Generic Strategies
When developing a competitive strategy there are three generic strategies that usually form the starting point:
- Overall cost leadership where the organization can achieve the lowest cost operation in the sector. This usually enables it to earn a return and still offer the lowest price to the buyer/customer.
- A differentiated strategy where the organization can offer the buyer/customer features that its competitors are unable to match.
- A focussed strategy where the product or service is concentrated on a narrow strategic target more effectively than its competitors.
Australian Geography & Population Distribution
Based on the research collected for this study it is recommended that two strategies be adopted, one for the country and one for the cities:
- Rural and Regional Australia
- Capital Cities, possibly including some major centres such as Geelong, Newcastle, Gold Coast etc.
Without exception everyone contacted referred to rural and regional Australia as being 'difficult'; from the point of view of organizing and effecting computer recycling. This however is the unique strength of Business Services.
Thus two competitive strategies should be adopted, one for rural and regional Australia and one for the capital cities. For the sake of brevity in further references to 'capital cities';, it will be assumed that this will include major centres close to a capital city that are contiguous with them. For example, Gold Coast/Brisbane and Central Coast/Sydney.
The two strategies will be referred to in the rest of this report as the 'Rural Strategy'; and the 'Cities Strategy';.
The Rural Strategy
The competitive strategy for Business Services, is to pursue a 'differentiated strategy'; outside the cities, as they have the unique distinction of having a presence in many rural and regional communities
It will be important for Business Services in rural and regional Australia to present a unified front and thus confirm in the minds of the people letting the tenders that they are dealing with one organization that is united, organized and capable of delivering on its promises. Clearly it will be known that the reality is that there are many individual organizations involved but they all follow certain common practices and standards. Thus, when dealing with a representative from the organization those letting the tenders can be confident that the agreed actions will occur.
The rural based Business Services will need to 'play to their strengths. For example, potentially a Business Service in a location such as Bourke could simply act as a collection point and the computers collected could be transported say twice a month to the nearest Business Service that operates a computer recycling operation. In this case it might be say Dubbo. Clearly the Bourke Service would receive some financial return for acting as a collection point. Through a series of such arrangements areas like western New South Wales could be covered. This would be difficult for a competitor based in say Sydney to match, cost effectively.
The 'rural offer'; from Business Services will be attractive as it will be able to 'deliver'; large areas of rural and regional Australia.
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Differential pricing
Different prices should be able to be charged which reflect the real costs of collecting and recycling in rural Australia. With suitable fine tunning it should be possible to achieve improved margins for county-based Business Services.
Profitability
To state the obvious, country based Business Services already exist and have a structure in place. As recycling essentially only requires factory space and no specialized equipment, especially in the start up phase, the cost of entry, apart from management time should be minimal. [See worked example on page 30.]
The Cities Strategy
The situation in the cities will be quite different from rural and regional Australia. The three existing large companies are very unlikely to withdraw from this sector. In addition there are other smaller players and the possibility of overseas entrants into the 'cities'; market.
The Australian Information Industry Association has made it clear [and their position has been supported by their major members] that the emphasis will be on cost. Tenders will be let to attract the lowest cost operators. Comparisons will be made with overseas markets and the expectation will be that continual cost savings will be expected and will be passed back to the industry as they occur.
With around 75% to 80%of the population based in the cities should Business Services choose only to compete in the rural areas this would restrict them to a market of only $6 to $8 million and ignore the other $20 million? Given that Business Services ideally want a share of the 'Cities'; market and thus a share of that 75% to 80%, a strategy is necessary.
The options facing Business Services in the cities are:
- Compete directly against the big three recycling companies and all others. [The 'go it alone'; strategy.]
- Negotiate with the big three recycling companies to work on an agreed basis with a mechanism to share the revenue. [Work with one or more of the major players.]
- To become a straightforward subcontractor providing a dismantling service to any or all of the large recycling companies and possibly others. [Accept the position as a subcontractor.]
It is very likely that the initial strategy will evolve over time as the skills and knowledge about the market are developed. This could lead to a more aggressive approach over time and see the development of a different strategy.
