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Introduction
Business environment is chaining continuously all over the world. Since recession 2008, business organisations are suffering seriously about their business growth and profit. Many small and medium size business organisations were shut down and big business organisations are suffering still today. Hence, organisations’ requires reevaluating their business strategy in this slow growth but fierce competitive market (Teece, 2010). Tata Steel Europe, is one of the leading companies in Europe, is suffering loss of profit problem in recent year. Thus there has incurred a possibility of shrinking the business activities and job cut. This report will discuss about the business missions, visions, objectives, goals and core competencies of Tata Steel UK and mention the factors need to be considered during strategy formulation. In addition, this report will analyse strategic position of Tata Steel UK and carrying out an organisational audit. Moreover, the roles and responsibilities of personnel who are in charge of strategy implementation and evaluation of SMART targets of Tata Steel UK will describe in this report.
Task 1: Understanding the process of strategic planning and approaches to strategy evaluation
Date: 6/6/2016
To: Board of directors
Subject: Outlining the process of strategic planning and approaches to strategy evaluation
Tata Steel UK is suffering from loss of profit; hence, the company requires evaluating its current strategic planning and strategic approaches. Based on the evaluation, the company requires formulating change strategic planning and strategic approaches that align the business missions, visions, objectives, goals and core competencies.
1.1. Tata Steel UK’s business missions, visions, objective, goals and core competencies
Vision: It describes the purpose of business and picture of the future direction of the business (Ristau, 2010). Every business organisation is working for achieving specific vision. A clear and shared vision is essential for a business organisation to operate the business successfully. The vision of Tata Steel is to be the global steel industry benchmark for value creation and corporate citizenship.
Mission: It refers the specific activities of business organisation for specific purpose. Mission is consistent with the vision. The mission of Tata Steel is striving for increasing the powerful industrial base through the effective utillsation of workers and materials.
Objective: It is certain attainment that can be gained through a certain number of steps. Objective is more concrete and structured. Tata Steel’s objective is continuous improvement in product portfolio and operational excellence.
Goal: It refers long-term aims that a business organisation wants to achieve (Norman, 2016). Goal is less structured than objective. Creating long-term value is the goal of Tata Steel.
Core competencies: It refers the special abilities that a business company achieves over its rival organisation and cannot imitate easily (Richard, 2012). The core competencies of Tata Steel are unique brand and environment friendly operation plants which is very rare in steel manufacturing industry.
Clearly stating vision, mission, objective, are an important task of business founders because these clarify the aim of the business organisation. It gives direction to the managers and workers in formulating organisational strategies and paths achieving the targets.
1.2. Factors required to be considered during formulating strategic plans
Strategic planning describes an organisation’s process of clarifying its strategy, direction and taking decisions of arraigning and allocating necessary resources to pursue its strategy (Steiner, 2010). Strategic planning gives long term direction of the organisation. Formulating strategic planning is very challenging for manager because it requires considering several issues, some are mentioned below:
Internal factors: Various internal factors such as innovation capability, human resource, financial capacity, organisational structure, core competencies, supply of raw materials etc. are affecting in formulating strategic planning. For example; Tata Steel UK requires considering the supply of raw materials in their strategic planning because UK has shortage of raw materials and the company collect raw materials from other countries.
External factors: Various external factors such as environmental issue, political issue, legal issue, economic issue, social issue etc. are affecting in developing strategic planning. For example; UK government has environmental policy and Tata Steel UK should take it into consideration during strategic planning.
Business level factors: There are many rivals are existing in the market. All of them are always trying to capture the market with their product, marketing and sales strategy etc. Rival organisations’ strategy also affect in business strategic planning. For example, Tata Steel UK should consider its rivals strategy during establish its strategic planning.
1.3. Evaluating the techniques used in developing strategic business plan
Various techniques are used in developing strategic business planning. The success depends on selecting the appropriate technique among various. BCG matrix, SPACE, PIMS, or stakeholder mapping are several techniques in strategic business plan.
BCG matrix: This is one of the most popular techniques in strategic business planning. Boston Consultant Group developed this technique. This BCG matrix helps managers develop a better understanding of how different strategic business units contribute overall organisation (Griffin, 2011).
BCG matrix results four catergories in product portfolio of a business organisation.
Stars indicates high market share in high growth market.
Cash cows indicates high market share in low growth market.
Dogs indicates low market share in low market growth market.
Question marks indicate low market share in high growth market.
BCG matrix is useful for those business organisations which have several product portfolios. Organisation evaluates their business units and determines their position in BCG matrix. The faster the products market growth or the bigger the market share of business unit holds, the better it is for the business organisation.
