Sample Business Studies Paper on Strategic Management Process of McLaren Automobile company

Introduction

The concept of strategic management involves actions and elements which are sincerely associated with competitive advantage of a specific company. This report is analysing and describing the strategic management process of the McLaren Automobile company in attaining competitive position in the United Kingdom. The strategic actions are based on their stable position in the current industry and the roles played by the actors within the company’s external and internal environment. This report has also demonstrated McLaren Automobile company’s current state compared to their competitors in the local market. This report has identified strength and weaknesses of the concerned company which can exhibit in which manner the company is sustaining a stable position in the ever-changing automobile industry. In the process of being efficient in executing any strategic action it is necessary to have proficiency in the management field and knowledge about the current market trend. McLaren Automobile Company is adequately knowledgeable in this area thus making further development. In order to achieve understanding about the macro environment of McLaren Automobile “PESTLE analysis” has been shown in the report and for analysing the internal and external factors of the company “SWOT” analysis has been undertaken. This report has also dealt with few other significant theories such as porters five forces to gain more information about the given organisation.

LO-1 Impact of macro environment on an organization

P1- Framework to analyze the macro environment for an organization

The purpose of strategic management is to handle the tactics and strategies established by the top management of an organization in order to gain advantage over the other companies. Through the efficient management of the strategies, the company can gain sustainable competitive advantage in a specific industry. In order to hold a competitive position in the existing market the organization has to consider various factors of strategic management which help the organization in decision making. So, it is very essential to recognize the features of strategic management. For this reason, a reputed UK based motor company “McLaren Automotive” has been demonstrated in this lesson. Therefore, a brief overview of the organization will help to understand the company, its strategies, decision making and success factors etc.

 

Overview of “McLaren Automotive Company”

McLaren Automotive is a British automotive manufacturer which was previously known as “McLaren Cars”. The company was initially established in 1985 as McLaren Cars by Ron Dennis and then in 2010 “McLaren Cars” was converted into “McLaren Automotive”. The company is a subsidiary of McLaren group. The company serves worldwide and it’s headquartered in McLaren Technology Centre, Woking, Surrey, United Kingdom. Mike Flewitt is the current Chief Executive Officer of the company. Sports Car is the main product of the company which is produced in their own production facilities using their own design. As a reputed company McLaren Automotive has its own mission statement and vision.

Vision

Vision of McLaren Automotive is preserving or growing their market share and to gain excellence in their business.

Mission Statement

Mission statement of McLaren Automotive is to provide excellent customer service to everyone starting from their global suppliers to their manufacturing team at the McLaren Production Centre and to grow and create innovation in businesses by developing their personnel and culture.

Macro environment plays a very crucial role in every business. So, it is important to know more about the macro environment and its importance on the business. Hence, a PESTEL analysis on McLaren Automotive has been conducted in order to provide a clear understanding on the macro environment and its impact on the organization.

 

PESTEL Analysis

PESTEL analysis is a tool which is used to analyse the influence of macro environment on business activities, growth and market share. PESTEL positions for Political, Economic, Social, Technological, Ecological and Legal environment. A clear understanding on all these environments have been given below:

Figure 1: PESTEL Analysis

Political

Political situation and stability have a huge impact on business activities. Shift in political power in a country could bring a change for the company’s operation in the country. For example, EU is planning to cut carbon emissions by one third from earlier limit through the introduction of 95g CO2/km limit by 2020. This plan could only be implemented with the help of more hybrid and electric vehicles such as supercars and sports cars. McLaren, Porsche and Ferrari are the three companies who started the trend.

Economic

As cars are becoming more and more popular these days, most of the people of UK want to have a car. As a result, the demand for cars is rising along with the price as more and more people want to buy cars. In this case the import tax is rising but it would decline soon as the companies would start the production of cars in foreign locations in order to meet foreign demand.

Social

Social activists don’t support spending huge amount of money on a car. They may find it irrational otherwise they think that the money could be used for a greater good such as charity, social welfare, feeding the starving people etc. Thanks to modern medical service and medicine facilities people live longer and remain strong even at an older age. So, they are able to use bus and other vehicles and the use and sales of cars gets declined.

Technological

In order to gain a sustainable competitive advantage McLaren should maintain and improve its technological innovations. McLaren can hire personnel who are more skilled and has expertise on technology and they should also use McLaren Production Centre as the state-of-the-art. These two steps can ensure their technological advancement.

Environmental

McLaren is one of the top environment friendly firms in United Kingdom. McLaren Production Centre is made of modern stainless steel and has been decorated based on modern technology which creates a suitable work environment and inspires every personnel within the organization to create innovation. McLaren has also been producing hybrid and electric cars which is endorsing a clean and better environment.

Legal

Law and legal environment can affect the business in many ways. For example, any change in data protection act would directly affect those business who need to hold consumer data for their businesses.

