Vsm Group: Examination of Strategic Position and Development of a Competitive Strategy

Introduction

Johnson, Scholes, and Whittington define strategy as the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competencies with the aim of fulfilling stakeholder expectations. Strategy is therefore the long-term direction of an organization. Strategic Management can be defined as the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives. Strategic management, therefore, focuses on the activities of the organization that contribute to the achievement of organizational success. These activities include management, marketing, financial management, operations management, research and development, and information systems. The strategic position of the VSM will be analyzed by applying the analytical models of strategic management to the current situation in the company.

The following models will be used to analyze both the internal and external environment of the company, namely, PESTEL, Five Forces Model, and the SWOT analysis The examination of the strategic position of VSM will involve analyzing the strategy of the company with emphasis on the environment it operates in, its strategic capabilities, and how expectations affect organizational purposes and strategies. The analysis will conclude with a clear statement of the Key Issues and Critical Success factors. The strategic position of VSM will then be used as a base to develop an appropriate competitive strategy for the company. The development of the strategy will also take into account the organisational cultural issues prevailing in the company.

Order custom essay Vsm Group: Examination of Strategic Position and Development of a Competitive Strategy with free plagiarism report

450+ experts on 30 subjects Starting from 3 hours delivery

Get Essay Help

Company Overview

The VSM (Viking Sewing Machines) Group AB engages in the development, production, marketing, and sale of household sewing machines and related accessories, and software. The VSM Group currently has two brands, namely, Husqvarna Viking and Pfaff. The company produces several lines of sewing machines, the top being the Designer series and the lowest being the mechanical (non-computerized) Huskystars.

The company has manufacturing facilities in Sweden and the Czech Republic and produces top-of-the-line household sewing machines with related accessories and software. Each brand has its own unique and separate product line. According to BusinessWeek (VSM Group AB: Private Company Information), the company was founded in 1689 and is headquartered in Huskvarna, Sweden. It has offices in many countries including Austria, Australia, Belgium, Canada, Denmark, France, Finland, Germany, Great Britain, Italy, Japan, Norway, Russia, Switzerland, the Czech Republic, Holland, and the United States of America. As of February 2006, the company was acquired by Singer Sewing Company.

The strategic position of the VSM group

The strategic position is concerned with the impact on the strategy of the external environment, an organization’s strategic capability (resources and competencies), and the expectations and influence of stakeholders.

The strategic position of VSM Group will be examined by utilizing the following factors, namely, the influence/impact of macro-environmental issues on the strategy, understanding the company’s strategic capability and how this strengthens the company’s competitive advantage, and thirdly how expectations shape organizational purposes and strategies. The impact of the macro-environment will be analyzed using the PESTEL framework, Porter’s Five Forces Model, SWOT analysis, and the competitive nature of VSM Group’s home base of Sweden.

PESTEL identifies six main types of environmental influences, namely, political, economic, social, technological, environmental, and legal. Each influence will be discussed hereunder.

PESTEL

Political variables

• Political stability in Sweden and the United States.
• The prevalence of foreign trade regulations in the USA.

Economic variables

• The decline in demand for sewing machines in the past two decades.
• The decline in industry profitability.
• Low sales in respect of Pfaff within three years of acquisition.
• High production costs in the German Pfaff plant.
• Investment by Juki and other industry players into the US market.

Socio-cultural factors

• Not using a consultant for the strategic planning weekend meeting made the strategy process unstructured and was a shift from the company’s way of doing things.
• Encouraging participation in the strategy process by middle management through a series of seminars.
• The adoption of the strategy document changed workers’ attitudes. The strategy document served as a guide on operational matters. The mission statement was frequently promoted in the company’s public relations.
• The focus shifted from technical features to customer satisfaction.

