Vsm Group: Examination of Strategic Position and Development of a Competitive Strategy

1. INTRODUCTION Johnson, Scholes and Whittington (2005, p. 9) define out chore as the education and scope of an organisation over the long term, which light upons advantage in a changing milieu by dint of its configuration of resources and competencies with the aim of fulfilling s obligateholder expectations. Strategy is wherefore the long term didactics of an organisation. Strategic Management bunghole be delimit as the art and science of embodimentulating, implementing, and evaluating cross-functional decisions t palpebra enable an organisation to achieve its objectives (David 1999, p. ). Strategic counselling therefore foc practices on the activities of the organisation that contribute to the exploit of organisational success. These activities include management, selling, financial management, operations management, research and training, and schooling systems. The strategicalal order of the VSM testament be breakd by applying the analytical models of strateg ic management to the accredited spatial relation in the federation.The fol piteousing models leave be drilld to analyse roughly(prenominal) the inside and external environment of the political party, namely, PESTEL, Five Forces vex, and the SWOT compendium The examination of the strategic do of VSM forget view analysing the dodging of the connection with emphasis on the environment it operates in, its strategic capabilities, and how expectations affect organisational purposes and strategies. The analytic thinking forget conclude with a glide by statement of the Key Issues and Critical victory factors. The strategic built in bed of VSM will therefore be roled as a base to develop an grant competitive strategy for the high society.The development of the strategy will also take into account the organisational heathen issues prevalent in the alliance. 2. COMPANY OVERVIEW The VSM (Viking Sewing Machines) meeting AB engages in the development, crossroadion, grocery storeplaceing, and barter of household fix machines and related to accessories, and bundle (BusinessWeek, 2008. VSM classify AB clubby Company In socio-economic classation, internet). The VSM meeting on-line(prenominal)ly has twain nocks, namely, Husqvarna Viking and Pfaff. The society produces several lines of stitchery machines, the top being the precedent series and the lowest being the mechanical (non-computerised) Huskystars (Wikipedia 2007 internet).The ships company has manufacturing facilities in Sweden and the Czech Republic and produces top-of-the-line household sewing machines with related accessories and softw argon. individually brand has its own unique and separate product line. consort to BusinessWeek (VSM Group AB cloistered Company Information, internet) the company was founded in 1689 and is headquartered in Huskvarna, Sweden. It has offices in many countries including Austria, Australia, Belgium, Canada, Denmark, France, Finland, Germa ny, Great Britain, Italy, Japan, Norway, Russia, Switzerland, the Czech Republic, Holland, and the United States of America.As of February 2006 the company was acquired by Singer Sewing Company (BusinessWeek, 2008. VSM Group AB Private Company Information, internet). 3. STRATEGIC POSITION OF THE VSM GROUP The strategic bearing is interested with the impact on strategy of the external environment, an organisations strategic capacity (resources and competences) and the expectations and influence of stakeholders (Johnson et al 2005, p. 17).The strategic position of VSM Group will be examined by utilising the next factors, namely, the influence/impact of macro-environmental issues to the strategy, ensureing the companys strategic electrical capacity and how this strengthens the companys competitive advantage, and third how expectations shape organisational purposes and strategies. The impact of the macro-environment will be analysed employ the PESTEL framework, Porters Five Forces Model, SWOT analysis and the competitive nature of VSM Groups home base of Sweden.PESTEL identifies six main types of environmental influences, namely, political, economic, social, technical, environmental and legal. Each influence will be discussed hereunder. 3. 1. PESTEL Political variables Political stability in Sweden and the United States. The prevalence of foreign trade regulations in the USA. Economic variables gloaming in necessitate for sewing machines in past twain decades. decline in patience profitability. Low gross revenue in respect of Pfaff indoors three years of acquisition. risque production costs in the German Pfaff plant. Investment by Juki and early(a)wise industry players into the US mart.Socio-cultural factors Not using a consultant for the strategic planning weekend meeting do the strategy process unstructured and was a shift from the companys way of doing things. Encouraging participation in the strategy process by middle management by wi th(predicate) a series of seminars. The adoption of the strategy document changed workers attitudes. The strategy document served as a guide on operational matters. The direction statement was frequently promoted in the companys public relations. Focus shift from technical features to customer satisfaction. Technological variables prolonged support for business development to encourage retailers to carry the Husqvarna Viking product line exclusively. Cooperation with Jo-Ann Fabrics & Crafts, a plumping retailer of theoretical accounts with over a thousand stores throughout the USA, setting up small sewing machine outlets inside their fabric stores. This lead to the asylum of after-market go much(prenominal)(prenominal) as training in sewing techniques, packet for embroidery construction and ready- do embroidery patterns, unmistakable parts and addition sewing equipment. These after-market services be run by retailers.Customers were willing to cede as much as five to six thousand dollars on