Introduction
The concept strategic management involves actions and elements which are sincerely
associated with competitive advantage of a specific company. This report is analysing and
describing the strategic management process of the McLaren Automobile company in
attaining competitive position in the United Kingdom. The strategic actions are based on their
stable position in the current industry and the roles played by the actors within the company’s
external and internal environment. This report has also demonstrated McLaren Automobile
company’s current state compared to their competitors in the local market. This report has
identified strength and weaknesses of the concerned company which can exhibit in which
manner the company is sustaining a stable position in the ever-changing automobile industry.
In the process of being efficient in executing any strategic action it is necessary to have
proficiency in the management field and knowledge about the current market trend. McLaren
Automobile Company is adequately knowledgeable in this area thus making further
development. In order to achieve understanding about the macro environment of McLaren
Automobile “PESTLE analysis” has been shown in the report and for analysing the internal
and external factors of the company “SWOT” analysis has been undertaken. This report has
also dealt with few other significant theories such as porters five forces to gain more
information about the given organisation.
LO-1 Impact of macro environment on an organization
P1- Framework to analyze the macro environment for an organization
The purpose of strategic management is to handle the tactics and strategies established by the
top management of an organization in order to gain advantage over the other companies.
Through the efficient management of the strategies, the company can gain sustainable
competitive advantage in a specific industry. In order to hold a competitive position in the
existing market the organization has to consider various factors of strategic management
which help the organization in decision making. So, it is very essential to recognize the
features of strategic management. For this reason, a reputed UK based motor company
“McLaren Automotive” has been demonstrated in this lesson. Therefore, a brief overview of
the organization will help to understand the company, its strategies, decision making and
success factors etc.
Overview of “McLaren Automotive Company”
McLaren Automotive is a British automotive manufacturer which was previously known as
“McLaren Cars”. The company was initially established in 1985 as McLaren Cars by Ron
Dennis and then in 2010 “McLaren Cars” was converted into “McLaren Automotive”. The
company is a subsidiary of McLaren group. The company serves worldwide and it’s
headquartered in McLaren Technology Centre, Woking, Surrey, United Kingdom. Mike
Flewitt is the current Chief Executive Officer of the company. Sports Car is the main product
of the company which is produced in their own production facilities using their own design.
As a reputed company McLaren Automotive has its own mission statement and vision.
Vision
Vision of McLaren Automotive is preserving or growing their market share and to gain
excellence in their business.
Mission Statement
Mission statement of McLaren Automotive is to provide excellent customer service to
everyone starting from their global suppliers to their manufacturing team at the McLaren
Production Centre and to grow and create innovation in businesses by developing their
personnel and culture.
Macro environment plays a very crucial role in every business. So, it is important to know
more about the macro environment and its importance on the business. Hence, a PESTEL
analysis on McLaren Automotive has been conducted in order to provide a clear
understanding on the macro environment and its impact on the organization.
PESTEL Analysis
PESTEL analysis is a tool which is used to analyse the influence of macro environment on
business activities, growth and market share. PESTEL positions for Political, Economic,
Social, Technological, Ecological and Legal environment. A clear understanding on all these
environments have been given below:
Figure 1: PESTEL Analysis
Political
Political situation and stability have a huge impact on business activities. Shift in political
power in a country could bring a change for the company’s operation in the country. For
example, EU is planning to cut carbon emissions by one third from earlier limit through the
introduction of 95g CO2/km limit by 2020. This plan could only be implemented with the
help of more hybrid and electric vehicles such as supercars and sports cars. McLaren, Porsche
and Ferrari are the three companies who started the trend.
Economic
As cars are becoming more and more popular these days, most of the people of UK want to
have a car. As a result, the demand for cars is rising along with the price as more and more
people want to buy cars. In this case the import tax is rising but it would decline soon as the
companies would start the production of cars in foreign locations in order to meet foreign
demand.
Social
Social activists don’t support spending huge amount of money on a car. They may find it
irrational otherwise they think that the money could be used for a greater good such as
charity, social welfare, feeding the starving people etc. Thanks to modern medical service and
medicine facilities people live longer and remain strong even at an older age. So, they are
able to use bus and other vehicles and the use and sales of cars gets declined.
Technological
In order to gain a sustainable competitive advantage McLaren should maintain and improve
its technological innovations. McLaren can hire personnel who are more skilled and has
expertise on technology and they should also use McLaren Production Centre as the state-of-
the-art. These two steps can ensure their technological advancement.
Environmental
McLaren is one of the top environment friendly firms in United Kingdom. McLaren
Production Centre is made of modern stainless steel and has been decorated based on modern
technology which creates a suitable work environment and inspires every personnel within
the organization to create innovation. McLaren has also been producing hybrid and electric
cars which is endorsing a clean and better environment.
Legal
Law and legal environment can affect the business in many ways. For example, any change
in data protection act would directly affect those business who need to hold consumer data
for their businesses.
