STRATEGIC MANAGEMENT TASK A Market Environment Analysis (maximum of 40 marks) (Learning Outcomes 2 and 4)

SID# 0971446/1

Using appropriate analytical tools, evaluate conditions in the market environment that your chosen sports equipment company occupies. The market environment comprises a combination of the sports equipment industry itself (the micro environment) and the wider macro environment in which your chosen company operates. You should highlight what you consider to be the market environments Critical Success Factors.

1.0 INTRODUCTION 1

STRATEGIC MANAGEMENT

SID# 0971446/1

Bauer the worlds leading designer, developer, manufacturer, and marketer of ice and roller hockey equipment. They have the most recognized and strongest brand in the ice hockey equipment industry, and hold the number one market share position in both the ice and roller hockey equipment industries. With an estimated 45% share of ice hockey equipment sales in Fiscal 2010 they have the leading and fastest growing share of the overall ice hockey equipment market, which is in excess of the next three largest brands combined. Their strategy if to have a differentiated product that stands out from its competitor. They operate mainly in USA, Canada and several small markets around the world as indicated in appendix 1. Bauer has been in existence since 1927 and has had a long history of innovative quality products. This paper sets out to do three things, firstly to conduct a market analysis understand the external micro and macro environment. Secondly the paper seeks to understand the resource capabilities of the company and finally to assess the strategic fit between the resource capabilities and the external environment and form recommendations to improve strategic fit.

2.0 COMPANY ENVIRONMENTAL ANALYSIS

2.1 PESTLE PESTLE is an acronym for Political, Economic, Social, Technological Legal and Environmental analysis. It describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. It is a part of the external analysis when conducting a strategic analysis or conducting market research, and gives an overview of the different macro-environmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for organization

USA and Canada account for approximately 75% of Bauer revenues as a result the PESTLE is based on North America. Based on the PESTLE there are several key drivers for change. The key drivers for change are the high impact factors that are likely to significantly affect the 2

STRATEGIC MANAGEMENT

SID# 0971446/1

success of failure of Bauers strategy. The key drivers identified from the PESTLE are described in the Table 1 below.

STRATEGIC MANAGEMENT TABLE 1: PESTLE FACTOR POLITICAL DISCRIPTION The USA and Canada are politically stable economies. USA and Canada are members of the G8 countries which consists of eight large world economic powers The Political climate in USA and Canada is well suited for investment

SID# 0971446/1

POTENTIAL IMPACT ON BAUERS STRATEGY Free trade arrangements between North America and respective countries provide avenues to expand and penetrate into new markets at significantly lower cost.

USA and Canadian compare well internationally in terms of statutory corporate income tax rates Since the 2009 financial crisis the US government has implemented a stimulus package to boost spending in the economy

No significant tax adjustments have been made to affect the business sector. The existing economic policy is intended to stabilize prices, reduce unemployment, and stimulate economic growth

Both USA and Canada are a part of the North American Free Trade Agreement as well as several other free trade agreements with various countries. Interest rates remain very low in the US as result Canadian interest rates will be low. Inflation rates in both US and Canada are low around 3%,

ECONOMIC

Low interest rates can benefit Bauer from an investment perspective, as they can burrow finances at low interest to invest and expand 4

STRATEGIC MANAGEMENT

SID# 0971446/1

FACTOR

DISCRIPTION slow growth rate of both economies expected keep inflation low over the next 2years US and Canada has stable currencies. Canada Long term prospects for GDP are positive and average of 2.5% over the next 2 yrs USA GDP expected to increase to 2.5% in 2012 and 3% in 2013. Unemployment rates in the US is reducing slowly currently at 8.6%, however is expected to remain at around 8% over the next 2 years Unemployment in Canada is down to 7.4% and is expected to improve over the next 2years

POTENTIAL IMPACT ON BAUERS STRATEGY organization Projected reduced unemployment indicates increased potential customers for Bauer Projected growth in GDP signifies increase consumer spending, hence increased potential number of customers Stable currencies are beneficial to Bauer as fluctuations in exchange rates of currencies affect income to company, hence profit is affected.

SOCIAL

Demographic changes occurring in US, increase in ageing population and reduction in working population. By 2050 one in five will be over the age of 65.

Changes in demographic structure in the long term means the structure of the target market will change. Bauer has to develop a strategy to compensate for this shift in the long term in order to maintain and improve profits.

Increased awareness of fitness and good health Brand culture changing as customers tend to favor brand

Brand culture preference amongst the younger 5

STRATEGIC MANAGEMENT

SID# 0971446/1

FACTOR name products

DISCRIPTION

POTENTIAL IMPACT ON BAUERS STRATEGY generation as a fashion statement, indicates avenues to attract new customers, an aggressive marketing campaign can be effective. Increased prominence in health and fitness is indicative of persons becoming more involved in sports, hence requirement for sporting accessories can increase.

