Digby's Company Strategy Annual Report Term Paper

  • Length: 10 pages
  • Subject: Business
  • Type: Term Paper
  • Paper: #67734884

Excerpt from Term Paper :

Digbly International Inc. has been successfully using throughout the year a Broad Cost Leader Strategy, which permits it a presence in both markets. The Broad Cost Leader Strategy implies obtaining a cost competitive advantage over other companies. For Digbly, it is also equivalent to producing highly qualitative sensors for the market, but keeping in mind a cost efficiency which means lower R& D. spending and scale economies where possible.

Company History

The company's mission, as expressed by the vision statement, has always been to produce quality at low prices ("high quality at lowest prices"). In this perception, the necessity to offer the market completely new products at double the price does not have an economic justification. It is preferable, in this sense, to reposition the product so that it will reach the customers who are likely to be purchasing a lower priced sensor. Value and low cost are the two main components of the vision vector.

The management model relies greatly on a functional model, with directors coordinating each department (R& D, marketing and sales, technical etc.) and responding to the vice-president in charge. Unfortunately, although it has been tried to avoid hierarchical differentiations and to refer to all directors on the same level, the fact that the company does not place its accent on R& D. Or on marketing has meant that these directors have a lower leading status within the company. The management model will probably need remodeling soon.

External Analysis

The sensor market is closely connected to all the other businesses where sensors are placed and its development needs to consider any macroeconomic factors that may be influencing the sensor trade. If one takes a look at the macroeconomic factors, first of all, the monetary policies in the U.S. In the present need to be first considered. The large trade deficits have encouraged a weaker dollar (at least up to the latest appreciations on the market, when the dollar reached higher values against the euro and the yen). A weaker dollar favors exports, because the production is realized with weak dollars in the U.S. And then sold on stronger currencies in Europe or Japan. As such, currency status favors a trade policies directed towards the main trade partners.

On the other hand, one needs to consider that the American recession has already been left behind and the U.S. economy ha healthy 3-3.5% annual growth rates. Nevertheless, the European partners seem to be still recovering from the recession and the growth rates are barely 1-1.5%, this may create a tendency for a higher product demand on the American market and may direct a good part of all sales within domestic markets.

We need to consider all other global macroeconomic factors that may influence the sensor business activity. It has already been mentioned that the sensor business is closely related to all the businesses it serves. In this sense, the constant increase of the oil price, reaching $60 in the last week, is likely to increase overall costs in connected industries. If the increase in oil prices will lead to a strategy to decrease and lower overall costs, then overall demand for sensors may be decreased.

However, this is somewhat counterbalanced by the fact that the sensor industry provides for the armament industry, which is constantly on top and it is to be assumed that it will have a certain constancy in time. If one looks at the political factors, the American crusade against global terrorism will likely encourage the further development of the weapons industry and this will positively affect the sensor industry.

If one looks at the sensor industry, the broad cost leader strategy that the company has adopted means that it is more or less left out of any technological disputes and that the technological factor is of no influence for Digbly. Indeed, the company does not spend a significant amount on R& D. And creates revenue by redeployment and scale economies rather than by innovation.

As such, the competitors that need to be kept a close eye on are those that practice a different strategy than Digbly's: the innovators, the companies that have large R& D. budgets that allow them to create new products. In this alternative, the response that Digbly will be able to take is essential and it will have to rely on the customer loyalty and the cost/price advantage it has practiced so far. The fact that the company relies solely on its cost advantage and none at all on diversification and innovation will be sure to provide certain difficulties in the future.

The political and economical factors affect the electrical sensor market basically to the degree to which they affect the industries where the electrical sensor is used. In this sense, one expects that any changes as those previously mentioned that will somehow modify demand in other industries will affect the sensor market as well and, implicitly, Digbly as well. As such, the company needs to find alternatives in the case of sudden decreases in overall demand.

Internal Analysis

The internal analysis of the company will start with a SWOT analysis and then refer to the strategic issues that the company faces, as related to the present day strategy.

In terms of strengths, the company has been on the market long enough to present its strategy and acquire customers who are satisfied to use a cheaper product, but a product where cost reduction does not necessarily imply a quality reduction as well. As such, one may consider that Digbly has formed a set of loyal customers and that its presence in both segments of the market means that it coves a large portion of the market. As a strength, Digbly has a very well defined set of consumers it is addressing, namely the price sensitive clients.

Also in terms of strengths it needs to be pointed out the good margins that the broad cost leader strategy implies and which have created a sustainable and positive financial situation for Digbly. Additionally, the company has developed its departments in a way they can sustain the overall strategy that the company is promoting.

In terms of weaknesses, the main weakness that can be speculated is the fact that the company is relying solely on its broad cost leader strategy. Indeed, it is commercializing one single type of product, which is cheap and is addressing a certain category of consumers. There is no diversification and no innovation in such a strategy and it is to be discussed whether the global environment which characterizes the present-day economy accepts such a model.

Such a strategy (1) allows only for a limited amount of growth, because the set of consumers remains practically constant and only increases and decreases within the same fixed coordinates and (2) is not prepared to face changes in the macroeconomic and external environment. In this sense, if there was another company producing the same type of sensors at an even lower price, then it is likely that Digbly will probably go bankrupt, due to losing all its clients.

Finally, the broad cost leader strategy implies no spending on R& D, which means no innovation and this implies a reactive rather than a proactive role. A reactive role means that the company is much more likely to react to the moves of the competitors on the market, as well as to the changing in macroeconomic factors, than to create the premises of change from within the company. A reactive strategy implies that the company will simply go with the trend rather than create a trend of its own.

In terms of opportunities, because the company is so specialized and has a minimal portfolio of products, one may refer to opportunities in developing countries. For example, the East-European market has become a highly interesting one. In the last couple of years, eight new countries from the region have joined the European Union and overall revenues and GDP have encountered sustainable figures and sustainable growth. This means that the respective markets have become more and more attractive because they are still less competitive than the Western ones, but have been regulated and are available as an optimal alternative. Because revenues still remain below Western levels, the lower priced product that Digbly is selling may be quite successful on the market and may point towards high margins.

In this sense, it may be pointed out, in the absence of a product diversification, to the alternative of a geographical diversification, a diversification where the company approaches new markets, both in terms of product offer and the relocation of production. Referring to the latter, relocating to such areas as Eastern Europe, where an important part of the production can be sold, is important in the context of a Broad Cost Leader Strategy.

As for threats, some of them have already been mentioned. The most important one to be noticed is the threat of new competitors, especially on the particular segment where Digbly is selling, that is to price sensitive customers.…

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