Strategy of long term goals and objectives

Strategy of long term goals and objectives Strategy is the determination of the primary long term goals and objectives of the organization. It is the adoption of courses of action and the allocation of resources for carrying out these goals (Chandler, 1962). Strategic planning is very important factor for an organization. It is the process of determining a companys long term goals and then detecting the best approach for fulfill those goals. 1.1: Bangladesh Steel Re-Rolling Mills Ltd Bangladesh Steel Re-Rolling Mills Ltd. (BSRM) a unit of well known H. AKBERALI Group of Industries, having 50 years experience exclusively in steel production, is fully automatic steel re-rolling mill in the Bangladesh. The mill was imported from U.K. and commissioned at the sea port of Chittagong. The initiator of the group was late Mr. Akberali A. Africawala and is now managed by his sons nephews. Bangladesh Re-rolling Steel Mills Limited (BSRM) was established in 1960 and started to produce commercially in 1961. The head office is situated at Sadarghat, and it has factory at Bayazid Bostami road, Chittagong. Company slogan is Be Safe. The production capacity is 20 metric ton per hour. The utilization rate is near about 75%. Machineries have been imported from England. BSRM is going to set up a different steel factory at Fouzdarhat in Chittagong to meet the increasing demand. The brand name of their products is BSRM. It is an ISO certified manufacturing concern. It usually follows cost base pricing. They do not discriminate the prices of their products. Their annual promotional budget is Tk 15000000. The prices range between Tk 37500 to TK 39500. The margin per MT is Tk 2300. The revenue is Tk 11000000 per year. During the winter season, the demand for their products goes up. 1.2: Mission of BSRM The Mission of the Company is to make life of the people secured and safe by providing quality products at a cheaper price and to be a partner in the nation building activities. 1.3: Vision of BSRM *Support the society through Corporate Social Responsibility initiatives *Maintaining leadership position in the steel industry by producing the best quality steel products, continuously enhancing customer satisfaction and becoming a reliable business partner of their customer and suppliers. *Be an employer of choice, on focus on nursery and talent and developing future leaders of the organization. *Protect the interest of their shareholders throw sustainable growth and value correction. *Preserve the trust of all of their stakeholders by adopting ethical business practices. 1.4: Core Organization Values Sustainable Growth: Steady improvement in the quality of products and services, efficiency of processes and profitability of business. Quality: Creating products and services valued by our customers; consistently improving through innovation and adopting best practices. Reliability: Be the preferred business associate of our customers and suppliers by offering quality products. Leadership: Be a role model, setting benchmarks through our products, processes and people. Customer Satisfaction: Delight our external and internal customers at every stage of our interaction with them by really understanding their needs, offering them our most excellent products and services. 1.5: Goals and Objectives Support the society through Corporate Social Responsibility initiatives. 1.6: Stakeholders Share holders and Share Percentage Sponsor/Director 65.52%, Institute 11.7%, Public 22.78% Suppliers Meghna Engineering Works Limited, Nasirabad I/A, Chittagong., DuferCo Asia PTE Limited, Singapore, Nortrade International Pte Limited- Australia, Maithan International, Mumbai, India, BGH Exim Limited Kolkata, India. Competitors Rahim Steel Mills Limited, Kabir Steel Re-Rolling Mills Limited, Seema Steel Re-Rolling Mills Limited, Bashundara Steels. Board of Directors Mr. Alihussain Akberali, Mr. Zohair Taherali, Mr. Aameir Alihussain, Mrs. Tehseen Zohair Taherali, Mrs. Sabeen Aameir, Mr. Qazi Sarwar-E-Alam. Bankers Agrani Bank Ltd, NCC Bank Ltd, The City Bank Ltd, AB Bank Ltd, Dhaka Bank Ltd, Prime Bank Ltd, The Trust Bank Ltd, Bank Alfalah Ltd, Eastern Bank Ltd, Pubali Bank Ltd , IFIC Bank Ltd, Uttara Bank Ltd, BRAC Bank Ltd, Mercantile Bank Ltd, Standard Bank Ltd. 1.7: Organogram of BSRM Figure 1.1: The present existing organizational structure of BSRM Chapter 2 Assignment: Part 2 Q.1. (i) An analysis of the internal and external environment affecting the company above.