BMGT Strategic Management

Learning Goal: I’m working on a management discussion question and need an explanation and answer to help me learn.

Formulate a response to the below post/tread.

TO: Joan Smithfield, CEO of Smithfield Custom Furniture

From: Coleridge Smith, Senior Strategy Analyst

DATE: 3 June 2022

SUBJECT: New Line of Furniture

Competitive Strategy

  1. How Porter’s Competitive Advantage model applies to the Smith-field’s Board of Directors decisions

The low-price leadership strategy comes into play here. Furniture that is being mass produced, marketed, and sold at the lowest price falls into the category. The strategy here to the low-price leader has the intent to become a leader providing low-cost (Bruton and Lumen Learning, para 9). This strategy would be successful for certain markets. Smithfield’s low-cost furniture will not appeal to higher end buyers.

Smithfield could also consider the upscale furniture line as well. The strategy here would be Differentiation Leadership. This strategy is for goods and services with unique features (Bruton and Lumen Learning, para 10). By performing this line, Smithfield would introduce and produce furniture for the top 7.5% of world-wide income earners. This only works if the customer base believes that the product is better than the competition.

2. The best strategy for the Smithfield company to pursue

 

The best strategy for Smithfield would be the Low-Price Leadership strategy. The Low-price strategy gives Smithfield the opportunity to reach a broader customer base. This line of furniture will also be produced at a lower cost for the company. The low cost attracts more profit by volume of goods sold (Bruton and Lumen Learning, para 9). This strategy will also force out rival and make it hard for new entrants into the field (Bruton and Lumen Learning, para 9).

3. Action taken to determine if the recommendation is correct

 

Smithfield should formulate a strategic objective and analysis with formulation. Smithfield needs to give itself a proper timeline for production and sales to get a full SWOT analysis. One recommendation would be to create an Internal Factor Evaluation. This tool is utilized to find a company’s strength and weakness (David, 2009 para 1). This tool will help analyze against competitors and where Smithfield needs to concentrate on weakness. Another tool that is useful is the Competitive Profile Matrix. This tool helps compare to the company rivals in the market. The matrix uses competitors critical success factors and compares them to you (. After the timeline has lapsed Smithfield can determine if the recommendation was correct and works. In time, customers will shift their attention to the new products due to the attractive prices (Bruton and Lumen Learning, para 9).

References

David, F.R. (2009). Strategic Management: Concepts and Cases. 12th ed. FT Prentice Hall

https://courses.lumenlearning.com/wmopen-principle…

Jurevicius, O. (2021, November 11). Competitive profile matrix (CPM): Guide – SM Insight. Strategic Management Insight. Retrieved June 4, 2022, from https://strategicmanagementinsight.com/tools/compe…

Background Info

Michael Porter — An Icon of Competitive Strategy and Competitive Advantage

Every business student would be well served by becoming conversant with Porter’s models. Michael E. Porter was (and may still hold the distinction) of being the youngest professor to receive tenure in Harvard University’s history. He has been on the Harvard Business School faculty since 1973. It would not be easy to find an academic article, book, or textbook dealing with competitive strategy and competitive advantage written in the past 50 years that does not mention the impact of Porter’s theories.

In Competitive Strategy (1980), as you learned in week 2, Porter identifies five industry forces that managers must consider in developing market strategies. The five forces Porter’s model identifies are: (1) the threat of new entrants into the market, (2) the bargaining power of customers in the industry, (3) the bargaining power of suppliers in the industry, (4) the threat of substitute products or services entering the market, and (5) the price competition or other forms of rivalry among existing firms in the market. The application of the five forces model recurs throughout the course.

Porter pursues the theme of global competition in his 1985 book, Competitive Advantage, where he notes that companies must select a strategy of cost leadership (e.g., Costco), which is contingent upon a large market share, or a strategy of differentiation (e.g., Nordstrom), which pursues a smaller market share but has an exclusivity advantage. It is this part of Porter’s work we will focus on this week. Porter’s books rank among the best-selling business books.

Porter, E. M. (1980). Competitive strategy: Techniques for analyzing industries and competitors. Free Press.

Porter, E. M. (1985). Competitive advantage: Creating and sustaining superior performance. Free Press.

Case Scenario: Smithfield Custom Furniture:

Smithfield Custom Furniture has done extremely well since its founding in 1903. Smithfield has focused on selling reasonably priced or mid-range furniture since its inception. Now in 2001, the company is headed by the founder’s granddaughter, Joan Smithfield (CEO). She has run the company for the past twenty years. Today, the company has 247 retail stores. 220 stores are spread throughout the 50 states, and 27 stores are located in England, France, and Germany. Each country has 9 stores. The company employs 13,000 people.

For the past 20 years, Joan Smithfield has been aware of the financial growth in a large workforce segment, primarily due to more women in the workforce holding full-time and professional occupations. She knows, too, that the reasonably priced or mid-range furniture market has become saturated with other competitors during this time.

The company does all its manufacturing in the United States at six facilities, which recently were modernized with the latest equipment. Although recently modernized, Smithfield’s production plants are not producing at maximum capacity. Joan realizes the plants could produce more and different types of furniture.

The Board of Directors is pressuring Joan to diversify Smithfield’s product line. Everyone on the board, including Joan, agrees diversification is needed. Everyone agrees, too, a new line of furniture needs to be added.

However, the 12-member Board of Directors is evenly divided on whether the new line of furniture should be 1) massed produced, mass-marketed, and sold at the lowest price point possible or 2) whether the new line of furniture should be a very upscale line of furniture, custom-crafted and produced from the most expensive and exotic woods, exclusively marketed to the top 7.5% of world-wide income earners. The Smithfield plants have the capacity and capability to develop and produce either but not both lines of new furniture.

Joan Smithfield has been a longtime admirer of Michael Porter. She met Porter a few times over the years at various seminars and business functions.

Your Task for Your Initial Post:

In your role as a senior strategy analyst at Smithfield Custom Furniture, CEO Joan Smithfield has requested you to provide to her a memorandum that addresses A-C below.

A. Explain, using the link provided to Porter’s Competitive Advantage Model, how Porter’s Competitive Advantage model applies to the Smithfield’s Board of Directors’ issue of deciding to produce a very exclusive furniture line or a mass-produced, mass-marketed furniture product line. Use in-text citations as appropriate. https://courses.lumenlearning.com/wmopen-principlesofmanagement/chapter/stages-and-types-of-strategy/

B. Select the best strategy for the Smithfield company to pursue from the two strategies Porter presents in his model and explain why that particular strategy is better than the alternative.

C. Using this week’s course readings, assuming Joan Smithfield accepts your recommendation, what is the next action she should take to determine if your recommendation is correct? Be specific. Use in-text citations and list references from course readings as required.

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