CHAPTER II LITERATURE REVIEW

Transcription

1 CHAPTER II LITERATURE REVIEW 2.1 Business Definition Based on Hughes and Kapoor as cited in (Sugiyono, 2003 p20) Business is an individual business activities organized to produce and sells goods and services in order to gain advantage in meeting the needs of society:. A whole complete running series of business, will complete activity groups based on their functions, so that each group activities is called business function. Based on the definitions, it can be concluded that the business activites can be done by individuals or groups within a single institution, which aims to produce services or goods for public to gain profit. The actual business activities include 2 main things, which is : 1. The production process 2. Marketing of goods or services So, business is an activity carried out by individuals or groups with the aim to make a profit and market goods and services to fulfill the needs of the customer. 2.2 Strategy Definition Thompson JR, Strickland III and Gamble (2008) defined company s strategy is management s action plan for running the business and conductin operations. The crafting of a strategy represents a managerial commitment to pursue a particular set of actions growing in business, attracting and pleasing customers, competing successfully, conducting operations, and improving the company s financial and market performance. Henry Mintzberg (2010,online) defined strategy as "a pattern in a stream of decisions" to contrast with a view of strategy as planning. Max McKeown (2011,online) argues that "strategy is about shaping the future" and is the human attempt to get to "desirable ends with available means". Olga Faltejskova and Lilia Dvorakova(2013,online) The essence of strategic analysis, according to Johnson & Scholes (2000) is understanding the

2 relationship between the different forces influencing company/society and strategy choice. While analyzing the corporate environment can to detect threats and opportunities in the firms surroundings, the purpose of internal business environment analysis is to identify its strengths and weaknesses, which, together with the results of the analysis of sector environment, revealing threats and opportunities results in a SWOT analysis Based on Sugiyono (2006,p12) descriptive analysis is an research used to analyse statistic of the research but aren t used to make further decision. Research doesn t use any sample. The analysis will use descriptive anaylsis 2.3 Strategic Management Definition Based on Robbins and Coulter (2012, p12) Strategic Management is what managers do to develop the organization s strategies. It s and important task involving all the basic management functions such as planning, organizing, leading and controlling. Based on Goetsch and Davis (2013, p.36), strategic management is management that bases all actions, activities and decisions on what is most likely-within an ethical framework-to ensure successful performance in market place. From the strategic manager s perspective, resources are wasted unless they contribute to success in marketplace, and the more direct the contribution, the better. 2.4 Types of Strategy Based on Griffin and Ebert (2010, p153), there are 3 business strategy types, which are : 1. Corporate Strategy : determine the firm s overall attitude toward growth and the way it will manage its business or product lines. 2. Business( or competitive) strategy : takes place at the level of the business unit or product line, focuses on improving the company s competitive position 3. Functional Strategy : managers in specific areas decide how best to achieve corporate goals by being as productive as possible.

3 what wants Based on Robbins and Coulter (2012, p256) Corporate strategy is determines what businesses a company is in or wants to be in, and what it to do with those businesses. Competitive strategy is a strategy for how an organization will compete in its business(es). Based on Thompson JR, Strickland III and Gamble (2008, p.235), strategies to compete in rapidly growing markets must include : 1. Driving down costs per unit so as enable price reductions that attract doves of new customers. Charging a lower price always has strong appeal in markets where customers are price-sensitive and lower prices can help push up buyers demand by drawing new customers to the marketplace 2. Pursuing rapid product innovation, both to set a company s product offering apart from rivals and to incorporate attributes that appeal to growing numbers of customers 3. Gaining acces to additional distribution channels and sales outlets. Pursuing wider distribution acces so as to reach more potential buyers is a particularly good strategic approach for realizing above-average sales gains. But usually this requires a company to be a first-mover in positioning itself in new distribution channels and forcing rivals into playing catch-up 4. Expanding the company s geographic coverage. Expanding into new areas, either domestic or foreign, where the company does not have a market presence can also be an effective way to reach more potential buyers 5. Expanding the product line to add models/styles that appeal to a wider range of buyers. Offering buyers a wider selection can be an effective way to draw new customers in number sufficient to realize above-average sales gains. are : Alternative strategies that can be done by companies based on David (2004) 1. Integration Strategy