- Internal Analysis By using the Internal analysis we can find the organizations strength, ability, productivity and many others factors. Here Lewis 6 factors have used for the analysis of the internal environment of BSRM. It is as follows: Management Capabilities BSRMs top management members have high educational and professional qualifications such as MBA, CA, MS. In Bangladesh BSRM management is the most experience and capable management in the steel industry sector. Marketing BSRM has well established brand name and brand value in Bangladeshi market. They have strong media and communication division which uses effective and strong advertising techniques to reach to the people. Delivery and distribution is one of the most important factors to win and retain customer confidence. For smooth and prompt delivery BSRM has already engaged several hundred dealers all over the country. It has sales and delivery depots in Dhaka, Sylhet, Bogra, Khulna, Moulvibazar and Comilla. Product and Services BSRM provides best quality products like Deformed Bar Xtreme 500W Yield Strength 72,500 psi (min), Grade-75 Wires, Angles, Channels, Spring Steel Flats, Low Carbon Wire Rods, etc. Company also provides good services for his customers such as free product delivery service. Information Technology (IT) In recognition of the recent rapid growth of the company, the present IT facilities are in the process of modification to meet the requirements of all the operating units and functional departments of the company. To ensure prompt and accurate information and data management, BSRM has decided to reconstitute total IT structure of the group. The development of this modification has already started. BSRM introducing integrated software encompassing sales and marketing, production, accounts, stores etc to enhance the effectiveness of the company businesses. Finance In Dhaka stock exchange, BSRM is one of the strong capitalised companies. Its annual turnover is BDT 15,843,586,337. BSRMs Authorized Capital in BDT (Crore) is 200.00 and Paid up Capital in BDT (Crore) is 145.00. BSRM always maintain good financial and audit record. Human Resources BSRM has experience and professional workforce. Company provides excellent training and motivation program for the employees for better productivity and performance. In 2009 a few plans were put into place that will significantly revamp the companys Human Resource Management (HRM) capability. BSRM has appointed Price water house Coopers (PwC) one of the largest and reputed management consultancy firms in the world with the aim of strengthening human resource management. External Analysis For analyzing the external environment of an organization PESTEL and Porters 5 forces analyze are used. Porters five forces include the supplier bargaining power, buyers bargaining power, threat of entry, threat of substitute and competitive rivalry (Robert, 2008). The Porters Five Forces model is a straightforward tool that supports strategic view where power lies in a trade condition. Threats of New Entrants Capital Requirement: Steel business is an investment precise business sector. Already BSRM has invested large amount of capital in steel sector. Government Policy: BSRM is an old company and its Corporate Social accountability already enjoys a reputable position in front of the Bangladesh Government. Differentiation of product: Steel has very small barriers in terms of product differentiation as it does not fall into the magnificence or specialty goods and thus does not have any bulky price variation. However, BSRM still enjoy a premium for their products because of its quality and its brand value. BSRM has introduced brands like BSRM Xtreme 500W, BSRM Grade-75 Wires, BSRM Angles, BSRM Spring Steel Flats. Competition Analysis One commonly used concentration ratio is the four-firm concentration ratio, which consists of the market share, as a percentage, of the four largest firms in the industry. All the major domestic competitors like KSRM, Rahim Steel Ltd., PHP, Bashundhara have announced massive expansion plans recently. Bargaining Power of Suppliers Globally, the top three mining giants BHP Billiton, CVRD and Rio Tinto supply nearly two-thirds of the processed iron ore to steel mills and command very high bargaining power. In order to safeguard itself from the high bargaining power of the suppliers, BSRM has forayed much earlier into the strategy of Backward Integration. Threat of Substitutes: Plastics and composites create a threat to BSRM in one of its biggest market. Perhaps the main beautiful substitute of stainless is aluminium. Steel has already been replaced in some huge number applications: large diameter water pipes (RCC pipes), railway sleepers (RCC sleepers), small diameter pipes (PVC pipes), and domestic water tanks (PVC tanks). Bargaining Power of Buyers: Some of the major steel consumption fields like gas, oil and automobile, shipping, consumer power and durables generation have the advantage of high bargaining power and get smart deals. Q.1. (ii) Briefly state any major changes took place based on the affect of external environment. BSRM has launched new product named BSRM Xtreme 500W in 2008 due to the hard competition in steel sector in Bangladesh. Competition among the competitors is one of the important external environmental factors. In Bangladesh there are many big steel industries running their operation. All the major domestic competitors like KSRM, Rahim Steel Ltd., PHP, Bashundhara