SPACE technique: The Strategic Position and Action Evaluation matrix is another technique for assessing the wisdom and sense in a specific strategic business plan. SPACE technique consists of four dimensions; two external factors and two internal factors (Nag, 2015).
External factors: It evaluates industry attractiveness and environment stability.
Internal factors: It evaluates competitive advantage and financial strength.
After discussing the above strategic planning techniques, SPACE analysis is appropriate for the Tata Steel UK because Tata Steel UK has single product portfolio and SPACE technique analyse and examine both external and internal factors of an organisation. So, this strategic planning technique is appropriate for the company.
Task 2: Be able to formulate new strategy and understand approaches to strategy evaluation
To
Board of directors
Tata Steel UK
Subject: Proposal of a new strategic business plan.
Dear Sir,
According to yours advice, here I am going to present a new strategic business plan for the Tata Steel UK.
2.1. + 2.2. Analysing the strategic positioning of Tata Steel UK and carrying out an organisational audit of the company
For developing strategic plan for a company, it is necessary to analyse the internal and external position of the company. SWOT and PESTEL are two most appropriate business position analysis techniques (Nishadha, 2012).
Internal position analysis: SWOT analysis is the appropriate technique for internal strategic position analysis.
Strengths of the Tata Steel UK
ü The company holds strong brand loyalty.
ü The company has the competitive advantage of manufacturing product in environment friendly plants.
ü The company can produce different product for different market.
ü The company has good control on supply chain management.
Weaknesses of Tata Steel UK
ü As a renowned business giant, the company does not achieve operational excellence.
ü Increasing debt-to-equity ratio is a big weakness of the company.
Opportunities of Tata Steel UK
ü The global economic growth is slightly raising that increases the opportunity to reach economies of scale.
ü The company has adopted newer technologies like Hismelt process, Corex process which is helping to produce quality product at low cost.
ü Acquisition of coal block in Africa and Asia.
Threats of Tata Steel UK
ü More competition from rival organisation like Excalibur Steel, Liberty House etc.
ü Increase pressure from difficult global market and unfair trade of steel imports into UK.
ü Maintain Co2 emission limits determined in Paris climate change conference 2015.
External position analysis: PESTEL analysis technique is the appropriate for external analysis.
Political factor
UK government is going to arrange a national vote for determining whether UK stays in EU or not. If UK gets out from EU, the company will face big problem to export their product in EU countries.
Economic factor
The EU economy growth becomes sluggish. In addition, UK government was decided to declare surplus budget by 2018 which will increase the corporate tax; hence, Tata Steel UK will suffer from loss of profit.
Socio-cultural factor
It includes attitudes, societal values, lifestyle and cultural factors that impact on business strategy (Thompson et al, 2014). Tata Steel UK is manufacturing and selling various types of steel. So, social-cultural factor has little impact on its business operations.
Technological factor
UK is technologically advance country and the people of UK are embracing new technologies. Tata Steel UK ahs installed new technologies which is giving the company to produce more quality steel than other company.
Environmental factor
Environment issue is currently a big concern for all countries across the world. In Paris climate change conference 2015, all countries in the world were agreed to reduce carbon emission and UK also signed in that treaty. Luckily, Tata Steel UK is always careful about environment safety because people of UK are more concern in this regard.
Legal factor
UK business competition act, labour act, health and safety act, equality act etc. are essentially followed by every company that wants to do business in UK. Recently UK government declared minimum wage rates and Tata Steel UK must follow all the legal factors of the UK government.
Political, economic, environment and legal factors have more impact Tata Steel UK’s business strategic plan and the company can give less attention on socio-cultural and technological factors.
2.3. Significance of stakeholder analysis while formulating new strategy
Stakeholder: A stakeholder refers any individual, group or party with an interest in a business (BBC, 2014). A business consists of various external and internal stakeholders with various priorities and interests. Owner, workers, managers, customers, lenders, suppliers, investors, government regulatory bodies etc. are some example of stakeholders.
Stakeholder analysis: It is a technique which is used to identify people, or group who have to be own over (Thompson, 2002). In this process, the interest and power of stakeholders are analysed. High interest and high power stakeholders are considered as key players. On the other hand, low interest and power stakeholders are considered as least interest.
This stakeholder’s analysis is conducted through four steps;
Step 1: Defining the stakeholder
Step 2: Prioritise stakeholders
Step 3: Understanding the key stakeholders
Step 4: Stakeholder engagement.
