Strategic Management (Research Paper Sample)

Strategic Management Student Name Huddersfield University Date No of Words: 2568 Part 1: Introduction This is a consultancy project involving the strategic analysis of the business operations at the LEGO Group. LEGO is a company in Company in Denmark, which deals with the manufacture of Toys for children. It began about 100 years ago with the production of traditional wooden toys. In the current business, LEGO has grown its production and it manufactures plastic collections of toys. The company has opened several subsidiaries including that in Norway and in Switzerland. However, many Toy companies have emerged to compete with LEGO in the production of classic bricks (Barney, 1991). A good example is the Toyco, Mega Bloks and Coko whose prices for the plastic bricks are lower. The competition places LEGO in serious challenges, forcing the management to recommend various changes including the pricing for its bricks. The performance of LEGO Company wavered in the years between 2002 and 2004 before it began to re emerge as a profitable company. From 2005 to 2009, the profits for LEGO Company began to increase steadily. LEGO does need a critical analysis on ways through which it can maintain and even improve the trend of positive performance in the years to come. This will require the development of strategic analytical models for managing the growth of the business (Larson and Lynch, 2004). Using these models, the company will be able to use the outcome to generate relevant analytical decisions. The models will further recommend and determines the kind of action that the company management will take as suggested by Kleiman 2010). LEGO is among the five best organizations in the toy production. In this market, it holds 4.8 percent of the shares. LEGO is presently in need of a model for maintaining the successful performance. Identification of key issues From the analysis of the business, operations of the LEGO Toy Company, the issues that require strategic management restructure and emphasis include the pricing, new product innovation, Staff Turnover, and Marketing strategies. Initially, there was an issue of staff turnover because LEGO had employed more staff than its capacity could manage. It employed the strategy of reducing staff up to the year 2007 before the number began to increase. Staff Turnover challenge is back again to haunt the performance of LEGO Company. The third issue arising in LEGO Toy Company is the inefficiency in the exploration of the market opportunity. The objective of LEGO Company is to make an annual increase in profit, of at least 7 percent every year for the next 10 years of operation. As Kvint (2009) suggests, organizations ought to acknowledge the existing opportunity in the global market through which it intends to increase its performance to double the present position. LEGO group does recognize its opportunities in the same manner. The final issue that arises in LEGO Group is the increase in expenditure and operational losses. The model to be applied in the management of the emerging issues has to explore the existing market. Shifting from the regional markets with a high presence, LEGO Company will need to identify new target groups. The design of the model will have to combine variables that influence the growth of its performance. The aspects of growth that it focuses on to determine its Positive Performance Parameter (PPP) include sales volume, net profit growth, Equity Capital raised according to Calhoun, Lynch and Dowling (2009). Each of the aspects has separate independent variables. The number of employees does not count as a performance parameter. Instead, it becomes one of the variables forming the models for sales volume and consequently, net profit. In a similar manner, sales volume is a Positive Performance Parameter as well as a variable for the net profit model. Choice of an Analytical Model Following the key issues arising in this analysis, the advisable actions for LEGO group of Companies are: To increase its sales volume To increase its Net Profit To Increase its Equity capital To reduce its Operational Expenses and Losses As seen in the key issues of performance, there are four models, which will be developed to promote the maintenance of high profile of positive performance. Model Variables The initial stage of developing the models is to identify the variables involved in each model. This is described as shown in table 1 below: Model NameVariablesSales volume (α) Number of Employees (Ne) Marketing Strategies (Ms) Product Development (Pd) Customer Service (CS) Net Profit (θ) Sales Volume (α) Operational Expenses and Operational Losses (β) Equity Capital (δ) Net Profit (θ) Shareholders’ Equity (SE) Operational Expenses and Losses (β) Standing Costs (SC) Variable Costs (VC) Bad Debts (BD) Table 1: Models and Model Variables The second stage of the modelling is the actual construction of the models using the