Star Rent-a-Car has grown to be a successful business in Canada. This has been propelled by the existence of stakeholders interested in making the business grow. The nature of the business has presented some facts about the stake holders and what they consider the best opinions to enhance their business. Ron, the sole manager of the business tries to shed some light about some factors his colleagues should consider about the business. He happens to have adopted majority of the thing he prefers from their late father. For example, he prefers car renting to repairing of local vehicles after the collapse of the gas station. This was his father’s idea and in his email to the other stake holders, he highlights other issues they should prefer. To ensure the going concern of the business, his advice to his brothers and sister to prefer car leasing to other options because it’s well established, has a larger market base and enjoys little competition in the local market. Sarah prefers expansion of the business to include a management system that aims at expanding the business. Other stakeholders share the same preferences on ensuring continuity of the business.
The organizations resources are a major concern and they ignite an equal thought as what the stakeholders prefer. Being a car leasing company, it has limited resources in terms of the vehicles used. However a major source of resources to this company is financing especially from other dealers. As Ron put it, they received financing from dealerships’ financing division. This had a great impact on the organization it was able to increase its fleet of cars. It maintained between 95 and 110 cars, which was a good stock required to meet the growing demand by customers. (Suneja 2000)
Several issues were of concern regarding the organizations strategic management. This is a family business they inherited from their father who bought it from his uncle. It portrays the notion that it’s all about inheritance by the family members. Ivan was the sole owner and manager of his business which was passed over to his children. Apparently the family members do not posses any management skills needed to run the business. The strategic management of a business is paramount to determining its marketing strategy. They run the business with general knowledge they posses and experience from their father. Lack of management skills has cost the organization any expansion opportunities as lacks sales, marketing and advertisement strategies, business development strategies, lack of sound credit system and poor decision making. For example, Ron’s daughter, Lori is responsible for keeping the organizations accounts. She works 25 hours a week which is not enough to manage its accounts. This is noted by Sarah during her study on the business and she even comments that this time is not enough to reconcile a bank statement. Ron as the manager comes to the office at 1:30 and is not accountable to anyone. Lack of training to the manager’s leads to poor development and implementation of incentives aimed at boosting the business. This condition had a direct impact on the market as reflected on the organizations accounts. They reflected increased expenditure and decreased incomes of the business can be attributed to the poor management system. It cannot develop incentives that will see profits increase and expenditures go down. The local market provides a fundamental customer base that they are supposed to take advantage of. They stick to the old fashioned ways of running the business and do not want to adopt new ways with the changing market structure. The town is rapidly growing with more tourists coming in but the stakeholders do not take advantage of this. The town’s economy is dependent on natural resources like timber, fur and ranching activities and the organization, being the oldest in the town with customer confidence, fails to take advantage of this business opportunities to increase their profits. Ron suggested several incentives that he thought could put their business in a better position. He thought of introducing the track business to serve the small businesses that use tracks for moving purposes. He also suggested that they expand their market focus to other neighboring towns that had growing market opportunities. The business does not have a website and therefore cannot take advantage of tourists market. The presence of an airport nearby has tremendous opportunities and provides a wonderful foreign market that Star Rent-a-Car is supposed to take advantage of. Their father once turned down a request by a bigger and well established company, Worldwide Car rental, to become part of them in the rental business. This could have improved its customer base and expanded their market both locally and internationally. All these are market opportunities that they fail to take advantage of because the organization is run by unprofessional mangers who don’t think outside the box. This is a major hindrance to the prosperity of the business as well as their profits.
In terms of strategy making, the business neither has any short or long-term strategy to work on. It lacks corporate vision and mission statement as well as goals they are supposed to achieve. The mangers of the company do not have time for the business as Ron noted. He says that they are so busy with their day to day activities to think strategically about the future of the business. This is definitely a company bound to fail because it does not have future thoughts about the business. Only Ron has the time to run the business because he’s the largest stakeholder. But he’s not supported by any experience or skills in running the business like he says that their father did not involve them him in strategic management decisions. After his father, dies the business deteriorates and its profits constantly decline. (Rostin 2007)
Sarah notes that Audrey, the woman at the counter, has been employed despite the fact that she did not have any education beyond high school. She has been with the ‘human resource’ docket, where she is responsible for staffing of the company. Again the company does not have any human resource department responsible for hiring and managing employees. As a result it lacks professional to work in different departments. She is forced to work more in all the three locations of the business. Star Rent-a-Car’s situation confirms the fact that a business with a poor management system is bound to fail as Star Rent-a-Car is about to, because of poor management strategies.
Star Rent-a-Car’s macro environment is also worth looking at. Some facts about it contribute to its prosperity as well as failure. A business’s macro environment is the main external and uncontrollable factors that influence an organization’s strategies, performance and decision making. They may include economic factors, demographics trends, social, legal, political, and technological changes; and natural factors. To begin with, Star Rent-a-Car is behind technologically. It does not have any website despite the fact that they have existed in the business from time in memorial. Ron suggests that they indulge themselves in tourists business but they do not have any website where they can advertise the business. The company is not well advertised and does not move with growing market demands as it does not have a reliable source of information on the market. Being a business that competes with other international companies in the car lending business, it is supposed to integrate an IT system that will ensure it’s up to date not only about its competitor information but also the market demands and trends.
