BUSM3309 – Strategic Management – A3

Executive Summary

 

It is undeniable that business strategy plays an essential role in every organization that decides the competitive advantage of one firm and drives the firm to sustainable success, especially in newly-established firms. Orlar is a newcomer in the Vietnamese agriculture industry which specializes in planting and selling contaminant-free organic fruits and vegetables locally in the Vietnam market. This report aims to critically analyze the strategic capability of Orlar and suggest the most appropriate strategic initiative for Orlar to improve their organizational performance. First, the paper identifies outstanding competitive advantages of Orlar based on the resources-based view theory, which derives technological, financial and human resources. Second, the blue ocean strategy applied by Orlar currently is explained and compared with traditional generic strategy. Third, the paper suggests a market development strategy for Orlar in the next three years to help the company fulfill its ambition to expand the business to the North market, with a focus on Hanoi capital. The detailed implementation plan of the strategic initiative is generated based on the McKinsey’s 7S Framework. It includes four steps, from strategic position analysis, to choosing type of strategic changes, detailed action plan, ending with strategic initiatives measurement using Balanced Scorecard and Strategy Map.

STRATEGIC CAPABILITIES ANALYSIS AND STRATEGIC INITIATIVE RECOMMENDATION FOR ORLAR

  • Introduction

1.1. The significance of strategy in the business context

Strategy is the integrated set of commitments and actions that is designed by one firm to cultivate their core competencies and generate competitive advantages, which are argued as the key drivers of superior performance (Pearce & Robinson 1988; Porter 1985). An organization achieves its competitive advantages when they implement a successful strategy that its competitors are unable to duplicate or imitate (Hoskisson, Ireland & Hitt 2007). The role of strategy in improving organizations’ sustainable competitive advantages has long been recognized in various researches in the literature review of strategic management (Parnell, 2006). The importance of strategy is much greater than before due to the global trend and the appearance of various entrepreneurs and newly-established organizations that lead to fierce competition in the business setting (Islami, Mustafa and Latkovikj, 2020). As a result, a business must create and implement strategy at different levels to survive and to be profitable. 

1.2. Company’s information

Orlar is an Australia-based company founded in 2014 with the ultimate goal is to grow pure food locally in Vietnam. The company’s mission is to produce contaminant-free organic fruits and vegetables and make it accessible for countries like Vietnam, where the environment suffers from serious pollution and contamination. They are currently operating in Vietnam with a full-scale facility in Dalat. Orlar provides nutrient-rich and delicious fruits and veggies such as strawberries, lettuce, tomato, edible flowers and herbs. The company supplies green and healthy products for a wide range of supermarkets and retailers in Saigon as well as for individuals directly.  

1.3. The significance of the report

It is apparent that Orlar has gradually achieved successes in the Vietnam market, however, the company is facing specific challenges and seeking room for continuous development to maintain their position in the market and to become the leading firm among countless veggie suppliers in Vietnam. Perceiving the significant role of corporate strategy and strategic management in the current business setting, as well as the potential growth of Orlar in Vietnam, this report first aims to carry out the internal environment analysis of Orlar in order to explain their competitive advantages in the Vietnam market with the augment of the resource-based view. Second, the paper would take the current generic strategy applied by Orlar into consideration for the purpose of gaining more business insights of the company in terms of business direction, goals and future plans. Finally, relying on the external environment analysis in the previous assignment together with the resource-based analysis, this report would recommend one potential strategic initiative for Orlar to consider for its business plan in the next three years to grow its business in Vietnam. Last but not least, the balanced scorecard framework and strategy map would be provided to evaluate the possibility of the suggested strategy.   