TECHNOLOGY

USA and Canada are highly technological countries Highly technological workforce High expenditures in research and development Extensive communication and internet infrastructure and capability High availability of technology that can improve business processes. Extensive internet capabilities.

High technology suggests that internet marketing can be effectively used, also technology can be used to improve aspects of the value chain to reduce cost and improve quality and efficiency.

STRATEGIC MANAGEMENT

SID# 0971446/1

FACTOR

DISCRIPTION

POTENTIAL IMPACT ON BAUERS STRATEGY

LEGAL

The overall quality and fairness of the U.S. legal system is widely recognized as one of the great strengths of the United States.

Mergers and Acquisition are afforded preferences under the international trade agreements; this can be considered as a preferred method to access new markets.

comparatively high legal cost of doing business in the U.S. market The unpredictable and unfamiliar nature of liability in the United States, law suit considered to be common place by international organizations.

In Canada Collusion with competitors can trigger significant criminal and civil consequences in Canada Companies contemplating the acquisition, establishment or expansion of a business in Canada whose operations 7

STRATEGIC MANAGEMENT

SID# 0971446/1

FACTOR

DISCRIPTION include imports and exports may be afforded certain preferences under international trade agreements. Several federal and provincial tax considerations are relevant to non-residents seeking to do business in Canada Companies carrying on business in Canada are subject to environmental regulation undertaken by all levels of government federal, provincial/territorial and municipal. Moreover, directors and officers of Canadian corporations can be personally liable to orders, charges, fines and (in extreme cases) imprisonment An acquisition of control of a Canadian business by a nonCanadian may be reviewable by the Canadian government under the Investment Canada Act Both USA and Canada have stringent environment laws, both are signatories to the Kyoto Protocol. Canada uses a number of acts, regulations and agreements to fulfill its mandate. One of the main federal acts is the Canadian Environmental Protection Act (CEPA), which aims to prevent pollution and protect the environment and human health.

POTENTIAL IMPACT ON BAUERS STRATEGY

ENVIRONMENT

Company policy should include environmental management that is in alignment to international standards to avoid costly fines for poor environmental management

STRATEGIC MANAGEMENT

SID# 0971446/1

FACTOR

DISCRIPTION

POTENTIAL IMPACT ON BAUERS STRATEGY

STRATEGIC MANAGEMENT 2.2 PORTER DIAMOND MODEL

SID# 0971446/1

The Porter's diamond model shall now be used to determine inherent reasons why some nations, and industries within nations, are more competitive than others in a global environment. It is argues that the national home base of an organization provides organizations with specific factors, which potentially creates competitive advantages on a global scale. Porter's model includes four determinants of national advantage, which are briefly described below: Factor Conditions Factor conditions include those factors that can be exploited by companies in a given nation to gain global competitiveness. Examples of factor conditions include a highly skilled workforce and rich amount of raw materials. Local disadvantages can result in firms being innovative, this in turn can create new methods of attaining global competitiveness. Demand conditions High demand for a product in the local market can cause local firms to potentially put more emphasis on improvements than foreign companies. This will potentially increase the global competitiveness of local exporting companies. Related and Supporting Industries High competition exist between local supporting industries and suppliers, the home country companies will potentially improve cost efficient and receive more innovative parts and products. This will potentially result in increased global competitiveness of local firms. Firm Strategy, Structure, and Rivalry Increased rivalry of firms within a country can potentially improve competitiveness on a global level. By using Porter's diamond, business leaders can analyze which competitive factors may exist in in their company's home country, and which of these factors may be exploited to gain global competitive advantages.

10

STRATEGIC MANAGEMENT

SID# 0971446/1

The following is the application of Porters Diamond to Bauer to understand what factors can give global competitive advantages. Figure 1: Porter Diamond Model applied to Bauer

FIRMS STRATEGY, STRUCTURE AND RIVALRY Bauers differentiation strategy is highly effective and places them above their competitors within the local market Rivalry within the local market has driven Bauer to develop innovative quality products The firms structure is consistent with Hofstedes nation dimension of Individualistic society, promoting innovation from individuals.

FACTOR CONDITIONS Advanced Technology making manufacturing processes more efficient Highly skilled workforce Incentives form stimulus package to promote investment Highly effective distribution network

DEMAND CONDITIONS Younger generation required sport apparel to be fashionable, this can result in improved aesthetics to foreign customers Social trends showing preference to brand name items, there are many quality competitive brands, hence Bauer has to maintain quality and innovation to maintain competitiveness.

