Discuss about the Journey Framework of Strategic Management.
In today’s business world, Strategic Management is regarded as a crucial success factors as it helps the companies in achieving the organizational goals and objectives. Strategic management can be regarded as a process of identification and development of business strategies that helps the companies in performing well along with gaining competitive advantage. For this reason, the organizational managers are needed to consider all the necessary dimensions at the time of undertaking strategic management (Hill, Jones and Schilling 2014). The main aim of this report lies in the analysis and evaluation of the strategic management aspects of Insomnia Coffee for entering into the coffees shop industry of Japan. Insomnia Coffee is an independent coffee chain in Ireland established in the year of 1997. At present, Insomnia Coffee has 150 coffee shops. Insomnia Coffee merged with the gourmet sandwich company named Bendini $ Shaw in the year 2003 and Insomnia Coffee acquired Perk Cafes in the year 2005 (insomnia.ie 2018). The main competitive strength of the company can be seen in the quality of their foods along with the experience of their customers at the time of visit. As a part of the international expansion campaign, Insomnia Coffee expanded their operation in United Kingdom. This study analyzes the coffee shop industry of Japan in order to make sure whether it is possible for Insomnia Coffee to expand in Japan or not (insomnia.ie 2018).
At the time to enter into new market, the business organizations are needed to take into consideration the effects of external environmental factors on the business. There is not any exception of this face in case of the expansion of Insomnia Coffee in the Japan market. The strategic business development consultants use different strategic tools for analyzing the effects of external environmental factors on the companies. One of these tools is PESTEL analysis. The following discussion shows the PESTEL analysis of Japan along with their effects on the expansion of Insomnia Coffee:
Political Factors: Japan is considered as a monarchy, but the present emperor of the country does not have much role in the political development. The presence of five political parties can be seen in Japan; they are DJP, PNP, LDP, SDP and Komeito. The influence of the prime minister can be seen in the political situation of the country. Japan is connected with the Group of Eight (G8) and ASEAN. Japan does not have good relation with some countries like China, South Korea, Russia and Taiwan due to disputes related to various resources like oils, gas and others. For this reason, Insomnia Coffee may face some difficulties related to the acquisition of required resources at the time to set up the new business (Wheelen et al. 2017).
Economic Factors: The Japanese is considered as one of the strongest economies in the world as the presence of Japan can be seen within the top five economies in the world. The education system of Japan is a major contributor of this economy. The economic growth of Japan is largely dependent on the expansion of some of the industries like automobile, steel, chemical, electronic and others. Rise in the unemployment rate can be seen in Japan that is 5%, but is low when compared to the other countries. Thus, it can be observed that Insomnia Coffee will not have any lack of efficient and educated employees. Moreover, the strong economy will provide huge assistance for setting up the business (Rothaermel 2015).
Social Factors: Due to the result of scientific, industrial and sociological changes in the last 100 years, phenomenal growth rate can be seen in the Japanese population that is over 127 million at present. Japanese women are expected to settle down and marry by the age of 30. This is a god sign for Insomnia Coffee as the company will have the opportunity to employ women in different operations of the coffee shop. Japan is open in case of the religions. This will lead to workplace diversity in the workplace that is a positive aspect. In addition, Insomnia Coffee will have the chance to sell more products in Japan in the presence of this large population (Meyer, Neck and Meeks 2017).
Technological Factors: Japan has become one major leading country in industrial technology and the science and technology researchers are paying attention to Japan. The government of Japan is largely financing the research and development efforts of the country related to technology. At the same time, the presence of one of the most advanced telecommunication system can be seen in Japan. All these aspects together makes Japan an ideal place for setting new business. With the implementation of the advanced technologies in various aspects of the business, Insomnia Coffee will be able in gaining cost advantage that will lead to increased profitability (Gamble, Thompson and Peteraf 2013).
Environmental Factors: The environmental policies of Japan reflect the weak balance between the economic development and environmental protection of the country. The current policies and regulations related to environment are the consequences of some of the major environmental disaster in the past years. The environmental law system of Japan in 1993 has put restrictions on some of the major aspects like restrict products, industrial waste, improvement in energy conservation, non-recycling, environmental pollution and others. Thus, Insomnia Coffee will have to comply with all these laws and regulation of Japanese government for environmental protection and this compliance can cost money for the company (Lasserre 2017).
Legal Factors: There are some specific legal regulations that Insomnia Coffee will be required to comply with while setting up the business. In 1896, the Civil Code of Japan was invented that was influenced from German and French Civil codes. Apart from this, the presence of other legislations can be seen like Corporate Law of Japan, the Labor Standard Law, the Labor Contract Law and others. Insomnia Coffee will be required to comply with all these legal legislations that will create complexities in the business operations of Insomnia Coffee (Gamble, Thompson and Peteraf 2013).
