Strategy – “An Art of Closing the Doors”

 

Understanding the importance of strategy in the business world is very important. It sets a general direction for the future of the company. The strategy depends on many parameters like tagline, the mission statement of an organization, goals, and objectives. In every decisive situation, business management goes through the trade-off scenario. Here the strategy is not just to choose one option out of available choices but to reject the other options with utmost clarity. Each and every decision the organization takes that must be aligned with its business and its long-term goals. There are many occasions when a company faces a difficult time running the business. One of the potential reasons for that can be the misalignment between the decisions and the company’s identity. We can take references from the real examples from the business world.

If we talk about D Mart from the retail business sector. D Mart targets the mass consumer segment with its low-cost product at any time. D Mart has made some accurate decisions on some matrics like procurements, ownership model, SPF (sales per square foot), advertisements, digital platform etc.

As being the most affordable retail store D Mart has been procuring goods and items at very low cost and in high volume. To procure it, D Mart does payment to distributors within 10 days instead of 60 days, unlike the other stores. It is desirable to make a payment late for the company which is a trade-off that D Mart does.  The frequency of purchasing cycle is lower in this system so D Mart cannot fulfill the instant requirement of consumers. Hence it loses some customers because of this kind of system one needs to accept and acknowledge this loss/cost as a by-product. D Mart has implemented an ownership model, unlike its competitors. D Mart owns more than 80% of stores across the states. It helped them to be a lower or no debt company. D Mart could have got the properties on rent to avoid the fixed cost still they decided to purchase it. A company of this kind of model needs to sell much more than its competitors in a unit square foot of the store, which shows the efficiency of the store. It means in D Mart stores, its shelves must be used optimally compare to the other stores. This model demands a lower dwell time and high Buyers to Shoppers ratio, which is nothing but a conversion rate. That means D Mart is not the place for the most pleasant shopping experience for the customers. Even though D Mart should not focus that much to become a high-quality service retailer. D Mart does not do aggressive marketing and advertisements because its core consumers are attracted to D Mart because of its Unique Selling Positions (USQ).  D Mart offers a discounted price on the majority of the products every single day. Unlike other hypermarkets, D Mart has decided not to promote festival sale offers to be known as the all-time discounted price place. In the covid crisis, D Mart started its online digital platform. This is not a low-cost platform as its offline stores are which is a contradictory approach from its business strategy. We can infer from this case that one primary decision lead the way forward of the business and make different ideas irrelevant in this business model. D Mart has analyzed the alignment between its business model with each and every decision.

Let’s take another case of Maruti Suzuki business in the automobile sector. Maruti has achieved the largest market share in India. Maruti’s business model is based on the low cost, low margin, and high-volume approach.  So Maruti needs to make each and every decision based on this model. Unlike other automobile companies, Maruti has focused much more on the number of its service station and their availability. This combination of the price and service availability is the point of difference for the company in the automobile sector. For the last few years majority of the Indian and foreign automobile companies started research programs for the revolutionary and innovative idea of the electric car because of the growing concerns of the climate change issue. Maruti has decided not to be in the race of the first mover in the race of the electric car-making program. This requires a big amount of budget for research and development programs. As a first-mover player company requires a big amount of budget for the research and development program and to cover the cost of this, a product cannot be sold at a cheaper price. Maruti is well aware of the fact that its consumer segment is not an affluent class. So it is not advisable to be the first mover in the automobile industry as well as not to do big spending for research and development programs. So if Maruti had decided to be there in the race it would be a disaster for the company and its future business. Maruti definitely will be entering into EV once any company launches a product, they will analyze it which will help them to reduce its cost of R&D. So Maruti will be able to sell its EVs at the competitive price and able to maintain its market share.

Thus, we can infer that company needs to learn why sometimes good and visionary ideas also should not be implemented for the welfare of the company. So the strategy is more of an art of closing the doors.

About the Author

Jay Dudhela

Pursuing PGDM at IMT Hyderabad

A detailed observer with an interest in social and business affairs writes about how strategy is an art of closing the doors

Tesla’s Way to Electric Mobility

 

There is a great buzz in the market regarding the shift to e-mobility. Though the question is not about “Why,” it is about “How,” i.e., how can we have a smooth transition to all-electric mobility? Well, the straightforward answer to this question is – No, we can’t. The path to an all-electric fleet is not a straight one.

Tesla Inc. is one of the few companies striving hard to transform the mobility sector. It is American clean energy and electric vehicle company. It designs and manufactures electric cars, energy storage batteries, solar panels, solar roofs, and related products.

The transition to an electric fleet was inconceivable a few years back. But the way, Tesla is strategizing its efforts is commendable. It has adhered to some tactics which keep it stand apart from the rest of the players. First, it has built an image of a company that cares for the environment and thus appeals to people to use eco-friendly products. For example- Tesla could have quickly patented their technology and would have made a lot of money. But it allowed its competitors to use its technology, citing that it wants to expand sustainable technology. Second, they took a quite unique or strange approach to get themselves rooted in the market. Instead of making low-cost cars for mass production, they have focused on a high-end luxury sports car that would spur the demand for Electric vehicles. Third is, they adhere to the principle of direct selling, which means they don’t sell through the franchised dealership; they have their outlets and staff. This tactic of direct selling gives them an edge when it comes to the customer buying experience and product development. Also, they provided the use of internet sales-where you can purchase your vehicle online.

  Vertical Integration: Tesla Inc. has a very high degree of vertical integration (around 80%), which is very rare to find in an automobile company. This allows it to have stringent control over the entire supply chain, from procuring materials to delivering the vehicles. It produces its vehicle components and sets up its charging stations where people can charge their vehicles.

Ramping up the charging infrastructure: Tesla Inc estimated in the beginning only that charging infrastructure would be a critical factor. So, they have ramped up the installation of charging stations in major countries across the globe. They have set up DC Superfast charging stations, where drivers can get their vehicles fully charged in just 30 mins. Also, they have set up “GIGAFACTORY” in China, the US, Germany, and the UK to achieve the economies of scale for the production of Li-Ion Battery, a crucial component of EV.

Though, these measures are reasonable in the long run. But still, we are far away from the finish line. There are a lot of challenges we are facing right now, like Range Anxiety, Charge Anxiety, the Inadequate number of charging stations, lack of Servicing options, and insufficient power generation capacity to accommodate those vehicles. So, the road ahead is not so smooth for Tesla, it have to work on the challenges currently facing the EV sector.

        About the writer

        Praveen Kumar

                Pursuing PGDM (Finance) at IMT Hyderabad

            Interests in Automobiles, Politics