a three day course with a sewing expert. A virgin method of accounting system was installed in whitethorn 1999. The marketing and the technical development department also moved into the resembling office building in January 2000. This ensures that the dickens departments operate in synchronise from conception of product ideas to production and ultimately, the marketing of the product. Introduction of the reason I model of sewing machine in 1999. The model made use of software to control the machine and contained no less than eight motors to put up for all functions.Customers could download upgrades from the internet site, save it onto the floppy disk that comes with the Designer I package and slide it into the built-in disk drive. This method of upgrading achievement was in the raw for sewing machines. The acquisition of Embroidery Networks Ltd (Emnet) in March 1999. Emnet produced software for PC-controlled professional sewing. With the advent of the internet people could exchange embroidery patterns through the internet or download them at the VSM website. VSM also expanded the rate of software engineers from 3 to 17. Environmental variables Manufacture of environmentally friendly sewing machines. Manufacture of machines which do not consume much electricity. Legal variables flavor machines which are safe to use. Flexible labour legislation in Sweden and the USA. The mission statement pronouncement on the provision of growth opportunities for employees. 3. 2. Five Forces Model Porter identifies five basic forces that stand act on the organisation, namely, (1) the bargain power of suppliers, (2) the bargaining power of buyers, (3) the brat of potential new entrants, (4) the threat of substitutes, and (5) the close of competitive emulation.The objective of the analysis is to investigate how VSM Group necessitate to form its strategy in order to develop opportunities in its environment and protect itself again st competition and other threats. The bargaining power of suppliers The VSM Group restructured its operations when Pfaff in Germany and the Zetina plant in Czech Republic were taken over. separate were now obtained from local suppliers and those from the Far East. This resulted in the reduction of costs by 50 per cent on key machine comp starnts concurrent with large improvements in quality and rejection rates. In this respect the suppliers bargaining power stub be said to low.The bargaining power of buyers Buyers of VSM Group sewing machines discombobulate low bargaining power because the buyers are not concentrated in one geographical area. VSM is an international company and has a wide customer base. The products from VSM are greatly differentiated and therefore cannot be regarded as the very(prenominal) as those from other industry players. The threat of VSM Group buyers switching to other manufacturers is low. The threat of potential new entrants The ease with which new comp anies can inject the sewing and embroidery industries will increase the intensity of competitiveness among industry companies.High unit costs of production may present barriers to innovation because they mean that any new entrant has to come in on a large scale in order to achieve the low cost levels of those already present in the industry. The current high technological advancements and innovation levels in VSM Group, strong customer loyalty to VSM Group, strong brand name, large initial with child(p) requirements, government regulatory frameworks in Sweden and the USA, and brilliant products create barriers to entry for potential new entrants. The threat of substitutesThe threat present by substitute products by other manufacturers can be countered by continuous investment in technology and after-market services by the VSM Group. The extent of competitive rivalry The sewing machine and embroidery industries are to a greater extent competitive than other industries. The inten sity of rivalry in the industry has increase with the coming into the industry of major manufacturing companies from the Far East. The decline in the demand for sewing machines and outlay cutting by VSM Group also increase rivalry among industry players. The differences in company strategies, origins ( europium and Far East) and culture (European andJapanese) increases rivalry as well. As rivalry among competing firms intensifies, industry profits decline, in some(prenominal) cases to the point where an industry induces inherently unattractive (David 1999, p. 128). This statement manifests itself in the enactment of major manufacturers (Singer and Pfaff) who are going bankrupt. 3. 3. Identification of Key Issues SWOT psychoanalysis A SWOT analysis summarises the key issues from the business environment and the strategic capability of an organisation that are most likely to impact on strategy development (Johnson et al 2005).It analyses the upcountry strengths and weaknesses, and external opportunities and threats. The following is a SWOT analysis of the VSM Group AB. SWOT analysis of VSM Group AB Internal Strengths Internal Weaknesses foodstuff dominance in Europe. Dependence on few product begins. leading and management skills. High production costs. monetary and cash resources. Reliance on retailers for distribution. Manufacturing ability. Lack of industry information. Innovation processes and results. self-discipline of two brands that compete in the same market. Reputation. Product and service quality. severalise brands. One European currency Euro. External Opportunities ExternalThreats smart markets and segments. novel market entrants. Free market economies arising in Asia. increase competition. Diversification opportunities. change magnitude pressure from customers and suppliers. New takeover opportunities. Substitutes. International growth. Low market growth. Increased demand for sewing machines. Economic cycle down s pell. Competitor weakness. Technological threat. demographic and social change. Change in political or economic environment. New international barriers to trade. 