At the time of entering into the new market, Insomnia Coffee is needed to take into consideration the competitive analysis as it is a major factor for the success of the new business. Among many tools for competitive analysis, Insomnia Porter’s Five Forces Analysis is considered as a major tool for Insomnia Coffee. The analysis is shown below:
Existing Rivalry (HIGH): World’s widest variety of coffee shops can be seen in Japan. For this reason, the presence of some of the big coffee shops can be seen in this country such as Starbucks, Doutor, Saint Marc, Tully’s, PRONTO and others. The presence of all of these companies can be seen all over the Japan and has large number of stores. All these companies use to give special offers along with outstanding foods and services all over the year. For this reason, strong competition can be seen in the coffee shop industry in Japan (Morschett, Schramm-Klein and Zentes 2015).
Substitute Products (HIGH): In Japan, the presence of substitute products of coffee can be seen. The coffee shops of Japan has competition with the shops selling products like soda, juice, water and sweets. At the same time, the people of Japan are spending money on other substitute products like ice cream, cigarette, sweets and others. It needs to be mentioned that the consumers of Japan has little budget for consumer goods like cigarette, beer and coffee. Thus, the coffee shops are fighting for a fraction of this budget. Thus, strong power of substitute products can be seen in Japan for coffee (Stead and Stead 2014).
Barriers to Entry (HIGH): In Japan, small coffee companies face low barriers in entering into the market. They are needed to rent a place, remodel, install the equipments and start the business by obtaining the license. However, the large coffee company chains like Insomnia Coffee have to face high barriers while entering into the market. In order to set up business, the large companies are needed to make high investments for distribution system, machinery and equipment, marketing, advanced technology, creation of brand awareness, customer recognition program and others. Thus, this barrier is high for Insomnia Coffee (Morden 2016).
Power to Suppliers (LOW): In Japan, volatility can be seen in the price of raw materials. The companies have to rely on the supply of higher-priced coffee beans and they are imported from different developing countries. Thus, variation in the price can be seen as a result of economic as well as political situation of the export country. At the same time, the coffee companies also use various dairy products. Hence, it can be observed that the coffee companies of Japan have to directly rely on the producers of the coffee as well as dairy products. This aspect reduces the power of the suppliers in the total process (Hill, Jones and Schilling 2015).
Power to Customers (HIGH): As per the above discussion, large number of coffee shops can be seen in Japan that provides the customers of the country with the option to select from large variety of sellers. The demand of the customers is the nice atmosphere of the coffee shop along with quality foods. At the same time, customers of Japan want continuous innovation in the products. These aspects provide the customers with high power for bargaining (Stead and Stead 2014).
Based on the above discussion, it can be seen that there is Insomnia Coffee will have to face high competitive threat as most of the threats in the above discussion are high. The presence of major competitors as well as the presence of substitute products makes the entry of Insomnia Coffee in Japan critical. Thus, Insomnia Coffee is needed to consider all of these aspects while entering into the market.
Along with the analysis of external environmental factors, Insomnia Coffee is also needed to consider the internal factors of their business that have effects on the business operations of the company. Two major tools for internal analysis are Resource Audit and Core Competency Analysis and they are discussed below:
Resource audit refers to the audit for understanding the strengths and weaknesses of the companies. There are four parts in resource audit and they are discussed below:
Audit of Physical Resources: Physical resources are referred to the equipment, inventory, building, work condition, location and others (Collis and Hussey 2013). As Insomnia Coffee is the leading coffee shop chain in Ireland, the company has all the required equipment for their business. At the same time, presence of the outlets of Insomnia Coffee can be seen in premium locations of the country. As a part of their cooperation with Fairtrade Co-ops, the company ensures that the farmers receive ah agreed standard price along with premium for their development and community development.
Audit of Human Resources: Effective management of human resources is a major competency of Insomnia Coffee. The presence of effective and well-structured recruitment and selection process can be seen in Insomnia Coffee in order to hire the skilled employees. At the same time, the company allows employees and staffs from all ages and there is no place for gender equality in the company (Welford 2016).
Audit of Financial Resources: In the year of 2016, Insomnia Coffee registered a combined profit of €1.93 million in the business Ireland. However, the expanded business of Insomnia Coffee in UK registered a modest loss of €53,789 (irishexaminer.com 2018). Though the amount of loss in international market is low, but the company is needed to take into consideration this aspect for the development of effective financial strategies while entering into the market of Japan.
Audit of Intangibles: One major intangible asset of Insomnia Coffee is goodwill. It needs to mention that Insomnia Coffee has a good value of goodwill that can be seen in the form of brand image, customer loyalty, public image and others (Bentley, Omer and Sharp 2013).
