Live Consulting Project
Executive Summary:
The following assessment facilitates a clear impression of the strategic risk management for Alcaplast, a sanitary ware manufacturer based in the Czech Republic which aims to establish and expand its operations in the UK market of Western Europe. The investigation of the company’s marketing mix, background and industry background provided reasonable insights into the development of SWOT analysis that was used for recognizing reputation and sales risk as strategic impediments for the business. The report also illustrated the risk assessment methodology, followed by a proposal of risk management frameworks with consideration for two different case scenarios in which the company’s positioning in the UK market concerning the existing competitors as well as the risks associated with the expansion of Alcaplast are considered. The recommendations for sustaining the initial phase of operations of the organization are also derived from the risk assessment process thereby leading to the identification of suitable measures to address the risks observed as inferences from the assessment.
1. Introduction:
The following assessment is aimed at illustrating the strategic risk assessment for Alcaplast, a sanitary ware manufacturing organization based in the Czech Republic. The assessment would help improve the awareness of the owners regarding the available strategic business options and risks which could facilitate enhanced prospects for sustainability and growth of the enterprise. The report would be based on an evaluation of the sanitary ware industry in the UK and some of the essential highlights of the program could be identified in the research of the company and industry background from secondary sources and industry reports. These factors contribute to refining the outcomes of the risk assessment process (Li, 2014). The information derived from the research would be leveraged for recognizing the profound risks that can have a potentially detrimental influence on Alcaplast’s expansion in the United Kingdom as a strategic country. The use of a risk management framework for critical analysis and evaluation of the identified risks would facilitate comprehensive insights for the strategies to reduce risks. The final section of the report would comprise the conclusion that will illustrate the significant inferences derived from the report.
2. Situation analysis:
Strategic risk management has become an imperative inclusion in the business models, operations, decision-making frameworks, practices and policies of various contemporary organizations. The process of strategic risk management enables an organization not only to identify and evaluate the potential threats to an organization but also implement economic approaches for managing the risks. As per Li et al (2014), the process facilitates prolific opportunities for inhibiting probabilities for the development of threats to the organization so that the organization can address them before they impose losses on the firm or exceed the boundaries of control. Other definitions of risk management drawn from literature are profoundly indicative of the identification of specific exposures of the organization that can lead to losses and framing of suitable instruments that can address the exposures (Li et al., 2014). Therefore strategic management can be associated with a comprehensive range of activities that could be performed by the organization to address existing and potential risks.
The demand for risk management in a particular business environment and the effectiveness of its strategic, operational or planning contributions is largely dependent on the uncertainties experienced by the organization. The following section of the assessment would be aligned with the investigation of the internal and external environment of the company by reflecting comprehensively on the background of the organization, Alcaplast and sanitary ware industry as well as marketing mix that can be applied in case of the organization (Hanson et al., 2017). The evaluation is considered necessary as these factors could have a dominant impact on the possibilities for failure or success for the firm. The evaluation of the internal and external environment is also responsible for facilitating legible insights to develop prolific recommendations for Alcaplast which could be used in the process of strategic risk management (Arbab-Zadeh & Fuster, 2015).
Organization background:
Alcaplast is a prominently renowned brand in the domain of sanitary ware in Central and Eastern Europe. The organization found its roots in 1998 with its establishment as a family business in the Czech Republic. The company relies on the professionalism and skill of its technicians favoured by the 100-year-old tradition of the Czech industry that is recognized for contemporary and highly reliable quality products. According to Kurian et al., (2014), the products of the organization have been able to garner a reputation in the various markets where Alcaplast operates through versatility as well as compliance to some of the most stringent technical requirements of international standards and certification (Kurian et al., 2014). Presently, the organization has six subsidiaries in foreign countries such as Russia, Slovakia, Romania, Poland, Belarus and Hungary.
The commitment to versatility and functional adaptability of the organization can also be accounted responsible for the company’s capability to export products to 40 different countries in the world which range over an assortment of 580 products (Moyer, 2014). With a notable presence in the Central and Eastern half of Europe as the largest manufacturer and an exporter of sanitary ware, it is plausible for Alcaplast to consider strategic options for entry into Western Europe with the United Kingdom as the preferred target market for entry.
