CONTEMPORARY STRATEGIC MANAGEMENT CASE STUDY

Instructions to Candidates: You are required to produce a formal strategic report, based on the Solent Machinery casestudy, in no more than 3,000 words excluding diagrams. --------------------------------------------------------------------------------------------------------------------------------

Solent Machinery PLC

Last May, Rob Jackson, Managing Director of Solent Machinery plc, called a meeting of his senior managers to discuss an important product improvement recently introduced by an overseas competitor, Malek Inc. Solent Machinerys products were specialised filling and sealing machines, which were manufactured and sold to the worldwide chemical and food industries. Total sales were about 50m per year. The key closure elements in the machines were manufactured of a special, unique steel alloy, which Solent Machinery purchased under an exclusive contract. The companys advertising and sales promotion had constantly stressed the high quality and long life which these alloy parts gave to its machines. Company executives stated that the use of the special steel gave Solent Machinerys products a strong competitive advantage. So far no competitor had been able to match the characteristics of the special steel and Solent Machinery held about 40% of the world market for the type of machine it sold to the chemical industry and 30% for the type of machine it made for the food industry. Earlier, Malek Inc had launched a line of competitive filling and sealing machines for the chemical industry, which substituted a new, high-impact composite material for the crucial steel elements. Malek claimed improved quality, faster speeds and longer life for its machines than the comparative Solent machines. Moreover, Maleks machines were priced at nearly 20% less than Solents. Rob Jackson obtained one of the new Malek machines and had it thoroughly tested by the quality control department. The tests indicated that the composite parts of the Malek machine produced fewer rejects that the comparable Solent machines. In addition, the composite parts enabled the Malek machine to run efficiently at 150% of the rate of the Solent machine without jamming. Moreover, the composite parts did not break down until 50 million operations, compared with an average of 30 million for the Solent steel units. The Sales Manager insisted that Solent Machinery should duplicate the performance of the Malek machine by developing similar composite parts.

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The Director of Engineering indicated that she could produce the necessary substitute parts within about two months, and estimated the cost of the composite parts would be about 40% of the existing steel component. She estimated it would take another two months to get into full production. Jackson was not convinced that Solent Machinery should merely copy the Malek parts and substitute them in their present machines. He suggested that perhaps Solent Machinery should re-design its entire chemical line, incorporating composite parts, but also including other improvements. The Director of Engineering suggested that it might also be possible to utilise the new composite material in the other machines. The sales manager urged that a full-scale new product development programme be undertaken, but that in the meantime, the existing line should incorporate composite elements similar to Maleks as soon as possible. Solent Machinery had a stock of 96 of the special steel units for the chemical industry, which cost 192,000, and a stock of the special alloy raw material, which would make another 180 units and cost 288,000. All of this would be of no value if the company shifted completely to the composite elements. Solent Machinery sold about eight machines a week to the chemical industry at an average price of 50,000, and a similar number of machines to the food industry. The cost of the special steel elements in either of these machines was approximately 2,000. The costs of a typical Solent Machine for either the chemical or food industry were as follows: Material and parts 12,000 Direct labour 10,000 Other manufacturing costs 10,000 Average selling price 50,000 Selling and administrative expenses on these machines were established at 10,000 per unit. Solent Machinery had more than 4,000 machines in use by the chemical industry and 5,000 in use by the food industry. Replacement part sales amounted to 20% of total business and carried a 100% mark-up manufacturing cost. After the meeting, Rob Jackson had a telephone call from the Chairman directing him to do everything possible to prevent Malek from reducing Solent Machinerys share of the market for filling and sealing machines in the chemical industry. But Rob knew that he had to operate in the real world and that, if he simply pursued market share at the expense of everything else, the Chairman would be on the phone again next month asking why Solents monthly accounting reports showed massive negative variances! TASK: You are to assume the role of Rob Jackson who has convinced the Solent Machinery Chairman to give him two weeks in which to prepare a strategic management report in order to assist with deciding the strategic future of the company. The report should be in two sections and aimed at the Solent Machinery senior management team in no more than 3,000 words in total.

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Section 1 should cover a strategic analysis of Solents current situation where a number of strategic frameworks familiar to the unit might be utilised and applied to Solent Machinery. You should conclude this section having identified THREE possible FUTURE options or strategies that Solent Machinery need to consider. Section 2, strategic choice, should build on this strategic analysis by evaluating these possible future strategies, using criteria of your choice, and highlighting the best one with your reasoned justification. You should then outline in detail how this chosen future strategy should be implemented in order for the company to have a successful future. The 15-minute viva, based on this report, will provide an opportunity for you to answer, or clarify, any ambiguous areas of your report and for the examiner to be confident that you understand, and can apply to an organisation, the key areas of Contemporary Strategic Management.

INSTITUTE OF COMMERCIAL MANAGEMENT