INTRODUCTION “Strategy can be thought of as a long term plan of action or execution designed to achieve particular objectives, such as achieving competitive advantage for an organisation. It reflects the values, expectations and goals of those who are in power within the organisation. ” (RDI course material-Strategic Management module; Unit 1-Nature and scope of strategic management; Lesson 1-Nature) Strategic decisions direct the company towards the path of growth.
A company formulated and undertook decisions in such a way that a strategic direction was made to ensure all possible opportunities for success and keeping control of challenges alongside. Every strategic decision that is made will have an implication for change all the way through the whole organisation. TASK 1 ECCO, the Danish pioneer in the footwear industry, as the founder, Karl Toosbuy, declares has always aimed ‘to be the world’s best shoes-shoes with internal values’.
Though the inception of the company has been in Denmark in 1963, today ECCO has been successful in creating an international profile. With reference to the case study, ECCO is one among the renowned companies of the world, operating in the footwear industry, with an in-house production of 80%. From the given case study it is learnt that there seemed to be a strategic drift, for ECCO, for a period of five years from 1999 to 2003 . They were not going the way they had to going. There was stagnation in the productivity and the opening margins were lower than expected.
Strategic initiatives to overcome the negative trend, paved way for an emergent strategy to come in, in order to save the company from transforming into an initial public offering (IPO). In 2004, the United States, Germany and Japan had been the main markets, where ECCO exported about 90% of their production. Ever since then, like most other large organisations, the company has been seeking market opportunities and working persistently to create new market, especially in Asia, Central and Eastern Europe where they could target countries that were probably still to be explored.
The Ansoff Matrix The Ansoff Matrix also known as the Product /Market Expansion Grid is a useful devise that would assist in the development of a strategically planned process for market growth and expansion. The grid has been given two dimensions as the name suggests; Product and Market. Igor Ansoff pointed out that there are essentially only four strategies which lead to growth. • Increasing sales of existing products in existing markets. • Introducing the existing product into the new markets. Exporting is the usual example of this strategic option Introducing a new product to the existing market. This could be a substitute product providing it would be used in large quantities • The fourth strategy identified by Ansoff is the introduction of a new product into new markets. This is generally considered to be a high risk strategy although where the new product uses existing technology ,the risk may not be that significant (Source: http://www. 12manage. com/methods_productmarketgrid. html) [pic]Figure 1. 1- Ansoff strategies matrix (Source: rdi course material-Marketing Management Module; Unit 2-Marketing Environment; Lesson-Marketing Audit)
ECCO has a clear and well defined vision, “to be the most wanted brand within innovation and comfort footwear- a position that can only be attained by constantly and courageously researching new paths, investing in employees, in core competences of product development and production technology. ”(source: given case study) Considering ECCO to as having pursued the strategies of the Ansoff Matrix, a description fitting the criteria is given in each quadrant of the matrix. Taking each quadrant in turn: Marketing Penetration ? The simple slogan of ECCO ‘a perfect fit – a simple idea’. Shoe that would ensure a pleasant walking experience regardless of the weather conditions. ? Designed with the highest priority as ‘usability’ Product Development ? Footwear for work ,leisure, and festive occasions ? Casual and outdoor shoes ? Shoes for children ,ladies and men ? Semi –Sport shoes for season-Spring /summer and autumn/winter ? Sport shoes exclusively designed for activities outdoor, walking, running and Golf shoes Market development ? 90 % of the production was exported to United States, Germany and Japan A majority of sales in North America through Departmental stores like Nordstrom’s and Dillard’s. ? New markets in Asia ,Central and Eastern Europe Diversification ? ECCO’s expansion into China and joining hands with AIBU to form a formal sales subsidiary ? Acquisition of largest tannery in Netherlands, followed by tannery and leather research centre in 2002. PEST Analysis The PEST analysis is useful in auditing the external environment that influences the operations and development of the organisation. The figure below illustrates what acronym PEST stands for: [pic] | Figure 1. 2: The PEST framework for environmental auditing (Source: rdi course material Strategic Management module; Unit –Strategic decision making ;Lesson-Analysing the business environment) In addition to the Political, Economic, Socio-Cultural and Technological, there has been identified two more factors that contribute in comprising the external competitive environment namely, Environmental Change and Legal Change which make it the PESTEL framework.
