Learning outcome:
1. Explain the differing perspectives and theories that contribute to the processes of Strategic Management.
2. Understand and intergrate a range of contemporary issues within the strategic management field and their influence on the strategic decision making process.
Case Study - This question is compulsory and MUST be attempted
The following information should be used when answering the provided questions below:-
1 Introduction
Belaria Shoes was formed by two brothers who were passionate about diversity in cultures existing in Italy in early 1970s. At this time, the country was undergoing a period of rapid industrial growth and many companies were established that paid low wages and expected employees to work long hours in dangerous and dirty conditions. Workers lived in poor housing, were largely illiterate and had a life expectancy of less than forty years.
The Belaria brothers held a set of beliefs that stressed the social obligations of employers. Their beliefs guided their employment principles - education and housing for employees, secure jobs and good working conditions. Belaria Shoes expanded quickly, but it still retained its principles. Today, the company is a private limited company whose shares are wholly owned by the Belaria family. Belaria Shoes still produce footwear in Petatown, but they now also own almost one hundred retail shops throughout Italy selling their shoes and boots. The factory (and surrounding land) in Petatown is owned by the company and so are the shops, which is unusual in a country where most commercial properties are leased. In many respects this policy reflects the principles of the family. They are keen to promote ownership and are averse to risk and borrowing. They believe that all stakeholders should be treated fairly. Reflecting this, the company aims to pay all suppliers within 30 days of the invoice date. These are the standard terms of supply in Italy, although many companies do, in reality, take much longer to pay their creditors.
The current Belaria family is still passionate about the beliefs and principles that inspired the founders of the company.
Recent history
Although the Belaria family still owns the company, it is now totally run by professional managers. The last Belaria to have operational responsibility was Jock Belaria, who commissioned and implemented the last upgrade of the production facilities in 1991. In the past five years the Belaria family has taken substantial dividends from the company, whilst leaving the running of the company to the professional managers that they had appointed. During this period the company has been under increased competitive pressure from overseas suppliers who have much lower labour rates and more efficient production facilities. The financial performance of the company has declined rapidly and as a result the Belaria family has recently commissioned a firm of business analysts to undertake a SWOT analysis to help them understand the strategic position of the company.
SWOT analysis: Here is the summary SWOT analysis from the business analysts' report.
Strengths
Significant retail expertise: Belaria Shoes is recognized as a successful retailer with excellent supply systems, bright and welcoming shops and shop employees who are regularly recognized, in independent surveys, for their excellent customer care and extensive product knowledge.
Excellent computer systems/software expertise: Some of the success of Belaria Shoes as a retailer is due to its innovative computer systems developed in-house by the company's information systems department. These systems not only concern the distribution of footwear, but also its design and development. Belaria is acknowledged, by the rest of the industry, as a leader in computer-aided footwear design and distribution.
Significant property portfolio: The factory in Petatown is owned by the company and so is a significant amount of the surrounding land. All the retail shops are owned by the company. The company also owns a disused factory in the north of Italy. This was originally bought as a potential production site, but increasingly competitive imports made its development unviable. The Petatown factory site incorporates a retail shop, but none of the remaining retail shops are near to this factory, or indeed to the disused factory site in the north of the country.
Weaknesses
High production costs: Italy is a high labour cost economy.
Out-dated production facilities: The actual production facilities were last updated in 1991. Current equipment is not efficient in its use of either labour, materials or energy.
Restricted internet site: Software development has focused on internal systems, rather than internet development. The current website only provides information about Belaria Shoes; it is not possible to buy footwear from the company's website.
Opportunities
Increased consumer spending and consumerism: Despite the decline of its manufacturing industries, Italy remains a prosperous country with high consumer spending. Consumers generally have a high disposable income and are fashion conscious. Parents spend a lot of money on their children, with the aim of ‘making sure that they get a good start in life'.
Increased desire for safe family shopping environment: A recent trend is for consumers to prefer shopping in safe, car-free environments where they can visit a variety of shops and restaurants. These shopping villages are increasingly popular.
Growth of the green consumer: The numbers of ‘green consumers' is increasing in Italy. They are conscious of the energy used in the production and distribution of the products they buy. These consumers also expect suppliers to be socially responsible. A recent television programme on the use of cheap and exploited labour in Ethiopia was greeted with a call for a boycott of goods from that country. One of the political parties in Italy has emphasized environmentally responsible purchasing in its manifesto. It suggests that ‘shorter shipping distances reduce energy use and pollution. Purchasing locally supports communities and local jobs'.
Threats
Cheap imports: The lower production costs of overseas countries provide a constant threat. It is still much cheaper to make shoes in Ethiopia, 4000 kilometers away, and transport the shoes by sea, road and train to shops in Italy, where they can be offered at prices that are still significantly lower than the footwear produced by Belaria Shoes.
Legislation within Italy: Italy has comprehensive legislation on health and safety as well as a statutory minimum wage and generous redundancy rights and payments for employees. The government is likely to extend its employment legislation programme.
Recent strategies
Senior management at Belaria Shoes have recently suggested that the company should consider closing its Petatown production plant and move production overseas, perhaps outsourcing to established suppliers in Ethiopia and elsewhere. This suggestion was immediately rejected by the Belaria family, who questioned the values of the senior management. The family issued a press release with the aim of re-affirming the core values which underpinned their business. The press release stated that ‘in our view, the day that Belaria Shoes ceases to be a Petatown company, is the day that it closes'. Consequently, the senior management team was asked to propose an alternative strategic direction.
The senior management team's alternative is for the company to upgrade its production facilities to gain
labour and energy efficiencies. The cost of this proposal is $37.5m. At a recent scenario planning workshop the management team developed what they considered to be two realistic scenarios. Both scenarios predict that demand for Belaria Shoes' footwear would be low for the next three years. However, increased productivity and lower labour costs would bring net benefits of $5m in each of these years. After three years the two scenarios differ. The first scenario predicts a continued low demand for the next three years with net benefits still running at $5m per year. The team felt that this option had a probability of 0.7. The alternative scenario (with a probability of 0.3) predicts a higher demand for Belaria's products due to changes in the external environment. This would lead to net benefits of $10m per year in years four, five and six. All estimated net benefits are based on the discounted future cash flows.
Required:
Question One
When dealing with strategic decisions, organizations adopt different positions based on understanding different stakeholder s. Using the case, discuss the role of stakeholder analysis, highlighting the various stakeholders in the case and how they are likely to influence the strategy of Belaria shoes.
Question Two
Briefly explain the PESTEL and SWOT framework. Provide a clear PESTEL analysis of Belaria shoes with clear and appropriate illustrations from the above case scenario.
Question Three
Classify and examine the main factors which are likely to shape and influence the strategy of Belaria shoes.