Professional Documents
Culture Documents
Strategic Management
MNG00716
revised by: Ben faranda
Study Guide
Sixth edition
2010 Southern Cross University Southern Cross University Military Road East Lismore NSW 2480 No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher. Copyright material indicated in this work has been copied under Part VB of the Copyright Act 1968.
Contents
Welcome ........................................................................................................................................ 1 Using.the.Study.Guide.................................................................................................... 1 Topic 1 Introduction to strategic management.............................................................. 3 Introduction..................................................................................................................... 3 Understanding.and.formulating.strategy......................................................................... 5 Difference.between.strategy.and.tactics.......................................................................... 6 Evolution.of.strategic.management................................................................................. 7 Ethics,.business.models.and.strategic.success.............................................................. 10 Summary....................................................................................................................... 11 Feedback.to.selected.activities...................................................................................... 12 Topic 2 The five phases of strategic management................................................... 13 Introduction................................................................................................................... 13 Developing.a.strategic.vision........................................................................................ 14 Setting.objectives.......................................................................................................... 16 Crafting.a.strategy......................................................................................................... 19 Implementing.and.executing.the.strategy..................................................................... 20 . Evaluating.and.initiating.corrective.adjustments.......................................................... 20 Corporate.governance................................................................................................... 21 Summary....................................................................................................................... 21 Feedback.to.selected.activities...................................................................................... 22 Topic 3 External analysis: Industry and competitive analysis............................... 23 . Introduction................................................................................................................... 23 The.strategically.relevant.components.of.a.companys.external.environment............. 24 Thinking.strategically.about.a.companys.industry.and.competitive.environment. ..... 25 . Summary....................................................................................................................... 33 Topic 4 Analysing a companys resources and competitive position............... 35 Introduction................................................................................................................... 35 The.resource-based.view.of.the.firm............................................................................. 36 Question.1:.How.well.is.the.present.strategy.working?................................................ 40 SWOT.analysis.............................................................................................................. 40 Question.2:.Are.the.companys.prices.and.costs.competitive?..................................... 41 Question.3:.How.strong.is.the.companys.competitive.position?................................. 45 Question.4:.What.strategic.issues.merit.attention?....................................................... 45 Summary....................................................................................................................... 47
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Topic 5 The five generic competitive strategies......................................................... 49 . Introduction................................................................................................................... 49 Strategy.and.competitive.advantage. ............................................................................ 51 . The.five.generic.competitive.strategies......................................................................... 52 Summary....................................................................................................................... 56 Topic 6 Beyond competitive strategy.............................................................................. 57 Introduction................................................................................................................... 57 Strategic.alliances.and.collaborative.partnerships........................................................ 58 The.source.of.competitive.advantage:.Merger.and.acquisition.strategies.................... 59 . Vertical.integration.strategies........................................................................................ 60 Unbundling.and.outsourcing.strategies......................................................................... 60 Business.strategy.choices.for.specific.market.situations,.including.offensive.and.defensive. strategies........................................................................................................................ 61 Blue.Ocean.Strategies................................................................................................. 64 Defensive.strategy......................................................................................................... 64 First-mover.advantages................................................................................................. 65 Summary....................................................................................................................... 66 Feedback.to.selected.activities...................................................................................... 67 Topic 7 Competing in foreign markets............................................................................. 69 Introduction................................................................................................................... 69 Why.companies.expand.into.foreign.markets............................................................... 71 Cross-country.differences.in.cultural,.demographic.and.market.conditions................. 71 The.concepts.of.multi-country.competition.and.global.competition............................ 72 Strategy.options.for.entering.and.competing.in.foreign.markets.................................. 72 The.quest.for.competitive.advantage.in.foreign.markets.............................................. 73 Strategic.alliances.and.joint.ventures.with.foreign.partners......................................... 73 Competing.in.emerging.foreign.markets....................................................................... 74 Summary....................................................................................................................... 76 Feedback.to.selected.activities...................................................................................... 77 Topic 8 Diversification.............................................................................................................. 79 Introduction................................................................................................................... 79 When.to.diversify.......................................................................................................... 81 Strategies.for.entering.new.businesses.......................................................................... 81 Choosing.the.diversification.path:.Related.versus.unrelated.businesses...................... 82 . Summary....................................................................................................................... 86 Feedback.to.selected.activities...................................................................................... 87 Unit evaluation by students. ................................................................................................. 89 .
