The strategic management principles
Industry analysis is a tool that facilitates a company’s understanding of its position relative to other companies that produce similar products or services. The strength of challenge in the middle of firms varies across Industry and strategic analysts are interested in those dissimilarities. Michael Porter provided a framework that models an Industry as being influenced by five forces. “The collective strength of these forces determines the ultimate profit potential in the industry, where profit potential is measured in terms of long term return on invested capital,” said Porter.
Competition The Chinese Steel industry is deemed to have a tough competitive environment. ZISCo took a strategic direction by creating a differentiation strategy that created barriers to imitation and targeted niche markets. Changes in the Organisational structure and culture differentiated ZISCo from other State Owned enterprises management style. ZISCo also created a one stop service to beat competition in the supplying of all containers manufacturing material from one place.
The Value creation strategy gave a firmer competitive advantage to ZISCo. Created value for customers through marketing and new product development and creating value for the company through cost reduction across the firm. This created value for the employees whom performance would be measured against value
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Threat of Substitutes Threat of Substitutes in the steel Industry in China is very limited. The Substitutes are the products that can be used in place of steel as they will be offering a better value for the money in relation to the actual product in most cases. The substitution only possibly comes from the change in leadership with the steel industry making available a huge number of competitive and educated employees across all functions. ZISCo is not threatened by any steel substitutes from any other industry.
Power of Suppliers “The suppliers make available the raw materials for industry manufacturers in the supply chain.” ()Suppliers gain power when an industry relies on just a few suppliers, when there are no substitutes available for the suppliers’ product, when there are switching costs associated with changing suppliers. Suppliers however in relation to Republic of China steel Industry do not have any bargaining power since ZISCo is able to stabilise supply sources through consolidating the supplier base.
The supplier base for ZISCo was fragmented meaning scattered all over from different sources and hence a Material Supply Company was setup to deal with the numerous procurement processing. ZISCo actually changed their supply structure to procuring 80 % of their supplies from the top 20% among the fragmented suppliers. CSP producers however had power to determine what ZISCo could produce with their steel slabs that could not be used for thin steel sheet production and ZISCo could not control this or change supplier.
Buyer Power This is when the bargaining power in the supply chain rests in the power of the Buyers. When buyers are too large for the suppliers and when they are substitutes for the produced commodities the buyers are able to determine services, price and quality of the products that they purchase. In the Republic of China steel Industry buyers are having a great extent of bargaining power. In September 2003 ZISCo was forced to look into the quality of their products, after sales service and lead times, delivery times by a major Chinese container manufacturer. The Buyer Power of the container manufacturers is huge and significant and controls the products ZISCo would produce. Due to the high bargaining power of manufacturers ZISCo was inclined o become a one stop shop for the major container manufacturing customers. This was a market oriented strategy driven by the market needs.
Threat of New Entrants New entrants to an industry can raise the level of competition, thereby reducing its attractiveness. The threat of new entrants largely depends on the barriers to entry. Key barriers to entry include economies of scale, capital/investment requirements, customer switching costs, possible retaliation from switching customers. The steel Industry is a large Capital demanding industry that does not only require large financial resources to enter. There is also the need to have done enough research on the industry and gather enough manual and intellectual skill across a wide variety of functions.
There is a need for application of documents and operational certificates from governments and Industry regulatory bodies and in a market like China, one need to have the market knowledge and perception of the people. It was not easy for ZISCo at entrance level with the firm hardly breaking even until there was a change in strategy after an experienced manager came to the helm of the firm.
Critical Appraisal of Strategy The steps and pattern of implementing value creation at ZISCo are identified by starting at a key function – production, then expanding to other functions. Hard issues (functional value creation activities) as well as soft issues (organisational culture and HR policies) are tackled in the implementation process. ZISCo implemented a “value creation strategy” and undertook a number of important functional reforms with active participation from its employees. Consequently, its financial performance improved substantially during 2004-2006. Nevertheless, ZISCo still encountered various challenges in 2007, particularly in the areas of cultural change, knowledge management, and development of organisational competence and learning capability.
The essay has managed to reflect the environment in which the steel Giant operates starting from the immediate environment which is the Republic of China going up to the global environment. The script then described the Industry in which the steel company operates and theories were used accordingly and then analysis was made on the organisation’s strategy since there was a new Director and also analysis of strategy and appraisal was finally done.
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