The ideal initial outcome for Business Services would be:
- Negotiate directly with the organization that is letting the tenders and thus receive all the revenue initially. In other words to be the 'lead'; organization. The Business Services could then retain any efficiencies or savings and where outside services were used the best terms and conditions could be negotiated.
- Establish relationships with the big 3 recycling companies where Business Services could transfer the disposal of cathode ray tubes to any of the of them and thus avoid the related technical difficulties.
- Whilst selling most of the material arising from the dismantling processes to the big 3 recycling companies still retain a volume to sell to other parties to ensure that the prices offered for the components were competitive.
The strategy that appears to offer the best chance of achieving the 'ideal outcome'; or a position close to it, could be achieved by negotiating with one of the recycling companies in the first instance to work with them and if possible to take the lead role. This may mean that the share going to Business Services may be less than desired but as more contracts become available the aim will be to improve the position of Business Services at each negotiation. If that approach was not possible, endeavour to do the same thing with either and or the other companies. If neither works, endeavour to secure a sub contractor position, which gives Business Services as much work as possible.
An alliance with the big three recycling companies would help to resolve in the short term the problem of the disposal of the CRT's.
A relationship with the recycling companies would enable a greater knowledge to be gained about the recycling of computers.
One of the recycling companies has expressed the greatest interest in working with Business Services and has identified that the geographic spread of Business Services could enhance its position. The transport network operated by the company is also a good fit with the dispersed nature of Business Services.
Should all of the above not be achievable then the approach would be to 'go for broke'; and compete directly against all comers.
It is likely that the exact form of the negotiations will be amended as they proceed and Business Services learn more about the aims and objectives of the possible partner during the negotiations.
The strategy for the 'Cities'; then can be described as a mixed strategy of a low cost approach using the labour resources of Business Services and a differentiated strategy of working as an alliance with one or more of the major recyclers.
Note that the 'Rural ';and the 'Cities'; strategies will be kept separate from the negotiating point of view but the knowledge gained from within the two areas and any synergies arising will be shared across all the Business Services involved.
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Business Services Strengths [Barriers to Entry]
To minimize the advantages of the competitors and to make it difficult for new competitors to enter the sector it is helpful to raise or strengthen as many 'barriers to entry'; as possible. The following are an initial list but is likely that more will be identified and developed as the sector develops.
Large Geographic Areas
This activity will obviously mainly apply to the rural Business Services. There are individual recyclers located in various parts of Australia who could provide competition in their local area.
By persuading the proposed industry organization to let tenders on a regional basis it will be more difficult for individual organizations or companies to tender for these contracts. Thus one barrier to entry will be to influence the geographic scope of the tenders. The larger the area, the better placed will be a group of Business Services who have already agreed to work together.
Ease of doing Business
Another barrier to entry will be the ease with which an industry organization can negotiate coverage for large parts of the country. For example, if the industry organization could speak to one person about large areas of rural and regional Australia rather than having to find them many organizations it will make the 'Rural Strategy'; more attractive. Queensland for example might be split into say four regions and submit four different prices but they might all be represented by just one person/organization.
Build on Existing Recycling Activities
Based on the 'expressions of surprise';, by various people interviewed, about the extent of recycling activities already undertaken by Business Services around Australia another opportunity is to promote these activities as part of the overall offer from Business Services. Although they would not be directly included in the negotiations they do give a level of comfort that Business Services could acquire the skills because they are already successfully involved in other recycling activities.
Standard Operating Procedures
By identifying 'best practices'; and codifying them in an operations manual it will be possible to meet quality standards on a consistent basis across the country and induct or introduce Business Services new to the sector, quickly and efficiently. For example in one area off the country by working with the major computer companies and the industry body managing the scheme it will be possible to quickly transfer that knowledge to another part of the country.
OHS and Environmental Management
Occupational health, safety and environmental issues will also be codified and solutions shared amongst all the participants.
Continuous Improvement
With multiple sites it will be possible to develop benchmarks to monitor performance and test or develop new approaches to continually reduce the costs of operation and thus stay ahead of the competition.