MNG00716 Contents
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Topic 9 Strategy, ethics and environmental sustainability...................................... 93 Introduction................................................................................................................... 93 Corporate.Social.Responsibility.(CSR).and.competitive.advantage. ........................... 94 . Types.of.strategic.options:.What.do.we.mean.by.business.ethics?............................... 94 Strategy.and.social.responsibility. ................................................................................ 98 . Summary..................................................................................................................... 101 Feedback.to.selected.activities.................................................................................... 102 Topic 10 Building an organisation capable of good strategy execution......... 103 Introduction................................................................................................................. 103 A.framework.for.executing.strategy............................................................................ 104 Building.resource.capabilities.and.structuring.the.organisation................................. 105 Managing.internal.operations:.Actions.that.promote.good.strategy.execution........... 109 Summary..................................................................................................................... 112 Feedback.to.selected.activities.................................................................................... 113 Topic 11 Culture, leadership and strategic execution.............................................. 115 Introduction................................................................................................................. 115 Implementing.strategy:.Culture.and.leadership.......................................................... 117 Leading.the.strategy.execution.process. ..................................................................... 120 . Summary..................................................................................................................... 123 Feedback.to.selected.activities.................................................................................... 124
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Welcome
Using the Study Guide
Included.in.your.package.of.materials.are.the.Unit.Information.Guide,.and.the. numbered.topics.collectively.referred.to.as.the.Study.Guide..The.Unit.Information. Guide.provides.the.Unit.Statement,.assignment.details,.contact.details.etc..while.the. Study.Guide.contains.the.print-based.content.and.teaching.aspects.of.the.unit..It.is. important.that.you.read.both.of.these.documents.carefully. The.Study.Guide.and.associated.online.MySCU.site.are.designed.to.be.fully.selfinstructional;.that.is,.they.take.the.place.of.traditional.face-to-face.lectures.and. tutorials..In.most.units.the.Study.Guide.is.written.around.one.or.more.textbooks..the. textbooks.contain.the.content.and.the.Study.Guide.and.MySCU.site.do.the.teaching.. Occasionally.there.is.no.textbook,.so.the.Study.Guide.presents.all.the.content.as.well.. Either.way,.the.Study.Guide.guides.you.through.the.subject.matter.of.the.unit.in.a. systematic.and.structured.way,.using.features.such.as.hierarchical.headings.and.bold. type.to.highlight.key.concepts.and.terms..It.directs.you.when.to.read.your.textbook. or.other.supplied.readings,.when.to.use.the.MySCU.site.and.when.to.undertake.selfassessment.activities.to.help.you.to.see.if.youre.handling.the.content.that.has.been. presented.. So.each.topic.is.made.up.of.three.types.of.material:.teaching.(the.lecturer/writer. talking.to.you),.directions.to.read.something,.and.directions.to.do.something..Active. learning.is.really.important,.especially.when.youre.studying.independently,.and.the. activities.in.each.topic.give.you.the.opportunity.to.do.something.with.what.youve.just. read.or.what.you.are.about.to.read..Activities.within.the.topic.are.designed.to.help.you. check.your.understanding.of.individual.concepts..All.activities.should.be.attempted. as.you.come.across.them,.and.you.should.always.try.to.answer.the.questions.asked. before.looking.at.the.feedback.provided! All.units.are.structured.around.a.set.of.learning.objectives..These.are.expressed. in.terms.of.what.you.should.be.able.to.do.once.youve.studied.the.material..The. objectives.cover.a.wide.range.of.skills:. . . . . knowledge:.recalling.information.(e.g..define,.name,.label) comprehension:.interpreting.information.in.your.own.words.(e.g..classify,. describe,.discuss,.explain,.identify) application:.applying.knowledge.to.a.new.situation.(e.g..apply,.illustrate,. interpret,.solve) analysis:.breaking.down.knowledge.into.parts.and.showing.the.relationship. among.the.parts.(e.g..analyse,.calculate,.compare,.contrast,.criticise,.differentiate,. examine) synthesis:.bringing.together.parts.of.knowledge.to.form.a.whole.and.building. relationships.for.new.situations.(e.g..construct,.create,.design,.prepare) evaluation:.making.judgments.on.the.basis.of.certain.criteria.(e.g..appraise,. argue,.attack,.defend,.evaluate,.predict).