RELATED AND SUPPORTED INDUSTRY Competition between suppliers is high, thereby providing competitive prices to To understanding the micro environment the Porters Five Forces Model shall be used. The five Bauer. forces model was developed by Michael E. Porter to analyse organizational structure in Quality of products the competitor offers is excellent therefore Bauer has to create an 2.3 PORTER 5 FORCES the lowest possible cost using technology, skills and available innovate product at materials. 11

STRATEGIC MANAGEMENT

SID# 0971446/1

To understanding the micro environment the Porters Five Forces Model shall be used. The five forces model was developed by Michael E. Porter to analyse organizational structure in strategic process (Johnson et al, 2005). His model is based on the insight that a corporate strategy should meet the opportunities and threats in the organization external environment. Figure 2 illustrates the framework of Five Forces as it applies to Bauer. Figure 2: Porter 5 Forces

Table 2: Porter's 5 Forces Analysis of Bauer

12

STRATEGIC MANAGEMENT

SID# 0971446/1

INDUSTRY FORCE

ANALYSIS OF FORCE
This threat of a new entrant is low. This is because of the high capital requirements needed to enter the market. The high cost of raw materials, R&D costs, equipment costs, and

THREAT OF NEW ENTRANT

heavy marketing needed to become profitable illustrates this. Currently 3 companies account for 80% of the market share ( Bauer, Reebok and Easton) the other 20% are distributed across several small manufacturers. This makes it very difficult and expensive for a new company to acquire market share. The threat of substitutes is very high because of the high cost associated with hockey. Hockey equipment is very expensive, especially the high end performance products offered

THREAT OF SUBSTITUTE

by Bauer. There is also the risk of the substitute to be other less expensive sports such as basketball, football, soccer, and baseball. The list of substitutes goes even farther to other sources of physical activity and leisure activities. This includes video games, reading, or watching television.

The bargaining power of consumers is low for many reasons. The first is a concentration of companies in the market. Buyers have also shown they are not price sensitive because BARGAINING POWER OF CONSUMERS The supplier power for Bauer is low because their large market share has suppliers competing for long-term relationships with Bauer. Bauer is a significant source of business SUPPLIER POWER to its suppliers as they continue to increase production of their product offerings. Suppliers must compete to gain loyalty with Bauer who is the industry leader in the hockey business. Bauer also has close ties with its suppliers as they have their own employees integrated into the supplier network. They work together to keep cost down and to be as efficient as possible in areas quality control, operations, logistics and research and development. These relationships are win win and both parties benefit and strong bonds are formed. These bonds also work to reduce supplier power. The competition faced by Bauer Performance Sports is medium. Bauer is currently the industry leader generating the highest revenues. This allows Bauer to fund important COMPETITIVE RIVALRY research and development projects, to maintain the competitive edge over its rivalry. Research and development is huge for the industry and those who can produce the latest and greatest products will gain market share. 13 high performance products continue to the greatest source of revenue for Bauer. High customer loyalty to Bauer products also keeps this threat low.

STRATEGIC MANAGEMENT 2.4 INDUSTRY LIFE CYCLE

SID# 0971446/1

Based on the Porters five forces analysis, there exist high barriers to entry, the established economies of scale and high market share attributed to few big players. This combination is typical for the maturity stage in the industry life cycle. As shown in Figure 3 below.

Figure 3: Industry Life Cycle Based on the industry life cycle the Boston Consultancy Group (BCG) matrix can be applied to determine what priorities should be given to the product portfolio. Figure 4 below illustrates the BCG matrix.

14

STRATEGIC MANAGEMENT

SID# 0971446/1

Figure 4: Boston Consultancy Matrix Currently based on the environmental analysis little growth is observed in the hockey accessories industry in North America. Bauer has the majority market share for all its differentiated hockey products, based on the BCG matrix this equates to the cash cow, producing high revenues in the existing market. The priority then should be to continuously evolve with innovative products to maintain market share and large profits associated with the cash cow quadrant.

