dyanmics of strategy paper
Post on 02-Jun-2018
221 Views
Preview:
TRANSCRIPT
-
8/11/2019 Dyanmics of Strategy Paper
1/40
I. INTRODUCTION
About WITCO
The West Indian Tobacco Company (WITCO) is a member of the British American
Tobacco Group (BAT) operating within the Caribbean. WITCO is in the business of
manufacturing and distribution of Tobacco products in Trinidad and Tobago business
partners in the Caribbean. WITCO was established in 1904 by Mr. John Phillips and in 1970
became a Public Company of which 49.87% of the shares are currently publicly traded on the
Trinidad and Tobago Stock Exchange (TTSE). Collectively, the company has over 3,000
institutional and individual shareholders of which BAT is the single largest, with a total
shareholding of 50.13%.
WITCO employs over 200 persons and operates from a single location at the corner of
Eastern Main Road and Mt D'or Road, Champs Fleurs, Trinidad. The company supplies
cigarettes to markets in the region in 172 stock keeping units (SKUs) of which its brands
include Benson & Hedges, Pall Mall, Phoenix, Craven A, Matterhorn, Dunhill, Broadway, du
Maurier, Embassy, Empire, Viceroy, Morello, and Bristol.
The mission of the company is to sustain our market leadership in Trinidad and Tobago
and to be the number one manufacturing center in the Caribbean. This statement together
with their guiding principles (freedom through responsibility, strength from diversity, open
minded and an enterprising spirit) reflect their organizational culture. The organisational
structure encourages a participative style of leadership in which WITCO employs. In
accordance with Tannenbaum & Schmidt (1973) this leadership style is one where there is
little micro management by executive management. Extensively, team members are
motivated as a result of their contribution in the decision making, thus leading to employee
satisfaction.
According to Trompenaars (1993), a companys culture can also be explained by the guided
missile/ achievement culture Trompenaar,Riding the Waves of Culture(1993). Speaking to
this definition, WITCO is highly egalitarian in that everyone has a part to play in decision
making and applies a team approach. They are also highly task oriented and very focused
on delivering quality products. The tobacco companys guiding principles are exemplified its
culture and leadership style. Together with leadership style and culture, WITCOs culture
leads them to have competitive advantage in the industry and aids to sustain them as number
one in the market.
-
8/11/2019 Dyanmics of Strategy Paper
2/40
-
8/11/2019 Dyanmics of Strategy Paper
3/40
VMOST
II. EXTERNAL ENVIRONMENT
a. PEST Analysis
POLITICAL AND
LEGAL
Marketing and advertising restrictions via the TobaccoControl Act 2013.
Mandatory graphic warning messages on packaging (as at2015) affecting customer's desire to purchase henceforth,affecting industry's profit.
High import tariffs limits the competition in the localindustry.
ECONOMIC While Trinidad and Tobago experienced slow growth, itsneighbouring CARICOM countries continued to recoveryfrom 2008/09 recession as the economies remained down.
Tobacco is a commodity crop heavily driven by demand andsupply and has seen consistent increases in the last 3 years
VISSION
Worlds best at satisfying consumer moments in tobacco and
beyondANALYSIS: Consumers are at the core of all activities associated in producing theproduct. The vision captures the essence of the company.
MISSION
To sustain our market leadership in Trinidad and Tobago and to
be the number one manufacturing centre in the Caribbean.ANALYSIS: A methodical and expounding declaration which mirrors the purpose andmethods of operations.
OBJECTIVES
Growth; Sustainability; Wining Organisation; ProductivityANALYSIS: The objectives of the company meets customer needs by being brandfocused and creating shared value. This approach to business using these objectiveseffectively uses resources to increase profits, improve operating margins and invest infuture endeavoursultimately benefiting the customer
STRATEGIES
Strength from diversityANALYSIS: This strategy enables growth and ensures investment in the future throughdiversification by seeking new opportunities in tobacco and beyond. This will also in turnincrease market share.
TACTICS
Consumer lead; Globally aligned; Consciously responsibleANALYSIS: Consumers are the determinants of success and so to win, the consumermust be won. A global business approach from being aligned to BAT is evident and this isleveraged to prevail against competition using a matrix organisation. Consciouslyassuming consequences for decisions made in an industry that is controversial meansbeing transparent and responsible and it shows in the approach to sustainability,policies, principles and standards.
-
8/11/2019 Dyanmics of Strategy Paper
4/40
driving up cigarette prices. In 2012, there was a 14% increasein tobacco prices, resulting in 4.5% product increase.
Brazil is the main exporter of tobacco in the region.Zimbabwe, Turkey or the U.S. are alternatives but do nothave the same grade/quality as Brazil, making the industry
susceptible to Brazil. The industry is exposed to foreign exchange risk in the
importing of raw material and exporting its final product todistributors/buyers.
The proposed law will affect the industrys processes as more
money will be spent to print the graphic messages eatingaway at profits for the industry and remitted taxes for thestate.
38% of the industrys income goes toward government taxes
SOCIAL AND
ENIRONMENTAL
Heavy criticism of the industry as Trinidad and Tobago
culture and industry have been accused of targeting teenagersto the addictive product.
The industry believes in environmental protection byimploring waste management initiatives.
The industry contributes handsomely to charities but underlaw is unable to publicise its contribution.