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Topic 1
Introduction to strategic management
Introduction
US newspapers struggling to survive Circulation.is.dropping,.print.advertising.revenue.is.falling.and.readers.are.going. online.to.get.news.for.free,.leaving.the.US.newspaper.industry.awash.in.red.ink. and.threatening.some.of.the.biggest.names.in.journalism. The.business.model.that.used.to.work.at.newspapers.does.not.work.any.more,. The.Washington.Post.Co.chairman.Donald.Graham.said.last.week,.echoing.what. many.observers.of.the.US.media.landscape.have.been.saying.for.some.time. With.The.Tribune.Co,.owner.of.The.Los.Angeles.Times.and.other.newspapers,. seeking.bankruptcy.protection.and.vultures.circling.around.other.publications,. comedian.Jon.Stewart.got.into.the.act.with.a.new.punch.line.to.an.old.joke. Whats.black.and.white.and.completely.over?.Stewart.asked.viewers.of.his. popular.mock.news.television.show.on.Comedy.Central. Newspapers! The.crisis.gripping.the.industry.is.of.course.no.laughing.matter.to.the.15,422. newspaper.employees.who.have.been.laid.off.this.year.or.taken.buyouts,. according.to.figures.compiled.by.Erica.Smith,.a.St.Louis.Post-Dispatch.journalist. who.tracks.the.cuts.on.her.blog.at.graphicdesignr.net/papercuts/ Media.job.losses.are.also.being.updated.several.times.a.day.on.a.feed.on.microblogging.service.Twitter.started.last.month.by.a.group.of.public.relations.agents. called.The.Media.Is.Dying.(twitter.com/themediaisdying). Not.a.day.goes.by.without.more.bad.news.for.the.newspaper.industry.as.the. financial.slowdown.accelerates.the.decline.in.print.advertising.revenue.and.more. classified.advertisers.turn.to.free.websites.such.as.Craigslist.com. According.to.the.Audit.Bureau.of.Circulations,.circulation.for.507.daily.US. newspapers.fell.4.64.per.cent.in.the.six.months.to.September.to.38.16.million. copies.from.40.02.million.in.the.same.period.last.year.
(Sydney Morning Herald,.14.December.2008)
a.continual.decline.of.original.reporter.content.as.newspapers.avariciously.approached. the.likes.of.CNN,.Reuters,.AAP.etc..for.content..However,.most.of.this.news.is.not. only.recycled.and.often.fails.to.include.a.byline,.but.it.is.also.available.through. thousands.of.sources,.rendering.it.very.difficult.for.newspapers.to.attract.revenue.from. web.savvy.news.readers. Rupert.Murdoch.has.publicly.denounced.companies.such.as.Google.for.providing. such.ready.access.to.news.aggregation.services.for.content.generators.and.readers. alike..Murdoch.is.convinced.the.industry.will.move.to.a.premium.content.model,. which.would.be.a.bold.move,.considering.most.of.News.Limiteds.content.is.rehashed. and.reused.content.from.the.news.agencies.already.mentioned..Bear.in.mind,.readers. and.educated.people.know.this,.and.therefore.are.going.to.be.hard.to.convince.if.they. are.asked.to.hand.over.money.for.stories. So.why.is.this.important.as.an.introduction.for.Strategic.Management?.Well.it.sets.the. scene.that.nothing.is.ever.straightforward;.there.is.perhaps.never.going.to.be.a.one. best.strategy.that.suits.the.business.models.of.contemporary.business..The.story.of.the. newspaper.industry.is.similar.to.many.others..think.of.travel.agencies,.retail.service. providers.and.similar.business.where.there.is.a.mass.migration.to.cheap.outsource. locations.such.as.India.and.the.Phillipines.and.to.the.Internet.where.customers.have. more.ownership.of.their.accounts.and.more.access.to.buy.online. Coming.back.to.the.example.of.the.newspaper.industry,.it.could.be.argued.that.we. live.in.tumultuous.times,.when.organisations.are.facing.immense.challenges.brought. on.by.changes.in.their.internal.and.external.environment..This.is.clearly.seen.in.the. issues.facing.the.printed.newspaper.industry.in.the.extract.from.the.article.above..The. newspaper.industry.will.have.to.determine.a.new.course.of.action.to.address.these. challenges..It.is.the.type.of.actions.that.they.take.that.will.be.our.concern.in.this.unit. on.strategic.management..What.long-term.plans.and.direction.can.this.industry.take.to. secure.a.stable.future?.This.is.what.strategic.management.is.about. This.topic.examines.the.concepts.surrounding.organisational.strategy..It.begins.with. an.explanation.of.the.term.strategy.and.offers.a.basis.for.how.to.identify.a.companys. particular.strategy..This.is.followed.by.an.overview.of.the.history.of.strategic. management.so.that.we.can.see.how.it.has.evolved.as.a.business.discipline.in.its. own.right.as.well.as.pervading.other.business.disciplines..In.marketing,.information. systems,.and.human.resource.management,.for.example,.there.is.a.growing.using.of.a. strategic.focus. The.set.of.actions.that.organisations.take.in.the.pursuit.of.some.business.objective.are. usually.designed.to.gain.some.competitive.advantage.in.the.marketplace..The.topic. examines.the.role.strategy.plays.in.achieving.this.advantage..It.is.pointed.out.that. strategy.evolves.over.time.and.is.partly.proactive.and.partly.reactive..Actions.that. organisations.take.in.the.pursuit.of.goals.can.often.be.questioned.as.to.their.ethical. nature.and.these.issues.are.addressed.in.the.next.section. Unless.the.strategy.is.proving.profitable.for.the.organisation.then.it.is.unlikely.to. be.successful..There.is.a.need.to.ensure.that.the.strategy.fits.the.business.model.that. enables.the.organisation.to.succeed..This.link.is.discussed.in.the.next.section.of.this. topic..The.topic.concludes.with.a.discussion.of.why.we.should.be.interested.in.the. strategies.organisations.are.designing.and.implementing. This.topic.is.introductory.by.design.and.introduces.concepts.that.are.more.fully. explored.in.later.topics..It.thus.covers.a.range.of.issues.very.briefly.but.sets.a. foundation.for.the.more.detailed.analysis.to.follow.in.later.topics.
Objectives
At.the.conclusion.of.this.topic.you.should.be.able.to: . . . . . . . define.the.concept.of.strategic.management justify.the.importance.for.organisations.of.crafting.and.executing.strategic. management.actions identify.the.actions.organisations.take.that.explain.their.strategy explain.steps.organisations.take.to.achieve.a.sustainable.competitive.advantage outline.and.distinguish.between.the.major.schools.of.thought.about.strategic. management examine.moral.and.ethical.issues.facing.organisations.in.determining.their. strategic.approaches assess.the.link.between.strategy.and.a.business.model.
Materials required
Textbook Thompson,.Strickland.&.Gamble.2010,.Chapter.1. Readings 1.1. Mintzberg,.H.&.Lamprel,.J.1999,.Reflecting.on.the.strategy.process,.Sloan Management Review, vol..40,.no..3,.pp..2130. 1.2. Browne,.M.1994,.The.evolution.of.strategic.management.thought,.Background. Paper.for.the.Strategic.Management.Educators.Conference,.Australian.Centre.for. Strategic.Management,.Queensland.University.of.Technology. 1.3 Kaplan,.RS.&.Norton,.DP.2004,.How.Strategy.Maps.Frame.an.Organizations. Objectives,.Financial Executive,.March/April,.pp..4045.
emphasis.on.organisations.that.seek.profitability.as.their.main.goal,.it.is.worthwhile. to.reflect.on.whether.the.concepts.discussed.are.just.as.relevant.in.the.not.for.profit. sector). The.textbook.provides.an.excellent.discussion.on.the.various.activities,.functions. and.skills.brought.to.bear.within.strategy.making..They.emphasise.that.changing. circumstances.and.ongoing.management.efforts.to.improve.the.strategy.cause.a. companys.strategy.to.emerge.and.evolve.over.time..a.condition.that.makes.the.task. of.crafting.a.strategy.a.work.in.progress,.not.a.one-time.event.(Thompson,.p..11).. Moreover.a.companys.strategy.is.a.blend.of.proactive.and.reactive.adjustments.and. this.blend.is.illustrated.in.Figure.1.2.(page.12). Mintzberg.and.Lamprel.(1999).provide.a.more.personal.account.of.the.strategy.focus.
