Porter’s Generic Competitive Strategies Employed In Transurban Ltd

Porter’s generic competitive strategies are the means put in place for a firm to compete. A firm’s profitability is usually determined by the position it occupies in the industry. For a firm to remain sustainable in the long-term, the profitability and the strategic position should be well defined. The types of competitive strategies put forward by Porter are the following: differentiation, cost leadership, cost focus and differentiation focus.

(Bailey,Mike.,Phil,Hancock.,Peter,Robinson.,et.contemporary accounting ed

Bazley,M.,2014,Strategic nature of performance measures In C.Learning Australia chapter 13, page 426).This can be related to Transurban Company in the following means: Transurban is a leader in the cost leadership. The profit in the Financial Year 2016 increased by 18% from a loss of $373 million to 22 million. This means that the expenses have been reduced and sales increased. In the differentiation focus, the firm aims to produce unique product which are widely used and appeal to the buyers. In this regard, Transurban Ltd has selected some attributes which appear to be important in the industry which will not only increase the sales but also position the firm as the means to meet the customers’ requirements. The reward for being unique is charging a premium price.  For this to be attained, the firm must become the lowest in the costs of production in the industry which may be achieved in terms of the economies of scale, preference in obtaining raw materials, technologies in proprietary schemes and other factors. Transurban has been able to achieve the economies of scale due to its size and the location enables it to easier access to its raw materials. The firm seeks to have the costs advantage and differentiates its products in the market in order to serve a target segment or customers with unusual requirements.

The key performance indicators include the financial metrics and the sales metrics in the Transurban Ltd. The firm has been improving in the financial statistics and the financial positions over the last three years. It has been able to turn the redundant procedures to productive processes. The operating activities have also been reduced thus increasing the operating revenues which is a positive attribute. The sales have also been increased its sales due to marketing efforts.

A firm’s strategic map is a description the creation of an organization’s value in connection to the strategic objectives relating to the causes and effect. The map is primarily focused on customer’s attraction and retention, the financial costs being cut, the growth perspectives and the learning processes.

 Part B: Sustainability reporting 

The vision of Transurban is “strengthening communities through transport” and has been adequately addressed by the sustainability strategies. The firm commits itself in ensuring that the cities are great places to live and work from. The sustainability strategy for Transurban has three main pillars namely: being good neighbors, useless and thinking long-term. The firm stresses on good neighborliness in anticipation, listening and responding to the community’s requirements. The firm aims to minimize the use of natural resources and creation of resource efficiencies in development.(Bazley,M.,2014, Non- financial indicators, Alternative view of financial performance, chapter 13 pg425) The firm seeks for innovative transport solutions to create efficient and safe transport in the future in the cities and their networks. The main initiatives of sustainability strategies are the community partnerships and the grants programs, major innovation programs like the effective road safety barrier designs and the noise cancellation and the transformation projects. The firm has an energy efficient road map in the reduction of energy consumption with a timeframe of 2023. The firm intends to continue in reporting on the public reporting of the sustainability performance.

Part C: Integrated Reporting

Integrated Reporting brings together the material information pertaining to a firm’s strategy in a manner that will reflect the social, commercial and environmental aspects under which it operates. A clear and a concise representation of Transurban should be demonstrated in terms of the stewardship and creation of value presently and in the future. The firm should combine most of the material elements of the information that has been posted in the managerial, financial and the reporting aspects in the remuneration and the sustainability issues. The report should show the relationship between the social factors and the transport industry and also it should explain the effect on the firm’s abilities. These effects should be portrayed as long term, short term or medium term. (Bazley,M.,2014,Investment centers and financial performance measures chapter 13 pg 416)

Part D: Budgeting

The budget: double columns
Particulars Joe Debbie
Incomes: sales July 70,000 63,000
August 105,000 140,000
September 119,000 210,000
Total sales: 294,000 413,000
Other expected inflows 80,000 80,000
Bank balance 5,000 5,000
Total cash flows 379,000 498,000
Expenditure:
Fixed expenses  30, 000 per month 90,000 90,000
Variable expenses 1% of sales 2,940 4,130
Total expenditure 92,940 94,130
Available cash 286,060 403,870

The budget discrepancies should be addressed in such a manner that incorporates forecasts. If I was to use the two forecasts, the best alternative would be to use the average method between Debbie’s forecast and Joe’s forecasts. The sales forecasts have been arrived at using different methods where Debbie approximates an increment in sales while Joe takes a more pragmatic approach and centralizes the whole figure as an average. This has resulted to the divergent results in the sales forecasts but in summary, the firm expects to have available positive funds for its processes in the timeframe under review from July to September.

Part E: Short-term decision-making

If the firm decides to buy from outside, many disadvantages will arise. The firm will not be in control of the quality in the products purchased. It might not be able to raise or reduce the quality of the products depending on the targeted markets. It might also bring factors such as the bankruptcy as the firm may hold it at a disadvantage because it will be dependent on it for its activities. In this case, the fixed costs will be higher than the marginal benefits derived from the venture. The fixed costs in this practice are while the monetary benefits are less than that. It should be understood that the fixed benefits will still be incurred whether the firm purchases from outside or produces them itself. If the firm will get the products from the outside suppliers, the long-term objectives will be missed and it places its future at risk since it has no control over the suppliers. (Bazley,Mike.,Phil, Hancock., and Peter ,Robinson, Contemporary accounting ed by Bailey, Mike., 2014 Performance measurement and balanced scorecard)

The shareholders investments might not be adequately put in place and thus such an action is strongly discouraged. Shareholders will use the ratios such as return on investment which is not being put to work. The management is also going to be affected since the employees from the production department might have to be laid own and consequently, the managers have to be redeployed or removed as the departments have been reduced. The production bonuses will be removed as the department has been scratched.

Part F:            Capital investment decision-making

Net present value (NPV) is a method that uses the difference between the present value of cash inflows and the present value of cash outflows. It gives the current value of the cash flows in comparison to the value it might have in the future. It takes into consideration the factors of inflation future returns. It tells whether a project is reliable if the NPV is positive meaning that the future cash flows are more than the present cash flows. That is its advantage but it does not select the best method in case all the projects have a positive NPV. (Bazley,Mike,2014 Performance measurement and balanced scorecard chap 13 pg417)Internal rate of return is an improved format of NPV where the discount rate often used in capital budgeting that makes the net present value of all cash flows from a particular project equal to zero. The advantage of this method is that it compares many projects and usually the project with the highest IRR is picked. A drawback is that the calculations involved are usually hypothetical. In case of two mutually exclusive projects, with the two proposals having positive NPVs and a marginal difference, further tests should be conducted. The IRR test should be employed because it selects the best project with the highest IRR and in case it contradicts the NPV, it is usually ignored.


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