3.0 COMPETITIVE ADVANTAGE Based on the Porter's five Forces Analysis of Bauer, along with the stage in the industry life cycle and the position in the BCG matrix, one can conclude that there exist several areas where Bauer has achieved competitive advantage. The areas are as follows: CUSTOMER LOYALTY 15

STRATEGIC MANAGEMENT

SID# 0971446/1

Based on the fact that there exist low buyer power, Bauer has created an image synonymous with high quality and durability. This has resulted is customer loyalty due to the customers perception of the product. Bauer is currently the market leader in its sector and four out of its five products are categorized as number one sellers within the industry. LOW COST QUALITY SUPPLIERS Bauers position of industry leader creates high rivalry amongst suppliers. Suppliers compete for long term business with Bauer, in order to attract business suppliers have to provide quality products at attractive prices. This is advantageous to Bauer as their raw material costs are low, this in turn reduces expenses and hence improves the bottom line. HIGH MARKET SHARE Bauer has the leading market share in the overall ice hockey equipment market, with an estimated 45% market share in fiscal year 2010. Reebok and Easton account for 35% whilst several other small companys account for 20% of the market share. High market share can be attributed to the customer perception of innovative high quality products by Bauer. PRODUCT INNOVATION THROUGH RESEARCH AND DEVELOPMENT Bauer is currently the leader in its industry sector with respect to product innovation through research and development. They formed an alliance with research partner McGill University who has a world-class reputation and lead the ice hockey equipment industry in continuously bringing to market innovative, often revolutionary, top-quality equipment with superior performance that is trusted by players of all skill levels. FREE TRADE AGREEMENTS Bauer can achieve competitive advantage as they operate in an area where there exists numerous trade arrangements with several countries. These new markets can be accessed via mergers and acquisitions or foreign direct investments. This will allow Bauer to access new markets whilst benefiting from the conditions of the trade agreements.

4.0 OPPORTUNITIES AND THREATS 16

STRATEGIC MANAGEMENT

SID# 0971446/1

On completion of the analysis in both micro and macro environmental one can determine specific strategic opportunities and threats for Bauer. The opportunities shall be discussed followed by the threats.

4.1 OPPORTUNITIES New Markets Entry into new European markets, the European hockey industry has consistently grown in Europe as reported by the International Ice Hockey Federation in 2010 that the industry grew annually by 5% over the last 10years. This offers Bauer significant opportunity for market expansion and a profitable growth phase industry cycle in Europe.

Investment Opportunity The low interest rates offered by the US to promote spending can be used to re-invest into research and development create new innovative product lines or other areas where Bauer it can be used to gain competitive advantage.

New Target Segment With the shifting culture towards sport brands as a fashion statement in the young generation the opportunity exist to develop an aesthetic line of hockey apparel for the purpose fashion. The culture also promotes a preference to established brands in the industry.

Demographic Changes Demographic changes are expected over the next forty years to increase in persons above the age of 65 by approximately 8% and reduce between the ages of 0-64 by approximately 3.5% as indicated in appendix 1. This is an opportunity to develop a strategy to maximize on this change by developing innovative products to suit the changing demographics. 17

STRATEGIC MANAGEMENT

SID# 0971446/1

Mergers and Acquisitions Bauer has acquired five companies over the last four years. This is a good technique to gain market share as well as product differentiation. There are companies that, once viable can be acquired to increase market size and target market.

4.2 THREATHS

Exchange Rate Fluctuations Significant fluctuation in the exchange rate can erode the profit margin for Bauer as many of the trading is with various currencies (Euro, US Dollar and Canadian currency). This is a loss that only Bauer has to absorb. Exchange rates also creates disadvantages and advantages between business partners that can lead to loss of business where more favorable conditions exist

Recession Financial difficulties in areas of operation can significantly reduce revenue as persons have less disposable incomes and cannot afford recreational items.

Unemployment Levels Increase This can also reduce profits as target market segment is reduced.

Merger of two Largest Competitors A merger between Reebok and Easton automatically increase market share and also the industry innovations between the companies can be used over time to attract Bauers customers. 18

STRATEGIC MANAGEMENT

SID# 0971446/1

Substitute Product Substitute product in new markets reduces potential market share and ultimately revenue for Bauer.

Competitor Strategy Competitor strategy similar to Bauer of internationalizing can cause fierce completion in new markets for market share. This has an associated advertisement cost and limited market share. Market share can take longer time and costly to increase.

5.0 CRITICAL SUCCESS FACTORS After considering the opportunities and threats for the organization consideration shall now be given to the critical success factors, these factors give competitive advantage over the competitors. The critical success factors are those product features that are particularly values by a group of customer and therefore where the organization must excel to outperform competition, Johnson, et al., (2008). The critical success factors for both the customer and survival in the market environment are tabulated in Table 3 below. Table 3: Critical Success Factors SUCCESS FACTOR Product Quality DISCRIPTION Customers perceive Bauers to be the highest quality when it comes to hockey equipment, loss of quality can result in significant loss of Product Innovation customers and loss of reputation in brand image. Based on the research conducted by North American market researchers, customers viewed Bauer as highly innovative products. Brand Recognition Cost of Production Continuous innovation is required to meet customers expectation. North American market researchers also found that Bauers was considered to be the best and most favored brand for customers. Quality hockey products are generally expensive; there are lower cost brands, however the customers choose Bauer high quality hockey gears as this was Bauers highest revenue earner in 2010. Customers are willing to pay for the quality and innovation associated with Bauer products as they believe the benefits of the product outweigh the cost. 19

