Strategic Direction Sustainability

Question: Discuss about the Strategic Directionfor Sustainability. Answer: Strategic Direction for the Sustainability The strategic direction and the sustainability of the business model is one of the important aspects of the long term perspective of the business. Sustainability is the approach where the organisation secures the future of the business to keep the business running like the current operation (Colbert and Kurucz, 2007). In this approach the future business need and adjustment according to that is also get the high priority. The company Voyage is currently going through the same type of crisis where the current dip in the profit figure forced the management to derive effective strategic direction for the business to have the sustainable status of the business. The seriousness of the problem can be understood from the operational data of the business. The sales number of the yachts is showing the trend of the business. The sales number is decreasing as the figure showers that the company was able to sell 39, 32 and 29 yachts for the year 2013, 2014 and 2015 respectively. Looking at the rejection number the situation is also grim there. The number of rejection is 4, 5 and 5 for the year 2013, 2014 and 2015 respectively. These figures show the rejection is on rise and sales are slowing down. That means the designs or the marketing of the product is not effective and that is affecting the sales. The private distribution channel is used for the sales process in the organisation. This is also not resulting in the sales figure (Wheelen and Hunger, 2011). Looking at the scenario the business reduced the production of the yachts and the reduction figures are 50, 47 and 43 for the year 2013, 2014 and 2015. But at the same time the inventory figures are rising and there the figures are 195880000, 451332000 and 688681000 for the year 2013, 2014 and 2015 respectively. That means in spite of slowing down the operation the business cannot meet the target sales (Castro and Chousa, 2006). The situation becomes much clearer from the 2015 budget. There the business planed to manufacture 43 yachts but against the 43 yachts produced the organisation is able to sale only 29 of them. The actual figure is 32.3% lower than the budgeted figure. The liquidity figure is also decreasing as the cash balance is dropping (Penman and Penman, 2007).In 2015 the actual cash balance is 100523000 against the 172728000 budgeted amount. If the scenario keep on going the business would have serious liquidity crisis. From the operational data it is clear that the business need to clear the inventory and increase the cash balance figure. On the other hand the financial data show that the sales revenue figure is decreasing in the business. The figure dropped from 1124615000 to 986609000 to 891469000 for the year 2013, 2014 and 2015 respectively. The figure drops 9.6% in the year 2015 whereas the cost of sale dropped 8.9% during the 2014 to 2015. That means that some of the marketing expense for the entertainment of the high net worth in selling process may not be producing the sales value (Penman and Penman, 2007). In that context the business need to rethink about the sales strategy. The profitability figure is on the downward trend. The drop in profitability is 19.4% from the year 2013 to 2014. The figure for the 2014 to 2015 is 54.36%. This is huge problem for the business (Castro and Chousa, 2006). This kind of drop in profitability trend would lead to loss making situation for the business. That means there is not only urgent need to increase the revenue but also with improved margin in the business (Hamel, 2012) . The actual profit figure is 29.9% lower than the budgeted figure in the business. This means that there is serious budget planning in the business and that is why the differentness is high. Now the proposal for the business strategic improvement is to exploiting the social media marketing platform and selling the high end product to the mid segment of the market. The product and service differentiation technique would reduce the risk of the business and may increase the number of sales and total sales revenue. But the margin would be low in the mid segment. At present the business has large inventory position and those are made from the input of the marketing department to follow the current market design trend (Peteraf et al., 2014). To avoid the potential write-off situation of the stocks, the business should use the discounts to sell the products rather than incurring the expense in the marketing promotion through the entertainment of the high net worth individual client. The margin would improve in the mid segment if the organisation follows the different promotion technique in the social media setup rather than incurring high expenses for the entertainment. The inp ut from the marketing department about the design requirements need to be further specified and researched with increasing the production efficiency, so that the rejection figure can be reduced. The business need to create two separate brands for two different segments (Wheelen and Hunger, 2011).In that case there would not be perception problem in the mind of two different customers. This approach would help the company to sell the product to the high net worth individual with higher margin and at the same time the mid segment would also find high value in the luxury yachts (Hamel, 2012). Now the customise facility would only be there in the high segment of the market to increase the value proposition of the customer. For the mid segment there would be standard up to date high end luxury yachts. In the mid segment the sales figure need to increase so that organisation can benefit from the economic scale. Reduction in the promotional cost, use of high economy of scale cost cutting i n the operational process would help to maintain the good margin in the mid segment. All of these approaches would increase the cash flow with reduced inventory; enhance the profit margin and reduction in the risk of the business because of diversification. Style of Budgeting Two type of budgeting are applicable in this type of scenario. The authoritative style of budgeting is the approach where the top management of the organisation decides the goals of the organisation and then make the budget according to those goals. In this type of budgeting the involvement of the mid and low level of management and other employee are low in the organisation (Pilkington and Crowther, 2007). There are some advantages in the authoritative style. The decision making is fast and the control factor is high in this type of budgeting. In the current situation the Voyage is going through