  • Main body of the assignment

2.1. Key resources and capabilities of Orlar

2.1.1. The resource-based view theory

The resource-based view explains how an organization achieves sustainable competitive advantages by taking full advantages of its capabilities and resources. Resources refers to the assets of the company which include both tangible and intangible ones, while capabilities indicate the ability of organizations to exploit these resources to create fruitful outcomes (Amit & Shoemaker 1993). This is a well-known theory to analyze the origin of one firm’s competitive advantages with an emphasis on the internal environment analysis (Furrer, Thomas & Goussevskaia 2008). According to the resource-based view theory, it is believed that the resources and capabilities of one firm is the fundamental of its strategic competitiveness, which makes it surpass multiple competitors in the market and strengthen its footstep in the industry. Therefore, only firms which understand clearly about their capabilities and have the ability to leverage its resources successfully would gain sustainable competitive advantages to ensure a continuous growth in the market (Barney 1991). The study of Powell (2001) stated that business strategies are considered effective tools to manipulate organizations’ resources to create capabilities and hence achieve competitive advantage. This section would carry out the internal environment analysis for Orlar to evaluate their resources and capabilities in order to identify their competitive advantages that help them stand out from competitors in the Vietnam market. The resources and capabilities of Orlar are classified into three categories, which are technological resources, financial resources and other resources.

2.1.2. The technological resource of Orlar

Technology is the most valuable resource that plays a decisive role in the success of Orlar. The advancement of Orlar’s technology contributes to the production of organic, clean and healthy food without greenhouse gas emission while maintaining the freshness and deliciousness of the product. Due to the tough environment and the pollution in the air and water, it is difficult for planters in Vietnam to guarantee safety in food production, and the ability to eliminate toxic substances from food products is such a great competitive advantage in quality of Orlar compared to other local suppliers in the region. The technology advancement in Orlar is ten steps ahead of its competitors in efficiency. The dominant technology allows Orlar to increase its capacity to produce much more fruits and veggies on a horizontal surface in comparison with other opponents for the same space. Thanks to the ability to apply technology to temperature control in production, Orlar is able to cut down their operation cost and fixed cost by moving the facility to a lower area with cheaper land price while remaining the same quality and quantity of the yields. Cost saving in operations would lead to a lower cost of goods solds that allows Orlar to sell their products with better prices compared to other food importers in the market. As such, the company is capable of gaining competitive advantage in price, quality and quantity.

2.1.3. The financial resources of Orlar

In terms of financial resources, the company is undergoing a fairly large capital injection which brings them the capability to increase the volume of the yield, to invest in research and development and to prepare for their expansion plan. In particular, the investment of a Dutch fund in climate development would help them to double the production in the last six months, and to reach 3 times higher than what they are currently doing. Otherwise, Orlar is potentially able to raise more funds from banks and from environmental social governance fundings to grow with reasonable finance thanks to their eco-friendly approach in production. The increase of capital tackles the problem of shortcoming in financial resources, which is a barrier of Orlar to adapt to the surge in demand of Vietnamese people during the Covid-19 pandemic. Most importantly, the strength in financial resources would allow Orlar to invest in research and development facilities in order to stay on the leading edge with innovation, hence sharpen their competitiveness in technological resources and capabilities. In addition, the great support from capital increase might result in an improvement of the capability to meet the huge demand from the South and even create favorable conditions for Orlar to expand their business to the North.       

2.1.4. Other resources of Orlar

Besides technological and financial resources, the knowledgeable founding team and supportive culture are two determinants that drive Orlar to success. These valuable intangible resources help Orlar earn the very first step into the Vietnam market and grow here in terms of sales revenue, capacity of the production, supply chain and human resources. Furthermore, these people have formed closed partnerships with key retailers in Vietnam such as Vinmart, Co-op mart, etc… hence reduce the burden of sales and distribution channels during the first stage of operations in Vietnam. Without their time and efforts, it is impossible for Orlar to start their business in Vietnam.  