The economic factors that affect the business are majorly determined by the town’s economic potential. Being a growing town that is attracting so many activities, the economic potential of the town is vibrant. Since economic growth also determines a business’s macro environment, Star Rent-a-Car fails to take advantage of it. it’s a growing town with a large number of tourists coming in to the nearby mountains to ski and hike. There is also a growing market for fresh fruits. Generally the town is rapidly growing and its economy is growing fast. The company is supposed to align itself to move with the growing economy so as to stay longer in the business and compete effectively with their competitors. Technology reduces business costs; it improves the quality of services offered and leads to innovation of new strategies. These advancements can do well to consumers as well as the organization providing them.
Social factors like the population that is economically active matter and contribute to business’s macro environment. The growing population of the town and its environments implies that the percentage of economically productive population is quite higher. During her study to the company, Sarah noted that the company rarely keeps employees for more than six months. This is because it pays its employees poorly and does not hire qualified young people who still have the energy to propel the company to greater heights.
The companies surrounding environment also makes part of its macro environment. The climatic conditions of the town impact on business either positively. A related opinion on this relates to the September 11 terrorist attacks on the World Trade Centre. It created an unsafe environment all about America which implied that there were decreased tourists flying in to country and that Americans chose to stay indoors because they fear for their lives. This impacted negatively on many businesses including Star Rent-a-Car which decreased number of customers and hence decreased profits. Climatically conditions also make up the environmental conditions that affect the business. Kelowna is well known for its hot summers and temperate winters. The temperature conditions are quite fair during summer and low during winter. This means that they receive a lot of tourists during summer and fewer of them in winter when temperatures are low.
Some facts about the industrial structure include the companies around the town that offer a close range of services. Worldwide Car Rental is among their competitors in the industry. Infrastructure is part of the industrial structure, their accounting structures and bookkeeping methods make up some of this. For Star Rent-a-Car Company their accounting books are quite up to date reflecting the position of the company as well as its accumulated profits. Comparing it to other companies that are well established and offer better services than they do, one can conclude that the car leasing industry is competitive. The infrastructure surrounding the town is also good which makes it possible for the businesses to do well.
An industry or market can be analyzed by different characteristics. Some of the more significant market characteristics that should be considered are technological skills required to run a business, production and operations skills necessary, capital necessities , barriers to entry, seasonal and cyclical factors, current size of market, predictable market growth rate, number of competitors, level of disintegration, strength of competition, profitable returns of the industry, social, political, regulatory and environmental factors and the strategic magnitude with other businesses already owned. It terms of technological skills required, the company does not have an IT system that helps it to monitor market progress and advertise their services. They use the manual ways of book keeping and accounting that can be better dealt with by embracing technology. The projected market growth rate is high because of the growing population that increases the number of customers and Star Rent-a-Car cannot turn a blind eye on it. The number of competitors has kept on growing in the recent past and they no longer enjoy the monopoly they used to in the years before.
The intensity of the competition has also increased because of the growing economy in the town and people have a variety or companies to choose from depending on which one offer better services. The production and operation skills required to be in the market are fundamental for the growth and survival of a business. For it to continue existing in the market, it must be in possession of the necessary skills both at professional and management levels. Due to the growing economy in Kelowna, the market continually demands that a company gets the necessary skills to ensure its going concern. Capital requirements continue to present a major challenge to the industry as more and more capital is needed to keep the business alive. Purchase of new car models the highly attract customers is mandatory because it’s what attracts customers into you company. Due to the increase in car leasing companies in the town, capital requirement have also grown by a notable margin.
There are no barriers to entry since the market structure is not a monopoly. The town has seen more companies set up the business of renting vehicles because of its potential to accommodate more companies. There are seasonal and cyclical factors that influence the car renting market in Kelowna. The seasonal climatic conditions of summers and winter influence the number of customers and operations of different companies. The peak season comes during summer when temperatures are quite favorable and more tourists fly to enjoy them. However there is a decrease in the number of customers during winter as there are few customers who travel in due to very low temperatures. This forms a major characteristic of the market that influences business operations. More important on another market characteristic is the profitable returns of the business. Star Rent-a-Car’s profit and loss statement reflects reduced profits in 2002 compared to 2001. This implies that there is a decreasing trend in profits of the company. With the kind of growing market in Kelowna town, one expects that companies get more returns.
There are numerous factors that have an effect on an organizations business and the outcome of its operations. Some of these operations are beyond the control of the organization. The external factors that may cause the authentic outcome of the organization’s operations in prospect periods to differ materially from those currently expected or desired are; the general economic and industrial conditions of the market. Any general economic, business or industrial circumstances that cause customers and potential customers to reduce or delay their investments in the organization have a negative effect on the Company’s potency and profit margins.