LO2- Assessment of internal environment and capabilities
P2- Framework to analyse internal analysis and capabilities for an organization
Some internal and external factors have great impact on the business activities of an
organization. These factors can be analysed using “SWOT Analysis”.
SWOT Analysis: “SWOT analysis” is a tool through which internal and external factors of
an organization can be analysed. The internal factors are strengths and weakness and the
external factors are opportunities and threats. Hence, these factors have been illustrated
below-
Figure 2: SWOT Analysis
Strengths
Strengths refers to the capability and special features of an organization which can be used to
gain a competitive advantage. For example, reputation, market share, expert management,
advanced technology, expertise, alliance etc. McLaren’s major strengths are strong brand
value, state-of-the-are and eco-friendly manufacturing facility in McLaren Production Centre,
top quality cars, epitome of racing cars, strength in innovation etc. Besides McLaren has been
producing hybrid and electric cars like supercars and sports cars which is environment
friendly, So, it is a huge advantage for them considering the EU’s carbon emission project.
Weaknesses
Along with the strengths every company have some weaknesses too. Weakness refers to
certain disadvantages or situations which can be a barrier to the improvement of the
organization. Weaknesses and lead a company towards decline. Dissimilar weaknesses can be
seen in different organizations. The major weaknesses of McLaren are high price, limited
retailers, lesser number of repair shops, limited production etc. Another important weakness
of McLaren is when they produce unique customized cars, that could be hard to resell if
returned.
Opportunities
Opportunity can be defined as the situation when the company has scope to improve its
current situation or a scope to overcome the existing threats in a certain industry.
Organizations have better chance to sustain and capture more market shares if they can grab
their opportunities accurately. McLaren can introduce low price cars to capture the market of
the people who cannot afford high price. Based on McLaren’s brand value people would
prefer the brand more if the price can be reduced slightly. It can introduce more and more
hybrid and electric cars in order to promote green manufacturing process. McLaren can invest
more fund in advanced technology which will let them to outperform the competitors.
Threats
As companies get opportunities from external market likewise, they also face some threats
from the market as well. Threats are the negative circumstances which creates problems and
barriers for an organization in the marketplace. Based of the nature of business different
companies have different threats. Another threat for McLaren is that if they create new model
for middle class people as mentioned in the opportunities, they may face a problem of their
high-quality models losing some of its status. International sanctions can have adverse effect
on the suppliers of McLaren, as they will lose some of their important suppliers. Rapid
technological innovations may allow another company to surpass McLaren. Safety of the
customers is another major threat, if the number of accidents while driving McLaren cars
increases then people are less likely to have faith on the company.
LO3- Evaluation of outcome using Porter's five forces model
P3- Application of Porter's five forces model to evaluate the competitive forces of
the market for an organization
In order to maintain sustainable competitive advantage, a company has to face many
competitive forces. A well-established model for competitive analysis is Porter’s five forces
model developed by Michael Porter who stated five forces which are the bargaining power of
suppliers, bargaining power of buyers, threat of substitute products, threat of new entrants
and rivalry among existing competitors. A brief discussion on these forces have been given
below:
Figure 3: Porter’s Five Forces Model
Bargaining Power of Suppliers
Bargaining power of supplier is one of the major competitive factor in an industry.
Manufacturing process cannot be completed without the involvement of the suppliers. If
suppliers have more bargaining power, then the cost of procuring raw materials would be
very high as a result the manufacturing cost will be higher and this situation will have an
impact on the product pricing. Hence, if the suppliers have the bargaining power then it
would be difficult for the company to manufacture the products at a lower cost. For instance,
there are only a few numbers of suppliers of the high-tech components and high-performance
engines which are required in automobile manufacturing. So, the bargaining power is very
high in case of high-end automobile industry. The success of the automobile companies
depends mostly on their relationship with the specialized suppliers. McLaren established
partnership with Mercedes which provides McLaren with the engine for the cars in order to
overcome the challenge of the high bargaining power of the suppliers.
Bargaining Power of the Buyers
Bargaining power of the buyers possesses a strong power to influence the business
operations. In order to gain more profit an organization needs to retain its customers by
ensuring better performance and service to the customers. Sometimes the buyers bargain over
the prices and if the buyers possess strong bargaining power then it forces the company to
lower the price. Buyers also bargain over product quality. Then the company has to
differentiate its products from others in order to retain market share. As McLaren’s customers
are fragmented, they have low bargaining power. The buyers are from different community
and class and has no influence over price. Most of its customers buy cars for its brand value
and they have lesser desire to bargain over price.
Threat of Substitute Products
Substitute produce refers to a similar type of product which can be used as an alternative to
the product. The price of the substitute products sometimes forces the firm to cut the prices of
its products. The company should be careful about the impact of substitute products in order
to become successful in the industry. As McLaren produces highly specialized cars, it has a
niche market for the customers. McLaren produces customized and unique cars in a lesser
quantity, so it faces comparatively lesser threat of substitutes.
