According to the economic theory (firm theory), a firm’s utmost objective is to maximize its profit. Hence during the initial stages of the enterprise growth, managers use financial metrics such as cash flows, revenue, and pre-tax profit to evaluate performance of their firm.
However, these metrics only tell of past events and therefore can not be used for strategic management, with time the market conditions change. As a result, a firm will tend to invest more to develop capabilities and customer relationships on a long-term basis.
Customer relationship is becoming critical for the firm and therefore as the firm embarks on the financial metrics; it must also add consumer satisfaction metrics for it to remain successful. Hence in this new environment over reliance on the financial metric is not enough in evaluating the path to be followed by companies to increase value through investing in employees, consumer, technology and innovation. In order to address the insufficiency of these metrics, business information consultants have put forward several strategic management tools and models.
Some of these models and tools include the SWOT analysis, Balanced Scorecard (BSC) analysis etc. The BSC has four aspects namely, the customer perspective, internal business perspective, innovation and learning perspective and financial perspective.
The SWOT analysis evaluates the weakness, strength, opportunities and threats involved in company’s operations. Strengths and weaknesses are internal to the firm and evaluate the internal capability while Opportunities and threats are out-offing business control and refer to how the business is affected by the external environment.
Strengths refer to areas where the business can excel in, for example business’s competence and resource utilization. Weaknesses is what the company cannot do and managers should consider areas which need improvements, areas which the company do poorly and what should be avoided.
Opportunities refer to the market attractiveness and threats are the potential challenges which hinder business operation. British American Tobacco’s (BAT) goal is to build a long-term shareholder value through development of new brands and products.
The company has used the SWOT analysis to implement strategic management and performance evaluation to achieve this goal. BAT is multinational company that manufactures tobacco products and it has many branches around the world.
The implementation of business management tools is aimed at shifting management from quality performance to corporate performance. Strengths The company manufactures markets and sells cigarettes and other tobacco products. By the end of year 2007 the company had more than 300 brands and a work force of about 53,907 employees both in UK and internationally.
Its revenue base for the period stood at $ 20,054 million. It offers adult consumers products of high quality and also assists them to make sure that they choose their product over those of competitors.
Continued improvements in productivity have helped the company develop more brands hence increase earnings: for instance it has introduced smokeless cigarettes aimed at reducing smoke related diseases. To remain competitive in the market, the British American tobacco has embarked on cost reducing strategies and complexities in its supply chain.
In 2004 the company made the commitment to reduce overheads cost and other indirect costs by $ 200 million annually by the end of 2007 through implementation of a single procurement processes within its area of operation.
The company also offers from time to time training to its workers so as to make them adapt to the changing business environment. Threats The company’s operations have been affected by the tobacco regulation policies across the world. One of them is the suggestion by the World Health Organization to have all products packaging be plain or unbranded.
Removing colors and trademarks familiar to consumers is a critical challenge because consumers will not able to differentiate cigarettes from BAT and those of its competitors or the genuine products and fake ones.
The company has strongly opposed the idea of plain packages claiming that there is no evidence that suggest that plain packs would have effect on smoking by children. In addition restriction of corporate trademarks by any government is a breach of intellectual property rights in international trade.
The issues of counterfeit product harm the company’s revenue and there have been cases of trade in illicit tobacco globally. In order to reduce the cases of cigarette smuggling, the company has supported various governments, world custom organizations and world trade organization in seeking ways to eliminate illicit tobacco trade. Weaknesses
The main internal challenge that has faced the company is the inability to produce less harmful products. However, for some years now the company has embarked in search for less harmful products.
High overhead costs have been another threat to the market competitiveness of the company’s product. Before the implementation of single procurement system in 2003, the indirect costs had been too high which resulted to high cost of its tobacco products.
Opportunities British American tobacco has more that 30 branches across the world and about 180 markets and has opening new factories in more countries. The demand for tobacco products has been rising as more and more youths have started smoking.
The company has utilized this opportunity provided by the market through development of more products to satisfy the market demand. The company has decentralized its factories across the globe to increase it market share and position their product for the consumer who have decided to buy tobacco products.
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Opendocument&SKN=1 Capgemini, ‘5-year procurement target at British American Tobacco,’ 2003, retrieved on 13 December 2008, from www. at. capgemini. com/m/at/cs/ss_British_American_Tobacco. pdf.
Dickson Vicky, Balance Score Card as strategic management tool, 2005, retrieved on 13 December 2008 from http://www. betterlocalization. com/index. php? itemid=44.