2.2. Current business strategy applied by Orlar 

2.2.1. Generic business strategies at the business level

Porter (1985) introduced three main generic business strategies that allow businesses to achieve competitive advantage, which are cost leadership, differentiation, and focus strategies. The cost leadership strategy focuses on achieving competitiveness advantages by lowering the cost of production to the minimum. Popular approaches to implement this strategy are applying mass production and distribution, economies of scale, technology adoption, leveling up the efficiency of operations, sourcing for cheap  raw  materials (Venu 2001). The differentiation strategy concentrates on creating unique value for customers in some dimensions of the products and services to outweigh other rivals in the same market. Firms that apply the differentiation strategy might upgrade their products and services in terms of quality, added value, unique features, or customer services that fulfill customers’ expectation and make them pay more for the products and services without creating any irritation (Akan et al. 2006). Focus strategy is most suitable when one firm determines to seek a narrow segment within the industry and gather its resources to tailor products and services to serve this targeted segment exclusively without being overlooked by large competitions (Tanwar 2013).  Each strategy has its own set of competitiveness and pitfalls. While generally firms would choose to pursue only one among three generic strategies, some firms would pay more effort to pursue more than one generic strategy in order to bring out the best results. For example, It is common that organizations might choose to mix focus strategy with cost leadership strategy or with differentiation strategy for better results (David 2015).

2.2.2. Generic business strategy applied by Orlar

Orlar applies the blue ocean strategy to enter the Vietnam market which refers to a combination of focus cost leadership and differentiation strategies. According to the oceans theory, the market is divided into two sorts of oceans, which are red oceans and blue ones. The red oceans stand for all the well-known and existing industries and markets whereas industry boundaries are clearly defined and accepted and the competitive rules are well set. Companies operating in the red oceans must strive to outperform their competitors to survive and compete for more market share that leads to a limited space to grow for organizations. By contrast, the blue oceans represent an untapped market, where there is space for demand creation and for profitable growth without identified market barriers and the fierce competition among companies (Pitta 2009). While businesses in the red oceans have to compete non stop with each other, organizations in the blue oceans surprisingly do not take the competition as their benchmark (Haeriyazdi & Afsharjalili, 2010), but differentiate themselves by creating a leap in customer value through “value innovation”. Value innovation is a creative strategic approach developed from traditional strategic management which focuses on improving the cost structure and creating more value for buyers at the same time (Tabari et al. 2014). In other words, players in the blue oceans pursue differentiation and low-cost strategies simultaneously in order to create the best value for customers at the minimum cost (Kim & Mauborgne, 2005). Regarding the case of Orlar, the red ocean contains countless cheap and regular veggie vendors and luxury and expensive imported fruits suppliers competing with each other in their targeted segmentation. Meanwhile, Orla created a blue ocean to sell Made-in-Vietnam fresh and contaminant-free organic food with the quality of Australia but at a reasonable price that is approachable for the majority of Vietnamese buyers. As such, Orlar is able to create more value for customers by increasing the quality of food through eliminating greenhouse gas emission in production while lowering the money customers have to spend on high-quality and healthy products thanks to their technology adoption to have these products grow directly in Vietnam to cut down the transportation and operations cost. The blue ocean theory is considered an antithesis of previous research in the literature review of strategic management, whereas it is believed that firms which engage with both cost leadership and differentiation strategies would highly result in failure when they are stuck in the middle (Tanwar 2013). Apparently, Orlar is an instance of a successful implementation of this strategy that demonstrates the high rate of success by using both cost leadership and differentiation to create and tackle their own market.     