try to achieve the higher position in this field by produce new products. Nowadays construction activities are increasing more than any time ever. Bangladesh is not separate from this growth. For buildings, bridges, household instruments, etc. construction steel is essential product. The increasing demand of steel, produce hard competition among the existing steel industries in Bangladesh. BSRM always try to give new, safe quality products and services for their customers. By this way BSRM attract new customers and try to beat their competitors. At present everyone using high quality steel bar for the construction purposes. BSRM Xtream 500W bars make a tremendous change in Bangladeshi steel sector and make BSRM the leader in steel industry. Q.2. Review the existing business plan of the chosen company and review the competitive position and current business strategy. Current Business Strategy of BSRM BSRM has developed its strategy for the future growth of the company. By applying the market oriented strategy BSRM try to attract more customers. At present, BSRM has launched new products in the market named BSRM Xtreme 500W. The company already booked many construction material supply orders from the corporate customers. Price reduction strategy is another strategy they have already started to apply. The company has already appointed more than 100 dealers and agents all over the country to supply their products and services to their customers. By providing high quality products and customer services BSRM try to increase their sales and profits. This is the current business strategy of BSRM. Current Business Plan of BSRM For increase the production capacity by 33% from the present capacity of 375,000 tons/year to 500,000 tons/year BSRM has taken some actions. The next plan of BSRM is, they will spend about Tk. 650,000,000 for the expansion of the company. By retained earnings and partially by term loans from the banks, BSRM will finance their business target. For the un-interrupted raw material supply BSRM group has established a new company named BSRM Iron Steel Co Limited (BISCO). BSRM Steels Ltd. will acquire 95% stake in BISCO for strategic reasons and increase competitive position of our Company. Competitive Position of BSRM Various models and strategies can be used to review the competitive position of a company such as Boston Consulting Group Matrix, Industry Life Cycle and Strategy clock etc. I am going to analyse the competitive position of BSRM by using Boston Consulting Group Matrix (BCG) and Industry Life Cycle. Boston Consulting Group Matrix It is classified all companies strategic business unit according to the growth rate and market share (Kotler, 2008). High relative market share Low relative market share High market growth rate Stars Question marks Low market growth rate Cash cows Dogs Figure 2.1: BCG Matrix chart The above chart showing four different level of competitive position. Stars High market share high market growth. Question mark Low market share high market growth. Cash cows High market share low market growth. Dogs Low market share low market growth. According to this Boston Consulting Group Matrix analysis BSRM is in the position of star because it has about 50% market share in the steel industry. BSRM is number one steel industry in Bangladesh. BSRM earned net profit of Tk. 574.08 million in 2009. Gross Profit also increases Tk. 271,922,738 from the previous year. So it shows the high market share and high growth rate. Industry Life Cycle BSRM Figure 2.2: Industry life cycle chart The industry life cycle is an important indication of the growth of a company. The different stages of an industry life cycle are: introduction, growth, maturity, and decline. Sales normally start gradually at the introduction stage and then lift-off continuously throughout the growth period. After the maturity stage, sales then start a regular decline. Basically, profits usually running to rise during the life cycle. An industry start its journey or beginning from the introduction phase of the life cycle. Perhaps a fresh and unique product offering has been developed and patented, thus beginning a new industry. Significant amount of capital required in the growth stage of an industry like the introduction stage. The industry is experiencing more product standardization at this stage. When the industry begins its expansion into maturity stage the curve looks flat. This indicates slow growth of the industry. Some experts place another stage between growth and maturity, called expansion. Declines are almost expected in an industry. If product improvement has not kept speed with other competing products and if new innovations or technological changes have caused the industry to become obsolete, sales suffer and the life cycle experiences a decline. In this stage, sales are falling at very fast rate. According to the figure 2.2 of industry life cycle, the competitive position of BSRM is in maturity stage. BSRM has already passed