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Reading 1.1
Read Reflecting on the strategy process by Mintzberg and Lamprel (1999).
Activity 1.1
Having read and reflected on this literature, outline the differences and connections between the following ingredients in the strategy process: goals policies missions objectives programmes strategy.
Most.large.organisations.formulate.explicit.strategies.for.their.organisations..This. may.not.be.true.of.smaller.organisations..However,.strategies.do.form.in.almost.all. organisations,.even.if.they.are.not.formulated.in.an.ordered.and.stated.manner..These. strategies.are.termed.emergent..The.owners.of.most.small.businesses,.for.example,. have.a.good.idea.of.how.to.develop.the.business,.but.many.do.not.express.this.as.a. stated.strategy.or.go.through.a.deliberate.process.of.defining.the.strategy..The.strategy. emerges.as.the.business.develops..Increasingly,.however,.due.to.the.high.rate.of.failure. of.small.businesses,.organisations.that.provide.financial.or.other.services.to.small. business.are.insisting.on.a.business.plan.being.formulated.that.includes.strategy. Many.of.you.are.studying.for.your.Masters.degree.to.improve.your.career.prospects.. However,.you.probably.havent.written.this.down.as.a.formulated.strategy,.nor.will. you.have.consciously.worked.out.the.reason.or.the.outcomes.from.completing.the. post-graduate.course..You.have.adopted.an.emergent.strategy.approach.to.your.studies.
Activity 1.2
Using your own organisation or one of your choosing, outline the extent to which the organisation has formulated and stated a strategy. List some of your organisations strategic decisions and some of its tactical decisions.
Reading 1.2
Turn to the article by Browne and read about the evolution of strategic management thought.
Mintzberg.(1990).has.proposed.ten.schools.of.strategy.formation.which.he.believes. have.emerged.over.the.years..He.has.identified.them.as: 1.. 2.. 3.. 4.. 5.. 6.. 7.. 8.. 9.. 10.. Design.School:.A.Process.of.Conception Planning.School:.A.Formal.Process Positioning.School:.An.Analytical.Process Entrepreneurial.School:.A.Visionary.Process Cognitive.School:.A.Mental.Process Learning.School:.An.Emergent.Process Power.School:.A.Process.of.Negotiation Cultural.School:.A.Social.Process Environmental.School:.A.Reactive.Process Configuration.School:.A.Process.of.Transformation.
Some.of.these.schools.will.be.discussed.in.this.topic.but.a.number.are.still.emerging.
Other schools
According.to.Browne.(1994),.Michael.Porter.(1980),.through.his.book.Competitive Strategy.and.later.publications,.dominated.strategic.management.thought.in.the. 1980s..Mintzberg.(1990).termed.this.work.the.positioning.school..Porters.main. contribution.was.to.recognise.the.importance.of.a.dynamic.relationship.between. enterprise.strategy.and.the.industry.structure.in.which.the.enterprise.was.immersed. A.number.of.streams.of.strategic.thought.have.emerged.in.the.1990s..The.resourcebased view.has.identified.the.importance.of.a.core.competency.perspective.and. the.concept.of.strategic.resources.and.capabilities..Capabilities.(or.competencies). are.defined.as.skills,.patents.and.similar.non-resource.factors.giving.a.competitive. advantage.to.the.organisation..Rather.than.focus.on.the.external.environment.and.the. actions.of.organisations.to.strive.to.achieve.competitive.advantage.in.this.changing. environment.the.resource.based.view.stresses.the.internal.resources.available.to.the. organisation.which.may.enable.it.to.achieve.this.strategic.advantage..The.resourcebased.view.has.grown.in.importance.in.recent.years.and.underlies.several.of.the. chapters.in.the.textbook. The.following.website.provides.additional.information.about.this.view.of.strategic. management:
Website
http://en.wikipedia.org/wiki/RBV.
Website
http://www.actkm.org/userfiles/File/actkm2004conf/Presentations/Paul%20James%20 Research%20Forum%20Paper.pdf.