LO2- Assessment of internal environment and capabilities

P2- Framework to analyse internal analysis and capabilities for an organization

Some internal and external factors have great impact on the business activities of an organization. These factors can be analysed using “SWOT Analysis”.

SWOT Analysis: “SWOT analysis” is a tool through which internal and external factors of an organization can be analysed. The internal factors are strengths and weakness and the external factors are opportunities and threats. Hence, these factors have been illustrated below-

 

Figure 2: SWOT Analysis

Strengths

Strengths refers to the capability and special features of an organization which can be used to gain a competitive advantage. For example, reputation, market share, expert management, advanced technology, expertise, alliance etc. McLaren’s major strengths are strong brand value, state-of-the-are and eco-friendly manufacturing facility in McLaren Production Centre, top quality cars, epitome of racing cars, strength in innovation etc. Besides McLaren has been producing hybrid and electric cars like supercars and sports cars which is environment friendly, So, it is a huge advantage for them considering the EU’s carbon emission project.

Weaknesses

Along with the strengths every company have some weaknesses too. Weakness refers to certain disadvantages or situations which can be a barrier to the improvement of the organization. Weaknesses and lead a company towards decline. Dissimilar weaknesses can be seen in different organizations. The major weaknesses of McLaren are high price, limited retailers, lesser number of repair shops, limited production etc. Another important weakness of McLaren is when they produce unique customized cars, that could be hard to resell if returned.

Opportunities

Opportunity can be defined as the situation when the company has scope to improve its current situation or a scope to overcome the existing threats in a certain industry. Organizations have better chance to sustain and capture more market shares if they can grab their opportunities accurately. McLaren can introduce low price cars to capture the market of the people who cannot afford high price. Based on McLaren’s brand value people would prefer the brand more if the price can be reduced slightly. It can introduce more and more hybrid and electric cars in order to promote green manufacturing process. McLaren can invest more fund in advanced technology which will let them to outperform the competitors.

Threats

As companies get opportunities from external market likewise, they also face some threats from the market as well. Threats are the negative circumstances which creates problems and barriers for an organization in the marketplace. Based of the nature of business different companies have different threats. Another threat for McLaren is that if they create new model for middle class people as mentioned in the opportunities, they may face a problem of their high-quality models losing some of its status. International sanctions can have adverse effect on the suppliers of McLaren, as they will lose some of their important suppliers. Rapid technological innovations may allow another company to surpass McLaren. Safety of the customers is another major threat, if the number of accidents while driving McLaren cars increases then people are less likely to have faith on the company.

LO3- Evaluation of outcome using Porter’s five forces model

P3- Application of Porter’s five forces model to evaluate the competitive forces of the market for an organization

In order to maintain sustainable competitive advantage, a company has to face many competitive forces. A well-established model for competitive analysis is Porter’s five forces model developed by Michael Porter who stated five forces which are the bargaining power of suppliers, bargaining power of buyers, threat of substitute products, threat of new entrants and rivalry among existing competitors. A brief discussion on these forces have been given below:

Figure 3: Porter’s Five Forces Model

Bargaining Power of Suppliers

Bargaining power of supplier is one of the major competitive factor in an industry. Manufacturing process cannot be completed without the involvement of the suppliers. If suppliers have more bargaining power, then the cost of procuring raw materials would be very high as a result the manufacturing cost will be higher and this situation will have an impact on the product pricing. Hence, if the suppliers have the bargaining power then it would be difficult for the company to manufacture the products at a lower cost. For instance, there are only a few numbers of suppliers of the high-tech components and high-performance engines which are required in automobile manufacturing. So, the bargaining power is very high in case of high-end automobile industry. The success of the automobile companies depends mostly on their relationship with the specialized suppliers. McLaren established partnership with Mercedes which provides McLaren with the engine for the cars in order to overcome the challenge of the high bargaining power of the suppliers.

Bargaining Power of the Buyers

Bargaining power of the buyers possesses a strong power to influence the business operations. In order to gain more profit an organization needs to retain its customers by ensuring better performance and service to the customers. Sometimes the buyers bargain over the prices and if the buyers possess strong bargaining power then it forces the company to lower the price. Buyers also bargain over product quality. Then the company has to differentiate its products from others in order to retain market share. As McLaren’s customers are fragmented, they have low bargaining power. The buyers are from different community and class and has no influence over price. Most of its customers buy cars for its brand value and they have lesser desire to bargain over price.

Threat of Substitute Products

Substitute produce refers to a similar type of product which can be used as an alternative to the product. The price of the substitute products sometimes forces the firm to cut the prices of its products. The company should be careful about the impact of substitute products in order to become successful in the industry. As McLaren produces highly specialized cars, it has a niche market for the customers. McLaren produces customized and unique cars in a lesser quantity, so it faces comparatively lesser threat of substitutes.