Porter’s Five forces The five forces framework is an effective technique for analysing industries and competitors. Michael Porter, renowned Professor of the Harvard Business School , identified the following five forces as mentioned below: • Threat from potential new entrants. • Threat from substitutes using different technology. • Bargaining power of customers. • Bargaining power of suppliers. • Competition among existing suppliers
The illustration below helps in explaining how the five forces act and influence the environment |[pic] | Figure1. 3:Porter’s Five Forces Model (Source: rdi course material; Marketing management module; Unit 2-Market Environment; Lesson- Tools and Techniques) ECCO gained advantage by being able to maintain the market share. The strategic option of market penetration gave them better returns with lower risks by exploiting their current strategies.
The shoe manufacturer had in the first place give ‘attention to customer comfort’ and superior quality standards in development of its products. When ECCO realised that the current market had reached the height of saturation they tried to seek out new opportunities, new markets, and new segments. ECCO effectively managed their strategies by constant effort in making strategic decisions and taking strategic initiatives timely. ECCO managed their international businesses directly as they continued to grow and develop. Technological superiority was preserved as the core of their roduct strategy “direct injection’’ was made difficult and almost impossible for their competitors to even imitate. Their technology and their ability to produce high shoes was their strength as claimed by Kasprzak, who succeeded as CEO of the company after Karls Toosbuy. Consistently adhering to the strategic plans of the company and completely aware of competitors, ECCO took the plunge into exploring the external environment with market opportunities that gradually proved and established to be a competitive advantage. TASK 2 Value Chain Analysis
Developed by Michael Porter, the value chain analysis is used as a means to gain and sustain competitive advantage. Different activities operating in the organisation are categorised into s All those activities that bring about a direct impact on the company’s product come under Primary activities while all other activities related to the smooth functioning of the whole organisation in totality are categorised under secondary activities. The following diagram shows the primary activities and secondary activities identified by Porter. [pic] | Figure 2. 1 :Activities within the chain value (Source: rdi course material Strategic Management module; Unit –Strategic decision making ;Lesson-Strategic choice) ECCO focused on maintaining the entire value chain, as they like to put it from ‘Cow to shoes’. All activities from the procurement or raw materials required for the production of shoes to transportation for sales of shoes was looked into strategically by the company.
With reference to the case study several tanneries were owned by the company in Netherlands, Thailand and Indonesia from where leather was supplied to all factories of ECCO over the world. About 3,500 rawhides were manufactured in the Dutch Tannery alone. A research and development wing was also set up for improving tannery method, providing training in these activities to workers working in ECCO tanneries all over the world. As Toosbuy comment explains clearly that ECCO focussed on high quality and lead times there was no other option in than being self –sufficient.
ECCO’s Global value chain facilitated the company to be cost- efficient by improving and optimising processes as desired within the system. The main goal of the company was to increase revenue. ECCO’s strategy was rather unique when compared the other competent companies in the footwear industry. It was ECCO alone that produced about 80% of their product in-house . Others had focused on market-orientation more and outsourced their production to a great deal. “ECCO’s production process can be divided into five strategic phases • Full scale • Benchmarking Ramp-up • Prototype • Laboratory Production”. ECCO also considered it distribution system as very important element of the business. After facing negative trends in the beginning of the twenty-first century, the company launched strategic initiatives to make their logistics more efficient. Out of the two main distribution centres of the company one was located in the United States, where to about 90% of the products were exported, the other was in Tonder, Denmark, the home country with four warehouses with the capacity of holding two million pair of shoes.
Transportation of shoes outside the continent was shipped by the sea. ECCO expanded globally by setting up production units on a full – scale in different parts of the world mainly Thailand, Portugal, Indonesia, Slovakia and China. Large volumes of production were processed in these units. The company had also established group distribution centres and sales agents who worked in strategic alliance with the company. The company gained from the global value chain as labour was cheaper saving cost and other activities could be easily sustained to being made cost –efficient.
From the case study, the forces that drove ECCO to go for globalisation was “to establish market presence, reduction of labouring cost and increasing flexibility”. However there was one more objective that the spreading of risks. Thus, the efficient managing and handling of all activities globally undoubtedly was a proven competitive advantage that EECO enjoyed over others in the footwear industry. The exploitation of efficacies in the global value chain could ensure optimisation and enhance effectives in their activities and lead ECCO to higher heights.