Child labour is rampant in the industry in countries such asArgentina, Brazil, China, India, Indonesia, USA andZimbabwe. Brazil has made efforts to cub this.
Cigarette smoking is estimated to contribute to 20% of alldeaths by heart attacks and about 30% of all cancer deaths.
According to statistics from the Dr Elizabeth QuaminaCancer Centre, lung cancer in Trinidad and Tobago is thenumber one cancer among men aged 25 to 59 years.
TECHNOLOGICA
L
Technological advancements in the production anddistribution such as commercial hybrid seeds and best
practice guidance on agronomy, alternative fuels, irrigationand mechanisation, agrochemical use, integrated pestmanagement and curing methods.
Competition from alternative products challenges the tobaccoindustrys technological innovativeness with the advent of e-cigarettes, heat-not-burn devices, hookahs, cigars andreduced toxicant cigarettes
The industrys impeding Tobacco Control Act has brought about increased tax andmanufacturing costs concerns and questions about the ability to influence buyer behaviourfearing a negative impact on the industry. Inherently, the industrys constant accusation oftargeting teenagers from social groups and highlighting of its contribution to lifestyle diseaseshas dampened its image enormously by social, health and public awareness groups. Whilecontroversial and addictive, the industry stresses its products are for responsible adults anddespite international statistics on deaths associated with tobacco use, little empirical
information has been documented about the relationship between tobacco smoking andmortality in Trinidad and Tobago.
-
8/11/2019 Dyanmics of Strategy Paper
5/40
Nonetheless, there is little concern for competition with the protection of very high importtariffs which helps ensure the industrys sustainability. On a macroeconomic front, economicrecovery is still fragile regionally and internationally. Barbados, having not fully recoveredfrom the 2008 crisis, relapsed into recession in 2013 and Jamaica, with its highly leveraged
economy, continues to record negative growth. Luckily, the industry has benefited from itsinelastic product overall.
The recent shortage of US currency in Trinidad and Tobago has affected the manufacturingindustry. The unavailability of foreign exchange has resulted in the inability of manufacturersto meet financial obligations to foreign suppliers. If the situation continues it can adverselyimpact manufacturers credit ratings with suppliers, as well as overall competitiveness, and,ultimately, business employment levels.
INDUSTRY LIFE CYCLE
The Tobacco Industry is in the Growth Stage of the industry life cycle. There has been
consistent growth in sales and profits, and customers are knowledgeable about the industrys
Porters Five Forces of
Competitive Position
West Indian TobaccoCom an Ltd
RIVALRY:LOW-MEDIUM
GROWTH LEVEL ON THE INDUSTRY LIFE
CYCLE MARKET SHARE IS HIGH, THUS LOW
RIVALRY
LITTLE COMPETITION IN THE TOBACCO
INDUSTRY HOWEVER, THERE ARE
ALTERNATIVE USES SUCH AS OTC E-
CIGARETTE (HOOKAHS), HEMP,
WHICH HAVE BECOME VERY
POPULAR AND TRENDY
SUPPLIER POWER:MEDIUM
HIGH SWITCHING COST AS BRAZIL IS
THE KEY SUPPLIER OF TOBACCO BASED
ON LOCATION,QUALITY AND
RELATIONSHIP BUT THERE IS ACCESS TO
MANY ALTERNATIVE SUPPLIERS
THREATS OF SUBSTITUTE PRODUCT:
MEDIUM
1. E-CIGARETTES ARE BECOMING VERY
POPULAR AND BECOMING AN
ALTERNATIVE TO TOBACCO
PRODUCTS BUT NOT AS POPULAR
2. LEGISLATION TO BE EFFECTED TO
INCLUDE GRAPHICAL WARNINGS ON
PACKAGES CAN BE BOTH COSTLYAND DETER THE USE OF TOBACCO
PRODUCTS
NEW MARKET ENTRANTS:LOW
High customs duty on tobacco products (33.8according to the 2011 WTO data.
Strong international presence from one major plain the Caribbean
Brand identification Lack of differentiation can threaten the comp
with new innovative products such as cigarettesPressure from lobby groups may b
barrier to entry
-
8/11/2019 Dyanmics of Strategy Paper
6/40
product. Within the last three (3) years, the industry has experienced price increases
nevertheless, sales figures continue to grow.Its growth stage is also evidenced by its low rivalry.
KEY SUCCESS FACTORS
In determining the industrys Key Success Factors, tobacco companies take their customers,
competition and the corporation into consideration. Tobacco manufacturers ensure that all
their products are made from the best tobacco leaves in order to derive the best value for
customers in terms of taste. All brands are reviewed from time to time to assess its
performance and to enhance competitive advantage against rivals and given its controversial
nature, tobacco companies enjoy economies of scale.
CUSTOMER AND COMPETITOR ANALYSIS
As the analysis continues to explore the other layers of the external business environment, asynopsis of the tobacco industrys customer profile and competitor analysis has been
identified below.
WITCOs targeted customers are responsible adult consumers (18 years and over) in the
domestic market and the CARICOM markets it operates in.
Table: Customer segmentation by price and quality by Lynch (2009 p113)
KeySuccessFactors
Quality
Products
Brand Name
Economies
of Scale
-
8/11/2019 Dyanmics of Strategy Paper
7/40
SegmentProduct and
BrandingPricing Market growth 2012 - 2013
Premium DunhillPrices set aboveregular and economy
categories. The market growth reflects a stronperformance of the key brands, Dunhildu Maurier and Broadway, where volumin the premium category has grown, buis off-set by lower sales volume in thexport market. Domestically there was aincrease in the year 2013 by $83 millioand in the CARICOM market a decreasof $6 million.