4 a. Forward Integration A business strategy that involves a form of vertical integration whereby activities are expanded to include control of the direct distribution of its products. A good example of forward integration is when a farmer sells his/her crops at the local market rather than to a distribution center. b. Backward Integration A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it will result in improved efficiency and cost savings. For example, backward integration might cut transportation costs, improve profit margins and make the firm more competitive. By way of contrast, forward integration is a type of vertical integration that involves the purchase or control of distributors.. c. Horizontal Integration The acquisition of additional business activities that are at the same level of the value chain in similar or different industries. This can be achieved by internal or external expansion. Because the different firms are involved in the same stage of production, horizontal integration allows them to share resources at that level. If the products offered by the companies are the same or similar, it is a merger of competitors. If all of the producers of a particular good or service in a given market were to merge, it would result in the creation of a monopoly. Also called lateral integration. 2. Intensive Strategy a. Market Penetration The activity or fact of increasing the market share of an existing product, or promoting a new product, through strategies such as bundling, advertising, lower prices, or volume discounts. The amount of sales or adoption can be an individual company's sale or industry while the theoretical market can be the total population or an estimate of total potential consumers for the product. b. Market Development Market development is a marketing technique aimed at increasing a company's market in order to widen the customer base for the purpose of

5 selling more products. There are several approaches that can be used to make a market larger, ranging from capturing customers of rival companies to expanding to a previously unserved segment of the market.. c. Product Development Product Development is a creation, innovation, utility enhancement or continuous improvement of earlier features (design, service, etc.) of an existing product or developing (manufacturing) an entirely new kind of product to satisfy the requirements of its end-users (consumers). 3. Diversification Strategy a. Concentric Diversification Concentric diversification is one of several different diversification strategies used by companies to increase their appeal to consumers. With this particular approach, the business will attempt to increase market share by introducing a range of new products that are likely to not only attract the attention of existing clients but also draw in new customers. Sometimes referred to as convergent diversification, the goal is to motivate current customers to keep purchasing the company s older products while also choosing to purchase the newer products. b. Horizontal Diversification Horizontal Diversification is a growth strategy in which a company seeks to add to its existing product lines with improved versions of the originals or with new products that add value and appeal for its current customers.. c. Conglomerate Diversification Conglomerate Diversification is a type of diversification whereby a firm enters, through acquisition or merger, an entirely different market that has little or no synergy with its core business or technology.conglomerate diversification helps in strengthening the internal structure of a company and it is an essential form of diversification. Based on the financial position, conglomerate diversification helps in evaluating the company`s portfolio. Here, the newly developed products are not directly related with existing technologies, markets and the products. This is more related to the financial condition and stability of the company.

6 4. Defensive Strategy a. Retrenchment Retrenchment is something similar to downsizing. When a company or government goes through retrenchment, it reduces outgoing money or expenditures or redirects focus in an attempt to become more financially solvent. Many companies that are being pressured by stockholders or have had flagging profit reports may resort to retrenchment to shore up their operations and make them more profitable b. Divestiture The partial or full disposal of an investment or asset through sale, exchange, closure or bankruptcy. Divestiture can be done slowly and systematically over a long period of time, or in large lots over a short time period. For a business, divestiture is the removal of assets from the books. Businesses divest by the selling of ownership stakes, the closure of subsidiaries, the bankruptcy of divisions, and so on. c. Liquidation Creditors liquidate assets to try and get as much of the money owed to them as possible. They have first priority to whatever is sold off. After creditors are paid, the shareholders get whatever is left with preferred shareholders having preference over common shareholders Strategic Management Steps Based on David(2009,p.6-7) Strategic Management Process has 3 steps which are Strategy Formulation, Strategy Implementation and Strategy Evaluation. Those 3 steps are: 1. Strategy Formulation It has few steps : a. State vision and mission b. Identify company s external factors c. Identify company s internal factors d. State long term goal e. State alternative strategies f. Choosing some strategies to achieve goals 2. Strategy Implementation