2.3. Strategic initiatives recommended for Orlar

2.3.1. Strategic position analysis for Orlar

In order to suggest the right strategic initiative for Orlar in the next three years, a strategic position analysis, which revolves around four factors including environment, culture, capabilities and purposes will be carried out. The purpose of Orlar is to grow organic and healthy food locally in Vietnam with an international standard. For the long term, Orlar expects to expand their business to Singapore and other countries in Southeast Asia. Relying on the PESTLE analysis in the assignment 1, Orlar receives favorable conditions in political, economic, technology and legal aspects. This is mainly due to great support from the Vietnamese government during the globalization trend to encourage international agricultural firms to develop in Vietnam by providing advantages in tariffs, transaction and technology transfer, especially for companies with eco-friendly production like Orlar. The Porter’s five forces analysis in the assignment 1 also indicates that Orlar has a low level of substitutes and bargaining power of suppliers thanks to the unique features of their products that are difficult for competitors to duplicate, which are organic, healthy and delicious but reasonable price. On the other hand, Orlar faces a high level of rivalry of existing competitors, potential entrants and bargaining power of buyers because Vietnam is known as an agricultural country due to the diverse climate and fertile soil that are suitable for cultivation purposes. Therefore, it is understandable why the agriculture industry is most developed in Vietnam with countless players in the market. However, as mentioned in the resources and capabilities analysis in section 2.1., the technological and financial resources of Orlar have paved the way for their capabilities in producing incredible yield in terms of capacity and quantity while keeping the operations and fixed costs at the minimum that results in competitive advantages in quality and price. Otherwise, the company is driven by a knowledgeable management board to create an open-minded and supportive corporate culture, as well as to establish close partnership with key retailers in Vietnam to ensure a stable demand for their business.  

2.3.2. Strategic choice suggested for Orlar

Strategic choice refers to the targeted market of the firm and the position which the organisation wants to occupy in those markets (Kotha & Vadlami 1995). Based on the above strategic position analysis, this report suggests that in the next three years, Orlar would apply market development strategy with a focus strategic approach to expand their business to the North of Vietnam, with a focus on Hanoi capital. The targeted segment of Orlar will be people who favor local products with high quality and those who pursue the organic and healthy lifestyle. This is the most suitable strategic initiative for Orlar at the moment due the following reasons. First, as a corporate operating in Vietnam, it is easier for Orlar to grow their business within the territory of Vietnam by taking full advantage of the benefits and favorable conditions of the political aspects and legal framework from the Vietnamese government. It is apparent that expanding business in Vietnam costs Orlar much less resources, time and effort than initiating a new business in other countries. In addition, this market development strategy would not only help Orlar to strengthen their foothold in Vietnam but also act as the first step for further expansion into other regions of Southeast Asia. It is safer for Orlar to expand their business within the region of Vietnam first and then deploy gained experiences and knowledge in the value chain to move forward with foreign markets. Second, the management board of Orlar has also identified a huge demand from the North, and is considering having a presence in the North. Third, there is a great potential for retail business and B2C sales channels of Orlar since there is a substantial discrepancy between the lifestyle of the South and the North. While Saigonist prefer to eat out or take away food, Hanoian have a tendency to cook and prepare meals by themselves. This fact contributes to explain why Orlar witnesses a high sales volume for restaurants in Saigon and as a matter of fact, Hanoi is a potential market for direct selling and retailing whereas Orlar can supply daily or weekly ingredients for housewives who love to cook. Otherwise, a focus strategy with continuous efforts in minimizing costs while keeping up with Australian standards of quality is the most appropriate approach for Orlar to implement this strategic initiative because it would help newly-established firms like Orlar prevent a direct competition against existing competitors in the market by targeting the narrow targeted segment while lowering investment costs simultaneously (Kim, Nam & Stimpert 2004). As such, by applying focus strategy, Orlar would be able to lessen the pressure from strong rivalry of existing competitors and potential entrants mentioned in the Porter’s five force analysis.  

 

2.3.3. Strategy implementation plan 

A good strategy is not enough for the organization to compete with other competitors in the market but an appropriate execution is the determinant to decide the success of the strategy and of the organization as a whole. Indeed, most of the organizations struggle for the strategy implementation process as they require leading and managing changes in several aspects of the organization (Neilson, Martin, & Powers 2008). In order to create a sufficient implementation plan for Orlar, the 7s framework of McKinsey would be taken into account. The McKinsey’s model is considered an effective tool for organizations in adapting to the national and international competitions. This model comprises seven independent components, of which strategy, business structures, and systems are classified into hard elements, while management styles, shared values, staff and skills are considered soft elements (Figure 1). There are four essential steps that organizations need to follow in order to ensure a successful implementation of the model (Demir and Kocaoglu, 2019). Firstly, it is necessary to identify ineffective factors and deficiencies in the current structure which go against its shared values, vision and mission. Secondly, it is important to determine the types of change and transformation needed to be applied within the organization to improve the identified shortcomings and to help the firm reach the new target. Third, a detailed action plan and change tactics should be generated to drive the organization to the strategy implementation in real life. Last but not least, it is utmost important to evaluate and assess the effectiveness and progress of the changes in previous stages to see if the organization has reached the established goals as planned or what needs to be done for a sustainable result. Relying on the 7s framework, the strategy implementation plan would be delivered in four steps accordingly.