Importance of stakeholder analysis
Stakeholder analysis plays an important role in business strategy formulation. Different stakeholder has different interest and power. So that managing all this issues in business strategic planning is necessary. It is important for several reasons;
ü Stakeholder analysis determines the high powerful and low powerful people or group for the business.
ü The interest of different stakeholder can be understood..
ü It is essential developing marketing plan.
ü It is a tool to influence other stakeholders.
ü Company can determine the priorities among various stakeholders.
In formulating new business strategy, stakeholder analysis of Tata Steel UK is playing a key role because creating a balance between internal and external stakeholders in strategy formulation ensure sustainable operations and growth of the company.
2.4. New strategy for Tata Steel UK
Industry analysis: Tata Steel Europe is passing very challenging times in the industry. Tata Steel UK is facing loss of it profit in its UK operations. The company has 4,000 workers in its UK plant which is one of the biggest plants in UK steel industry. But, last six years unprecedented market conditions are facing by Tata Steel Europe. The company was made a loss of £68m in third quarter December 2015 (Grandhi, 2016). As a result the company announced 1050 job cuts and searching buyer to sell the business. Cheap imports of steel from China, Russia and South Korea had brought an intense pressure on the profit margin of the company. These countries are export their steel in UK below the cost of production; hence; the domestic companies of UK are suffering from fierce challenge.
Proposal for new strategic business plan for Tata Steel UK
Based on SPACE analysis, Tata Steel UK has good competitive advantage but recent losses of profit make them into fanatical back foot. But, the company has the ability to manage this financial crisis. UK steel market is always attractive industry to all companies because the country needs millions of tons of steel every year for massive construction purpose. Environment factor has little impact on the company because the operational plant has got the permission while it passed in environmental operations.
Political and economic factors are largely impact on the UK steel industry. China, Russia and South Korea are exporting their steel into UK below cost of production to grab the market. This unfair trade practice can be handled by only UK government. To overcome from recent crisis of Tata Steel UK, the government of UK is willing to take 25% stake. In addition, two potential buyers also have shown their willingness to buy the business.
The best business strategy for Tata Steel UK is creating strategic alliance with UK’s other companies to challenge the unfair imports of steel from outside.
3.2. Justifying the selection of this strategy
UK holds free market economy where any company can enter or exit anytime and government has little interference on the business strategies of the companies. Russia, South Korea and especially China export steel into UK, which is very low because the country gets some advantages from its cheap labour and available raw materials. As a result the cost of production is low and the country can sell their product at low price in UK. This strategic alliance reduces the cost of production of the Tata’s steel as close as the imported steel; hence, domestic customers will purchase Tata’s steel because of high quality and brand value.
3.1. Analysing the appropriateness of alternative strategies relating to market entry
There are various market entry strategies those are discussed below:
Organic growth: It refers strengthen the business using its own resources and energy. The main benefit of this strategy is low dependency to other like suppliers, independent agents etc. The main disadvantage is slow growth of the business (Mack, 2016).
Growth by merger: It refers when two companies are accompanied and create a new company with a new name.
Acquisition: It refers purchasing or obtaining an existing business by other business organisation.
Strategic alliance: It is an mutual agreement between two or more companies to accomplish a set of agreed upon objectives but remaining as an independent organisation.
Substantive growth strategies: There are two types of substantive growth strategies; related and unrelated diversification.
“Related businesses possess competitively valuable cross business value chain and resource matchups (Thompson et al, 2014, p. 229)”. For example, A company ios doing business of hardware computer accessories. Doing business of software production is related business for that business organisation.
“Unrelated businesses have dissimilar value chains and resource requirements with no competitively important cross business relationships at the value chain level (Thompson et al, 2014, p. 229)”. For example, Tata is a conglomerate company of unrelated businesses.
Limited growth strategies: There are two types of limited growth strategies such as market penetration and market development.
Market penetration strategy refers entering the market at relatively low price. For example, Chinese companies are using market penetration strategy in UK steel industry.
Market development strategy refers searching new market for current products. For example, Tata can develop their steel market in Africa, Latin America and Asia.
Turnaround is a process of revival for getting out the problem of industrial sickness. It is a process of restructuring the business and regenerating loss making Company into profitable.
Divestment strategy means reduction some sorts of asset for financial, political objectives or purchases the existing business by another company.
Liquidation strategy refers selling some parts of a company or entirely for the value of its assets. For example, Corus group plc has liquidated to Tata Steel Europe Ltd.
Tata Steel UK can take market development strategy in Asia, Africa and Latin America or turnaround strategy from overcoming their loss of profit situation.
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