Value formoney(Regular)
Du Maurier
Standard prices:adequate value added
but large volumemarket [NationalBrand]
Economy Broadway
Lower price, highlyprice competitive: lowvalue added but largemarket
Competitor AnalysisPhilip Morris vs WITCO
Given the companys strong market presence WITCOs major competitor is the international
brand, Marlboro by Philip Morris International (PMI).
-
8/11/2019 Dyanmics of Strategy Paper
8/40
-
8/11/2019 Dyanmics of Strategy Paper
9/40
9
Assessing the dynamics of the environment: Degree of Turbulence
The tobacco industry clearly identifies a low degree of turbulence of 2. The Tobacco Industry
has shown that their target markets are both national and regional markets, it generally adapts to
new regulations, can extrapolate their own experience into the new conditions. They can also
predict the future due to environmentally changing environment and century long existence in
the domestic market.
-
8/11/2019 Dyanmics of Strategy Paper
10/40
10
III. INTERNAL ANALYSIS
a. Resource Audit
Physical CapitalFactory strategically located in Champ Fleurs Trinidad where state of theart manufacturing facilities are located nearby other successfulmanufacturing companies (Unilever and Carib Brewery)
Financial Capital
Largest and most profitable Manufacturing Companys stock on theT&TSE with a HOLD stock recommendation
Continuous growth in Revenues and Profits and a 31% incomedistribution going to dividends.
WITCO also benefits from its global affiliation and support, financialand otherwise from its parent company BAT.
Majority of fixed assets is attributable to the companys to of the line
Plant and Equipment.
Intellectual CapitalThough the strength of its parent company BAT, it has patents. WITCOitself does not engage in Technology and Development.
Human CapitalHighly skilled professionals. There is access to quality internationalresources through international recruitment through related parties in theBAT group.
Social CapitalSupports many local initiatives in accordance with tobacco regulations.WITCO strongly stamps carbon footprint via its waste management aneco-friendly initiatives and systems in place
Customer Capital
Customer database, stock retailers according to consumer preference,
customer opinions are very important to them overall a customeroriented company
Information CapitalSAP inventory system, group intranet, geographic distribution strategy,Customer tracking database and retailer/customer relationship are allutilised
OrganizationalCapital
Matrix organizational style, participative leadership, guided missileachievement culture
Despite being a subsidiary of BAT, the company operates on little dependency on its parents
resources. However, the parent companys association contributes to the strong will of thecompanys overall resources particularly in WITCOs ability to access quality human resources
and information resources.
-
8/11/2019 Dyanmics of Strategy Paper
11/40
11
CRITICAL SUCCESS FACTORS- INTERNAL
WITCO prides itself on 4 Success Factors which have led to the companys continual growth.The companys strategy has laid the foundation for years of success and is constantly reviewed,
so that employees understand and deliver enjoyable customer moments while ensuring that thebusiness is well managed and sustainable. Significance is placed on human resources bydeveloping great people and great teams by ensuring that the company is a great place to workwhile fostering their Win-Win-Win initiatives which adds value to customers, trade customerand shareholders. Principles of WITCO are guided by the companys culture, their enterprising
spirit and strength from diversity these factors together with their dynamic product portfolio ofthe best quality allows WITCO to stand strong and maintain their leadership position in themarket.
VALUE CHAIN
A companys value chain essentially represents the internal activities in which it engages inwhen transforming inputs into outputs. Specifically to note in the below Value Chain of WITCO
is the companys outbound logistics, Marketing and Sales; and Services.
For instance, the company engages in economical packaging with master cases consisting of
fifty (50) cartons each. This increases the amount of stock transported at any given time.Likewise, distribution is geographically laid out as it occurs every week to 85% of the outlets(stores that open daily); and the other 15% of stores (night clubs, bars and crime hotspots/dangerous areas) occurs biweekly. This distribution strategy aids the company in reduce
Critical
Success
Factors
Dynamic
product
portfolio
Principles
Winningorganisation
Strategy
-
8/11/2019 Dyanmics of Strategy Paper
12/40
12
carbon emissions and save on transport expenses, which can help to increase the overall profitmargin.
While advertising is prohibited by law for the product, health warnings on packages havecontributed in gaining customers trusts as the products are targeted to responsible adults.Considerably, the company has created a portfolio of products that are specific to different
customer needs as identified by Dunhill, Du Maurier (considered the national brand), and lastlyBroadway. Expensive- Low Priced in that order.
In terms of advertisements, they have upgraded the pack of Du Maurier approximately six timessince the inception and are constantly seeking (as best as they can and within the regulationswhich are stringent).This keeps the brand interesting and relevant to new consumers as well ashelps to retain their regular consumers. Promotion of National Steel Pan by the WITCODesperadoes as well as being heavily involved in beach clean ups and panting of trees (this is aneffort to give back to the environment the CO2 that they use in operations).
