Approaches to the formation of the enterprise development strategy(on the examp le of furniture production in the Pavlodar region)

Abstract

Object: The article considers new approaches to the formation of the company’s development strategy (on the example of furniture production in the Pavlodar region). In particular, the goal of the study is to evaluate the competitive position of the enterprise, based on the use of a spatial model (SPACE model) and the method of expert assessments, taking into account factors of the internal and external environment.

Methods: This research adopts the method of expert assessments, including the quantitative and qualitative research methods with a survey data collection technique. The initial data have been collected by a questionnaire with six point scales, it is used SPACE-model which allows to determine the type of development strategy - the most optimal for the enterprise taking into account the parameters of the external and internal environment of the enterprise.

Findings: The results show that the company under study is characterized by an average attractiveness of the furniture market in the city of Pavlodar, a stable financial position, which is limited by an unstable external environment. In addition, the company according to the study has aggressive competitive position in the furniture sales market, which entails the potential ability to resist competitors.

Conclusion: Based on the results obtained, it is advisable to form and implement a strategy for intensive growth of the studied enterprise, which assumes either a deeper penetration of the enterprise into the existing market with the existing product range or penetration into new markets with the existing range. The authors also recommend the following strategies for intensive growth: 1) the strategy of expanding the market boundaries; 2) the strategy of deep market penetration.

Introduction

Currently, it is impossible to imagine the activities of firms without a developed and current strategy. The modern tool of successful development of firms in the sharply changing conditions in the external environment and the associated uncertainty is a purposeful concentration of forces and a correctly chosen strategy, which is the main one for all enterprises, including the production of furniture products (Grant, 2016). Each company is unique in its own way, that is why the process of strategy development for each company is different, as it depends on the position of the company in the market, its development dynamics, its potential, the behavior of competitors, the characteristics of its products or services (Malhotra, 2015). The current pace of changes in the external environment, the increase in knowledge and information flows is so great that the development and implementation of an enterprise development strategy is the only approach to predicting the future problems of the enterprise and its capabilities (Mackay & Zundel, 2016).

The strategy is the Foundation for the long-term development of the enterprise, helps to find the most appropriate ways of action, reduces the risk of making a wrong decision due to distorted or incorrect information about the company’s capabilities (internal environment) and its external environment (Leal et al., 2016). When developing a strategy, you need to achieve the greatest certainty, so that the company can anticipate changes in the external environment in time and respond to them instantly.

Literature Review

It should be noted that currently in science there is no single definition of the concept of “enterprise strategy”, there are many definitions:

• setting goals and developing appropriate measures to achieve them (Cattani et al., 2017);
• a strategic action plan that identifies priorities, challenges, and resources to achieve the main goal (Nguyen et al., 2018);
• a system of organizational and economic measures to achieve long-term goals of the enterprise (Hyväri, 2016);
• the General direction of the company's activity, ensuring coordination of the goals, capabilities of the company and the interests of employees (Radomska, 2015);
• research of the future, analysis of possible scenarios of enterprise development (Zhou, 2016);
• a system of ways to manage the company’s activity (Král & Králová, 2016).

Based on the above well-known definitions, we define the “enterprise strategy” as follows. According to authors’ opinion, “enterprise strategy is a system of management influence on economic and organizational relations of the enterprise workforce, aimed at achieving business objectives and ensuring effective functioning and development of enterprises in the short and long term”.

To date, the formation of the company’s development strategy is based mainly on the choice of several alternative strategies. Each of the options is based on standard solutions for widespread situations. The most profound question of methods for forming an enterprise strategy has been studied by scientists from the Harvard school: M. Porter (1997), K. Andrews (1971), K. Prahalad & G. Hamel (1990), which is still considered a leader in this direction.

Developed by Kenneth Andrews, SWOT analysis involves developing a strategy based on assessing the impact on the enterprise of such factors as: the company's opportunities (opportunities), threats to the company (threats), strengths (strengths), weaknesses (weaknesses). At the same time, Michael Porter evaluated the process of forming the company's strategy in terms of its competitive position, based on an analysis of the five forces of competition, which gives an idea of the company’s strengths and weaknesses in the market.

With all the ways of forming of enterprise strategy based on an analysis of internal and external environment of the organization, as the organization’s capabilities and market circumstances in which there is a company, determines the probable ways of its formation (Arrogah, 2018). It is also necessary to take into account that time, people and information are equally important resources of the chosen strategy in modern realities (Mao et al., 2017). Time is now being added to people as the main resource of companies. Only by working ahead of the competition, the company is able to implement a strategy for increasing its stability in a market where there are fewer and fewer free niches (Peres & Fogliatto, 2018).