Threat of New Entrants
Most of the time some competitors increase the supply to reduce the demands and then the
other existing companies has to cut prices in order to sell their products. For many firms
cutting price is very difficult as their cost of manufacturing is too high. So, the greater
number of new firms enter into the market more the price will decline and more problems
will be faced by the existing firms. Hence, the existing firms would always like to block the
entry of these unwanted new entrants. Automobile industry faces lesser threat of new entrants
as huge capital and resources are required to manufacture cars. When McLaren entered the
road car manufacturing, it was already established in producing formula one racing cars. And
considering the brand image, unique specialized products and technical expertise McLaren
holds the ability of entering into any car market.
Rivalry among Existing Competitors
Rivalry among the existing competitors is common in most of the industries. Rivalry gets
even intense as most of the firms wants to surpass each other through the use of any
competitive advantage or technological innovation. This intense competition establishes a
threat to all other firms within the industry. But as McLaren produces cars in a small quantity
and those are mostly unique and customized, these competitive threats cannot have much
effect on the company.
LO4- Application of the theories, concepts, and models to assist with the
understanding of the interpretation regarding business strategies
P4- Planning for a strategic decision with the application of the theories,
concepts, and models
Various theories, models and concepts must be applied at the time of planning for a strategic
decision of an organization. In order to plan appropriate strategy for an organization theory
such as Porter’s generic strategies and Bowen’s extended model can be used.
Porter’s Generic Model
Figure 4: Porter’s generic strategy
In the Porter’s generic model four core strategies has been stated such as cost leadership,
focused cost leadership, differentiation and focused differentiation. These strategies have
been discussed below:
Cost leadership
Cost leadership strategy focuses on lowering the production cost and thus the company can
reduce the overall price of the product. A company chooses cost leadership strategy when the
target market is broader and the focus is on low cost not on product features.
Focused cost leadership
This strategy is a narrower version of cost leadership. In this strategy the company focused on
a smaller segment such a certain geographical area and intends to provide lower cost products
for them.
Differentiation
In this strategy the company focuses on product differentiation rather than cost. The target
segment is larger and the interest of the customer is on product uniqueness. The company
would produce variety of products and change higher price.
Focused differentiation
In focused differentiation strategy the company differentiates only a narrower segment of the
company to fulfil the customer demand. For example, McLaren is specialized in producing
sports car and their focus is on the customers who buy sports car.
Bowen’s Extended Model
Low added value
At this level, value of the product is so meaningless and cannot attract customers. So, the
company has to cut price in order to attract the customers.
Low price
If the company targets a wide range of customers having similar attributes then the company
can lower the production cost and thus can charge lower prices to the customers.
Hybrid
In this business strategy the company offers high quality products at low prices. Although it
is very difficult to provide quality products at low price, some companies still manage it. The
company should have larger customer base and wide product range otherwise this strategy is
very unlikely to be successful.
Differentiation
The organizations choose this strategy when the customers demand variety in their product
offerings. The company can alter, add or remove some features of the product to make it
different from the offerings of others. In differentiation the firms usually charge premium
prices.
Focused differentiation
This strategy is a narrower version of differentiation strategy. In focused differentiation
strategy the company focuses on the variety of a narrower segment of its products.
Increased price and standard products
Sometimes the companies can add value to a certain product and at the same time also
increase the price of the product. If the customers accept the product at this price then the
strategy can be considered successful.
Monopoly pricing
In this strategy the company charges higher price for lower value addition. This strategy is
only possible when there is a monopoly in the market. For example, Google experiences
monopoly in terms of search engine service provider.
Loss of market share
This is the last phase of the model. At this phase companies charge a standard price for a
lower value addition. The company will lose market share in the long run if the adopt this
strategy.
Applying the Models
Based on the above discussion on Porter’s generic model and Bowen’s extended model it can
be seen very clearly that an organization has to go through various situation and phases in
order to take any important decision. These two models can be applied to McLaren
Automotive Company in order to determine strategies which will be suitable for the company
and which will help them to attain sustainable competitive advantage. As McLaren is a high-
end car manufacturer it would be appropriate for them to adopt focused differentiation
strategy. As they produce smaller number of unique and specialized cars, they can use the
focused differentiation strategy in order to gain sustainable competitive advantage.
Conclusion
McLaren Automobile company is regarded as one of the most prestigious companies of the
United Kingdom. In this study every aspect of the company such as internal and external
factors, swot analysis, the completive positions the company’s rivals etc. has been examined
and depicted in order to gain broader knowledge about that company and the process by
which this significant company formulate and execute strategic decision. As for
understanding the fluctuating condition of the industry is its essential to gain information
about every unforeseeable action of the counterparties, which can be analysed through
analysing their internal and external factors. This report, has shown competitive advantages
of McLaren Automobile Company that is contingent on its business environment.
Furthermore, the report has discussed about Porter's generic strategy and Bowmen’s extended
model of the McLaren Automobile Company and the manner in which they apply these
theories in achieving strategic goals.