-
8/11/2019 Dyanmics of Strategy Paper
13/40
HUMAN RESOURCE MANAGEMENT
Table: Human Resource Cycle, Fombrun et al. (1984)
-
8/11/2019 Dyanmics of Strategy Paper
14/40
WITCO boasts that its human resources is one of the key valued elements of the organisation.After all, it is the people who deliver the companys strategy. Having a talented workforcehas become one of the most critical factors in the industry. The companys reputation as aleading employer helps them stand out in an increasingly competitive internationalemployment market. Based on the above cycle, it is important to note that the attractions of arewarding career with a company such as WITCO values contribution and supports
professional learning and development thus benefiting both company and employee.
Its model focused on driving high performance; developing the next generation of leaders;valuing the diversity of employees; encouraging and rewarding entrepreneurial behaviour;and creating an engaging culture where individuals and teams can be successful. Providing asafe place to work, protecting employees wellbeing and listening to views are alsofundamental.
OPERATIONS
A snapshot of the companys operations takes a specific look at into the Customer services
objectives, Resource Utilization, Inventory Management and Quality Management. Theoperation of the company Customer Service Objectives. The underlying functional objectives
-
8/11/2019 Dyanmics of Strategy Paper
15/40
of customer service are to resolve service issues, improve the customer experience and
generate customer loyalty. WITCOs related objectives include quantified levels of positive
feedback, successful problem resolution and customer retention.
Speaking to the companys inventory management operations, WITCO oversees and controls
the ordering, storage and use of the materials used to manufacture its products with theutilization of its manufacturing, storage, logistics and human resources, exemplified below.
The tobacco is stored up to three months.
The company invests in total quality management using the ISO 9001 system. Optimum
quality is ensured in product quality by reducing foreign matter and routinely testing all
products for chemicals, including alkaloid levels.
Resource Utilization Objectives
Resource Type Examples
Manufacturing Machines, materials
Storage Warehouses
Logistics Trucks, Air cargo, Carriers
Human Labour, Scientific, Technical personnel
MARKETING
WITCOs strategies are restricted to brand preference and advertising, aimed only at adult
smokers, through restricted channels in compliance with the Tobacco-Control Act. Theirentire tobacco products feature an appropriate health warning on primary packaging butWITCO does not believe that packaging should be plain with health messages as the Actsuggests. The companys main distribution channels are hotels, membersclubs, nightclubs,
bars, supermarkets (mini marts), and small shop owners.
-
8/11/2019 Dyanmics of Strategy Paper
16/40
WITCO is a pure monopolistic organisation, manufacturing and distributing cigarettes
throughout the West Indies. In analysing its Value System it is proven to have high barriers
to entry, differentiated products and few suppliers.
WITCO
-
8/11/2019 Dyanmics of Strategy Paper
17/40
MCKINSEY 7S MODEL
SHARED VALUES
- Customer centric
- Innovative
- The importance of its Human
Resources
STRUCTURE
- Matrix Structure
- standardised processes andshared back office services
- Risk managemnt andinternal contros working
hand in hand with fosteringinnovation, thus reflecting
the company's strategicdirection SYSTEMS
- Use of SAP, an inventorymanagement system
- Talent Systems for Training,Development and
Recruitment
- Internal internet (intranet)to accessing and sharing with
BAT subsidiaries.
STYLE
- Fosters a culture of personalownership, valuingempoyees' talents,
innovation,consumersatisfaction and corporate
citizenry
- Democratic Leadership withlittlte micro-managing
STAFF
- Human Resource biggetresource
- Invests in careerdevelopment through
training and development
(with other BAT companies)- 'Points' tracking as a
Performance ManagementSystem
- Financial rewards - stockownership, bonuses (reward
levels vary)
Skills
- Well experiencedstaff,expecially at executive
level
- Consistent training anddevelopment as allocated in
each budget
- Strong customer relationsskills
- Outsources IT, Distributionand Waste Management
STRATEGY
- Market Penetration
-
8/11/2019 Dyanmics of Strategy Paper
18/40
WITCO has been quite a successful company over the years and the interrelation of theelements in the aforementioned model can attest to that. The company recognises its humanresources are its most valuable and has mechanisms in place to not only enhance but continueto value its resources. Based on the its three (3) main products (with different target markets),
its distribution and other key functions within the organisation which has helped deliver thebest to its customers, a Matrix structure seems most appropriate with a democratic leadershipstyle. This has lead to a culture of personal ownership and empowerment in delivery and
business innovation. WITCO has 97% market share but does not take this for granted hencethe companys market penetration strategy and aim to consistently meeting customers needs.
WITCO is a fast-moving consumer goods company, hence the need to always listen tocustomer feedback.
VRIO FRAMEWORKWITCO
Resources Valuable? Rare? Costlyto
Imitate?
Exploited byOrganization?
Competitive Implications?
TobaccoProducts
Y N N Y Competitive Parity
HumanResource
Y Y N Y Temporary Advantage
R & D Y Y Y Y Sustained Advantage
Financial
RESOURCE BASED VIEW AND COMPETITIVE ADVANTAGE
Tangible Assets Heterogeneous Immobile Competitive
Implications
All Physical Assets N N No Competitive
Advantage
Intangible Assets
Organizational
Culture
Y Y Competitive
Advantage
Experience Y Y CompetitiveAdvantage
Nationalistic Brand Y Y Competitive
Advantage
Targets whole society Y N Temporary
Advantage
Intellectual Property
of Parent Company
(BAT) vs Non
Subsidiaries of BAT
Y N Temporary
Advantage
-
8/11/2019 Dyanmics of Strategy Paper
19/40
-
8/11/2019 Dyanmics of Strategy Paper
20/40
PORTFOLIO ANALYSIS
An analysis of WITCOs portfolio shows the level of the three main brands of tobacco
manufactured and sold in Trinidad and Tobago. Dunhill, is a luxury brand that is priced
above average and sold at particular outlets such as clubs, supermarkets, bars, pharmacies and
malls. Du Maurier, the second level of cigarette is classified as value for money and is the
preferred choice of consumers and Broadway which is the lowest level that is rarely
purchased unless Du Maurier is unavailable.