3. 4The competitive nature of VSMs home country What has become known as Porters Diamond suggests that there are inherent reasons why some nations are more competitive than others, and why some industries within nations are more competitive than others (Johnson 2005, p. 71). The model will be used to examine how the home base of VSM i. e. Sweden plays an important government agency in creating competitive advantage on a global scale for VSM.The following four decisive elements are identified Availability of strengths in certain fields oddly the automation and technological fields. The technological advancements made by the VSM Group in its Swedish operation since the beginning of the millenary gives it a competitive advantage over its rivals and enable it to compete internationally. High demand in the Sweden for VSM Group sewing machines provides the base of operations upon which the characteristics of the advantage of the company are shaped and leads to global dominance of the industry by VSM. think and supporting industries in the Swedish economy, . e. , the battlefront of Bernina Fritz Gegauf AG content that the two companies benefit from each other. Bernina enjoyed a solid reputation and their product range resembled that of VSM with their top model accepting embroidery files developed for other brands including VSM. wholly these factors made Bernina an important quality benchmark for VSM. Domestic rivalry with Bernina and the study by both companies to search for competitive advantage helped to provide the two companies with bases for achieving such advantage on a global scale. 3. 5. Foundations of strategic capability jibe to Johnson et al (2005, p. 17) strategic capability can be defined as the adequacy and suitability of the resources and competences of an organisation for it to survive and prosper. The strategic capability of a company adduces to the resources that the organisation has and the way in which these resources are used. Resources and competences VSMs resources can be considered under the following four broad categories personal resources manufacturing plants in Sweden, USA and the Czech Republic. Financial resources operating cash, budgets. Human resources fairish number of employees (1,689).The intangible resources will refer to the skills and knowledge that the employees possess. Intellectual capital the brand name VSM Group AB, business systems and customer databases. scepter capabilities Threshold capabilities are those essential for the organisation to be able to compete in a given market (Johnson et al 2005). VSMs threshold resources refer to internet based developments, the acquired software company Emnet, increased number of engineers, and Pfaff. queer resources and core competences The design of the VSM sewing machines make them unique resources in hat they give the company competitive advantage and other manufacturers find it heavy to imitate or copy the designs. VSMs core competences refer to the Dealer-Partners programme, the cooperation with Jo-Ann Fabrics & Crafts, and the incidental introduction of the after-market services. All these strategies give VSM a competitive advantage. 3. 6. Organisational culture analysis Johnson et al (2005, p. 47) define culture as the basic assumptions and beliefs that are divided up by members of an organisation, that operate unconsciously and define in a basic taken-for-granted fashion an organisations view of itself and its environment.Every organisation has a culture and it includes set, beliefs, rites, language, metaphors, symbols and rituals. Culture derives from VSMs past, present, current people, technology and physical resources, aims, objectives and valuates of those who work in the organisation. These cultural products can be used by strategists at VSM to influence and direct strategy formulation, implementation, and evaluation activities. The following cultural factors specific to VSM have been identified The strategy process was changed to include, for the first time, both top and middle management.The involvement of middle managers had a positive opinion on operations in that the strategy document was referred to as a guide on operational matters and the mission statement was frequently promoted in VSMs public relations exercises. The strategy document was also regarded as an ongoing process which could be changed in response to changing situations in the company. Retailers were transformed into Dealer-Partners which included extended business support to retailers to encourage them to call for tho with the Husqvarna Viking product line. In the USA, VSM entered into a cooperation agreement with Jo-Ann Fabrics & Crafts to set up small sewing machine outlets inside their fabric stores. This lead to the introduction of after-market services such as training in sewing techniques, software for embroidery construction and ready-made embroidery patterns, spare parts and auxiliary sewing equipment. These after-market services are run by retailers. Customers were willing to pay as much as five to six thousand dollars on a three day course with a sewing expert. In support of the companys strategy the top management of the company was changed to accommodate the managers of the national sales companies as well as the marketing vice president. The operating systems also underwent major changes. A new accounting system was installed in may 1999 to assess accounting information in new ways to keep track of the various activities in the take account chain. The acquisition of Pfaff upset some employees and pleased others. The company now had two brands which were competing for the same market.Former competitors were now brought to the same stable and the company face up a challenge of how to keep them apar t on other dimensions than price and quality. The relocation of the German Karlsruhe operation to the Swedish Huskvarna plant resulted in only a handful of research and development engineers staying on. The company had to re-orientate the German engineers into the Swedish way of doing things since the engineering principles of the two countries were fundamentally different. 