Core competency analysis is a major tool of internal analysis of the business organizations and there is not any exception of this fact in case of Insomnia Coffee. The blend of the coffee of Insomnia Coffee can be considered as one of the major competencies of the company (insomnia.ie 2018). The company launched 100% Fairtrade coffee in the year 2006. As per the company, it is essential for them to know their farmers in order to create long-term relationship with them. The blend of the company consists of four types of beans; they are Colombian bean, Tanzanian bean, Peruvian bean and Sumatran bean. After this, the highly trained baristas of Insomnia Coffee is another major core competence of the company (insomnia.ie 2018). The company provides their baristas with three levels of training so that the quality and service can be maintained. At the same time, Insomnia Coffee provides coffee to their customers in comparatively low price that provides the company with necessary competitive advantage. The collaboration of Insomnia Coffee with Fairtrade in order to connect with the small farmers is another major competency of the company (insomnia.ie 2018).
Bowman’s Strategy Clock is regarded as a crucial model that helps in the exploration of the various options for strategic positioning. The analysis of this model will provide Insomnia Coffee with the way to position them in the Japanese market. The analysis is shown below:
Position 1: Low Price and Low Value Added: This strategy does not promote competitive position of business as the products are not differentiated and customers have little value about the products in spite of low prices. The only way to stay in the competition is make the prices cheaper (Shakhshir 2014).
Position 2: Low Price: Under this strategy, the companies are needed to position them as low-cost leader in the market. Low profit margin can be seen here, but the company is needed to ensure sale of high volume outputs for overall profits.
Position 3: Hybrid: This strategy helps the companies in differentiating their products at the presence of low price. Thus, the consumers can get good valued products in low price with product differentiation. For this reason, it is considered as a very effective positioning strategy (Rangan et al. 2013).
Position 4: Differentiation: The main aim of this positioning strategy is to offer the customer highly value added differentiated products with good quality. For this reason, strong brand awareness and customer loyalty are major aspects under this strategy (Wright, Paroutis and Blettner 2013).
Position 5: Focused Differentiation: This is the kind of strategy where the companies position their products at the highest price level in the presence of high perceived value. Thus, the luxury products and service companies use to adopt this positioning strategy.
Position 6: Risky High Margins: Under this positioning strategy, business organizations use to charge high price of their products and services without offering any extra in terms of perceived value. This is a highly risky strategy for the companies and most of the companies face failure under this strategy (Haselwanter, Muskat and Zehrer 2016).
Position 7: Monopoly in Pricing: This type of pricing strategy can be seen in case there is monopoly in the market as the monopolistic companies are not highly concerned with the pricing of their products and services due to the fact that the buyers do not have any chance option.
Position 8: Loss of Market Share: Under this strategy, the business organizations use to set middle range of standard price of the products with low perceived value. There is almost no chance for this strategy to be successful (Tukdeo 2016).
It needs to be mentioned that the coffee shop market in Japan is highly competitive. For this reason, it will be required for Insomnia Coffee to provide their products in reasonably low price while maintaining high quality of products and services. At the same time, one major competence of Insomnia Coffee is that the company provides their products in comparatively low price. For this reason, Insomnia Coffee needs to adopt the strategy of Position 3 that is Hybrid strategy for providing differentiated products in reasonably low price.
Conclusion
The above discussion takes into consideration all the strategic management dynamics for Insomnia Coffee for the purpose of their business expansion in Japan. The above discussion involves in the analysis of the external business environment of Japan. As per the PESTEL analysis of Japan, Insomnia Coffee will be beneficial from the strong economic, social and technological factors of Japan while political pressure is another negative factor. Thus, Insomnia Coffee will have to comply with major legal and environmental regulations while setting up business in Japan. After that, from the analysis of Porter’s Five Forces model, it can be seen that Insomnia Coffee will have to face major competition in the coffee shop market of Japan. The presence of major competitors and high barriers to enter into the business will make it difficult for Insomnia Coffee in expanding in Japan. At the same time, presence of large number of coffee shops makes the customers of Japan powerful for bargaining. At the same time, the presence of many substitute products is another barrier for Insomnia Coffee in expanding in Japan. From the resource audit of Insomnia Coffee, it can be seen that the company has all the required resources present in their organization for expanding in Japan like financial resources, physical resources and others. Goodwill of the company is another major positive factor for the company. The main core competency of the company can be found in the quality and price of the products and services of Insomnia Coffee. After that, the analysis of Bowman’s Strategy Clock analyzes all the positing alternatives for the expansion of Insomnia Coffee in Japan.
Based on the above discussion, it is recommended to Insomnia Coffee that they can proceed to the process to enter into the market of Japan, but the management of the company is needed to take into consideration all the factors that are against their expansion in the Japan market. The main reason for providing this recommendation to Insomnia Coffee is the potential of the coffee market of Insomnia Coffee as the company will be able to make good business in that country. However, the suggestion for Insomnia Coffee is to adopt the hybrid strategy for the purpose of positioning in which the company will have to provide differentiated products in comparatively low price to gain the market.
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