Technological variables

• Extended support for business development to encourage retailers to carry the Husqvarna Viking product line exclusively.
• Cooperation with Jo-Ann Fabrics & Crafts, a large retailer of fabrics with over a thousand stores throughout the USA, setting up small sewing machine outlets inside their fabric stores. This led to the introduction of ‘after-market’ services such as training in sewing techniques, software for embroidery construction and ready-made embroidery patterns, spare parts, and auxiliary sewing equipment. These after-market services are run by retailers.
• Customers were willing to pay as much as five to six thousand dollars on a three-day course with a sewing expert.
• A new accounting system was installed in May 1999.
• The marketing and the technical development department also moved into the same office building in January 2000. This ensures that the two departments operate in sync from the conception of product ideas to production and ultimately, the marketing of the product.
• Introduction of the Designer I model of the sewing machine in 1999. The model made use of software to control the machine and contained no less than eight motors to cater for all functions.
• Customers could download upgrades from the internet site, save it onto the floppy disk that comes with the Designer I package and slide it into the built-in disk drive. This method of upgrading performance was new for sewing machines.
• The acquisition of Embroidery Networks Ltd (Emnet) in March 1999. Emnet produced software for PC-controlled professional sewing. With the advent of the internet, people could exchange embroidery patterns through the internet or download them at the VSM website. VSM also expanded the number of software engineers from 3 to 17.

Environmental variables

• Manufacture of environmentally friendly sewing machines.
• Manufacture of machines that do not consume much electricity.

Legal variables

• Quality machines that are safe to use.
• Flexible labor legislation in Sweden and the USA.
• The mission statement pronouncement on the provision of growth opportunities for employees.

Five Forces Model

Porter identifies five basic forces that can act on the organization, namely,

1. the bargaining power of suppliers,
2. the bargaining power of buyers,
3. the threat of potential new entrants,
4. the threat of substitutes
5. the extent of competitive rivalry.

The objective of the analysis is to investigate how VSM Group needs to form its strategy in order to develop opportunities in its environment and protect itself against competition and other threats. The bargaining power of suppliers The VSM Group restructured its operations when Pfaff in Germany and the Zetina plant in the Czech Republic were taken over. Parts were now obtained from local suppliers and those from the Far East. This resulted in the reduction of costs by 50 percent on key machine components concurrent with large improvements in quality and rejection rates. In this respect, the suppliers’ bargaining power can be said to be low.

The bargaining power of buyers Buyers of VSM Group sewing machines has low bargaining power because the buyers are not concentrated in one geographical area. VSM is an international company and has a wide customer base. The products from VSM are greatly differentiated and therefore cannot be regarded as the same as those from other industry players. The threat of VSM Group buyers switching to other manufacturers is low. The threat of potential new entrants The ease with which new companies can enter the sewing and embroidery industries will increase the intensity of competitiveness among industry companies.

High unit costs of production may present barriers to entry because they mean that any new entrant has to come in on a large scale in order to achieve the low cost levels of those already present in the industry. The current high technological advancements and innovation levels in VSM Group, strong customer loyalty to VSM Group, strong brand name, large initial capital requirements, government regulatory frameworks in Sweden and the USA, and superior products create barriers to entry for potential new entrants. The threat of substitutes

The threat posed by substitute products by other manufacturers can be countered by continuous investment in technology and ‘after-market’ services by the VSM Group. The extent of competitive rivalry The sewing machine and embroidery industries are more competitive than other industries. The intensity of rivalry in the industry has increased with the coming into the industry of major manufacturing companies from the Far East. The decline in the demand for sewing machines and price cutting by VSM Group also increased rivalry among industry players. The differences in company strategies, origins (Europe and the Far East), and culture (European and Japanese) increase rivalry as well. As rivalry among competing firms intensifies, industry profits decline, in some cases to the point where the industry becomes inherently unattractive. This statement manifests itself in the number of major manufacturers (Singer and Pfaff) who are going bankrupt.