Threat of New Entrants

Most of the time some competitors increase the supply to reduce the demands and then the other existing companies has to cut prices in order to sell their products. For many firms cutting price is very difficult as their cost of manufacturing is too high. So, the greater number of new firms enter into the market more the price will decline and more problems will be faced by the existing firms. Hence, the existing firms would always like to block the entry of these unwanted new entrants. Automobile industry faces lesser threat of new entrants as huge capital and resources are required to manufacture cars. When McLaren entered the road car manufacturing, it was already established in producing formula one racing cars. And considering the brand image, unique specialized products and technical expertise McLaren holds the ability of entering into any car market.

Rivalry among Existing Competitors

Rivalry among the existing competitors is common in most of the industries. Rivalry gets even intense as most of the firms wants to surpass each other through the use of any competitive advantage or technological innovation. This intense competition establishes a threat to all other firms within the industry. But as McLaren produces cars in a small quantity and those are mostly unique and customized, these competitive threats cannot have much effect on the company.

LO4- Application of the theories, concepts, and models to assist with the understanding of the interpretation regarding business strategies

P4- Planning for a strategic decision with the application of the theories, concepts, and models

Various theories, models and concepts must be applied at the time of planning for a strategic decision of an organization. In order to plan appropriate strategy for an organization theory such as Porter’s generic strategies and Bowen’s extended model can be used.

Porter’s Generic Model

Figure 4: Porter’s generic strategy

In the Porter’s generic model four core strategies has been stated such as cost leadership, focused cost leadership, differentiation and focused differentiation. These strategies have been discussed below:

Cost leadership

Cost leadership strategy focuses on lowering the production cost and thus the company can reduce the overall price of the product. A company chooses cost leadership strategy when the target market is broader and the focus is on low cost not on product features.

Focused cost leadership

This strategy is a narrower version of cost leadership. In this strategy the company focused on a smaller segment such a certain geographical area and intends to provide lower cost products for them.

Differentiation

In this strategy the company focuses on product differentiation rather than cost. The target segment is larger and the interest of the customer is on product uniqueness. The company would produce variety of products and change higher price.

Focused differentiation

In focused differentiation strategy the company differentiates only a narrower segment of the company to fulfil the customer demand. For example, McLaren is specialized in producing sports car and their focus is on the customers who buy sports car.

 

Bowen’s Extended Model

Low added value

At this level, value of the product is so meaningless and cannot attract customers. So, the company has to cut price in order to attract the customers.

Low price

If the company targets a wide range of customers having similar attributes then the company can lower the production cost and thus can charge lower prices to the customers.

Hybrid

In this business strategy the company offers high quality products at low prices. Although it is very difficult to provide quality products at low price, some companies still manage it. The company should have larger customer base and wide product range otherwise this strategy is very unlikely to be successful.

Differentiation

The organizations choose this strategy when the customers demand variety in their product offerings. The company can alter, add or remove some features of the product to make it different from the offerings of others. In differentiation the firms usually charge premium prices.

Focused differentiation

This strategy is a narrower version of differentiation strategy. In focused differentiation strategy the company focuses on the variety of a narrower segment of its products.

Increased price and standard products

Sometimes the companies can add value to a certain product and at the same time also increase the price of the product. If the customers accept the product at this price then the strategy can be considered successful.

Monopoly pricing

In this strategy the company charges higher price for lower value addition. This strategy is only possible when there is a monopoly in the market. For example, Google experiences monopoly in terms of search engine service provider.

Loss of market share

This is the last phase of the model. At this phase companies charge a standard price for a lower value addition. The company will lose market share in the long run if the adopt this strategy.

Applying the Models

Based on the above discussion on Porter’s generic model and Bowen’s extended model it can be seen very clearly that an organization has to go through various situation and phases in order to take any important decision. These two models can be applied to McLaren Automotive Company in order to determine strategies which will be suitable for the company and which will help them to attain sustainable competitive advantage. As McLaren is a high-end car manufacturer it would be appropriate for them to adopt focused differentiation strategy. As they produce smaller number of unique and specialized cars, they can use the focused differentiation strategy in order to gain sustainable competitive advantage.

Conclusion

McLaren Automobile company is regarded as one of the most prestigious companies of the United Kingdom. In this study every aspect of the company such as internal and external factors, swot analysis, the completive positions the company’s rivals etc. has been examined and depicted in order to gain broader knowledge about that company and the process by which this significant company formulate and execute strategic decision. As for understanding the fluctuating condition of the industry is its essential to gain information about every unforeseeable action of the counterparties, which can be analysed through analysing their internal and external factors. This report, has shown competitive advantages of McLaren Automobile Company that is contingent on its business environment. Furthermore, the report has discussed about Porter’s generic strategy and Bowmen’s extended model of the McLaren Automobile Company and the manner in which they apply these theories in achieving strategic goals.