Figure 1 ALCA PLAST LTD
Alcaplast’s entry into the UK market for sanitary ware would be subject to diverse risks owing to the large product range comprising of valves, toilet seats, grids, traps, modules, drains and other sanitary ware products. The products facilitated by Alcaplast include the basic line of products and a premium product line with distinction in the features of technological functionality and sophistication of design. As per Aven (2014), the strategy of the organization to establish a substantial base in the UK sanitary ware market would be to tap into the value chain capabilities vested in merchants and installers rather than focusing directly on customers alone (Aven, 2014).
This strategic approach could be complemented by the provision of reward schemes, marketing initiatives and word of mouth publicity among merchants and installers by leveraging the unique selling point of the company i.e. effectiveness of product quality and the assurance of Czech industry’s commitment to quality and technical performance. In the subsequent years, the strategy would be extended to customers for direct advertisement and diversifying the range of product offerings in the UK market alongside tapping into other distribution channels such as retailers and supermarkets to cater to collective customer bases such as schools, hospitals and corporate organizations that can require large scale installations of bathroom equipment (Bernert, Hom & Roberts, 2014). Therefore it is essential to investigate the marketing mix for Alcaplast in the UK sanitary ware market that can provide a cognizable insight into the external environment of the organization. The marketing mix of the organization in the UK market could help obtain comprehensive information regarding the potential risks that should be addressed by the company in its external business environment.
As per Casini, Fontana & Lecompte (2013), the products provided by Alcaplast are primarily divided into two groups which comprise the basic product line under the brand ALCAPLAST and the premium product line which is denoted by the brand ALCA. The basic product line included products that facilitate ease of installation and are characterized with feasible levels of technical functionality as well as credibility (Casini, Fontana & Lecompte, 2013).
The premium product line includes offerings that involve technological integration and are known for emphasis on design. The premium line of products facilitated by the organization can be associated with a diverse assortment of offerings that have the adequate potential for high utility value for customers. The quality of products provided by the organization is validated through a comprehensive evaluation of the products in the laboratory of the company as well as testing and certification authorities. Other product lines include White label and Komfort in the case of Alcaplast.
Figure 2 Product Lines
Place aspect in the marketing mix of the organization could be identified in the proximity of the branches of Alcaplast to customers. The organization relies on its sales teams in international areas of operation and distribution warehouses for facilitating improvement in services and communications to customers (E. Worden, Harris & J. McLean, 2014). The place aspect of the marketing mix is responsible for the company’s comprehensive awareness of markets as well as distinct characteristics that create viable prospects for addressing the most complicated demands of customers. The provision of simplicity in logistics is responsible for facilitating the effectiveness of deliveries even for small orders.
The promotion of the marketing mix in the case of Alcaplast could be identified in the online presence of the organization as well as direct advertising initiatives such as television, print media and personal selling. The sales team are responsible for communicating directly with customers regarding the new product offerings and the export team of the organization is accountable for interacting with customers to identify the requirements and demands of customers. Furthermore, it is essential to understand that the publication of the organization’s credentials such as prestigious awards and innovative product offerings in print media and on television could be accounted as prolific aspects for promotion (Gallardo & Aldridge, 2013).
The website of the organization could however be accounted as a notable element in the promotions aspect of the marketing mix as it displays YouTube videos of the product installation alongside visual aids such as technical drawings, pictures and 3D models of the products of Alcaplast. The website also provides links to follow the company’s profile on Facebook which is a valid implementation of social media for promotion.
The pricing aspect of the marketing mix for Alcaplast would be primary vested in the classification of product design into premium and basic product lines as well as the preferences of customers for premium sanitary ware products with improved technical functionality. The pricing variations could be depicted on the website of the organization with product descriptions thereby validating the prices.
Industry background:
The UK sanitary ware industry is characterized by explicit levels of growth even with the profound implications towards competition identified due to overseas manufacturers. The consistent and steadfast improvement in the economy, as well as the domains of building and home improvement in the UK, have indicated promising long term opportunities in this sector. According to Haimes,(2015), the sanitary ware market has depicted steady levels of improvement since 2013 after recovering from the volatilities experienced during the economic crisis in the context of market performance (Haimes, 2015).
The predictions for increment in market value by a margin of 14% by 2019 as compared to the levels of 2015 are reflective of the favourable nature of the industry for international expansion. The growth rate of 20.9% from 2012-2017 could be observed as a profound highlight of the UK sanitary ware industry. Another promising aspect that can be identified in the UK sanitary ware industry is the vulnerability of the market to a substantial volume of low-cost imports from countries such as China, Eastern Europe and Egypt. The low-cost imports are capable of exposing the industry to escalated levels of price competition and accounting for a major share of the sanitary ware products sold in the UK market (Ibelings, et al., 2014). Furthermore, the industry also depicts prominent demands in the form of inclusive sanitary ware solutions that can cater to the flexibility of usage for the ageing population and people with disabilities.