The following four decisive elements are identified:

• Availability of strengths in certain fields especially the automation and technological fields. The technological advancements made by the VSM Group in its Swedish operation since the beginning of the millennium give it a competitive advantage over its rivals and enable it to compete internationally.
• High demand in Sweden for VSM Group sewing machines provides the basis upon which the characteristics of the advantage of the company are shaped and leads to global dominance of the industry by VSM.
• Related to and supporting industries in the Swedish economy, the presence of Bernina Fritz Gegauf AG means that the two companies benefit from each other. Bernina enjoyed a solid reputation and their product range resembled that of VSM with their top model accepting embroidery files developed for other brands including VSM. All these factors made Bernina an important quality benchmark for VSM.
• Domestic rivalry with Bernina and the need by both companies to search for competitive advantage helped to provide the two companies with bases for achieving such an advantage on a global scale.

Foundations of strategic capability

According to Johnson et all strategic capability can be defined as the adequacy and suitability of the resources and competencies of an organization for it to survive and prosper. The strategic capability of a company refers to the resources that the organization has and the way in which these resources are used. Resources and competencies VM's resources can be considered under the following four broad categories:

• Physical resources – manufacturing plants in Sweden, the USA, and the Czech Republic.
• Financial resources – operating cash, budgets.
• Human resources – the average number of employees (1,689).
• The intangible resources will refer to the skills and knowledge that the employees possess.
• Intellectual capital – the brand name VSM Group AB, business systems, and customer databases.

Threshold capabilities are those essential for the organization to be able to compete in a given market. VSM’s threshold resources refer to: internet-based developments, the acquired software company Emnet, an increased number of engineers, and Pfaff. Unique resources and core competencies The design of the VSM sewing machines makes their unique resources in hat they give the company competitive advantage and other manufacturers find it difficult to imitate or copy the designs. VSM’s core competencies refer to: the ‘Dealer-Partners’ program, the cooperation with Jo-Ann Fabrics & Crafts, and the accompanying introduction of the ‘after-market’ services. All these strategies give VSM a competitive advantage.

Organizational culture analysis

Johnson et al define culture as the basic assumptions and beliefs that are shared by members of an organization, that operate unconsciously and define in a basic taken-for-granted fashion an organization’s view of itself and its environment.

Every organization has a culture and it includes values, beliefs, rites, language, metaphors, symbols, and rituals. Culture derives from VSM’s past, present, and current people, technology and physical resources, aims, objectives, and values of those who work in the organization. These cultural products can be used by strategists at VSM to influence and direct strategy formulation, implementation, and evaluation activities. The following cultural factors specific to VSM have been identified:

• The strategy process was changed to include, for the first time, both top and middle management. The involvement of middle managers had a positive effect on operations in that the strategy document was referred to as a guide on operational matters and the mission statement was frequently promoted in VSM’s public relations exercises. The strategy document was also regarded as an ongoing process that could be changed in response to changing situations in the company.
• Retailers were transformed into ‘Dealer-Partners’ which included extended business support to retailers to encourage them to deal only with the Husqvarna Viking product line. In the USA, VSM entered into a cooperation agreement with Jo-Ann Fabrics & Crafts to set up small sewing machine outlets inside their fabric stores. This led to the introduction of ‘after-market’ services such as training in sewing techniques, software for embroidery construction and ready-made embroidery patterns, spare parts and auxiliary sewing equipment. These after-market services are run by retailers. Customers were willing to pay as much as five to six thousand dollars on a three-day course with a sewing expert. In support of the company’s strategy the top management of the company was changed to accommodate the managers of the national sales companies as well as the marketing vice president.
• The operating systems also underwent major changes. A new accounting system was installed in May 1999 to assess accounting information in new ways to keep track of the various activities in the value chain.
• The acquisition of Pfaff upset some employees and pleased others. The company now had two brands that were competing for the same market.

Former competitors were now brought to the same stable and the company faced a challenge of how to keep them apart on other dimensions than price and quality. • The relocation of the German Karlsruhe operation to the Swedish Husqvarna plant resulted in only a handful of research and development engineers staying on. The company had to re-orientate the German engineers to the Swedish way of doing things since the engineering principles of the two countries were fundamentally different.