7 a. State the goal b. Create, choose and review company s policies about other policies that has been implemented c. Allocate the resources correctly 3. Evaluation Strategy It is the final steps in strategic management. It is the main tool for manager to know whether this strategy are going well or not. All the strategies could be modified based on the internal and external factors in the future. The evaluation activities are : a. Evaluate whether the internal and external factors still useful for creating the strategies in that condition b. Evaluate the company s performance c. Evaluate and correcting the taken actions Based on Jones and Hill (2010, p.12), the formal strategic process has five main steps : 1. Select the corporate mission and major corporate goals. 2. Analyze the organization s external competitive environment to identify opportunities and threats 3. Analyze the organization s internal operating environment to identify the organization s strengths and weaknesses 4. Select strategies that build on the organization s strengths and correct its weaknesses in order to take advantage of external opportunities and counter external threats. These strategies should be consistent with the mission and major goals of the organization. They should be congruent and constitute a viable business model 5. Implement the strategies. 2.6 Strategy Formulation Based on Jones and Hill (2010, p.4) Strategic formulation is the task of selecting strategies, whereas strategy implementation is the task of putting strategies into action, which includes designing, delivering and supporting products.

8 Steven French (2009,p.4 online)the Ginter et al. (1985) paper described the strategic process as containing eight elements: (1) vision and mission; (2) objective setting; (3) external environmental scanning; (4) internal environmental scanning; (5) strategic alternatives (crafting strategy); (6) strategy selection; (7) implementation; and (8) control. Based on Jones and Hill (2008, p.287), horizontal integration is the process of acquiring or merging with industry competitors to achieve the competitive advantages that arise from a large size and scope of operations. An acquisition occurs when one company uses its capital resources, such as stock, debt, or cash, to purchase another company, and a merger is an agreement between equals to pool their operations and create new entity Company s Vision And Mission Based on Purwanto (2006, p77) Vision is a wide goal from the management and is an ideal condition that the company wanna achieve in the future. Meanwhile, Kuncoro (2008, p58) said that Vision is a comprehensive statement about: what the owner wants, why the company exist and what is the future goal of the company. Based on David (2009, p84), Mission statement is an declaration about the existence of the company. Question about mission must answer what is our business?. A clear mission question will help to formulate strategy and goal statement. Based on Pearce II and Robinson ( 2008, p31), company s mission is about what is the desire of the company. This mission includes the decision makers philosophy, how they want to see the company s image and also what product we produce and how well we serve our customers. Based on Stutely (2007, p.57), to define mission, it should describe exactly what you will be doing for the next three to five years ( why,where,how) and what you want to achieve. It should be a statement of

9 purpose with specific goals. Generally, it works best to focus on business and on customer needs and benefits rather than your product themselves. Remember the old adage that people do not want shovels, they want holes in the ground. Based on Thompson JR, Strickland III and Gamble (2008, p.24), the distinction between a strategic vision and a mission statement is clearly cut: A strategic vision portrays a company s future business scope ( where we are going ), whereas a company s mission typically describes its present business and purpose ( who we are, what we do, and why we are here ) Based on Goetsch and Davis (2013, p.39), a well-written vision statement has the following characteristics: 1. Is easily understood by all stakeholders 2. Is briefly stated, yet clear and comprehensive in meaning 3. Is challenging, yet attainable 4. Is lofty, yet tangible 5. Is capable of stirring excitement for all stakeholders 6. Is capable of creating unity of purpose among all stakeholders 7. Is not concerned with numbers 8. Sets the tone for employees External Audit Based on Sartono (2000,p39), identyfing opportunities and threats will require the analysis of company s external factors. Analysing external factors can also be done by monitoring, evaluating, and give that information to the company s employee. That information can be useful for the company s keyperson. Based on Pearce II and Robinson (2008, p112) External environment is factors outside the company that may impact to the decision making, structure and company s internal process. Meanwhile, David (2009, p120) said that external audit s goal is to create a list of opportunites that the company can use and also the threats that the company must prevent. The main external factors are: 1. Economical power 2. Social, cultural, demography and environment power 3. Government and political power