STRATEGIC MANAGEMENT SUCCESS FACTOR DISCRIPTION

SID# 0971446/1

Manufacturing cost are to be kept as low as possible from the existing Mergers and Acquisitions Differentiation Relationship with Suppliers Research and development strategy of outsourcing. This allows for entry into new markets as well as increased market share in existing environment. Mergers and acquisition also allows for the differentiation of product as new business with product is acquired Maintain product differentiation from competition, differentiation of perception of brand and quality. This is a critical as it directly affects cost of production as well as bargaining power of suppliers. The existing strategy of key integration with supplier partners is critical for success. This is critical as this shall continually evolve the Bauer line products to maintain innovation and quality. This can also reduce cost and innovative new technologies can be applied into the manufacturing process. TASK B Package Holiday Company Strategic Analysis (maximum of 40 marks) (Learning Outcomes 1 and 4) Using appropriate analytical tools, evaluate the resource capability of your chosen sports equipment company, highlighting its threshold and unique resources, and its core competences.

20

STRATEGIC MANAGEMENT

SID# 0971446/1

6.0 RESOURSE CAPABILITY. 6.1 VALUE CHAIN To determining the organizational capability of Bauer the value chain shall be investigated to understand how value to the customer is created and how it can be developed. Figure XX below illustrates the value chain for Bauer Hockey.

21

STRATEGIC MANAGEMENT

SID# 0971446/1

Figure 5: Bauers Value Chain

SECONDARY ACTIVITIES

Firm infrastructure: The firm has the relevant infrastructure to support planning activities, financial systems, quality control, information management, health and safety, inventory control and logistical activities. Bauer has also integrated itself with its key supplier to effectively manage value chain cost from both supplier and Bauer perspective. Lower supplier cost can be translated to lower operations cost for Bauer and hence improved bottom line profits Human Resource Management Bauer has a dedicated Human resource management department who manages the systems that are used to determine employee performance, implement training programs to improve efficiency, remuneration strategy, motivation of employees, and other HRM functions Technology Development use of e-commerce to allow customer to view latest in innovated products, also there is heavy research and technology channeled to the research and development department to allow continuous evolution of innovative products Procurement Bauer has a dedicated department for procurement. A Just in time strategy is applied as required raw materials and finished products and are shipped as soon as they are ready for use and sale. There is also a buffer and safety stock in hand as contingency.

PRIMARY ACTIVITIES

Inbound LogisticsCompleted manufactured products form outsourced manufacturing firms to warehousing or directly to retail outlet via outsourced shipping vendor Inbound raw materials to company owned manufacturing plants warehousing via supplier Excellent relationship with suppliers Inventory control at warehousing and retail outlet

Operations Manufacturing of hockey skates, sticks, helmets, protective gear and goalie. Packing and preparation for distribution Operation conducted in a manner that is in accordance with applicable health and environmental laws

Outbound Logistics Inventory control on outbound products Outbound outsourced logistics

Marketing and Sales Extensive brand recognition, reputation and innovation of product is marketed. Celebrity endorsement from the Major league hockey superstars High allocation to marketing budget Diverse range of products offered online

Services use of IT to improve customer online services excellent service at retail outlet to promote customer satisfaction

Outbound logistics are also managed from port of entry to retail outlet

22

STRATEGIC MANAGEMENT

SID# 0971446/1

23

STRATEGIC MANAGEMENT

SID# 0971446/1

Porter (1985) indicated that the value chain is an analysis that describes the activities the organization performs and links them to the organizations competitive position. The diagram above illustrates the value chain of Bauer. The majority of their manufacturing are outsources internationally. They have established comprehensive manufacturing platforms with key partners, primarily with facilities in Canada, China, Thailand and Vietnam, where their equipment and related apparel is produced at low costs. They have integrated their research and development department with the key partners to ensure consistency in quality and product innovation. Bauer has not integrated horizontally, there is however some vertical integration in the retail of its products. Although not horizontally integrated Bauer has specialist employees who are integrated with the key partners to manage quality control, logistics and supply chain management. This is in an effort to ensure maximum efficiency within the manufacturing and distribution networks. This is a cost reduction strategy so as to avoid horizontal integration cost and also forms closer relationships with their key partners. This can also assist in reducing supplier power as there is a mutual benefit of improved efficiency between parties. Another method of understanding the organizational capability is to look at the strategic capability and how competitive advantage is achieved. The table below illustrates the resources and competencies to meet the threshold capability for the company to survive and do well. The table also illustrates the unique resources and the core competencies required to achieve the capability of competitive advantage.