Formulation of competitive strategy

Long-term objectives represent the results expected from pursuing certain strategies. Strategies represent the actions to be taken to accomplish long-term objectives. Objectives take the generalities of the mission statement and turn them into more specific commitments: usually, this will cover what is to be done and when the objective is to be completed. Objectives will therefore possess the following characteristics, namely, they should be measurable, realistic, understandable to all, hierarchical, achievable, and should contain time frames. Clearly communicated objectives, according to David, are vital to the success of the company as they provide a basis for consistent decision-making by company managers and help stakeholders understand their role in the company. Formulating the competitive strategy for the VSM Group will consist of aligning the internal resources and skills and the external opportunities and risks.

Consolidation

Consolidation is where organizations protect and strengthen their position in their current markets with current products. The sewing market situation is forever changing and requires industry players to continuously innovate to improve the value of their products. The threat of new competitors or new entrants into the sewing industry means that VSM has to pay particular attention to how the company’s resources and skills should be adapted and developed to maintain its competitive advantage.

Withdrawal by VSM from the German market should be regarded as consolidation. Market penetration A market penetration strategy seeks to increase market share for present products or services in present markets through greater marketing efforts (David 1999, p. 50). VSM should therefore strive to penetrate the high-end embroidery market further by utilizing aggressive marketing efforts. These efforts should be focused on existing markets in the countries mentioned in the company overview.

Product development

Product development refers to significant new product developments and not minor variations on an existing product. According to David product development is a strategy that seeks to increase sales by improving or modifying present products or services. Continued development and innovation on the Designer series will counter new entrants into the market, will maintain the company’s reputation as an innovator, and will protect the company’s overall market share.

Market development

Market development is where existing products are offered in new markets (Johnson et al 2005, p. 46). This may involve seeking new market segments, new geographical areas, or new uses for its products that will bring in new customers. Expansion to bring in new customers to the company for its existing company could involve some slight repackaging and then promotion to a new market segment. It will often involve selling the same product in new international markets, especially in China and Asia.

Diversification: related markets

Diversification is defined as a strategy that takes an organization away from both its current markets and products. When an organization diversifies, it moves out of its current markets and products into new areas. Diversification carries with it an element of risk as it involves a step into the unknown. Moving into related markets, however, minimizes the risk. VSM can diversify into related markets by becoming involved in the activities of its outputs such as distribution, transport, and logistics. that competed for the same market space. Acquisitions of manufacturing companies in the Far East would also assist VSM to break into new markets (market development), new technologies, and low-cost raw materials.

Conclusion

Strategy was defined as the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competencies with the aim of fulfilling stakeholder expectations.

Strategic Management was also defined as the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives. The strategic position of the VSM Group AB was analyzed by applying the analytical models of strategic management to the current situation in the company. The following models were utilized to analyze both the internal and external environment of the company, namely, PESTEL, the Five Forces Model, and the SWOT analysis.

The examination of the strategic position of VSM Group involved analyzing the strategy of the company with an emphasis on the environment it operates in, its strategic capabilities, and how expectations affect organizational purposes and strategies. The analysis of the environment concluded with a clear statement of the Key Issues and Critical Success Factors. The strategic position of VSM Group was used as a base in the development of an appropriate competitive strategy for the company. The development of the strategy took into account the organizational cultural issues prevailing in the company.

References

1. David, F.R., 1999. Strategic Management. 7th ed. New Jersey: Prentice Hall.
2. http://investing.businessweek.com
3. http://en.wikipedia.org/wiki/VSM_Group_AB
4. Johnson, G. Scholes, K. & Whittington, R., 2005. Exploring Corporate Strategy. 7th ed. Financial Times Prentice Hall.
5. Lynch, R., 2003. Corporate Strategy. 3rd ed. Financial Times Prentice Hall.

Don't let plagiarism ruin your grade

Run a free check or have your essay done for you

Check my essay Hire Writer