10 4. Technological power 5. Competitive power Internal Audit Based on Purwanto (2006, p94) internal environment analysis includes marketing, human resource management, financial management, research and development, operational management and also production factors. Based on Jones and Hill (2010, p19) internal analysis focuses on reviewing the resources, capabilities and competencies of a company. The goal is to identigy the strengths and weakneses of the company. Based on David (2009, p177) Internal factors are categorized to : 1. Management Power 2. Marketing Power 3. Financial Power 4. Operational Power 5. Resource and Development Power 6. Management Information System Power Choosing Long Term Goal Based on Pearce II and Robinson (2008, p250) Long term goal is an statement about what company wanna achieve at some period. Meanwhile, David (2009, p ) Long term goal is an interpretation of the expected result from the implementation of some strategy. Strategy represent any kind of action to achieve goals. Goals must be quantitif, which means can be calculated, realistic, easy to understand, challenging, possible to achieve and hierarchic. Based on Assauri (2013, p.32-33), strategy that are formulated and chosen by the company is an decision for a long term goal that will impact to the overall company activities, like investment or new product innovation.to choose the long term goal, it has to undergo a long and company overall process to get the best options and best implementations.

11 2.6.5 Summarizing, Evaluating and Choosing Strategy Based on David (2009, p324), summarizing strategy can be done by three stage : Stage 1 includes EFE Matrix, IFE Matrix, dan CPM Matrix. This step is defined as Input Stage. This stage used to formulate the best strategy. Stage 2 is Matching Stage, focus on creating alternatives by seeing the main internal and external factors. This stage includes SWOT (Strength- Weakness-Opportinity-Threats) Matrix, Evaluation Matrix and Strategy Position (Strategic Position and Action Evaluation-SPACE), Boston Consulting Group (BCG) Matrix, Internal External (IE) Matrix and Grand Strategy Matrix. Stage 3 is Decision Stage, only include Quantitative Strategy Planning (QSPM) Matrix. QSPM use the information from Stage 1 objectively to evaluate the strategy that has been defined at Stage 2. 3 steps above will be explained later in Chapter Porter s Five-Forces Model Based on Porter as cited by David (2009, p145) Porter s Five-Forces Model about competitive analysis is an approach to define strategies in many industries, The intensity among rivalries varies from one rival to another. According to Porter, the nature of competition in a given industry can be viewed as a combination of five forces: 1. Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are. 2. Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your

12 products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you. 3. Competitive Rivalry: What is important here is the number and capability of your competitors. If you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-one else can do what you do, then you can often have tremendous strength. 4. Threat of Substitution: This is affected by the ability of your customers to find a different way of doing what you do for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power. 5. Threat of New Entry: Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it. These forces can be neatly brought together in a diagram like the one below Threat of Substitutions Supplier Power Competitive Rivalry Buyer Power Threat of New Entry 2.9 Studies Relevant to Topic According to Journal by Lawrence G Fine, Before you start a business, you should consider completing a SWOT analysis. If you plan on buying a business,

