiles Sdn Bhd can now start the business with a planned vision to be achieved 5 years from now.
References:
. Modern Management, by Samuel C Certo
2. Management, by Kathryn M. Bartol & David C. Martin
3. Management, by Griffin
4. Management, by Gary Dessler
5. Management, a competence-based approach, by Heriegel / Jackson / Slocum
6. Malaysian Rubber export Promotion Council (http://www.mrepc.com)
7. "New incentives for rubber product makers" , By Zaidi Isham Ismail
3 July 2007 http://www.lgm.gov.my
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