Common Brand or Trading Name
The introduction of a common trading name or brand will create the appearance of a common unified approach and give a 'degree of comfort'; that the individual sites around the country are working together.
The trading name or brand will not need to be widely promoted. The 'target audience'; will be those directly involved the sector. It is likely to number only a hundred or so people. [This name could be linked to the proposed new name for Business Services when it becomes available.]
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Employment of People with Disabilities
As the number of decision makers with whom Business Services will be working/negotiating will be quite small they will quickly find out, if they don';t know already, that Business Services employ people with disabilities. It is recommended that this fact should be acknowledged and quietly promoted to those key decision makers.
Business Services Weaknesses
Business Services will be at a disadvantage relative to their competitors especially at the start of this programme. The competitors are likely to exaggerate this lack of knowledge.
Cathode Ray Tubes
The principal problem currently facing Business Services is what to do with the cathode ray tubes [CRT's].
One of the recycling companies is currently crushing the glass tubes. The crushed glass is being supplied to a smelter in Port Pirie, South Australia to be used in a smelting process.
While another recycling company has developed a process 'in-house'; to separate the glass screen from the remainder of the tube, remove the phosphorus and recycle the glass herein Australia.
Currently the only effective way Business Services have of disposing of the CRTs is in landfill, which will be unacceptable over the longer term.
Lack of Coordinated Approach
It will be very important to maintain an internal discipline amongst those Business Services involved in the programme to ensure that the undertakings given to meet certain objectives are achieved and that individual Services do not make 'side deals'; or make other arrangements which will only serve to reinforce the perceived lack of professionalism of all the Business Services that are part of the programme.
Longer Term Developments
Overseas Sales
As the volume of recycled material from Business Services increases it may be possible to consider exporting the sorted waste direct to overseas metal recyclers thus improving the financial returns. Clearly this could be linked to the 'added value processing'; referred to above.
Extensions to the Range of Products Recycled
Based on the responses to date it is likely that other products such as TV's, DVD's and games could also be recycled. This will increase the volume of materials and hence the amount of labour and may be particularly attractive in smaller centres where the numbers of computers are lower and thus the amount of dismantling work is also smaller.
Added Value Processing
As the volume of work increases, opportunities to add value can be considered. For example, copper wire can be processed by removing the outer PVC insulation covering and then granulating the wire. The scrap metal value will be increased. Depending on volumes there may only need to be one machine to service the needs of all Business Services at a cost of under $100,000 for a machine. Plastics are another product that can be shredded and again the financial returns increased.
Workability International
Overseas organizations employing people with disabilities who are also involved in recycling computers may have information that could improve the proposed operations.
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Organisational Structure to Implement the Strategies
To implement the strategies, develop the strengths and over come the weaknesses identified above some fairly straightforward steps are required:
Structure
The Business Services involved will need to agree to work together and to accept a limited degree of central direction for the overall benefit of all the Services involved. Although the exact details of the structure can be resolved at a later date it is important that any Service understand that they will need to agree to work in a co-operative manner and follow the 'rules';. The Business Services themselves can develop these 'rules';. Hopefully the resources required can be limited to one part time person after the initial set up phase. [See budget below.]
Central Direction
There will be a small number of situations where any given Business Service will need to accept that decisions will be made on its behalf that it will of necessity, be required to accept. Note however that it would have been informed and involved in determining the details of that decision. One example could be the pricing and terms and conditions of say a regional recycling contract. One contract for say Far North Queensland could involve a number of different Services.
Central Source of Information
Contract negotiation, pricing and a source of information for Business Services will be the main activities of the 'central office';.
Self Funding
It will be proposed that initially a percentage of all revenue [external sales] arising from recycling of computers by individual Business Services will be contributed to fund the project. The intention is to ensure that in the project will be self-funding.
Brand Name
Reference has already been made to the use of a common brand name under which the Business Services involved will operate. As a 'working name'; the name 'Business Services E Recycling Group'; has been adopted for the remainder of this report.
Selection of Business Services
There may be a possible source of conflict if more than one Business Service id covering the same geographic area. A proposal to deal with this situation is covered in Appendix I.