Demands for integration of technology developments in sanitary ware and integrating personalization are also considered as major insights into the industry scenario for Alcaplast. The future trends in the industry would be profoundly based on the increasing disposable income of customers that would be productive for sustaining the escalation of demands for home improvement in commercial as well as domestic establishments. With the prominent competition from non-UK-suppliers identified in the industry alongside the prospects for a higher level of price competition, it is inevitable for Alcaplast to leverage its diversity in product lines to accomplish a sustainable presence in the UK market (Lave, 2013).
Figure 3 Industry Life Cycle
The evaluation of the organization and industry background facilitates adequate insights for developing a SWOT analysis depicting internal and external audits of the organization. The strengths of the organization could be identified in the comprehensive emphasis on the manufacturing process, awards won by the company for product innovation, implementation of the latest technology, skill and competence of the workforce and international competitiveness of the products owing to the majority of emphasis on exports.
The weaknesses of the organization could be identified in the limited experience in Western European markets as its international operations are concentrated towards the East of Europe such as Hungary, Russia, Poland and Slovakia (Merz, et al., 2014). Other profound weaknesses of the organization can be identified in the lack of an online shop and direct points of sale to end-users. The opportunities that can be identified from the industry background in the UK could be reflective of an increase in the number of households and share of the ageing population as well as demands for professional home improvement planning.
The demands for integration of VR and smart technology in sanitary ware as well energy-saving products could be accounted as opportunities for Alcaplast that can be capitalized through product innovation and rapid product development (Webster, Haque & Hucker, 2013). The threats identified for Alcaplast include prominent references to a reduction in purchasing power of customers in the UK and limited ownership of homes among the resident population as well as provision of similar products by competitors.
3. Risk assessment process:
Traditionally, the emphasis of organizations on risk management has been largely vested in the identification of risks about compliance, operations and finance without considering the implications of emergent and other underlying risks that can pose strategic detriments for the organization. Therefore this section of the assessment would focus on the development of an appropriate methodology that can contribute to the improvement in effectiveness and accuracy of risk management for Alcaplast so that the objective of identifying and resolution of risks could be accomplished feasibly (E. Worden, Harris & J. McLean, 2014).
The assessment would leverage the Risk Assessment Process Flow Diagram albeit with the exclusion of the terminal stage of risk prioritization due to emphasis of the assessment solely on strategic risks. The risk assessment process involves four distinct stages which are aligned in a progressive order initiating with development of assessment criteria in Stage 1 followed by assessment of risks in Stage 2 and evaluation of risk interaction in the next stage with the final stage associated with prioritization of risks (Casini, Fontana & Lecompte, 2013).
The first stage of the risk assessment process facilitates insights into a set of assessment criteria that can be applied across capital projects, business units and operations. The risks, as well as opportunities, are evaluated in this section according to the aspects of likelihood and impact. The use of Illustrative Impact and Likelihood frameworks is considered as a functional approach for understanding the potential of occurrence and influence of the risks and opportunities in a simple and flexible approach.
The second stage in the risk assessment process is associated with the evaluation of the risks in which qualitative and quantitative methodologies are applied for the initial screening of opportunities and risks. Various frameworks can be applied for the second stage of risk assessment among which the Fishbone diagram, Standard deviation or Semi variance, risk probability and impact and probability impact matrix could be accounted as notable examples (Arbab-Zadeh & Fuster, 2015). The application of the qualitative approach for the evaluation of risks and a fishbone diagram for identifying the causes leading to the development of risks and the impact of the risks as identified from situational analysis would be evident in this report.
The third stage in risk assessment would focus on the interplay between risks identified in the external environment and their impact on the business. This approach would provide the opportunity for developing a feasible risk management framework that can cater for the diversity of risk implications for the business. Assessment of risk interactions is generally facilitated by the instruments such as risk interaction maps, bow-tie diagrams and correlation matrices. The implementation of a risk interaction map could be considered in this report for providing ease of comprehension and simplicity through graphical representation of the interplay between risks (Webster, Haque & Hucker, 2013).