4. FORMULATION OF COMPETITIVE dodging Long-term objectives represent the results expected from pursuing certain strategies (David 1999, p. 76). Strategies represent the actions to be taken to accomplish long-term objectives (David 1999, p. 176). Objectives take the generalities of the mission statement and turn them into more specific commitments usually this will cover what is to be through with(p) and when the objective is to be completed (Lynch 2003, p. 440). Objectives will therefore possess the following characteristics, namely, they should be measurable, realistic, understandable to all, hierarchical, ac hievable, and should contain time frames. Clearly communicated objectives, according to David (1999, p. 77), are vital to the success of the company as they provide a basis for incorporateent decision making by company managers and help stakeholders understand their role in the company. Formulating the competitive strategy for the VSM Group will consist of aligning the internal resources and skills and the external opportunities and chances. The alignment will make use of the Threats-Opportunities-Weaknesses-Strengths (TOWS) Matrix. The TOWS matrix will be developed based on the information obtained in the SWOT analysis of the VSM Group and will identify options that overcompensate different combination of the internal factors (strengths and weaknesses) and the external factors (opportunities and threats). 4. 1. Critical Success Factors TOWS hyaloplasm Johnson et al (2005, p. 96) define critical success factors (CSFs) as the product features that are particularly valued by a gro up of customers and, therefore, where the organisation essential excel to outperform competition. Critical success factors relate to the aspects of the competitive strategy in which a company must excel.The TOWS Matrix identifies four types of strategies, namely, SO Strategies, WO Strategies, ST Strategies, and WT Strategies. SO Strategies make use of the companys internal strengths to take advantage of the external opportunities. WO Strategies take advantage of external opportunities to improve internal weaknesses. ST Strategies make use of the companys strengths to avoid or fasten the impact of external threats. WT Strategies are defensive tactics directed at reducing internal weaknesses and avoiding environmental threats (David 1999, p. 81). The VSM Group TOWS Matrix Strengths (S) Weaknesses (W) INTERNAL Market dominance in Europe. Dependence on few product ranges. FACTORS Leadership and management skills. High production costs. (IFAS) Financial and cash resources. Relianc e on retailers. EXTERNAL FACTORS Manufacturing ability. Lack of industry information. (EFAS) Innovation processes and results. Opportunities (O) SO Strategies WO Strategies New markets and segments. move investment in Europe and the USA. Explore new products and ranges. Free market economies arising in Asia. Penetrate high-end embroidery segment further. Exploit mergers and takeovers. Diversification opportunities. recant high cost operations. New takeover opportunities. Diversify into new markets in Europe and Asia. International growth. Enhance retailer network which focuses on rocking horse One European currency Euro segment. Threats (T) ST Strategies WT Strategies New market entrants. Emphasise after-market sales of accessories and Withdraw from declining markets, etc. Germany. Increased competition. software. Increase brand awareness in current markets. Increased pressure from customers and suppliers. Continued investment in Europe and the USA. Reduce relian ce on retailers. Substitutes. Build on current management capacity. Where possible, develop barriers for new Low market growth. entrants. 2. Strategic options at VSM Group AB Development directions are the strategic options available to an organisation, in wrong of products and market coverage, taking into account the strategic capability of the organisation and the expectations of stakeholders (Johnson et al 2005, p. 340). The following strategic options are proposed for the VSM Group 1. Protect and build on current positionConsolidation Consolidation is where organisations protect and strengthen their position in their current markets with current products (Johnson et al 2005, p. 342). The sewing market situation is forever changing and requires industry players to continuously innovate to improve the value of the products. The threat of new competitors or new entrants into the sewing industry means that VSM has to pay particular attention to how the companys resources and sk ills should be capable and developed to maintain its competitive advantage.Withdrawal by VSM from the German market should be regarded as consolidation. Market acuteness A market penetration strategy seeks to increase market share for present products or services in present markets through greater marketing efforts (David 1999, p. 50). VSM should therefore attain to penetrate the high-end embroidery market further by utilising aggressive marketing efforts. These efforts should be focused on animate markets in the countries mentioned in the company overview. 2. Product developmentProduct development refers to significant new product developments and not minor variations on an existing product. According to David (1999, p. 51) product development is a strategy that seeks to increase sales by improving or modifying present products or services. Continued development and innovation on the Designer series will counter new entrants into the market, will maintain the companys reputatio n as an innovator, and will protect the companys overall market share. 