13 use the SWOT analysis to answer various questions you will have regarding the running of the business, and the profitability of the business. However, you will find the benefit when writing a business plan. It should also be included in all your strategic planning.have you ever considered using SWOT to look at your competitor? It is an exercise which will prove to be profitable to your business, if you act on the results. Marketing is an area which many people are not experts in, but you can take your marketing to a new level, when you add SWOT into your thinking. You will discover how business never stays static. The business should either be moving forward, or the business will be moving backwards. Just look at companies who refuse to move forward with the changes in the way people shop, and see how many stores on the High Street are now closed. As you look to change your business or create a new product, a SWOT analysis is imperative to ensure you don t waste time and energy on a product which isn t needed or wanted in the marketplace. For businesses who are involved in research, a SWOT analysis again is crucial as the results are recorded and White Papers are written. According to journal by Fred Nickols, Strategy refers to a general plan of action for achieving one s goals and objectives. A strategy or general plan of action might be formulated for broad, long - term, corporate goals and objectives, for more specific business unit goals and objectives, or for a functional unit, even one as small as a cost center. Such goals might or might not address the nature of the organization, its culture, the kind of company its leadership wants it to be, the markets it will or won t enter, the basis on which it will compete, or any other attribute, quality or characteristic of the organization. As my definition implies, it is my view that strategy (and tactics) relate to how a given end is to be attained. Together, strategy and tactics bridge the gap between ends and means. Resources are allocated or deployed and then employed in the course of executing a given strategy so as to realize the end in view. The establishment of the ends to be attained does indeed call for strategic thinking, but it is separate from settling on the strategy that will realize them. According to journal by Saylor Foundation, Strategy formulation is the course of action companies take to achieve their defined goals. o All employees of an organization should be aware of the company s objectives, mission, and purpose.

14 o A strategic plan enables a company to evaluate resources, allocate budgets, and maximize ROI (return on investment). o The lack of a strategic plan will result in an organization being without direction or focus. The company will be reactive rather than proactive. o The sixsteps for strategy formulation are: define the organization, define the strategic mission, define the strategic objectives, define the competitive strategy, implement strategies, and evaluate progress o Defining the organization requires a company to identify its customers by end benefits sought, by specific target markets, or by technology. o Defining the strategic mission ensures that the company is able to identify its values, the nature of its business, its competitive advantage, and its vision for the future. o Strategic objectives should be defined based on performance targets an may include increases in market share, customer service improvements, corporate expansion, sales increases, production methods, etc. o Competitive strategy includes an evaluation of the overall industry and marketplace, the nature of the competition s position, and the company s internal strengths and weaknesses. o A company must implement its strategic plan in order to achievesuccess. It must develop appropriate tactic s, which are the action steps for meeting the strategies directives. o Strategies must be evaluated and revised on a regular basis in order to meet the changing needs and challenges of the marketplace and business environment According to journal by Meredith E. David,Forest R. David and Fred R. David, Developing a QSPM makes it less likely that key external/internal factors will be overlooked or weighted inappropriately in deciding which alternative strategies to pursue. Although developing a QSPM requires a number of subjective decisions, making small decisions along the way enhances the probability that the final strategic decisions will be best for the firm. A limitation

15 of the QSPM is that it can be only as good as the prerequisite information and matching analyses upon which it is based. Another limitation is that it requires good judgment in assigning attractiveness scores. Also, the sum total attractiveness scores can be really close such that a final decision is not clear. Like all analytical tools however, the QSPM should not dictate decisions but rather should be developed as input into the owner s final decision. Based on journal by Dan Bobinski, Vision statements tell us where an organization wants to be. Usually a vision statement is: o rooted in values (what drives the organization) o best if it s brief (easy to remember) Mission statements tell us what an organization intends to do to get where it wants to be (to achieve its vision).like vision statements, they should be brief (easy to understand/remember), but flexible (can accommodate change), and distinctive(make the company stand out)

16 2.10 Theoritical Framework To make clear of the research purpose and also to make it easy to understand, theoretical framework is needed. The theoretical framework of this research is : PT. JAGAKARSA MOTOR EFE MATRIX Stage 1 : Input Stage CPM MATRIX IFE MATRIX SWOT MATRIX Stage 2 : Matching GRAND STRATEGY IE MATRIX Stage 3 : Decision Stage QSPM MATRIX Effective Business Strategy Figure 2.1 Theoritical Framework