its introduction and growth level. Now it has a brand name and value in Bangladeshi steel market. BSRM has very strong customer backup. Now in this mature stage, it has to introduce new strategy to increase its growth. Q.3. Identify and evaluation of alternative strategies that would consist of companys goals and objectives and select an appropriate future new strategy. According to the previous analysis of the existing position of BSRM I can suggest a possible alternative strategy under ANSOFF matrix. ANSOFF matrix is a popular method among the organizations business practices. ANSOFF matrix (Product market expansion grid) represents four potential options which are shown in the figure below. ANSOFF Matrix (Product-Market Expansion Grid) Figure 3.1: ANSOFF Matrix (Product-Market Expansion Grid) layout. Market penetration Market penetration is the name given to a growth strategy where the business focuses on selling existing products into existing markets. Market development Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets. Product development Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets. Diversification Diversification is the name given to the growth strategy where a business markets new products in new markets. This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience. Here two alternative strategies I can mention. They are Market development and product development. Let us evaluate both strategies related to the BSRM. Market Development Suitability BSRM can increase their market coverage through the market development strategy. By applying market development BSRM can increase its sales growth rate. If they increase their sales obviously they can profit. There are some areas in Bangladesh which are in under development process. Many constructions activities are running all over the country. So, it can be a good chance for BSRM to increase their market growth. According to BSRMs vision and mission statement it has mentioned to provide high quality steel products to the customer and become market leader in steel industry sector. Market development can support BSRM to achieve their mission and vision. So this is a suitable strategy to BSRM. Acceptability BSRM is the leading steel industry in Bangladesh and they have brand name. People undoubtedly believe their products. BSRM always honestly work for their customers, shareholders. So, in capital market it has a positive reaction. Currently government spending large amount of money in the industry sector for the development of current economical condition. So, this is an acceptable strategy. Feasibility According to the cash flow statement BSRM has good financial ability in market. In the date of 31st March, 2008 BSRMs share money deposit was BDT 6,015,000 and Liability against import was BDT 169,597,618. It has the largest work force and experience management team. BSRM has good annual balance and cash flow statement. Their stock market shares are also strong valued. BSRM has financial capability to research on the market. So this strategy is also feasible. Product development Suitability Bangladesh Steel Re-Rolling Mills Ltd. currently produces steel related products and services. It has good market share as mentioned. BSRM can use product development strategy for their market growth. Peoples experience and perceptions are always changing. So customers prefer to experience new product. Generally they like new products with high value and low price. BSRM can produce new products and can improve their customer relation facilities. Also they can improve their current product by using new technological instruments and machines. It has already create and maintain a well known brand name so, that will help to marketing the new product. Also BSRM created brand and customer loyalty so this strategy is appropriate to BSRM. Acceptability Using the industry life cycle analysis it is clear that BSRM coming under the maturity stage. Therefore, product development is acceptable in this stage. It will help to achieve the profit growth. Through the product development it can ensure the profit and success. In the steel business field changes are important to progress in the market. For an example TESCO has introduced TESCO lemon drinks, TESCO sugar, etc. Introduce lemon drinks and sugar is product development strategy for the company. It is not a completely new product it is a modified product. By Using these types of strategy TESCO try to increase their market growth. So this strategy is also acceptable for BSRM. Feasibility Through the financial statement BSRM has established their financial resource. They have strong financial background and stability in the market. Optimum level of financial resources helps BSRM to support the product development strategy. As a steel industry BSRM has the financial, human, technology and physical resource. Favourable and good cash flow statement shown in the financial statement. Therefore this strategy is also feasible to Sri Lanka Telecom. According