Key Success Factors and Current Industry Prospects: Key Success Factors Key success factors (KSFs) are the competitive
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Key Success Factors and Current Industry Prospects: Key Success Factors
Key success factors (KSFs) are the competitive factors in the marketplace that affect an industry member's ability to survive and prosper - along with the elements, product attributes, operational approaches, and competitive capabilities that determine profit and loss (Thompson, 2012). It is important for a business to understand what these key factors are and monitor them accordingly or else they run the risk of becoming an industry laggard or even failure as these have the greatest degree of influence on the competitive success of the company.
Based on Kmart's industry, the common KSF's for them are:
Technology - Advanced technology for merchandize efficiency
Distribution - Supply Chain Management efficiency
Marketing - breadth of product line
Skills & Capabilities - effective merchandise strategies
Other - overall low cost and underpricing strategies
Industry Prospects
When evaluating an industry, it is important to identify what a company offers in regard to opportunities for growth and profitability. There are a few factors to consider when basing a conclusion. These are:
Growth potential
Are strong competitive forces forcing industry profitability to subpar levels
If the industry profitability is favorable or unfavorably affected by prevailing driving forces
If the company occupies a stronger market position than competition
How well does the company deliver on industry key success factor
(Thompson, 2012)
Knowing and understanding key industry prospects is important to Kmart because they need to gather all requirements to make an educated and sound decision for their future opportunities. Companies make decisions based off of attractiveness; if overall profit prospects are above average, then that company may see that environment as attractive. Transversely, if profits are below average, then it is viewed as unattractive.
Internal Environmental Analysis
Performance Evaluation
A performance evaluation is a method by which an employee's job performance is documented and evaluated. Performance evaluations are completed at set intervals of time, usually once or twice a year. A performance evaluation assesses the employee's job performance and productivity. It includes the employee's accomplishments, strengths, weaknesses, areas of improvement and potential for growth. It can be used to motivate employees, give praise, give raises and assist with career development.
Performance evaluations are important because they give employees feedback. The employee and employer can communicate clearly with each other and collaborate. The employee and employer can partner together to create goals to improve performance and assess areas where training is needed. Together they can better employee which will be beneficial to the individual and the organization.
Kmart can use performance evaluations with their employees to find a more positive work environment. Each supervisor can evaluate the performance of employees that directly report to them, give praise, help them create goals to improve in areas of weakness and provide training where needed. The constructive feedback will help everyone improve in their position. This will help to better experience for the customer. A happy customer will be loyal and continue to patronize Kmart.
Resource and Capability Analysis
A resource is an asset that is owned or controlled by a company. A capability is the capacity of a company to perform an activity competently. Resources and capabilities that are valuable and rare provide a company with a competitive advantage. Resource and capability analysis evaluates a company's resources and capabilities to determine whether companies have a competitive advantage over rivals.
A resource and capability analysis would be beneficial to Kmart to help Kmart assess its competitiveness in the market. Kmart can determine if a new strategy should be formed or if improvements need to be made to the current one. Kmart would review its resources such as physical and financial assets, technology, and reputation. Kmart would also review and assess its capabilities in different areas and form an analysis that will help present a clear picture of its competitiveness and ways to improve to overcome their main competitors such as Walmart and Target.
SWOT Analysis
A SWOT analysis is a tool that can be used to organize a list of internal strengths, internal weaknesses, external opportunities, and external threats.
A SWOT analysis can be conducted by a person or a company to identify where it can improve. SWOTs are important because they help firms identify its competitive advantage and what resources work best for it. A simple grid with these four areas enables firms to take a better look at what is working in its favor and what it should worry about.
For example, if Collat School of Business wanted to look into attracting more students it can start by conducting a SWOT analysis. First, the SoB would need to list its internal strengths. An example of a strength would be the fact the they have professors with real-world experience teaching the students. Next, SoB will need to look at its internal weaknesses. An example of an internal weakness would be the fact that there is not much available parking around that part of campus. Third, the SoB would need to evaluate external opportunities. An opportunity would be for the SoB to capitalize on is the Innovation Depot near UAB. Finally, the SoB will need to identify external threats. An example of a threat would be UA's business school.