Table 4: Strategic Capability 24

STRATEGIC MANAGEMENT

SID# 0971446/1

TRESHOLD CAPABILITIES

RESOURCES
THRESHOLD RESOURCES TANGIBLE INTANGIBLE Manufacturing Building Machines Employees Capital Brand Image Reputation Knowledge Information

COMPETENCES
THRESHOLD COMPETENCES Activities and processes needed to meet customers minimum requirements and therefore continue to exist. CORE COMPETENCES OF BAUER Dedicated Workers Tenacious workers Specialized technical skills Specialized Market knowledge Management Expertise with mergers and acquisition Innovative R&D department Ability to differentiate through R&D

CAPABILITIES FOR COMPETITIVE ADVANTAGE

UNIQUE RESOURCES OF BAUER TANGIBLE 45% Market share Products available in 45 Countries Over 3700 distributors 389 employees Annual revenue of 287million Outsourced low Cost labor INTANGIBLE 5 Highly recognized brands Considered as the best brand Considered as the most favorite brand proprietary technologies and patents industry leading R&D and innovation Effective global marketing strategy Unique Technology Unique relationships with suppliers unique Employee Skills

Table 4 illustrates that there are several factors that allow Bauer to have competitive advantage. These factors are comprised of both unique resources and core competences. Unique resources suggest that the most outstanding strength in the perception of the brand and a major core competency appears to be the research and development that generates such innovative products that establish brand perception. There is also the aspect of outsourced labor under unique resources, this give competitive advantage of the best prices for best quality. From the analysis of the value chain and the resource capabilities there are many factors that allow competitive advantage such as low cost manufacturing, supplier relationships, research and development, innovation and brand recognition. All of these factors contribute and are in 25

STRATEGIC MANAGEMENT

SID# 0971446/1

alignment with the critical success factors identified in part A of this report and they give Bauers competitive advantage over its competition.

7.0 ORGANIZATIONAL CULTURE Organizational culture can add to competitive advantage of organization. The organization culture of Bauers shall be investigated following the Miles and Snow business level strategy. Miles & Snow, (1978) identified four levels of strategy, defender, reactor, prospector and analyser. These are briefly defined as follows: DEFFENDER: Organisations that strategically defend themselves and their place in the market place and in the industry. REACTOR: Tend to fall behind due to inefficiency they step in and out. PROSPECTOR: Go in search of new product development and embrace and adapts to new technology. ANALYSER: Make informed decisions, after carefully looking at market changes and development that would affect business. Bauer level of strategy is consistent with the prospector. They are aggressive in their research and development campaign, always searching to differentiate their product from their competition. Miles and Snow (1978) indicated that companies of this category are usually not as efficient as they should be as their focus is on product and market innovation. Bauers however, has an integrated strategy of placing key company support at the key suppliers to improve and ensure efficiency in operations, logistics, quality and consistency in R&D. The cultural underpinning of this strategy suggest uniqueness, differentiation from others and innovation. These underpinnings are also consistent with the critical success factors hence competitive advantage also exists at as a cultural level within the organization. Based on the preliminary prospectus of Bauer (January 2011) it describes the organizational culture as one that is innovative and energetic, the Bauer team is passionate about their brands and their businesses. Most of the employees are involved in hockey outside of work in one 26

STRATEGIC MANAGEMENT

SID# 0971446/1

manner or another. The employees commitment and dedication to the company is supported by the significant length of service. Bauer employees have been with our company an average of 10 years. The prospectus also indicated that approximately 10% of staff is unionized and there was never an occurrence of worker issues resulting in union intervention. This information suggests an organization culture of dedication, motivation, energetic and passion for what needs to be done and that employees are happy in the job positions. Some of these characteristics have been identified in the resource capability above and they also directly enhance aspects of the critical success factors The value chain, strategic resources and competencies and organizational culture provide competitive advantage for Bauer. It is now required to investigate how this has improved the bottom line profits.