4. Risk management framework:
The first stage of the risk management framework is based on identifying likelihood or probability and the impact of the risks evident for Alcaplast in the UK market environment. The two prominent strategic risks identified for the company include reputation risk and sales risk. In the case of reputation risk, it can be observed that the probability rating is higher owing to the organization’s basis in Eastern Europe which is accountable for low-cost imports in the UK sanitary ware market (E. Worden, Harris & J. McLean, 2014).
The probability rating suggests that the organization is liable to experience the risk at least once every two years. On the other hand, the sales risk is also accounted as a high rated risk in terms of probability as well as impact albeit with comparatively favourable chances of occurrence as compared to reputation risk i.e. it can occur once in 2-20 years. The impact of these risks could be explicitly observed on the business operations of Alcaplast leading to influence on the profits, brand perception by customers and levels of sales (Bernert, Hom & Roberts, 2014).
Figure 4 Risk Assessment Process
The next phase in the risk management framework is associated with the implementation of the Fishbone diagram and qualitative methods to ascertain the cause and effect of the two identified strategic risks. In the case of reputation risk, four prominent causes can be identified that lead to the detrimental impact of loss in brand equity. The four causes are vested in the place, employees, products and promotion methods among which three aspects are profoundly associated with the marketing mix of the organization. The place related risk implications could be based on factors such as limitations of product availability and storage space (Gallardo & Aldridge, 2013).
The promotion methods could be influenced by the implications of premium pricing in the high level of pricing competition as well as insufficiency of promotion methods implemented by Alcaplast that is complicated by lack of brand awareness. The product-related causes for reputation risk could emerge from insufficiency of inventory monitoring and inexperienced staff that could complement the limited availability of products. The employee-related consequences could be derived from the nature of Alcaplast as a family-owned business that can imply potential limitations in terms of recruitment which could be complicated further through the insufficiencies in training and development for employees (Ibelings, et al., 2014). The limitations on the experience and skills of employees can also account for notable causes for the reputation risks for Alcaplast.
To evaluate the sales risk for Alcaplast, the causes could be identified in the factors of products, promotion, place and customers. The location-related causes could be identified in the lack of a substantial number of individual stores of the organization and dependence on retailers and supermarkets for distribution that could be further complemented by loss of customers to brands with individual market presence in the domain of sanitary ware. The causes of promotion that lead to sales risks can be identified in the lack of brand awareness, insufficiency of promotion methods and limited adaptability to changing trends in the promotion.
The customers’ aspect in the causes of sales risk could be identified in terms of brand loyalty to native brands, limitations on access to product offerings, limited product availability and lack of a specific place to acquire products of Alcaplast (E. Worden, Harris & J. McLean, 2014). The preferences of customers for cost-effective substitutes could also be accounted as formidable causes for loss of sales thereby leading to strategic risks for the organization. The product-related causes for sales risk could develop from the implications of poor warehouse management and inventory monitoring alongside the discrepancies in transfer and management of information across the different locations in which Alcaplast operates thereby complicating the limitations of product availability.
Therefore, Alcaplast could manage these risks by eliminating specific causes identified from the assessment to accomplish sustainable performance in the UK market. First of all, it should eliminate the concern of the influence of Brexit on prices of imported products which would be uniform thereby leading to limited influence on the level of price competition. The aspects of warehouse and inventory management have to be addressed instantly alongside ensuring the establishment of individual retail stores of Alcaplast that can provide customers with a direct point of access to the organization. The company should leverage its reputation in terms of the premium brand ALCA to acquire improvement in brand awareness and loyalty (Casini, Fontana & Lecompte, 2013). Training of sales team and export team personnel who are comprehensively involved in the international business operations should be provided with improved levels of skill and personal development training especially for catering to diverse marketplaces and customer bases. This would imply an improvement in specificity of the promotion approaches followed by the organization and effective management of prospects for sales.
5. Case Analysis- Scenario 1
The entry of Alcaplast into the UK market would have to be reviewed based on its strategic mapping in the present market among competitors. As per Arbab-Zadeh & Fuster (2015), the primary basis for the mapping is based on revenue which can be ascertained from the external audit of the companies in the UK sanitary ware market. Some of the notable competitors of Alcaplast include Masco Bathroom Group, Ideal Standard and Kohler Mira that are considered as a strategic groups with the highest revenue in the market alongside another group comprising of Norcros and Bathroom Brands (Arbab-Zadeh & Fuster, 2015).