variables, depending on how they affect they affect the Positive performance parameters in LEGO Group of companies. Model Construction The construction of the model is done based on whether the performance parameters are directly related to or inversely related to the variable. This is done as shown below: Sales Volume (α) The construction of Sales Volume Model is constructed as: Sales Volume (α) = (Number of Employees (Ne)) * (Marketing Strategies (Ms) + Product Development (Pd) + Customer Service (CS)) * K Sales Volume (α) = (Ne * (Ms * Pd * CS)) * K In this model, Sales Volume is directly proportional to all the variables. K is a constant, which represents all other unpredictable forces affecting the sales capacity of the company. The construction Net Profit (θ) The model for net profit is: Net Profit (θ) = (Sales Volume (α) - Operational Expenses and Operational Losses (β)) * K Net Profit (θ) = (α – β) * K (K is a constant) Equity Capital (δ) The model for Equity capital is: Equity Capital (δ) = (Net Profit (θ) + Shareholders’ Equity (SE)) * K Equity Capital (δ) = (θ + SE) * K (K is a constant) Operational Expenses and Losses (β) The model for Operational Expenses and Losses is: Operational Expenses and Losses (β) = (SC + VC + BD) * K (K is a Constant) With the implementation of the models, LEGO Group management has to promote (maximize) the variables to which each performance parameter is directly related. For example, Number of Employees (Ne), Marketing Strategies (Ms), Product Development (Pd), Customer Service (CS), Sales Volume (α), Net Profit (θ) and Shareholders’ Equity (SE). At the same time, the management will be able to minimize the variables that impacts negatively on each Positive Performance Parameter such as Operational Expenses and Operational Losses (β), Standing Costs (SC), Variable Costs (VC) and Bad Debts (BD). Justification of the Choice The choices of these models are very relevant to the issues that emerged in the critical analysis of this company. They act as the decision guidelines for LEGO Group of company. The models assist LEGO Group management in various ways as illustrated below: 1.4.1. Decision Making The models are the guidelines for decision making in LEGO Group on how to control the Positive Performance outcomes by varying the inputs as suggested by Laurie, Sheer and Doz, (2006). Because the variables behave differently with various seasons, the management decides in good time when to reduce or to increase a variable. According to Merrifield (2009), the decisions made in view of these models are more reliable than the decisions previously passed because the models inform the management about the present status of the organization. LEGO Group combines the models in all the performance decisions to balance the operational inputs and the expected positive performance as illustrated below:
Figure 1: Performance Model Representation The decisions on performance parameters are given different priorities with net profit occupying the highest priority, followed by sales volume, then equity capital then finally, operational expenses and losses. 1.4.2. Risk Mitigation The management uses the models to conduct risk management, by eliminating the risky operations, which are detrimental to the performance parameters as suggested by Lynch, Diezemann and Dowling (2003). The variables in the models enable the managers to identify, monitor, control and prevent high and medium risks from occurring (Lin, 2011). The models are vital in predicting the probabilities of the risks occurring and their possible impact. They also act as key risk indicators and key performance indicators to the achievement of corporate business objectives LEGO Group Toy Company. Senior management can then forward the continuous risk assessment reports, key risk indicators and operational losses report to the board of directors for the sake of risk awareness (Ulrich and Smallwood, 2006). Sustainability of the Profits The models are able to promote the sustainable growth of profits by maximizing the favourable variables and minimizing the unfavourable ones. They can enable the management to monitor the trends of sales, profits, losses and equity in order to get the position and the direction of performance of LEGO Group. The four models are relevant for the attainment of the objectives of the company, to increase its profits by 7% per year. LEGO Group is able to use the models to overcome the tight competition posed by the competing organizations in the Toy Business, including giants like Toyco Bricks. Increased Market Cover The models are able to facilitate the movement of LEGO Group towards the achievement of a wider market. As it is in the current state, the company realizes that there are so many unexplored market opportunities. This will essentially be an impact of the motivation of higher sales volumes and profit thresholds (Merrifield, Calhoun and Stevens, 2008). The reason why LEGO Group requires a large number ...