DISTINCT CAPABILITIESArchitecture
Strong relationship with suplliers and retailers/customers
Workable teams via matrix structure
Innovation
limited advertising
redesign packagingCustomer tracking system
Reputation
Long standing relationship (over 100 years)
fostering customer loyalty
A nationalistic brand
Strategic Assets
WITCO has monopoly power
Barriers to entry
Strength of the parent
-
8/11/2019 Dyanmics of Strategy Paper
21/40
BCG Matrix
STARS
The brand has a significant amount of
market share and growth. It is customers
number one choice of cigarette.
PROBLEM CHILD
CASH COWS DOG
With reference to the BCG Matrix above, Du Maurier which is known as the national brand
is seen in to be, stars. WITCO does not have much of a Dog or Problem Child product based
on the make-up of the business portfolio.
BOWMANS CLOCK
The analysis goes deeper into defining the relationship between customer value and prices by
the use of the Bowans Clock. WITCOs position on the clock is based on the customer
perceived value. Customers at positions 1 and 2 are concerned with price and that the product
meets its threshold requirements. These customers are attracted to the lower level brand
(Broadway) with the brand emphasis on usefulness over design or packaging. In contrast,
customers at position 5 gravitate to the higher end brand (Du Maurier, Dunhill) as they even
prepared to pay a premium price.
WITCO also utilises the Hybrid positioning approach which offers neither the lowest price
nor the highest quality. Focused differentiation provides high value at premium prices, while
targeting a niche category and compensating for lack of volume by high margins. The high
value is often a result of perception, cultivated through careful selection of sales outlets rather
-
8/11/2019 Dyanmics of Strategy Paper
22/40
than any substantial differentiation in the actual product. The Dunhill brand falls under this
category.
LEADERSHIP AND CULTURE
WITCO utilizes the matrix organizational structure, where employees report to more than one
manager. This ensures that employees and managers from different departments can work in
synchronously in line with the companys VMOST. Efficient exchange of information,
efficient lines of communication, high levels of productivity, high staff morale, high
customer satisfaction and enhanced creativity and innovativeness are just some of the
advantages WITCO has enjoyed as a result of this model.
Consequently, this organisational structure encourages a participative style of leadership in
which WITCO employs. In accordance with Tannenbaum & Schmidt (1973) this leadership
style is one where there is little micro management by executive management. Extensively,
BROADWAY
DU MAURIER AND
DUNHILL
-
8/11/2019 Dyanmics of Strategy Paper
23/40
team members are motivated as a result of their contribution in the decision making, thus
leading to employee satisfaction.
According to Trompenaars (1993), a companys culture can also be explained by the guided
missile/ achievement culture Trompenaar,Riding the Waves of Culture(1993). Speaking to
this definition, WITCO is highly egalitarian in that everyone has a part to play in decisionmaking and applies a team approach. They are also highly task oriented and very focused
on delivering quality products. The tobacco companys guiding principles are exemplified its
culture and leadership style. Together with leadership style and culture, WITCOs culture
leads them to have competitive advantage in the industry and aids to sustain them as number
one in the market.
GUIDING PRINCIPLES
FINANCIAL ANALYSISWITCO is the largest company in the manufacturing sector on the TTSE. WITCO hasexperienced continued growth in sales and profitability in 2013. Its performance can belinked to its investments made over the years in its assets leading to the reflection of thestrong performance of its key brands Dunhill, Du Maurier and Broadway. While the companyhas experienced a decline in actual physical sales from its products due to customer lifestylechanges, actual sales figures were offset by the slight increase in the price of the products.
The companys performance could be affected in the near future given the impeding
amendment to the 2010 Tobacco Control Act would bring changes to the tobacco business.On the upside, WITCO has ample time to prepare itself for the changes which take effect in2015.
-
8/11/2019 Dyanmics of Strategy Paper
24/40
The Board declared a final dividend of $1.60 per share, payable in April, 2014. This broughtthe total dividends paid for the year to $4.54 versus $3.82 for the previous year, an 18.8%increase. This continuous improvement speaks to the companys attractive dividend policy.
SWOT AND EVR CONGRUENCE
STRENGTHS
- Addictiveness makes for inelastic product
- Nationalistic Brand with over 100 yearsoperating in the industry with 3 strong
competitive brands
-Strong Market Position: 97% market share
- Financial strength: Growing revenues andprofit, millions in assets, little debt
- Agronomical support to the farmers forproducing quality tobacco leaves
- Regional and global reach via BAT
WEAKNESSES
- Longer decision making due topartiipaticive leadership style and
dependency on BAT to make Strategicdecisios
- Lack of innovation in product
development over the years- Strong dependency on key Supplier -
Brazil
OPPORTUNITIES- Entry into International Market- totarget new customers in areas that
provides potential for growth in sales.