International activities are another external factor that has an impact on the organization. Its future growth rates and triumph are partly dependent on increased growth and achievements in the international markets. As it’s the case with the majority of international operations, the accomplishment and profitability of the organizations global operations are subject to frequent risks and reservations such as the local economic and labor conditions, political instability and government regulations. Seasonal trends experienced by the organization in the sale of its products have a major impact too. For example, Star Rent-a-Car offers majority of its services to the local market than the international market. Social and cultural elements are major factors add in. Customer and geographic environment also impact on the business especially in terms of incomes. The profit margins achieved by the Company vary to grater extend among its products, its customer’s tastes and business units and its geographical markets. Therefore, the general profitability of the organization’s operations at any point in time is partially dependent on the product, customer and geographic market as shown in that period’s revenues. (Fine 2009)
Conducting a situational analysis better known as a SWOT analysis can help identify the strengths, weaknesses, opportunities and threats to the business. SWOT analysis is an instrument for auditing an organization and its environment. It is the immediate stage of preparation and helps marketers to focus on important issues. The internal factors consist of strengths and weaknesses while opportunities and threats make up the external factors. For it to succeed, the following factors should be considered. (Youngman 1998)
Be pragmatic about the strengths and weaknesses of your organization when carrying out the SWOT analysis. The analysis must draw a difference between the company’s position today and where it will be in future. It should be specific and subjective to the organization, avoid complexity and over analysis and apply it in the organizations competition structure. In relation to the case, an analysis on Star Rent-a-Car Company on its strengths reveals the following; it is located strategically in Kelowna town which makes it ideal to many customers to access it. It has a strong local market that has won the confidence of many people around the town. It has a large asset base in terms of the vehicles that are used in the daily operations. An analysis on its weakness reveal lack of marketing strategies as it does not have expertise to market its operations, lack of an effective and professional management system to look after its operations. They lack the competitive strength needed to develop and implement strategies of the company. It lacks continuity in terms of the people it employs who cannot work for more than six months. There is lack of morale of the employees and commitment on the side of leaders. They also offer poor quality services compared to other well established companies due to poor technology.
External factors like opportunities reveal a fast growing market that is technologically based, lack of joint ventures and mergers that can help propel the business and increase profits. It’s also faced with new entrants into the market especially the international market. Potential threats include increased number of competitors in the local market, lack of access to channels of distribution due to lack of technology and access to information that its competitors have. The services offered by the competitors are of better quality than what they offer.
Five force industry analyses were developed by Michael E. Porter of Harvard Business School in 1979. As a consultant I have prepared the following five force industry analysis to help Star-Rent-a-Car develop its strategies. Three of them refer to external forces while two are internal.
Threat of new entrants and barriers to entry: new firms enter a market with profitable markets that yield high returns. This leads to many new entrants, which eventually will diminish profitability for all firms in the industry. The possibility of new entrants and incumbent rivals pose threats to the industry. This leads to more competition and later on reduced profits. Literally the market should be free and anyone can enter or leave the market freely. This will maintain normal profits in the industry and avoid other firms from making super normal profits. In real sense however, industries have characteristics that defend the high profit levels of firms in the market and restrain additional rivals from entering the market. These are barriers to entry.
The threat of substitute products or services: existence of products from outside the boundary of common products or services increases the tendency of customers to exchange alternatives. A threat to these products from outside exists when demand is affected by changes in prices of a substitute product or service. As more substitutes become available, demand becomes more elastic because customers have more choices. A close related product blocks the ability of the firms to increase prices.
Buyer Power: The strength of buyers is the impact that customers have on a production industry. Generally, when customer power is strong, the relationship to the production industry is a situation where a market has many suppliers and one buyer. Under such market conditions, the buyer has authority to set the price. (Khan 2002)
Supplier Power: Labor, raw materials and other supplies are what production industry needs. This demands lead to buyer-supplier relationships between the industry and the firms that provide it the raw materials used to generate the products. Powerful suppliers can exert an influence on the producing industry, such as selling raw materials at a high price to capture some of the industry’s profits. (Brown 2007)
The intensity of competitive rivalry: the intensity of competitive rivalry forms a major determinant of the competitiveness of an industry. It can be achieved through Sustainable competitive advantage and, innovations, proper advertising measures and the level of advertisement, strong competitive strategies and web design for product visibility.
Competitor analysis in marketing and strategic management is an evaluation of the strengths and weaknesses of current and potential competitors. The examination provides both an offensive and defensive strategic framework through which to mark out opportunities and threats. It can help to identify strengths and weaknesses of the organization, identification of your competitors and the intensity of the competition, device ways to improve your services and products in order to stay ahead of your competitors and finally the improvements you need to make on your marketing approach. It will also help reveal the following about your products; the products that compete with yours, their advantages they have over the competitors, their disadvantages in comparison to others and an actual view of buyer’s perception about your products.
Customer segmentation is the act of dividing an organizations customer base into groups of individuals that are related in specific ways applicable marketing. They may include age, gender, respective interests, and their spending habits. Using segmentation allows companies to target groups effectively, and allocate marketing resources to best effect. All these may help Star Rent-a-Car improve on their strategies.
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