Methods

Approaches to the formation of the enterprise development strategy involves the determination of the methods of formation of the strategy and the results of their use. The authors used the method of SPACE model (SPACE - Strategic Position and Action Evaluation model - strategic assessment of positions and actions) to form the strategy for the development of the enterprise (on the example “Alshynbay” LLP, which operates in the field of furniture production). This method allows to choose the key growth factors, to determine the type of development strategy, which is the most optimal for the enterprise taking into account the parameters of the external and internal environment of the enterprise.

At the same time, this model allows to more accurately determine the competitive strategy of the enterprise, since it is based on the factors of analysis of internal and external environment [Studenova A. Strategic management at the enterprise. – M.: Finance and statistics, 2008, p. 318].

Each group of factors of analysis of internal and external environment is determined in a point assessment, on the basis of which a graph is constructed that characterizes the strategic position of the enterprise under study.

The company is assigned one of 4 strategic positions: aggressive, competitive, conservative, and defensive, depending on the results shown on the resulting graph.

The overall assessment of the company’s strategic position in the industry market is represented by four key indicators of the company’s performance:

• the financial position of the enterprise - estimated from 0 to six 6 (0 - weak financial position, 6 - strong);
• the attractiveness of this market - estimated from 0 to 6 points (0 - the industry is unattractive, 6 - attractive);
• competitive advantage - it is evaluated from 0 to 6 points (0 - small competitive advantage, 6 - large) and then converted to negative value by subtracting 6 points from the obtained positive value;
• stability of external environment - evaluated from 0 to 6 points (0 - the environment is unstable, 6 - stable) and then converted to a negative value by subtracting 6 points from the obtained positive value.

To assess the strategic position in the work, the method of expert assessments is also used, including the quantitative and qualitative research methods with a survey data collection technique. The initial data have been collected by a questionnaire with six point scales. All received indicators at the enterprise “Alshynbay” LLP are formulated on the basis of personal judgments and opinions of specialists of an economic profile (186 respondents).

Results

In Pavlodar region, the market of furniture products is highly concentrated due to a significant number of competitors. To determine the development strategy of enterprise (on the example of “Alshynbay” LLP), it is necessary, on the basis of statistical data, to analyze the dynamics of furniture production for 2017-2019, the results of which are reflected in Table 1.

Table 1. Analysis of the dynamics of the production of furniture products in the Pavlodar region for 2017-2019

Note - Compiled by the author based on data of Ministry of Education and Science of the Republic of Kazakhstan and the Bureau of National Statistics

These tables allow us to conclude that there is a tendency for a significant decrease in the production of furniture products in the Pavlodar region in the period 2017-2019. In 2019, the volume of production of furniture products amounted to: by 2017 -117, 2 percent; by 2018 - 78.4 percent.

Based on the data obtained as a result of the analysis, it is necessary to assess the competitive advantage, the attractiveness of the furniture market and the stability of the external environment in this area in the Pavlodar region.

1. Analysis of the competitive advantage of the furniture factory “Alshynbai” LLP.

During the period 2017-2019, the client base of “Alshynbay” LLP has been steadily expanding, however, there is a decrease in the rate of growth in sales.

It is necessary to calculate the index of penetration of “Alshynbay” LLP into the furniture sales market in Pavlodar region and the consumer confidence coefficient [2, p. 176]

The dynamics of changes in the “Alshynbai” LLP market segment is presented in Table 2.

Table 2. Dynamics of changes in the market segment of “Alshynbay” LLP

Based on the data obtained, it can be concluded that, despite the positive dynamics of attracting new customers, the penetration rate on the sales market of furniture products of Alshynbay LLP is gradually decreasing, which is associated with high competition and is reflected in a decrease in the growth rate of the company's market share. However, a positive fact is the growing coefficient of customer confidence in “Alshynbay” LLP. Table 3 shows the indicators of the competitive advantage of “Alshynbay” LLP, formulated on the basis of personal judgments and opinions of specialists of an economic profile.

Table 3. Indicators of the competitive advantage of “Alshynbai” LLP

Based on the results of Table 3, the average score for the quantitative assessment of competitive advantage was calculated, equal to 2.4. Since the competitive advantage axis is negative on the competitive position graph, it is necessary to calculate the indicator that will be plotted along the axis as the difference between the average and maximum score equal to 6.

1. Analysis of indicators of stability of the external environment.

Manufacturers of furniture products in the city of Pavlodar are: “Kazakhstan” LLP, “Imperial” LLP, a number of other enterprises. To assess the competitive environment, it is advisable to single out enterprises operating in the same market segment and producing similar assortment positions of furniture products. It should be noted that the furniture of these manufacturers is furniture made of laminated chipboard; there are practically no samples of furniture made of solid-cut parts of pure wood. The price of an “average” set of furniture made of this material at the prices of the above-mentioned manufacturers is no more than 125 thousand tenge.