- Developing safer alternatives to smoking
- Diversification for Light Cigarettes, E-Cigarettes
THREATS
- Impeding Tobacco Act can affect sales
- Prohibition of sponsorship limitspresence of corporate citizenry
- Increasing lifestyle changes resulting inmore prsons quitting cigarette smoking
- Increase pressure from socail groupsagainst the controversial product
-
8/11/2019 Dyanmics of Strategy Paper
25/40
-
8/11/2019 Dyanmics of Strategy Paper
26/40
26
EVR CONGUENCE
Values
EnvironmentResources
Leadership and culture
speaks to the companys
that is in line with
strategy
Strengths outweigh the
Weaknesses
Expertise in place maximize on
opportunities and tackle
threats.
-
8/11/2019 Dyanmics of Strategy Paper
27/40
27
TOWS
TRIX
EXTERNAL OPPORTUNITIES (O) EXTERNAL THREATS (T)
O1. Entry into International Market- to target new customersin areas that provides potential for growth in sales.
T1. Prohibition of sponsorship limits presence of corporatecitizenry
O2. Developing safer alternatives to smokingT2. Increasing lifestyle changes resulting in more personsquitting cigarette smoking
O3. Diversification T3. Impeding Tobacco Act can affect sales
T4. Increase pressure from social groups against thecontroversial product
INTERNAL STRENGTHS (S) (SO) Maxi-Maxi Strategy (ST) Maxi-Mini Strategy
S1. Addictiveness makes for inelasticproduct Maximize on profits to make safer alternatives (S4, O2)
S2.Nationalistic Brand with over 100years operating in the industry with 3
strong competitive brands Capitalize on addictiveness of tobacco to enhance productdevelopment and expand on diversification of products and
market development ( e-cigarettes, hookahs) (S1, O3)
Utilize internal expertise of WITCO and parent BAT to
deal with impeding tobacco Act 2015 (S6, T3)S3. Strong Market Position: 97%
market shareS4. Financial strength: Growingrevenues and profit, millions in assets,little debt
Expand on international presence through its BAT ownership
for WITCOs specific brands (S6, O1)
S5. Agronomical support to the farmersfor producing quality tobacco leaves
S6. Regional and global reach via BAT
INTERNAL WEAKNESSES (W) (WO) Mini-Maxi Strategy (WT) Mini-Mini Strategy
W1. Longer decision making due toparticipative leadership style anddependency on BAT to make Strategicdecisions
Reduce dependency of tobacco (brazil as supplier) bydiversification into non tobacco products (W3, 03)
With Improvements in innovativeness (expanding e-cigarettes, hookahs) this can minimise the threat of pressurgroups against tobacco. (W2, T4)
W2. Lack of innovation in productdevelopment over the yearsW3. Strong dependency on keySupplier - Brazil
-
8/11/2019 Dyanmics of Strategy Paper
28/40
-
8/11/2019 Dyanmics of Strategy Paper
29/40
29
Strategy Proposal and Logic
Their main current strategy is market penetration and they also uphold cost management in
certain aspects, after an analysis of the organization and its current strategic position one possible
strategy that would satisfactorily maintain and drive competitive advantage is protecting and
building on the cost management leading to a sustained cost leadership. This would specifically
include controlling cost drivers i.e. maintaining economies of scale which would inevitably make
the barrier to entry high for new comers. For Witco sources of economies of scale could include
volume of production and specialized machines, a company with a high level of production is
able to purchase and use specialized manufacturing tools that cannot be kept in operation in
small companies, thus because Witco produces at large to supply Trinidad and Tobago and other
countries in the region they can easily maintain a high level of production and continue using at a
low cost the specialized machines. Whereas a new comer does not have the market share to
produce volumes .Also, through high volume of production the company would continue to build
lower per unit cost manufacturing operations and will have lower average costs of production.
Due to the highly specialized staff and organizational culture, according to Adam Smith, they
can produce high volumes at low costs. In their favour, Witco can use the learning curve model
to relate the volume of production and costs over time. Their history in the industry combinedwith BATs history can help them to further reduce cost in productions and thus have a greater
profit margin. Also, they can continue to engage in resource sharing, i.e. the combining of
similar activities and sharing of resources across sister units. Because Witco produces cigarettes
only, they use the same plants to manufacture the different brands. Outsourcing of main activities
can help them to continue to reduce cost. As it is, Witco currently outsources distribution and
waste operations, perhaps outsourcing of more activities, marketing for example, would help to
further reduce costs. Witco also has the advantage of being the only producer in the industry in
Trinidad, thus if they were to introduce a new product they can have the cost advantage.
Evaluation and Justification of Selected Strategy
-
8/11/2019 Dyanmics of Strategy Paper
30/40
30
Cost management and leadership specifically in the areas mentioned above are adequate
now and in the near future for WITCO because it will enable reduction of operation costs to gain
further competitive advantage. For the past five years WITCO has been able to cut costs of sales
in some aspects, but others-core business expenditure remains constant and as a result they have
not been able to save in those areas. In 2013, there was a 1% decline in cost of sales as compared
to 2012. Also according to the annual report of 2012 cost of sales increased by 11.2 percent to
$246.9 million, primarily driven by higher raw material prices on the international market.Total
overheads amounted to $144.9 million, which was an increase of 4 percent over the prior year
and reflected an increase in distribution and administration costs which were driven primarily by
inflationary pressures.
