Prior to 2003, ZISCo introduced a differentiation strategy as elucidated by Michael Porter with a strong focus on domestic niche markets by specializing in products that its competitors did not have the interest to manufacture since either they were difficult to manufacture or were small orders. By perusing a niche differentiation strategy, ZISCo is able to manufacture a large scale of both new and conventional products and offered a large quantum of clients from niche markets.
Though the niche differentiation strategy presented ZISCo with many competitive benefits which include the capability to create high barriers to imitation and to charge premium prices, it is embedded with some inherent disadvantages. Since the orders were small, ZISCo find it difficult to attain economies of scale in production. Further, new product development involves a lengthy and costly process that could be break-even only with large-scale manufacturing.
Further, differentiation strategy required a high level of production coordination. Different types of products manufacturing necessitated frequent transformation in the production process. This has resulted in frequent breakdowns and increased production costs. As the result, there were low product quality and production delays.
Further, the differentiation strategy resulted in managing a large number of small sales orders and this has resulted in an increase in inventory costs and lowered the company’s bargaining power mainly with the suppliers.
Thus, the overall benefits reaped out of niche differentiation strategy by ZISCo counterbalanced by the high cost of production, distribution, purchase, and insufficient orders. Due to this, the morale of the staff was at low ebb.
Hence, ZISCo was at a crossroads at the start of 2003 as it has to develop and introduce a new strategy compulsorily to put the ZISCo on the right track of growth and to enhance the long-run competitive advantage.
In March 2003, ZISCo’s new management under the leadership of Zhang redefined the strategic management process. Under the new business strategy, more focus was given to cost reduction in all functions of the company but the priority was accorded to enhance the production volume and to improve the product quality. A target was fixed to attaint 90% of the company’s production capacity by September 2003 and by end of 2003, ZISCo was able to achieve 80% of its production capacity. Though the product quality lingered as an issue substantial coordination was achieved between the manufacturing, technology, equipment, and maintenance departments. Thus, improvement in production was followed and substantiated by a transformation in the organizational structure, incentive schemes, control, and other factors.
In 2003, various incentive schemes and performance appraisals were introduced and salaries of top and middle-level managers were related to the financial performance of the company on a monthly basis. For high profit and high demand products like thin steel sheets, special incentive schemes were announced for the front-line employees who were involved in the production of these products. A performance-based salary scheme was introduced.
At the end of 2003, Zhang concentrated on two areas namely marketing and procurement as he considered these two as fundamental in the ZISCo’s value chain, financial performance, and cost structure.
To minimize the material procurement costs and to stabilize supply sources through the consolidation of ZISCo’s supply base, a material supply company was entrusted with the task of procurement for the company. Further, the materials supply department was advised to lower its inventory levels to minimize inventory costs and to enhance ZISCo’s cash flow.
On the marketing side, Zhang introduced one-stop-shop services which added major value to clients.
The new strategy introduced by Zhang differs from the differential strategy perused by ZISCo prior to 2003. According to Zhang, his new strategic policy could attain sustainable growth mainly through value creation. While the competitor’s environment analysis focused on the evaluation of both positives and negatives of ZISCo in relation to its competitors whereas its value chain activity analysis represented the significance of activities integration.
Prior to 2003, ZISCo introduced a differentiation strategy as elucidated by Michael Porter with a strong focus on domestic niche markets by specializing in products that its competitors did not have the interest to manufacture since either they were difficult to manufacture or were small orders. By perusing a niche differentiation strategy, ZISCo is able to manufacture a large scale of both new and conventional products and offered a large quantum of clients from niche markets.
Though the niche differentiation strategy presented ZISCo with many competitive benefits which include the capability to create high barriers to imitation and to charge premium prices, it is embedded with some inherent disadvantages. Since the orders were small, ZISCo find it difficult to attain economies of scale in production. Further, new product development involves a lengthy and costly process that could be break-even only with large-scale manufacturing.
Further, differentiation strategy required a high level of production coordination. Different types of products manufacturing necessitated frequent transformation in the production process. This has resulted in frequent breakdowns and increased production costs. As the result, there were low product quality and production delays.
Further, the differentiation strategy resulted in managing a large number of small sales orders and this has resulted in an increase in inventory costs and lowered the company’s bargaining power mainly with the suppliers.
Thus, the overall benefits reaped out of niche differentiation strategy by ZISCo counterbalanced by the high cost of production, distribution, purchase, and insufficient orders. Due to this, the morale of the staff was at low ebb.
Hence, ZISCo was at a crossroads at the start of 2003 as it has to develop and introduce a new strategy compulsorily to put the ZISCo on the right track of growth and to enhance the long-run competitive advantage.
In March 2003, ZISCo’s new management under the leadership of Zhang redefined the strategic management process. Under the new business strategy, more focus was given to cost reduction in all functions of the company but the priority was accorded to enhance the production volume and to improve the product quality. A target was fixed to attaint 90% of the company’s production capacity by September 2003 and by end of 2003, ZISCo was able to achieve 80% of its production capacity. Though the product quality lingered as an issue substantial coordination was achieved between the manufacturing, technology, equipment, and maintenance departments. Thus, improvement in production was followed and substantiated by a transformation in the organizational structure, incentive schemes, control, and other factors.
In 2003, various incentive schemes and performance appraisals were introduced and salaries of top and middle-level managers were related to the financial performance of the company on a monthly basis. For high profit and high demand products like thin steel sheets, special incentive schemes were announced for the front-line employees who were involved in the production of these products. A performance-based salary scheme was introduced.
At the end of 2003, Zhang concentrated on two areas namely marketing and procurement as he considered these two as fundamental in the ZISCo’s value chain, financial performance, and cost structure.
To minimize the material procurement costs and to stabilize supply sources through the consolidation of ZISCo’s supply base, a material supply company was entrusted with the task of procurement for the company. Further, the materials supply department was advised to lower its inventory levels to minimize inventory costs and to enhance ZISCo’s cash flow.
On the marketing side, Zhang introduced one-stop-shop services which added major value to clients.
The new strategy introduced by Zhang differs from the differential strategy perused by ZISCo prior to 2003. According to Zhang, his new strategic policy could attain sustainable growth mainly through value creation. While the competitor’s environment analysis focused on the evaluation of both positives and negatives of ZISCo in relation to its competitors whereas its value chain activity analysis represented the significance of activities integration.