some difficult phase where the profitability and sustainability is at stake. In this situation the prompt action is needed and that may suit authoritative style. This approach would make the process fast and the coordination with the marketing, finance operation and other department of Voyage would be effective (Hope and Fraser, 2013).The implementation of the diversification plan would be f ast and the process would be controlled one. But there are other roles of budgeting like communicating the goals, motivating the employees in the goal persuasion. In the authoritative style of budgeting the other staffs and management may feel low motivation because of lower participation level. Because of the low motivation the other management may not effectively communicate the plans (Pilkington and Crowther, 2007). So at the end the goal may not be achieved because of the lack of coordination. The current situation in Voyage is difficult and a well coordinated and motivated approach would be useful. On the other hand the participatory approach the impacted management and the staffs participate in the budgeting process. In the Voyage the marketing department provides the inputs in the manufacturing process. The marketing department provides estimation for the budget for the entertainment of high segment customer to promote and sell the product. The operation department are concerned about the manufacturing facility and stock position. The finance department would be concerned about the margin in the business. In that context the participative approach would be useful to consider the individual plan and goals of the department and different level of management, in the persuasion of diversification goal persuasion. This approach is useful for setting some realistic goal where the other management and employees are motivated to pursue it (Chong et al., 2006). The other management levels also feel responsible in this type of budgeting as they were in the participation process. This w ould help in the better implementation of the process. But in this type of budgeting the top management of the organisation need to provide the leadership. Otherwise the self imposition of the budgetary plan would lack in persuasive force the result would not be according to the expectation. Increase in profitability in Voyage means the efficiency in production, increase in sales, and proper investment in different sales channel development and cost reduction in the operation. This all round approach would be possible in the participatory budgeting approach with the adequate involvement of the top management (Hope and Fraser, 2013). The involvement of the top management would enhance the decision making ability of the process. The evaluation of the performance would be based on the reality rather than an imposed target by the top management of the company. The budget of 2015 shows that there is greater variation in the actual and the budget figure. The actual profit is 29.9% lower t han the budgeted figure (Chong et al., 2006). The actual performance missed the budgeted figure by one third. The participative budget would help in the reduction of difference and low level of stock pile up. Taking the entire thing under consideration the predicative budget is appropriate in the organisation. Pricing Strategy The pricing strategy is useful for mainly three reasons. That is to increase the profit or sale or to maintain the status quo. The aggressive pricing policy by the competitor would impact the sale and the profitability of the Voyage. In that context the new pricing policy would be useful for the organisation to maintain or increase the profit level with increasing sale or through increased margin of the business. There is various pricing policy that the organisation can follow and those are mentioned below. Cost plus pricing- in this type of pricing the fixed and variable cost are calculated for per unit basis. Then a desired profit level is added with the cost value in percentage basis to arrive at the product pricing (Jain and Haley, 2009).This is easy process and be changed when required with less complication. In this approach the efficiency part is overlooked for the increase in margin. Penetrating pricing- to increase the market share with increasing sales volume in this type of pricing the price of the product are kept at low level of the market price. This type of pricing is useful for new market entry or in low market share position. After the achievement of the market share the price of the product are gradually increased. Economic pricing- in this strategy the price of the product or the service is kept at minimum to reach high sale volume (Jain and Haley, 2009).The high sale volume would help to achieve the economy of scale. In this approach the overhead cost, cost of marketing are kept low to produce the product in such low cost. Skimming- this type of pricing is useful for the innovative product type and in this approach the price are kept relatively high at the beginning. The reduction of the price happens after recovery of the large investment. Premium- in this strategy the price is set above the price set by the competitor (Hinterhuber, 2008). This policy is useful for the unique product that has great value for the customer. [Source: www.marketingteacher.com] To understand the best pricing policy for the Voyage, the above matrix would be useful for the purpose. The product of the company is the high end luxury yachts. That means the quality of the product is high. Till date the organisation is selling the product in high price by following the premium pricing strategy. But in recent time the competitor is playing on price to achieve greater market share. Now the business has two options. That is to decrease the price for a while by following the penetrating pricing strategy to capture the bigger market share. On the other hand the company can add much more value to its product and increase the price a bit to increase profit with increase in the margin. The penetrating pricing policy is useful for the new entrant as they low limited value perception in the mind of customer. But Voyage is in the market for long and there is high value proposition for the customer of the company (Hinterhuber, 2008). In that context the penetrating pricing wo uld reduce the value perception. That is why the company would use the premium pricing with the development of new value for the customer. Reference Castro, N. R., Chousa, J. P. (2006). An integrated framework for the financial analysis of sustainability.Business Strategy and the Environment,15(5), 322-333. Chong, V. K., Eggleton, I. R., Leong, M. K. (2006). 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