By integrating a global value chain ECCO made most use of the opportunity to enjoy a superior value in the footwear industry. TASK 3 Culture as defined broadly by, Schein(1985) ‘… the deeper level of basic assumptions and beliefs that are shared by members of an organisation that operate unconsciously and that define in a basic ‘taken for granted’ fashion an organisation’s view of itself and its environment. ‘(source: rdi course material) Edgar Schein in his, Organisational Culture and leadership ,identified three levels of culture • Artifacts • Espoused Values • Basic Assumptions and Values. (Source:http://www. 12manage. om/methods_schein_three_levels_culture. html) Cultural fit The dominance and coherence of culture is an essential quality in an organisation. It is, quite simply, at the heart of all strategy creation and implementation. Culture is a key factor in the strategy formulation process, and should not be underestimated. Culture defines the way that people are chosen, developed, nurtured, interrelated and rewarded. The kinds of people attracted to an organisation and the way they can effectively deal with problems and each other are largely a function of the culture a place builds – and the practical systems that support it.
In some organisations, the culture may become so strong that it is best referred to as an ideology that dominates all else. (Source: rdi course material) As the operations of the Danish shoe manufacturer went global there came a requirement of workforce with an “international mindsets and adaptability skills. ” Deliberate strategies that were intentionally devised by Toosbuy, the founder of ECCO were good enough to provide direction and reinforce commitment. Deliberate strategy would encompass action that is followed on the basis of systematic planning.
The intentional actions aimed to contribute to the achievement of strategic vision of the company. Internal Recruitment was one such strategy that Toosbuy announced in 1991. Training and development activities were aggressive in ECCO. The leaders were usually chosen from within the members who had experience within the company and knew well the vision, aim and strategic objectives and processes and expectations of the company. The company did not hesitate to invest in its people. To know the company inside out and to adapt the ECCO culture was an essential requisite for the success of the company.
There had been a blend of reasonable judgement that aligned considering a cultural fit. If ECCO had plainly considered a cost strategy they would have been unable to manage cultural issues globally. By being a global player ECCO won an international culture that created a synergistic benefit to its ventures. TASK4 Innovation in Production Technology of ECCO as Competitive Advantage ECCO has been always been serious about technology since its beginning. They key asset of the shoe manufacturer has been its innovative production technology that could neither be copied nor imitated by other manufactures.
The core product strategy of ECCO, as mentioned in the case study, was “direct injection” technology. It is the process of attaching the shoe uppers to the sole under very high pressure by utilisation of high capital-intensive machinery. Contrarily the sewing of shoe uppers and giving the final finish were tasks that had to be performed manually. It was these various small tasks that made it difficult for other shoe manufacturers difficult to imitate. Competitors, also, failed in their incessant attempt to licence the production techniques of ECCO. Eighty percent of the Shoes produced were manufactured using the direct injection technology.
They were all produced in-house. Only very thin sole shoes were outsourced as they would not be benefits by this technology. High-Tech Shoes were thus produced by the company itself with no compromise or doubt over quality. Quality was essentially assured. The lead time was lesser and this was an advantage as well. About thirty minutes of manual labour was invested on every shoe manufactured by the company The incorporation of manual labour in the manufacture of shoes using advanced technology and high capital intensive machineries innovated the production technology that served ECCO as a competitive advantage.
The strategic implementation of technology by maximum exploitation of all available resources and capabilities constructed a core competence for ECCO. The innovative measures in the production technology of the company enabled them to achieve the proposed level of sales, profit and market share as proposed by their strategic objectives of the business. REFERENCES Rdi course material Ansoff, H I (1987) Implanting Strategic Management, Prentice Hall
Schein, E H (2004) Organisational Culture and Leadership, Pfeiffer Wiley Johnson. G,Scholes. K. and Whittington. R. (2005). Exploring Corporate Strategy. 7th Edition. Harlow: Financial Times Prentice Hall http://www. mindtools. com/pages/article/newTMC_90. htm http://www. 12manage. com/methods_productmarketgrid. html http://www. franteractive. net/Porter-Five-Forces. html http://www. 12manage. com/methods_schein_three_levels_culture. html