Value Chain Analysis
A value chain is a set of primary and supporting activities that a company uses to create customer value. A value chain analysis is a review of the company's value chain currently being utilized.
Conducting a value chain analysis is important because it allows a company the chance to see if its value chains are as efficient as possible. This is also important for comparing the cost of the value chain compared to the value that it creates for customers.
For a firm to conduct a value chain analysis, it would first need to identify its primary activities and support activities. After establishing these two lists, you would look at each activity to ensure that it is adding the most value to the customer. After that, you will need to see if there are any issues or areas that need revamping per the customer's request or because of costs. Finally, you can update your value chain.
Benchmarking
Benchmarking occurs when an organization attempts to compare its operations performance, methods/process of conducting business, the organization's standing as a whole, it's market share, and more to other organizations in the industry. This process can give a good indication of how an organization stacks up, on many levels, to industry leaders, as well as bottom feeders, within the industry. Benchmarking also leads to helping organizations generate ideas to facilitate better practices in many areas of operations and management. It can also show how advancements in technology (and the use of new technology) can improve an organizations ability to generate revenue and increase customer satisfaction.
In the case of K-mart and Sears Holdings, practices that are common among the industry leaders (i.e. Walmart, Target, etc.) would be a good starting point for generating leads on what changes can be made to increase the viability of K-mart. Changes such as selling products that are not necessarily owned by K-mart (third party products stored in warehouses and distribution centers) through K-mart's site as a proxy could lead to significant increases in sales as a larger variety of products can be sold online via K-mart's website (a model that is used by Walmart when shopping on their site). Part of the problem that led to significant decreases in revenue and market share for K-mart have resulted from a lack of change and innovation in the face of rapid technological advancements for business in this industry. "Standing on the shoulders of giants" may be a clich term, but it could be the kick start that K-mart needs to generate positive momentum for the organization. While simply being a copy of the larger stores will likely not generate much change as it will not help set K-mart apart from others, or lead to a competitive advantage, but refining and striving for further innovation based on the most successful practices by industry leaders seems like exactly what K-mart could use to bolster market share, and to rebrand itself.
Competitive Strength Assessment
A competitive strength assessment is an assessment of the competition in a certain market aimed at informing business decisions. An assessment typically involves creating a list of competitors and creating a profile for each competitor that includes information such as the types of products and services they sell, their market share, marketing strategies, and notable strengths and weaknesses. The assessment may also include comparisons between a business's specific products and services and the offerings of competitors.
The Importance of a competitive assessment is to help managers account for the presence of competitors when making business decisions. Identifying the strengths and weaknesses of competitors can allow managers to exploit weaknesses, emulate strengths, or avoid competing in areas where other companies are especially strong. Failure to account for the presence of competitors can result in bad business decisions. For example, if a certain neighborhood already has a well-established auto repair shop, it might not be a wise to open a similar shop in that area. On the other hand, a new shop that specializes in different or complementary services might have a better chance of being successful.
Strategic Issue Identification
A strategic issue identification is a fundamental policy question or critical challenge affecting an organization's mandates, mission, values, stakeholders, resources, structure, processes, management, or product or service level and mix. Identifying strategic issues is one of the most important and potentially one of the most difficult steps in the planning process. President White had identified six strategic issues for the University of Illinois and indicated that the strategic issues facing UIC, UIS, and UIUC probably would not be significantly different from the six he identified, although the differences in the campuses would make them slightly different.
The importance of a strategic issue identification is that you can determine Four great areas that can evaluate your company successes and failures. First, evaluating the products performance or the service performance of the company. Determining how the company is doing financially, being able to look outside the company to the external forces.
Five Generic Competitive Strategies
Broad Differentiation Strategy
A broad differentiation strategy is one that is practiced by attempting to offer a high amount of variety in the products/services offered by a company.
A good example of this strategy was Piggly Wiggly circa 1920s. Prior to that time, most stores were either general stores or specialty stores, like bakeries, butchers, and others. But, what Piggly Wiggly helped bring to the table was a grocery store that had a large selection of items at that time compared to other business, and it began to see tremendous success. This also catalyzed new supermarkets being developed under the same model, like Kroger's and King Kullen in the 1930s.