Figure 1: McKinsey’s 7S Framework (Ravanfar 2015)

 

2.3.3.1. Ineffectiveness and deficiencies in the current structure of Orlar

From the industry sharings session with Orlar’s representative, the current strategy Orlar is applying is the blue ocean strategy. The company has a facility in Dalat and supplies for Ho Chi Minh city market by a reliable local transportation vendor. Orlar is focusing on the B2B business model and mainly supplies for supermarket chains and restaurants in Saigon without much investment in the retail channel. Orlar pursued a supportive and collaborative corporate culture for a small business with around 50 employees. In case Orlar applies market development strategy with a focus approach as suggested above in section 2.3.2, there are deficiencies in four aspects of the McKinsey’s 7s framework, which are structure, system, staff and skills. In particular, in terms of structure, currently the company has zero presence in the North. Regarding the “system” factor, Orlar has only one partner in transportation without any backup option to deliver products from Dalat to Saigon decently. There is a risk in logistics if this vendor is not willing to do delivery in the North or if they ask for a high price of delivery. Otherwise, it is uncertain that the current facility of Orlar can produce sufficient volume for the expansion plan. In terms of the “staff” aspect, Orlar has a limited number of employees which might result in the situations of human resources shortage or employees are overburdened with work if the company expands to the North. Regarding the “skills” element, Orlar seems to lack experience in B2C business models and retail sales channels since the company only focuses on selling for corporations in the Saigon market and receiving retail orders via social media or hotline. If Orlar expands to Hanoi, it is critically important to develop retail channels.   

2.3.3.2. Defining the type of changes for Orlar

There are four types of strategic changes for organizations to consider, which are adaptation, revolution, evolution and reconstruction (Balogun & Hope Hailey 2007). While the reconstruction and revolution emphasize a rapid change in the culture or strategy, the adaptation and evolution allow changes to happen incrementally without changing the whole current strategy and position of the firm. The market development strategy suggested for Orlar in this paper could be considered an evolution change because Orlar can continue their focus strategy with both cost leadership and high quality approaches and maintain their supportive and collaborative corporate culture while gradually exploring new capabilities in logistics, sales channel, and human resources elements.  

2.3.3.3. Detailed action plan for Orlar to implement the expansion strategy 

In order to ensure a successful implementation of expansion strategy, a detailed action plan with milestones is developed for Orlar to improve these above deficiencies in structure, system, staff and skills aspects. 

 

For the structure aspect, it is utmost important for Orlar to raise brand awareness in Hanoi. It is suggested that Orlar should open a representative office and a distribution centre in Hanoi for the convenience of logistics and meeting with corporate clients. There is also a need of having a person in charge from the management team relocated to Hanoi to manage the business here.

 

For the system factor, Orlar should have more options of logistics partners. Selling on E-commerce platforms such as Sendo or Lazada is an option to solve the dilemma of logistics since various E-commerce platforms are open for fresh food. Moreover, this tactic also acts as a marketing tool since it increases the brand coverage to individual customers, hence increasing the sales revenue derived from retails without costing a great deal of resources in sales and marketing. Otherwise, Orlar might build their own E-commerce platform as well. This initiative would be more feasible if Orlar has a contribution center in Hanoi. 

 

For the staff and skills factors, it is recommended that Orlar should recruit more people with customer service mindsets to handle retail buyers as retails approach will be focused for the Hanoi market.