Furniture produced by the “Alshynbai” LLP factory is competitive and differs significantly in cost.

1. shows a point analysis of the competitive environment of the furniture market in the city of Pavlodar on a five-point scale.

Table 4. Analysis of the competitive environment of the furniture market in the city of Pavlodar

The comparison shows that the furniture “Alshynbai” LLP occupies an average competitive position. Table 4 shows the results of the analysis of the competitive environment of the furniture market in the city of Pavlodar. The main segment of end consumers of “Alshynbay” LLP products are families with an average income.

1. presents an assessment of indicators of the stability of the external environment. The assessment is also made on a 6-point scale. According to the table, the average indicator of environmental stability is calculated, which decreases by 6 points, since the stability axis on the competitive position graph is negative.

Table 5. Indicators of stability of the external environment of “Alshynbai” LLP

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1. Analysis of indicators of attractiveness of the furniture sales market in the city of Pavlodar.

Table 6 presents an assessment of indicators of the attractiveness of the furniture sales market in Pavlodar.

Table 6. Indicators of attractiveness of the furniture sales market

1. financial position of the company-covers all aspects of the company’s activity, including optimization of fixed and working capital, profit distribution, tax and pricing policy, etc. Based on the results of the analysis, average score of 4.3 was calculated for quantifying the financial position of “Alshynbai” LLP enterprise. Based on the analysis of tables 2-6, it is possible to build a graph characterizing the competitive position of “Alshynbai” LLP in the furniture sales market (figure 1).

On each of the axes, respectively, the average values of the calculated indicators are plotted, and a quadrangle is constructed, characterizing the competitive position of “Alshynbai” LLP.

Thus, the furniture “Alshynbay” LLP is positioned on the right side of the graph, and almost symmetrically in the right quadrants. This situation is characterized by the average attractiveness of the furniture sales market in the city of Pavlodar, the stable financial position of “Alshynbay” LLP, which is limited by the unstable external environment. The position in the upper right quadrant indicates the aggressive competitive position of “Alshynbai” LLP in the furniture sales market, which entails the potential ability to withstand competitors.

Discussion

The results show that the company under study is characterized by an average attractiveness of the furniture market in the city of Pavlodar, a stable financial position, which is limited by an unstable external environment. In addition, the company according to the study has aggressive competitive position in the furniture sales market, which entails the potential ability to resist competitors.

For the aggressive competitive position of the enterprise, to which, as the analysis has shown, the competitive position of “Alshynbai” LLP. Accordingly, authors recommend the following strategies of intensive growth:

To strengthen the intensive growth of the competitive position of the enterprise “Alshynbai” LLP, the following strategies of intensive growth are recommended:

1) the strategy of expanding the boundaries of the market.

2) strategy of deep penetration into the market.

The choice of the optimal strategy related to the strategies of intensive growth will allow the management of “Alshynbai” LLP to manage efficiently the development of the enterprise in the long term.

Thus, based on the results of the analysis conducted using the SPACE model, we can conclude that it is advisable to form and implement an intensive growth strategy, which involves the following ways: 1) deeper penetration into the existing market with the existing product range; 2) penetration into new markets with the existing range.

In general, the efficiency of the company depends on the following factors of internal and external environment: the enterprise’s financial position, attractiveness of this market segment, the availability of competitive advantages and sustainability of external environment of the enterprise.

Conclusions

Each enterprise is a complex multifunctional system, so the functional strategy of the enterprise can be considered a General strategy that reflects specific ways to achieve specific goals of the enterprise and its development. In this regard, the following areas can be developed:

• functional area;
• marketing direction;
• production and direction;
• personnel management;

 innovative direction;

 financial direction.

Knowing all possible development alternatives allows the company to move on to choosing a strategic path that will maximize the long-term effectiveness of the organization (Iazzolino & Laise, 2016).

The set of directions of the functional strategy at a particular enterprise is determined by the composition of specific goals that the enterprise sets for itself (Soosay et al., 2016). The selected direction is only qualitative recommendations for further development of the enterprise “Alshynbai” LLP. Finally, the company’s strategy is approved in the strategic plan after calculating economic forecasts and possible options for the company's development. Factors concerning the correctness of the choice functional strategies are consistent goals that will contribute to the realization of the development strategy of the enterprise, as well as external and internal factors showing that the enterprise has no substantial obstacles in achieving your goals, and most factors will contribute to the implementation of the chosen strategy and directions of its development.

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