To gain a greater competitive advantage and to heighten the barriers to entry for new comers it is
imperative that they become the lowest cost producers in the industry i.e. through the specific
options mentioned above.
When paired with Porters fiver forces, this strategy appears more lucrative.The new entrants
may have to invest heavily to reduce their costs prior to entry, WITCO is the only company that
produces tobacco products in Trinidad, therefore another producer attempting to enter the market
will face great difficulties in starting up and producing at low cost. Also, WITCO would be able
to reduce the threat of rivalry through pricing strategies. Because they produce at a lower price
through economies of scale, they would be able to set the prices for their products as the lowest
in the market. Thus, competitors or would be competitors would be forced to set their prices
equal to slightly lower than theirs. Low prices would also be able to help them battle substitutes
and would be substitutes. The E-cigarette, imported independently by various companies is a
possible threat in the future. Cost leadership would also enable WITCO to sustain themselves in
the event that suppliers raise prices, a rival would not have this advantage and may not be able to
absorb additional cost. Finally, if the main buyers insist on lower prices, WITCO will be able to
cut back on revenues and still have big earnings, due to low cost production.
To justify this strategy, assessments of its feasibility, acceptability and suitability would be done:
Suitability:
-
8/11/2019 Dyanmics of Strategy Paper
31/40
31
In terms of exploiting opportunities, low cost leadership can allow WITCO to enter into new
markets and produce at low prices using economies of scale .This is possible because they
already have the machinery and specialized human resources to do so. This could allow them to
have low prices of products and also it could help them in absorbing the cost of a start-up
company in a new market. Also, if they were to develop safer alternatives to smoking, which
other BAT subsidiaries are doing then seeking low cost leadership will definitely put them at an
advantage especially because the can use BATs learning curve to learn from.
Low cost leadership, specifically the economies of scale will allow them to continue to
capitalise on the fact that cigarettes are addictive so whether or not they are priced high or low,
they would be able to continue to have high returns. In addition, because they have a widely
ranged portfolio, continued importation from different suppliers will meet their needs for
economies of scale
The industry lifecycle model shows that the tobacco industry in Trinidad is in the growth
stage. There is consistent growth in sales and profits, and customers are knowledgeable about the
industrys product. Within the last three (3) years, the industry has experienced price increases
nevertheless, sales figures continue to grow. Its growth stage is also evidenced by its low rivalry.
It can be seen from the industry lifecycle that if the cost leadership strategy is implemented it
would benefit the company through low cost production versus the high prices of commodities.
Possibly the company would not be able to do anything about high priced commodities but they
can in fact offset the price by economies of scale and experience and technology which all aid in
cost reduction.
-
8/11/2019 Dyanmics of Strategy Paper
32/40
32
The companys core competencies, i.e. its Human Resources and Research and Development
which are key resources in its success results in temporary advantage and sustained advantage
respectively. All these resources, coupled with its consistently strong financial position allows
for them to remain competitive in the industry. These competencies sanction cost leadership in
that they are already established entities in the organization and funds do not need to be
expounded on this as often as other developing units.
Thus, protecting and building cost management and leadership strategy at this point in time
for the purposes of now and the near future, is opportune because it is necessary for the company
to be prepared for any shocks that might come, whether it is in the form of a new competitor, or a
raise in commodity prices. Cost reduction will ensure that the company could absorb the shock.
Acceptability:
Because this strategy has already been in place at a lesser degree, and the results have proven
positive there will be little to no hesitation of acceptability. Stakeholders acceptance or no
acceptance before implementation of this strategy is important because. 49.87% of the shares
are currently publicly traded on the Trinidad and Tobago Stock Exchange (TTSE). Collectively,
the company has over 3,000 institutional and individual shareholders of which BAT is the single
-
8/11/2019 Dyanmics of Strategy Paper
33/40
33
largest, with a total shareholding of 50.13%.Thus BAT will necessarily accept the strategies
before implementation if they see it fit. WITCO has BATs experience as a group from which
they can draw; this helps to reduce costs of experimenting with technology, and research and
development costs that may be spent by a new company who does not have support of a parent
company. This strategy will evidently continue to satisfy financial goals of WITCO and thus
BAT and the other shareholders, and given the organizational culture which is a reflection of the
guiding principles, the quality of the products will remain high. Based on financial analysis for
the year 2013, it can be said that combined with their main strategy, market penetration, the cost
management would have been reflected as well. They have had High returns on capital employed
and continuous growth in Revenues and Profits,good liquidity position, satisfactory profit
margin and a 31% income distribution going to dividends.
Feasability:
This strategy is geared at sustaining low production costs, this is quite possible on an internal
level, however, externally, the company cannot control the prices of the commodities, namely
tobacco especially because the price fluctuates often. Also, it would be difficult for them to
predict the exchange rates of foreign currencies which they use; this can be a source of shock for
them if prices rise. But, contingency plans are in place for tobacco if their regular suppliers fall
through on occasion for various reasons, hence it is imperative to control all costs on the inside
for absorption of shock purposes to gain that competitive advantage that the future competitors
will not have. Since the company has been financially successful thus far, there are in fact
adequate funds to support this strategy; also human resources are sufficient as well. These factors
are important because one of the features of cost leadership is economies of scale which require
good human resources and finances. WITCOs current strategy is cost management of
overheads- though successful cost leadership is necessary. Cost management is a more
sophisticated approach and holds that costs must be considered relative to the revenues
generated. Cost leadership is essential to long-term survival However, if competitors come into
the market they will necessarily need to be ready.