8.0 FINANCE Figure 6: Bauer 2010 Financial Data

27

STRATEGIC MANAGEMENT

SID# 0971446/1

In the financial statement above, Bauer has shown consistent growth in net revenues over a three year period from 2008. The high cost of goods sold in 2009 resulted in significantly less gross profits for that year. Operating expenses in 2009 were attributed to the expenses associated with the acquisition of Mission-ITECH. The fiscal year of 2009 were also compounded with the global financial crisis resulting in higher than normal operating cost. 2010 has brought good fortune as the Mission-ITECH acquisition begins to bear fruit. The operating expenses for 2010 was actually lower that of 2008 prior to the acquisition of Mission. It can be concluded that in 2010 the additional expenses from operating Mission were countered by the efficient management of supply chain aspects with Bauers integrated strategy with its suppliers, this can be considered as a competitive advantage. It must be noted that the restated results for the identified period we not accessible from the internet therefore comparisons between restated and pro former could not be made.

To evaluate the overall financial condition of the Bauer sport corporation, several financial ratios shall be used which are as follows: Profitability, Liquidity and Equity ratios. 8.1 PROFITABILITY RATIO Return on sales margin =(Net Profit / Net Sales ) x100 (as a percentage) =35.1/109.7 x 100 28

STRATEGIC MANAGEMENT =31.99%

SID# 0971446/1

Interpretation This means that for every dollar of sales Bauer makes 31.99cents. This is a profitable margin; however Bauer can work to improve this ratio. 8.2 LIQUIDITY RATIO Current ratio = (Total Current Asset / Total Current Liability) x 100 (a percentage) = (287.7/123.1)x100 = 226.4% Interpretation Bauer has $2.264 of Asset for every $1.00 of Liability. This is an excellent position as the Assets far outweigh the liabilities.

8.3 EQUITY RATIO Debt/Equity Ratio = Total Liability / Total Share Holders Equity =3.388/106.3 =0.031 Interpretation a low debt ratio indicates that there is very little if any outside financing. It suggests the finances from profits are used to invest. This was the case with the acquisition of Mission where a lot of expenses were incurred with the acquisition resulting in a low profit margin in fiscal year 2008.

The total analysis of the organizations value chain, strategic resources and competencies, organizational culture and the financial status give an understanding of the companys strength and weakness. The strengths and weakness are illustrated in Table 5 below Table 5: Bauer Weakness and Strength STRENGTHS Strong relationships with suppliers Excellent supply chain management WEAKNESS Ability to effectively manage expenses during financial hardship when it is most crucial. 29

STRATEGIC MANAGEMENT Strong organizational culture promoting quality and innovation Over 3700 distributors on the distribution network Efficient distribution network Excellent brand recognition Online services for customers to look at new products and purchase directly Motivated, dedicated, energetic employees. Outsourced low cost manufacturing with the ability to control quality and efficiency of outsourced operations. Strong reputation Strong brand and image Controls majority market share (45%) High annual turnover Low equity ratio, minimal company debt. High liquidity

SID# 0971446/1 Current method of trading can result and have resulted in losses due to fluctuations in exchange rate. Being a Prospector has a natural inherency of becoming inefficient due to the high focus on research and development as indicated my Miles and Snow (1978) Being a prospector initiating change within the industry is natural, however if the industry changes, maybe due to large mergers the ability of the company to change strategy to cope with environmental changes is questionable.

TASK C Strategic Fit Analysis (maximum of 20 marks) (Learning Outcomes 3 and 4) Using the analysis gathered in Tasks A and B, evaluate the Strategic Fit of your chosen sports equipment company, highlighting any special strengths or weaknesses in this fit.

30

STRATEGIC MANAGEMENT

SID# 0971446/1

9.0 ANALYSIS OF CRITICAL SUCCESS FACTORS Table 6: Critical Success factors and Analysis CRITICAL SUCCESS FACTOR (CSF) FROM TASK A Product Quality Product Innovation Brand Recognition Product quality is effectively managed by the key Bauer employees integrated into suppliers organization Dedicated R&D section, continuously revolutionizing products. Same integrated strategy as above. This is a unique intangible resource This is a unique intangible resource 31 COMPARASON OF CSF TO TASK B ANALYSIS

STRATEGIC MANAGEMENT CRITICAL SUCCESS FACTOR (CSF) FROM TASK A Cost of Production Mergers and Acquisitions Differentiation Relationship with Suppliers Research and development This is considered to be a core competency A tangible unique resource

SID# 0971446/1

COMPARASON OF CSF TO TASK B ANALYSIS

The skills and ability required for successful mergers or acquisitions is considered to be a core competency Skill required to innovate products exist in the R&D department This is considered to be a unique intangible resource

The above table illustrates that all of the critical success factors from Task A are inherently supported within the organization. This suggests that there is a very high degree of competitive advantage. This analysis is supported by the fact that Bauer has a 45% market share in the hockey industry with its closest competitor possessing less than 20% market share. The Bauer organization has an excellent strategic fit to maintain its position in the existing market. They posses all the factors that give competitive advantage. One of Bauers strength is the ability to form mergers and acquisition. It is recommended that this be utilized to penetrate the European markets which are currently in the growth phase of the industry life cycle. There are benefits to expanding to Europe, such as increase global market share, financial transaction can be conducted using the euros which is a very stable currency and can reduce losses from exchange rate fluctuations. Bauer should also look at the management of cost during times of economic difficulty. Systems should be implemented as soon as possible as cost measures now will lead to greater profit earning as well as effective management during hardship (this was identified as a weakness) From the Ansoff Matrix the strategy for European entry is market development, which is selling of existing product in a new market as illustrated in the Figure 6 below.