3. Market development Market development is where existing products are offered in new markets (Johnson et al 2005, p. 46). This may involve pursuance new market segments, new geographical areas, or new uses for its products that will bring in new customers. Expansion to bring in new customers to the company for its existing company could involve some slight repackaging and then promotion to a new market segment. It will often involve selling the same product in new international markets, especially in China and Asia. 4. Diversification related markets Diversification is defined as a strategy that takes an organisation away from both its current markets and products (Johnson et al 2005, p. 46). When an organisation diversifies, it moves out of its current markets and products into new areas. Diversification carries with it an element of risk as it involves a step into the unknown. Moving into related markets how ever minimises the risk. VSM can diversify into related markets by becoming involved in the activities of its outputs such as distribution, transport, and logistics. 3. Methods of strategy development at VSM Group AB (Action Plan) A development method is the means by which any strategic direction will be pursued (Johnson et al 2005, p. 348).For an international company, VSM can use the following means of pursuing its strategic direction acquisition and mergers, pronounce ventures and alliances, franchising, licensing, afield offices, and overseas manufacture. 1. Acquisition and mergers Acquisition is where strategies are developed by taking over ownership of another organisation (Johnson et al 2005, p. 349). According to David (1999, p. 59), an acquisition occurs when a large organisation purchases a smaller one and vice versa. Mergers occur when two organisations of similar size unite to form one enterprise.The acquisition of Pfaff by the VSM Group represented a takeover for VSM . The VSM Group had in its stable two strong brands that competed for the same market space. Acquisitions of manufacturing companies in the Far East would also assist VSM to break into new markets (market development), new technologies, and low cost raw materials. 2. Joint ventures and alliances A strategic alliance is where two or more organisations share resources and activities to pursue a strategy (Johnson et al 2005, p. 353). It is a form of weaker contractual agreement betwixt two prove companies.A joint venture is the formation of a company whose shares are owned jointly by two parent companies (Lynch 2003, p. 483). In order to diversify into related markets and to access new markets like those in the Far East it will be crucial for VSM to form joint ventures and strategic alliances with current manufacturers namely, Brother, Janome or Juki. These types of agreements lock out other competitors, utilises joint expertise and commitment, and allows potential partners to learn about each other. 3. privilegeA franchise is a form of licensing agreement in the declarer provides the licensee with a pre-formed package of activity (Lynch 2003, p. 484). The package may include offers of the VSM Group brand name to retailers, technical service expertise and advertising assistance. This can be an attractive proposition to retailers willing to take up a franchise licence as it possesses lower risk and provides exclusive territory to the franchisee. This will also enhance dealer network which focuses on the by-line segment of the market 4. Licensing According to David (2003, p. 84) licensing refers to a situation where technology or other assets are provided under licence from the home country. Payment for such services is usually in the form of royalty or some form of arrangement. 5. Overseas offices The VSM Group has sales companies and representative offices in Europe, Russia, conjugation America and Australia. The VSM Group could gain competitive advantage by expanding their operations into the Far East and Africa. These additional offices would provide a permanent presence for the VSM Group in those new markets. 6. Overseas manufactureThe VSM Group currently has two manufacturing plants in Sweden and the Czech Republic. The establishment of new manufacturing plants in overseas countries like the USA carries risks for the company. However the risks may be offset through the savings that could be derived from no longer having to export to those overseas countries. 4. finis Strategy was defined as the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competencies with the aim of fulfilling stakeholder expectations.Strategic Management was also defined as the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organisation to achieve its objectives. The strategic position of the VSM Gr oup AB was analysed by applying the analytical models of strategic management to the current situation in the company. The following models were utilised to analyse both the internal and external environment of the company, namely, PESTEL, Five Forces Model, and the SWOT analysis.The examination of the strategic position of VSM Group involved analysing the strategy of the company with emphasis on the environment it operates in, its strategic capabilities, and how expectations affect organisational purposes and strategies. The analysis of the environment concluded with a clear statement of the Key Issues (SWOT Analysis) and Critical Success factors (TOWS Matrix). The strategic position of VSM Group was used as a base in the development of an appropriate competitive strategy for the company.The development of the strategy took into account the organisational cultural issues frequent in the company. 5. BIBLIOGRAPHY 1. David, F. R. , 1999. Strategic Management. 7th ed. New Jersey Prent ice Hall. 2. http//investing. businessweek. com accessed 08 May 2008 3. http//en. wikipedia. org/wiki/VSM_Group_AB accessed 08 May 2008 4. Johnson, G. Scholes, K. & Whittington, R. , 2005. Exploring incarnate Strategy. 7th ed. Financial Times Prentice Hall. 5. Lynch, R. , 2003. Corporate Strategy. 3rd ed. Financial Times Prentice Hall.