-
8/11/2019 Dyanmics of Strategy Paper
34/40
34
Brief Discussion of Rejected Options
Other possible strategy options include revamping the value chain to reduce costs These were
rejected because they were deemed as less critical. Shifting to E-Business technology, i.e. using
the internet for doing business. Also, simplifying product designs would not be effective for
Witco because they already face legislation which limits their packaging designs. Relocating of
facilities would be ineffective because Witco distributes to Trinidad and many countries in the
region, also WITCO is a subsidiary of BAT, this means that there are other subsidiaries in other
parts of the world, to relocate could mean going out of business, it would take away the essence
of WITCO
Statement of Main Strategy Objectives (VMOST)
VMOST
The VMOST of the organization will not change as this strategy existed before, and this proposal
is simply to build on it. Changes will not be large enough to affect the Vision and Mission.
However, the main objectives for the strategy would include
-
8/11/2019 Dyanmics of Strategy Paper
35/40
35
Resource Allocation and Budgeting
Resource allocation are judged by 3 criteria:
1) The contribution of proposed resources towards the fulfilment of the organizations
mission and objectives:The Cost leader ship, specifically cost drivers will is in fact in
keeping with WITCOs mission and vision, thus allocating resources to it will be an
investment toward achieving the companys objectives. However it is important to note
that because this is a protect and build strategy, WITCO already has resources allocated
for this, but in lesser amounts.
2) Its support of key strategies: As said above the decision to continue with cost
leadership was based on protect and build thus, it was imperative that before the
decision was made the core competencies and the value chain would be taken into
account. Cost leadership by nature will enhance the value chain and this profit margin.
The core competencies as seen in the picture below will necessarily be improved.
3) The level of risk associated with a specific proposal: See section below
-
8/11/2019 Dyanmics of Strategy Paper
36/40
36
Formulation of Specific Plans for Implementation
Specific Objectives of Strategy
Quantifiable:
To reduce expenditure on all operations
To attain price leadership
Unquantifiable:
To maintain customer loyalty by delivering on time
To achieve manufacturing excellence by using the best tools and machines and human
expertise
To increase design productivity
Reduce wastage
The general objectives of the organization i.e. the vision and the mission will remain the same as
this strategy will not change the outcomes of day to day running of the organization.
-
8/11/2019 Dyanmics of Strategy Paper
37/40
37
Strategic Theme: Cost Leadership: Controlling Cost Drivers
Objective Measure Target Initiative
Financial
To reduce
overhead andproduction
costsrevenue
growth
% revenue fromall output
>50% year 1
>70% year 3
Economies of scale:
specialized
machines/manufacturing
tools
More specialized staff
Learning curve model
from BAT
Outsourcing operations
Customer
Price leadership
to accompany
cost leadership
Responsive
Supply
Prices comparedto competitors
100% year 1 Lowest costs in industry
On time delivery >50% year 1
Loyalty to customers
through constant on time
supply
Process
Manufacturing
ExcellenceCycle time yield >50% year 1
Specialized
manufacturing tools
Training for all factorystaff
Increase design
productivity
reduce wastage
Engineering
efficiency >70%year 3
Le
arning&
Growth Manufacturing
learning Time to new
process maturity
-
8/11/2019 Dyanmics of Strategy Paper
38/40
38
-
8/11/2019 Dyanmics of Strategy Paper
39/40
39
Monitoring and Control Processes:
Once the strategy has begun, then monitoring and controls become operational.
Continued motivation of employees in known as a limitation to cost leadership, but the
companys culture and leadership style can combat that.
WITCO should be aware that there are risks involved in continuing with this strategy, these
include technological transformation that nullifies past investment or learning, however this is
unlikely to affect them because of the fact that the parent company BAT is a leader in the
industry for new technology and they will be the first to know about it before the competitors.
Another risk that they should be weary of is low cost learning by industry new comers. Due to
the innovations in science and technology, new comers may have an upper hand in the industry
for less than the price that WITCO pays.
In addition, the inability to see requires products or a market change may hinder this
strategys performance. If the market has shifted, and consumers have new preferences that
WICTO does not produce then it does not matter the cost of their products, they will necessarilybe out of the game. For instance, WITCO does not manufacture E-cigarettes, and people are
becoming more health conscious and legislations are putting bands on tobacco in public places,
this may lead to a shift in market.
Inflation costs may also hinder this strategy but, due to the nature of their products this has
not affected them before. Consumers spend for cigarettes.
Conclusion
Protecting and building on cost management and leadership will aid in sustaining Witcos
competitive advantage and keeping them at the position in the industry that they currently
occupy. Maintenance of the economies of scale in order to cut cost in operations will serve them
-
8/11/2019 Dyanmics of Strategy Paper
40/40
well presently but also prepare them for any shocks that might arise due to new comers in the
industry, substitutes or rise in prices of commodities, any of which could occur at any time.
References
Ansoff, H. (1979). Strategic management. 1st ed. New York: Wiley.
Lynch, R. (2014). Strategic Mangement. 6th ed. England: Pearson, pp.4-418.
top related