to the evaluation of the alternative strategy analysis I can recommend that product development strategy is the most suitable strategy than the market development. There are many opportunities for BSRM to enter into the new market. BSRM already has the brand name. So it is the chance for BSRM to implement the product development strategy. Q.4. Construct a new suitable structure for a strategy plan ensuring the participation of all stakeholders. New Organizational Structure Figure 4.1: Proposed New Organizational Structure of BSRM Under the every divisional CEO the structure will be same for GM to the bottom line. It is a common practice that when an organization changes their strategy it requires to change of the organizational structure. There are four major types of organizational structure used which are divisional structure, functional structure, matrix structure, strategic business unit structure. According to the new strategy of BSRM I have proposed a new organizational structure. The new structure is the divisional form of organizational structure. Product development is the new strategy I have recommended for BSRM. So, I have restructured the existing structure. I have added six divisional CEO for the company according to my new strategy product development. One CEO cannot control all of the part of Bangladesh so I have introduced the others. I have included another manager who is product research and development manager under the Sr. Manager Marketing Sales. In this structure product research and development manager is an important post. His job will be the product research and find out the market opportunity which BSRM can implement into their product development strategy. Q.5. Analyse how you would plan for the implementation of strategy in the perspective of following issue. Strategic Plan Strategic plan is a set of statements describing the purpose and ethical conduct for an organization together with the specific strategies designed to achieve the targets set for each of these. The strategic plan can be arranged by analysing the internal and external factors which have control over the company. There are some major points involved in strategic planning. They are as follows:- Defining corporate mission Setting corporate objectives and goals Designing the business portfolio Designing the key business unit strategy Functional plan. BSRM strategy plans accordingly the above steps. Corporate mission Become a market leader of Bangladesh in steel industry sector by providing a good and high quality products and services. Corporate objectives Maintain leadership position in the steel industry sector. Provide high quality products and services with affordable price. Achieving the target profit growth Increase the market share. Business portfolio BSRM produce steel related products such as: Deformed Bar Xtreme 500W, Grade-75 Wires, Angles, Channels, Spring Steel Flats, Low Carbon Wire Rods, etc. Business unit strategy To achieve its objectives product development is the BSRMs business unit strategy. Functional strategy To support the business strategy, BSRM has developed many promotional strategies. BSRM select the Chittagong and Dhaka division to increase its market area. Strategy can be reach through cost reduction, improved quality of product and services, through the development of customer preference and the raise of competitive leverage (Henry et al, 2003). Resource Requirements The resources are essential requirement to implement the strategy of the business. For the implementation of strategy there are four mail resources required. They are financial resources, physical resources, human resources and technological resources. Through the financial statement BSRM has established their financial resource. They have strong financial background and stability in the market. Technological resource is very much related to the steel industry sector. In 2008 a state-of-the-art DANIELI built rolling mill BSRM Steels for manufacture the highest grade bar available in Bangladesh. So BSRM adopt new technology to deliver good and quality products to his customer. BSRM has appointed PricewaterhouseCoopers (PwC) one of the largest and reputed management consultancy firms in the world with the aim of strengthening human resource management. BSRM has highly skilled labours and also has physical resources to implement the strategy. BSRM needs to acquire these resources effectively to support their objectives goals. Targets and timescales Timescale is one of the main facts for the implementation of strategy. If time target is fixed then the strategy control will be easy. BSRM always try to set a target timescales for the implementation of their strategy. By following the new strategy, BSRM has set a five years timescale to achieve their corporate objectives. The company has to do some research into the market condition and has to improve technical and distribution side. So it will take 5 years time period to achieve BSRMs new strategy.