32

STRATEGIC MANAGEMENT Figure 7: Ansoff matrix applied to Bauer.

SID# 0971446/1

Ansoff Matrix: Currently Operating

PRODUCTS Current New

MARKETS

PENETRATION: increase market share

Product replacement

10.0 CONCLUSION

Market Development: new users, segments, strategy to be used my Bauer.

New Entry

Diversification

It can be concluded that Bauer Sport Company has established itself as a top ranking brand in the hockey fraternity. Based on the analysis of the external environment and the organizational capabilities Bauer has many competitive advantages over its competitors. Their strategic fit is excellent with some small areas to improve. With the critical factors supported with the organizational culture, Bauer can maintain its top ranking for a very long time.

33

STRATEGIC MANAGEMENT

SID# 0971446/1

U.S. Population, by Age Group: 1950-2050 Appendix 1: US projected demographics

34

STRATEGIC MANAGEMENT

SID# 0971446/1

Source: CRS computations based on data in the U.S. January 21, 2011 based on the Census Bureaus December 2010 data release. These data do not include results from the 2010 census.

11.0 REFERENCES

Quick MBA 2001. Porter Diamond. [online] Available at: 35

STRATEGIC MANAGEMENT

SID# 0971446/1

< http://www.quickmba.com/strategy/global/diamond/ > [Accessed 10 December 2011] US Commerce 2000. Demographics US. [online] Available at: < http://20012009.commerce.gov/s/groupsdoc/@os/@opa/documents/content/prod01_007457.> [Accessed 3 December 2011] Bauer Sport Company, 2007. 7 Annual Report. [online] Available at: < http://www.bauerir.com/index.php/> [Accessed 8 December 2011] Slide Invest, 2006. Bauer Performance. [online] Available at: < http://www.slideinvest.com/stock/Bauer_Performance_Sports_LTD> [Accessed 3 December 2011] Hockey Company, 2000. Rebock CCM. [online] Available at: < http://www.thehockeycompany.com/> [Accessed 9 December 2011] Plunkett's, 2010. Models of Culture. [online] Available at: <http://books.google.tt/books? id=0plTunCFHVUC&pg=PT48&lpg=PT48&dq=baseball+industry+revenue&source=bl&ots=Tka6 NoOwrr&sig=kokj7IYb3lehjXuMvF77N8N8Wmw&hl=en&ei=9gDiTtOUEcWDtge6prn6BA&sa=X &oi=book_result&ct=result&resnum=9&ved=0CEYQ6AEwCDgK#v=onepage&q=baseball %20industry%20revenue&f=false> [Accessed 9 December 2011] Combat Sport, 2002. Combat Sports International. [online] Available at: <

http://www.combatsportsgroup.com/combat/pg_Home.php> [Accessed 9 December 2011]

12.0 BIBLIOGRAPHY Branine, M., 2011. Understanding Strategic Management. California. SAGE publications

36

STRATEGIC MANAGEMENT

SID# 0971446/1

Ferraro, GP., 2005. The cultural dimensions of doing international business. 5th ed. Prentice hall Hofstede, G. (1991). Environmental Analysis. New York: McGraw-Hill Hofstede, G.(2001) Strategic Management: Concepts and Cases. Thousand Oaks: Sage Johnson G., Scholes K., (2002) Exploring Corporate Strategies. 8th ed. London. Prentice Mead, R. Andrews, TG., 2009. International Management. 4th ed. London. John Wiley and Sons Mead, R., 2005. International Management: Cross Cultural Dimensions. 2nd ed. Australia. Blackwell Publishing Parker, M. (2000) The Concept of Strategic Fit. London: Sage Publications. Price, R. Broways, MJ., 2008. Understanding Cross Cultural Management. 2nd ed.

Publications. John Wiley

Hall

Pearson Education Limited Schneider, SC. Barsoux, JL., 2003. Managing Across Cultures. 2nd ed. California. Prentice Hall Thompson, JL., 2001. Strategic Management. 4th ed. London. Thomson Learning

37