 

To be more specific, the table below suggests the milestone and actions Orlar should achieve to expand their business to the North during the period of three years:

 

Structure System Staff Skills
2022
  • Searching and sourcing for space to open office and warehouse in Hanoi
  • Raising capital to prepare for the expansion plan
  • Searching for vendor in logistics to deliver goods to Hanoi
  • Planning for capacities and sales plan for both Hanoi and Saigon markets 
  • Create recruitment planning for the expansion plan (number of headcounts, job description, …) 
  • Carrying out analysis on retail business
2023
  • Opening a representative office an and distribution centre in Hanoi
  • Signing contract with trusted logistics vendors
  • Working with E-commerce platforms to sell products there
  • Recruiting more staff for new office in Hanoi (sales and marketing, customer service, administrative officer)
  • Prepare training and development program on customer service
2024
  • Operating Hanoi office and distribution centre smoothly
  • Opening online stores on E-commerce websites and outlets in Hanoi for walk-in customers 
  • Having enough staff to operate facilities in Hanoi 
  • Have a well-trained customer service team based in Hanoi office

Table 1: Milestones and actions plan for Orlar in three years

 

2.3.3.4. Strategic initiatives measurement using Balanced Scorecard and Strategy Map

The balanced scorecard model is an ideal method for controlling the organization performance that emphasizes the role of both financial and nonfinancial measures (Brewer and Speh, 2000). This model measures the achievement of organizations in four aspects related to both external and internal perspectives, which are customers, financial perspective, internal business process, and innovation and learning (Kaplan and Norton 1992) (Figure 2). Each aspect has its own criteria to measure the achievement of organization. Financial perspective would be measured by return on capital, asset utilization and improvement in the shareholder value. Customer perspective relates to product/service attributes, customer relationship management, image and reputation in customers’ eyes. Internal business process refers to the ability to improve the operations regarding product development, product delivery and after-sales services. Innovation and learning aspect concerns the  information system capabilities and the capabilities, motivation, empowerment and alignment of employees (Chavan, 2009)

 

Figure 2: Balanced Scorecard model (Kaplan and Norton 1992).

 

The strategy map is an extension of the balanced scorecard which coordinates the linkage among key success measures of the four aspects in the balanced scorecard model and depicts their hierarchy relationships (Lueg, 2015). This is an effective approach for managers to communicate the strategy with their employees and measure changes happening within the organization. 

Below is the strategic map of Orlar to indicate and describe the interrelationship among key success measures of the market development strategy:

Figure 3: Strategy map for market development strategy of Orlar

  • Conclusion

In conclusion, this paper could be classified into two parts. The first part of the paper delivers critical analyses about the competitive advantages of Orlar through the resources based view theory and about the current strategy applied by Orlar to enter the Vietnam market.  In this first part, it is proved that Orlar achieved their competitive advantages in pricing, quality, and capacity thanks to their technological resources that help them produce incredible yields at the minimum cost and at the max capacity while maintaining the quality of products. Otherwise, Orlar’s strong financial resources provide great advantages for the company to invest more in technology and innovation in order to sustain these above competitive advantages, while creating favorable conditions for the market development suggested in the second part of the paper. The competitive advantage also came from the knowledgeable management board of Orlar who has successfully adopted the blue ocean strategy to pave the way for Orlar to get in the Vietnam market. The second part of the paper provides recommendations about a strategic initiative for Orlar to grow their business in the period of three years. After consideration of both the internal and external environment analysis of Orlar, the market development strategy with a continuous focus strategy on high quality and cost optimization is the most appropriate strategic initiative for Orlar to achieve its target to expand the business to the North. The paper also suggested that Orlar should focus on developing their retail sales channel to approach the great retail demand in Hanoi, starting with operating online stores in different E-commerce platforms. Finally, a decent business plan for Orlar’s market development campaign is created relying on the McKinsey’s 7S Framework including four stages: strategic position analysis, choosing type of strategic changes, detailed action plan, and strategic initiatives measurement.

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