How to write a study plan?

write a strategic action plan for this case study

• Byte Products, Inc. is primarily involved in the production of electronic components that are used in personal computers. Although such components might be found in a few computers in home use, Byte components are found most frequently in computers used for sophisticated business and engineering applications. Annual sales of these products have been steadliy increasing over the past several years. Byte products,Inc, currently have total sales of approximately $265 million, with net earnings last year of $22 million. However, sales of this volume in the high tech industry are extremely small in comparison to several other major manufacturers. From inception in 1983, through 1995, Byte Products, Inc. was privately held by the family members of the founder, Conrad paulson. In 1995 Byte Products Inc. went public with an initial public offering (IPO) of 2,000,000 shares, at $12.00 per share. The family retained majority ownershipwith 10,000,000 shares. Since 1995 the stock has shown steady growth and has a current market value of $19.50 per share. The current problems facing Byte Products, Inc. are these; although demand is high for their product, their current production facility is at full capacity. Additionally, they are not large enough, in terms of market share, to hold a major market position, and therefore, may be a prime target for a take over, or buy out, by a larger competitor. One of the strengths of Byte Products, Inc. is that it has attracted and retained a very talented engineering staff that has continually developed product inovations and new technologies in component manufacturing. Byte Products, Inc. also has a solid reputation for quality products and excellent customer service. Currently Byte Products only distributes in the United States and has a customer base comprised of two large computer manufaturing firms who make up 85% of their business. The remaining 15% is comprimised of custom orders from smaller specialty engineering equipment manufacturers. Recently Byte Products has been approached by one of the competitors of its two primary customers with a request for proposals to develop and produce new technology component designs. At this time the production capacity issue has been a primary barrier. However, Conrad Paulson realizes that the future of his company is at the crossroads, and he must develop a strategic plan. What should he do? **Provide an (2-3 page) analysis of this situation, form a strategic management perspective, and make a recommendation for dtrategic action. Be sure to point out and discuss disadvantages (downsides) as well as advantages of you recommendations. Keep the introduction short and focused on analysis of the issues and a recommendation. **Options and issues to consider and try to implement into the paper: strategic intent ans strategic mission stakeholder interests and influences resources capabilites core competencies (what is Bytes?) general envirnoment industry environment competitor environment five forces model of competition global influences strategic alliances current financial data and status

• Answer:

  November 12, 2003 Ms. Kay N. Queen VP Planning Byte Products San Jose, CA Dear Ms. Queen -- On behalf of the team at GA Consulting, let me thank you for the assignment of developing strategic options for Byte Products. We have done strategic analyses of a number of electronics firms and have a staff replete with veterans of the electronic component and personal computer industry. It is clear that Byte Products faces these key problems described in more detail in the attached report: 1. a return on equity of 9.4% that is about half of the industry average for electronic components at 17.9%, according to U.S. government data for 2001. 2. a customer base that is highly concentrated in a pair of large customers, putting the company under continual pricing pressure. 3. a failure to develop standard products to provide additional leverage to the company's engineering. 4. absence from the Chinese OEM and ODM market, which is a double-edged sword for Byte Products. On one side, Byte is not benefiting from sales to the growing OEM/ODM market in China. On the other side, the company is not gaining the benefit of lower production costs in China. Given the strong financial structure of the company and its reputation for quality, we believe that there are 3 options for Byte Products: ? an aggressive plan to diversify company sales and production. ? a strategic partnership with a Chinese or Taiwanese component vendor, offering both companies a chance to diversify products and customer base. ? the merger of Byte Products with a larger vendor. GA Consulting stands ready to assist the company, Conrad Paulson and yourself in the implementation of any of these three options -- or combinations of options. Best regards, Mr. G.A. Omnivorous Enc: Byte Strategic Analysis -------- BYTE PRODUCTS STRATEGIC ANALYSIS ================================= INTRODUCTION ------------- Management recognizes, even without formal studies, that Byte Products suffers from a narrow customer base. The customer base is dominated by 2 large customers, which have 85% of sales, and does not include any sales to distribution or international sales. Even with the addition of another large computer manufacturer as a major customer, the customer base is narrow. Further, the products foreseen in the near future are custom or "job shop" designs that have a significant portion of their value dictated by customers. As a result, Byte Products return on equity has recently been $22 million or 9.4% on total equity of $234 million, far below the 17.9% reported in 2001 for electronic components from U.S. government tax returns: BizStats "Industry Profitability & Return on Equity - U.S. Corporations" (2001) http://www.bizstats.com/corpgp2001.htm This strategic analysis explains the causes between the lower-than-normal earnings for Byte Products and suggests three possible courses of action. It recognizes that the company's reputation for quality, its engineering strength and its strong financial position are all assets that can be used to the benefit of the company and shareholders. CUSTOMER BASE ------------- Though the loyalty of two major computer manufacturers to Byte Products provides a steady order base, it's the cause of several major problems. Byte's lack of a diversified customer base is extraordinary when compared to other component manufacturers. Even Hutchinson Technologies (NASDAQ: HTCH), a Minnnesota supplier that sells components to the highly-concentrated disk drive industry, has more major customers than Byte Products. According to its 2002 and earlier annual reports, its sales are concentrated among 5 customers: SAE Magnetics, Ltd./TDK... 25% Alps Electric Co., Ltd.... 21% Seagate Technology LLC.... 15% IBM and affiliates........ 13% Read-Rite Corporation........ 9% Though Hutchinson is twice as large as Byte, it is comparable in having a small customer base. (Indeed, the typical electronic components company has dozens of customers, with few rarely exceeding 10% of revenues.) Yet Hutchinson's ROE was 15.0% for 2002, according to its recent earnings statement. The prime difference is that in the early 1980s management made a conscious decision to move away from custom etched products (and a customer base consisting largely of two large computer manufacturers: Control Data and Honeywell) to standard products. Though it has since produced different products (and considered dozens more) Hutchinson's concentration on a standard product line has paid handsome benefits as it grew from $15 million in sales in 1980 to $498.9 million in FY2003. Another comparable vendor is Vishay Technology (NYSE: VSH), a supplier of both semiconductors and passive components. Vishay's passive component business (capacitors, resistors and inductors) produced $268 million in revenues during Q3 -- about the same size and similar in technology to Byte's business. But Vishay enjoys higher gross margins of 18.5% (for passive devices) for several reasons: 1. a wide mix of customers, with multiple customers in automotive, computer, consumer and telecommunications segments 2. worldwide presence, including increased investment in production in China and low-cost labor areas 3. standard products that can be sold via industrial electronics distribution PORTER'S PREDICTIONS -------------------- Byte is in a low-price, low-return situation that's predicted by Prof. Michael E. Porter's 5-Forces model. In its simplified form, Porter says that there are 5 things at work to determine a firm's returns: 1. Supplier power 2. Barriers to entry 3. Buyer power 4. Threat of substitutes 5. Degree of rivalry QuickMBA "Porter's 5 Forces: A Model for Industry Analysis" (undated) http://www.quickmba.com/strategy/porter.shtml Assessing Byte's position, in only one area does the company have a strong position and even then it can considered to be strong only in the short-run: Supplier power: Byte is one of more than 12,400 domestic suppliers of electronic components -- and that excludes the increasing number of Taiwanese and Chinese manufacturers. The company has no position in off-shore manufacturing, where an increasing amount of OEM (original equipment manufacturer) assembly is occurring for telecommunications, consumer and computers. Finally, the company is reliant on custom-design work, precluding development of a patent position or standard products to lower per-unit engineering costs. POSITION: weak Barriers to entry: Having long production runs with two customers is a benefit. However, without broader distribution or proprietary products, the company is not in a strong position. POSITION: average, perhaps slightly weaker Buyer power: Both major customers are aware that their orders are the bulk of the company's sales, which has led to aggressive price negotiations by the two computer companies. Further, their position is so strong that Byte is now capacity-limited, making it impossible to increase margins by adding a third major customer at this time. POSITION: extremely weak Threat of substitutes: Byte is providing high quality products and services to its two customers, making switching costs a problem for the two computer manufacturers. However, as technology advances the customers are in control of potential integration of functions into semiconductors or other hybrid components. POSITION: short-term: a strong position; long-term: much weaker Degree of rivalry: Byte is one of more than 12,000 domestic producers, many of whom are larger, have broader product lines, and are a worldwide presence. The emergence of new Taiwanese and Chinese component suppliers is further increasing competition. POSITION: weak So, the core issue for Byte Products is how to improve its position in all 5 areas for the long-term. But before we, let's consider major trends in the electronics industry. GLOBAL ISSUES --------------- The International Finance Corporation (a World Bank investment arm) released a study done with Booz, Allen this past June which summarized what everyone in Silicon Valley has known for 3 years: China will be the fastest growing area of electronics manufacturing, capturing 