A more modern example would be Amazon. Amazon sells a gamut of items, from books, to groceries, to sports memorabilia, to tech supplies, to automotive appliances, and so much more. While traditional brick and mortar business like Walmart and Sears have been offering a similar variety of products for decades longer, Amazon was one of the first to sell products from other organizations in specialized industries to both bolster the variety of items offered on its website, and to attract customers from the stores it sold those products for.
Offering a wide variety of products allows for organizations to increase its potential base of customers. The more variety offered, the higher the chance that a business will appeal to more customers. Also, in Amazon's case, this strategy offers a chance to form partnerships with business in different industries/sub-industries that allows for Amazon to move into different markets.
Focused Low-Cost Provider
A focused low-cost strategy aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and lower price than those of its rivals. This strategy is considered attractive when the firm can lower costs significantly by limiting its customer base to a well-defined buyer segment. The ways to achieve a cost advantage over rivals and serving the target market niche are the same for low-cost leadership: out manage rivals in keeping the costs of value chain activities contained to a bare minimum and the search for innovative ways to bypass certain value chain activities. The main difference between a focused low-cost strategy and a low-cost strategy is the size of the target market the company is trying to appeal to. A focus low-cost strategy appeals to a narrow market segment while a low-cost strategy appeals to mostly all buyer groups (Thompson, 2012).
For some firms, achieving low costs is a difficult task because they lack the resources and capital necessary to drive their prices lower than competitors and still turn a profit. When a firm can find ways to keep their costs and prices low and if a set group of customers know that, then that creates a competitive advantage. Focused low-cost strategies are very common for producers of private-label goods that construct a generic version of name-brand merchandise and sell to retail chains who want a low-priced store brand. The Perrigo Company is a good example because they have become a leading manufacturer of health products producing private-label brands for companies like Walmart and CVS (Thompson, 2012).
Best Cost Provider
A best-cost provider strategy gives customers greater value by offering a low price for an elite product. The goal is to provide a price lower than the competitor for a product that is of equal or greater quality and comparable in features. This strategy works well with customers that are price sensitive but highly concerned with quality. The best-cost provider strategy is risky as it may be difficult to sustain the lowest price and still make a profit.
To implement the best-cost provider strategy the following steps should be employed:
Identify a niche product with target customers that are price sensitive.
Add features or services to the product so that the target customer is provided with value that is on par with competitive products.
Price the product so that you are the best cost provider and have the lowest pricing when compared to competitors.
Reduce overall costs by re-engineering cost activities using techniques such as outsourcing and increased automation.
Attract customers by marketing your best cost provider strategy and differentiating your product based on cost and high value.
Kmart can benefit from best-cost provider strategy because it would give the company the niche that would make them desired above all others. Consumers are searching for value at a low cost and when a retailer can provide that, they gain loyalty from the consumers. Walmart and Target already use this strategy to stay competitive in the market. Target has exclusive brands from designers that they are now offering at an affordable rate. Kmart should do the research on highly demanded and popular products, partner with a popular brand or designer, and offer the product at the lowest rate possible that will attract consumers and still gain a profit. They should make sure that they are exclusively selling the product to drive consumers back to the stores.
Focused Differentiation
Focused differentiation strategy is the approach based on uniqueness or niche market and target a narrow market between competing firms. For a focused differentiation strategy to be successful, the firm has to look for the specific buyer segment that is looking for special product attributes or seller capabilities. The firm must also stand apart from other rivals competing in the same target market niche (Thompson, 2012).
To be successful in this strategy, a firm must be able to provide a very unique product or set of products to a specific set of customers. An important factor of focused differentiation strategy is having to charge high prices for a product because the high cost to produce that product, either through customization or quality. If a firm chooses the focused differentiation approach, they must be able to bring high-quality products or highly customizable products to market and keep their customers interested.
Low-Cost Provider (Kmart's Strategy)
A low-cost provider strategy is a technique that appeals to a broad section of buyers and takes on the advantage of having lower overall cost compared to competitors. The company finding ways to reduce costs in all aspects of this business until it is the cheapest of the competition drives this strategy. The lower the prices are, the more price-sensitive buyers the company to take away from its competitors. The company can always simply match its competitors' lowest prices, causing a price war. Either way, the company practicing this strategy efficiently will see profitability increase. A few examples of cutting costs to achieve this profitability are attempting economies of scale, using lower cost inputs that do not sacrifice quality, outsourcing non-essential work to cheaper firms, and trying to operate one's facility at full capacity.