The formidable setback that Alcaplast would face in response to the competing strategic groups is identified in the form of product range diversity of the latter. Another notable aspect to be noticed in the case of Alcaplast is that the revenues of the organization could not be compared to that of competitors owing to the price difference between the domestic and host countries for the organization. However, this factor cannot be assumed as a profound risk as the organization tends to perform superiorly as compared to several other brands such as SANIFLO, VitrA and Jacuzzi alongside close proximities in terms of revenue with competing manufacturers such as Roca, Twyford Bathrooms, Roper Rhodes and Aqualisa.
Figure 5 Strategic Group Mapping
6. Proposal for risk management:
The risk management for Alcaplast can be based on the identification of risk probability and impact assessment outcomes. The risk identification could be supported by references to four other criteria of cost, schedule, the criticality of impact and performance to determine a viable impression of the impact of risks on the business. The products provided by Alcaplast are available in premium pricing as well as a cost-effective basis which could be used to cater for the risks of lower spending power of UK consumers thereby catering to the changing trends of price competition in the UK sanitary ware market (Arbab-Zadeh & Fuster, 2015).
The lack of a substantial and trained workforce is also a notable risk for the organization in terms of its reputation that could be addressed through leveraging on the strengths of skills, experience and technical competence of employees. The place related aspects could also be a formidable risk for Alcaplast which arise from the lack of direct selling to end-users and an online shop thereby increasing dependence on distributors. However, the international competitiveness of the products could be used as leverage to train distributors regarding the company’s mission and values that can be translated to customers thereby reducing the reputation and sales risks for the organization. The existing size of the product portfolio alongside the prospects for rapid product development can also be used to cater for the risks from large product ranges of competitors in the UK market (Ibelings, et al., 2014).
7. Case Analysis- Scenario 2:
This section of the assessment would focus on the implementation of strategic measures for Alcaplast to sustain the initial phase of operations in the UK market. The strategic measures are derived from the assessment of internal and external risks that account for their relevance and functionality in risk management. The first risk that would be addressed is the risk from the competition as noted from the strategic group mapping of competitors in the UK market. The risk can be resolved appropriately by improving the quality of service by establishing direct selling in the form of stores, improving product quality and functionality as well as providing additional services (Hanson et al., 2017). Consistent engagement in product innovation can also be accounted as productive measures to address the risk of competition.
The risks of reputation and sales are also evident owing to the primitive nature of the company’s establishment in the UK market as compared to the well-established firms. The company should enhance the approaches for delegation of responsibilities to the appropriate employees based on their skills and improve investments in the development of promotion channels such as online shops that can facilitate a reduction in sales risk as well as reputation risk through the integration of other online promotion platforms such as social media. Professional consumer service could be accounted as another promising initiative for Alcaplast to establish interaction with the end-user thereby contributing to an improvement in brand awareness and loyalty (Kurian et al., 2014).
8. Risk assessment for expansion:
The assessment of strategic risks for Alcaplast concerning the selected target market of the UK as well as the inferences from the internal and external audit of the organization, a viable market entry mode would have to be followed by the organization to establish itself in the UK market other than exports. The primary aim of the organization should be vested in the development of independent and larger stores which could be used for sales of the different product lines of the organization such as Komfort, Alcaplast, Alca and White Label. The implications of independence are necessary for establishing direct contact with the end-user thereby inhibiting the reliance on distributors facilitating promising opportunities for radical improvement in brand reputation and awareness (Bernert, Hom & Roberts, 2014).
The space of the stores would also account for minimal dependency on frequent exports from the Czech Republic thereby addressing the concerns of product availability. The training of the sales team of the organization for adapting to the business environment in the UK sanitary ware market as well as the trends in customer preferences could also help resolve the barriers for communication of the demands of customers to the export team. Furthermore, the expansion should be targeted at single locations in the proximity of well-established brands so that the existing customer base of competitors can be tapped into feasibly alongside obtaining benefits of cost-effectiveness in promotion and market research owing to familiarity with the location (Arbab-Zadeh & Fuster, 2015).
9. Conclusion:
The report presented a strategic risk assessment framework that considered the marketing mix, internal and external environment analysis of Alcaplast to suggest viable recommendations for expansion in the UK market. The assessment was able to focus on strategic risks and the use of internal and external audit inferences to develop an integrated risk management framework for addressing the existing and potential risks.
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