77% of the growth in the next two years. Electronic manufacturing will double in emerging markets, according to the survey of industry executives -- and Byte Products' target market will lead the production growth. Computers will contribute 72% of the growth, with consumer electronics, handheld devices, automotive electronics and telecommunications trailing those markets. As important as it is for Byte to diversify, it's critical that the company enter the Chinese market by selling and possibly manufacturing. International Finance Corporation (World Bank) "Electronics Industry in Emerging Markets" (June 3, 2003) http://ifcln001.worldbank.org/IFCExt/pressroom/IFCPressRoom.nsf/c4d7f6e172a844f085256a5b0078815d/f71da5e2a3aa64f085256d3a00549867?OpenDocument Development of standard product lines allows a company to broaden its customer base without the engineering and support resources required for custom-product manufacture. It also would allow Byte Products to serve many smaller customers through industrial distribution, which itself is a $36 billion activity in the U.S. alone. Electronic News "Distribution Trends 2002" http://journals.iranscience.net:800/www.e-insite.net/www.e-insite.net/electronicnews/index.asp@layout=article&articleid=CA185045&pubdate=12_2F3_2F2001 CORE COMPETENCIES ------------------ It is clear from discussions with management and customers that the company's core competencies are: ? high quality production of electronic components ? strong engineering support for computing applications ? excellent support & customer service It may make sense to conduct detailed research to determine what aspect of those 3 attributes are most-important to customers; how customers value those attributes; and how the company ranks versus competitors. Offering better value allows a company to gain market share, increase profitability -- or both. An introduction to Customer Value Management (CVM) or Relative Customer Value (RCV) is this presentation by Bradley Gale or you can see his book "Managing Customer Value: Creating Quality and Service that Customers Can See", Simon & Schuster, 1994, one of the early works on RCV. Customer Value Inc. " Trends in Customer Satisfaction, Loyalty, and Value" (Bradley Gale, undated) http://www.cval.com/Intro.html RECOMMENDATIONS ----------------- 1. DIVERSIFY SALES & PRODUCTION The company's reliance on two vendors has contributed to lower-than-average returns on equity and put the company at-risk long term should either of the customers shift production off-shore. At the best, freight rates will increase the total costs to the computer manufacturers, even if Byte Products retains the business. At the worst, the business will disappear. In order to strengthen the company's position in the market, it should see how current products can be standardized and made into a product family. Should that not be possible, the company should examine 6 to 8 products for manufacturing as standard components. Though it's likely that only 1 or 2 of the opportunities examined will ever contribute to revenue, it will give Byte the opportunity to analyze various types of skills and markets. It will also have the financial benefit of enabling Byte Products to achieve all of the following: ? potential licensing of manufacturing -- or joint ventures ? a broader revenue base over which to amortize R&D overhead ? sales to smaller customers through industrial distribution ? a broader customer base to increase Byte's pricing leverage and production freedom ? development of intellectual property (patents, process designs and copyrights) for licensing or cross-licensing. At the same time, the company should take immediate steps to establish company direct sales in China, Taiwan and Korea -- the three fastest-growing electronics markets. 2. JOINT VENTURE OPPORTUNITIES While developing the capability for international sales, Byte Products should examine joint-venture opportunities with Taiwanese or Chinese partners. Immediate benefits of a joint venture would be: ? additional production capacity without investment, allowing Byte to take on a 3rd computer customer ? acquisition of products for sale to current Byte customers ? broadening of Byte's distribution ? potential for investment in low-cost labor markets A good model for this is in a recent move by the highly-diversified Vishay, which entered into a joint venture with Walsin Technology Vishay Technology "Vishay and Walsin Announce Joint Technological and Marketing Alliance" (Oct. 31, 2003) http://www.transzorb.com/company/press/releases/nonrelated/031031partnarship/ For Vishay, it gained access to low-cost capacitors to serve consumer and automotive applications -- and an additional location for low-cost production with no investment on its part. 3. MERGER OPPORTUNITY Pursuit of a merger opportunity is ranked third for a number of reasons. Given the close involvement of Conrad Paulson's family in developing Byte Products, it may be the least attractive option. However, the company would be attractive for potential purchasers due to its profitability, customer base, reputation for quality, and opportunities to reduce G&A expenses after a merger. GA Consulting would recommend the earlier steps of developing new products, expanding sales and developing joint venture opportunities before taking this step. Should those measures not increase the operating returns of Byte Products sufficiently, company may have already identified potential partners for the business. Google search strategy: "Michael Porter" + "five forces" "electronics manufacturing" + markets "electronic distribution" + "market share"