A low-cost provider strategy is important for many reasons. Out of all five of the generic competitive strategies discussed, this strategy may be the best choice for those who lack certain qualities. The best way to describe the importance of the low-cost provider strategy would be to compare it to the other four competitive strategies. First, we will look at the broad differentiation strategy and the focused differentiation strategy. These strategies are good for companies if there is something unique about their product, culture, or some other identifying characteristic. However, a company does not always have the luxury of having a product, service, or company that stands out in that way. This is when cost would be the right avenue to focus on. Next, there is the focused low-cost strategy. This is similar to the low-cost provider strategy except for the fact that it focuses on a specific target group of buyers that shop for their product or service. When you are in a market that is filled by extremely different shopper attitudes, this strategy will fail you- unlike the broad low-cost provider strategy. Finally, there is the best-cost provider strategy that combines the low-cost strategies and the differentiation strategy. Unfortunately, if a company cannot afford to lower prices and differentiate themselves from their competitors, this strategy will also fail.
Strategic Intent
A company's strategic intent is their relentless pursuit of an ambitious strategic objective in which the company is willing to remain fully committed to and achieve at any cost (Thompson, 2012).
Kmart utilizes a broad low-cost provider strategy as their competitive strategy. The strategic intent for Kmart is to offer overall low costs and underpricing to match or beat competitors. Similar to competitors such as Walmart and Target, Kmart offers a high variety of products at inexpensive prices that are appealing to customers. With convenient store locations and low distribution costs, Kmart is able to keep consumer prices low while offering various products to bring customers to stores.
Basis of Competitive Strategy
The basis of a firm's competitive strategy is its foundation that it builds on in order to succeed. Kmart's competitive strategy is a broad low-cost provider strategy. The basis of their current strategy is to achieve lower overall costs than competitors. Kmart constantly evaluates its competitive strategy in order to ensure that the appropriate areas are being focused on in order to continue providing low prices to customers while achieving high profits. One of the most recent efforts to cut costs was by closing underperforming locations in order to increase profitability.
Product Line
Although Kmart is a retailer that carries many different products, it does carry its own line of products. Kmart ensures that they can compete effectively with other retailers by providing a high-quality product at a fraction of the cost of other product brands that it carries. Kmart ensures that the product line is a good substitute for other items and makes sure that its items are displayed and available for purchase just as much as other brands.
Production Emphasis
Kmart uses a low-cost provider strategy. It is a strategy that is employed by some of Kmart's biggest competitors as well. Kmart emphasizes producing products that are in high demand, priced low and beneficial financially to the company. The products must also be of a quality comparable to competitors. This allows Kmart to continue to be relevant with consumers and gain customer loyalty.
Marketing Emphasis
Kmart's marketing emphasis is on marketing products that appeal to customers seeking a low-cost advantage. Kmart has many Kmart branded products that appeal to customers that are price conscious. Part of their low-cost provider strategy is to make sure that customers are aware of these products and their value. Kmart markets other brands as well, but steering customers to the Kmart brand is essential to their marketing strategy of driving customers to their stores and website to try their branded
products and loving them.
Keys to Maintaining Strategy
Some critical points that need to be emphasized by K-mart to continue utilizing the broad low-cost provider strategy include mitigating costs to acquire the products that are eventually sold to customers, mitigating costs for daily, weekly, monthly and yearly operations, striving to build beneficial relationships with distributers, and finding ways to reduce any other costs incurred by the organization, without affecting the ability to function as a viable business.
Resources and Capability Requirements
The resources required for Kmart to be able to maintain and build upon its broad low-cost strategy includes emphasizing efficiency, cost cutting (without over-stating this need which could lead to cutting corners in an unethical manner, or cutting costs that are necessary for the organization to function properly), scrutinizing the short-term, and long-term budgets to monitor progress, as well as facilitating the ability to find more ways to lower company costs.
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