Browne.(1994).also.describes.more.recent.moves.to.recognise.the.knowledge. contained.in.the.organisation.and.the.human.behavioural.factors.congruent.with. organisational.structure.as.organisational.culture..This.concept.has.led.to.an.assumed. relationship.between.organisational.performance.and.culture.which.attempts.to.solve. the.dilemma.referred.to.earlier,.namely.how.to.achieve.performance.while.meeting. the.needs.of.people..This.area.of.research.is.complex,.containing.many.different. definitions.and.approaches. The.approach.and.direction.of.contemporary.research.appears.to.be.heading.towards. the.concept.of.a.culture.which.is.characterised.by.an.emphasis.on.capitalising.and. protecting.the.knowledge.contained.in.an.organisation.as.a.major.component.of.its. sustainable.competitive.advantage. Finally,.according.to.Browne.(1994),.there.is.the.emergence.of.a.process.view.of. management..This.approach.has.emerged.from.attempts.to.define.the.process.of. policy.formulation.in.the.public.sector..It.recognises.that.the.Design.School.and.the. Positioning.School.of.strategic.management.are.concerned.with.prescriptive.models. that.fail.to.recognise.the.dynamics.of.strategic.formation..For.example,.it.was.the. highly.prescriptive.nature.of.the.Planning.School.that.led.to.its.lack.of.support.
Current sensitivities
Browne.(1994,.p..29).reports.Mintzberg.as.supporting.the.process.view.
Strategies.do.not.emerge.from.a.process.of.planning.or.design.or.even.of. industry.analysis,.as.a.fully.formed.blueprint.for.implementation..Rather,. Mintzberg.characterises.strategy.formation.as.an.emergent.process,.where.even. as.strategy.is.being.implemented.it.is.being.changed.at.the.margins.in.response. to.new.information.about.the.changing.environment,.the.responses.of.customers. and.competitors.externally.and.of.colleagues.and.employees.internally..This. is.a.continuous.process.of.shaping.the.organisations.strategy.to.the.changing. influences.and.circumstances.to.which.it.must.respond.
Many.authors,.according.to.Browne.(1994),.have.pointed.out.the.danger.of.viewing. this.emergent.process.as.reactive.rather.than.pro-active..Incremental.adaptation,. competing.interests.and.an.uncertain.environment.lead.to.Thompson.et.al.s.(2003). opportunistic.surveillance.capabilities..Similarly.Quinns.(1996).view,.also.noted.by. Browne.(1994),.involves.a.view.that.incremental.decisions.should.not.be.confused. or.associated.with.muddling..Rather,.such.incremental.decision.making.is.seen.as. conscious,.purposeful,.proactive.and.good.management. This.approach.has.led.to.recent.research.directions.that.are.focused.on.innovation,. and.the.means.of.creating.sustainable.competitive.advantage.from.the.knowledge. contained.within.the.organisation..It.takes.the.view.that.hierarchical.organisations. (as.postulated.in.early.classical.management.theories).inhibit.the.flow.of.knowledge. and,.hence,.the.emergence.of.innovative.strategies..New.approaches.suggest.the. use.of.organic.structures.based.on.teams.and.network.methods..For.example,.the. continuously.learning.organisation.has.been.postulated.by.Senge.(1992).and.others. Mintzberg.(1999).argues.that.all.these.different.approaches.represent.research.into. different.parts.of.the.complex.whole.that.is.strategic.management..Managers.have. no.choice.but.to.cope.with.the.whole..He.attempts.to.demonstrate.how.the.different. approaches.might.fit.into.strategy.formation.as.a.single.process.
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Textbook
Turn to your textbook and read from the bottom of page 13 to the paragraph ending at Key Points on page 18.
Activity 1.3
Go to the web and find an example of a company that has acted in the interests of profit first, people and environment second. Find a credible source, or at least an objective source, that outlines what the company did wrong and how its actions might have been aligned to their overall strategy (e.g. a low cost leader may continue to buy from a less reputable manufacturer for cost advantages). You will likely find plenty of example such as Nike, Walmart, Nestle, Ford, more recently Toyota and so on. The point is that you will hopefully recognise how their strategy was flawed to begin with.
Activity 1.4
There is an interesting comparison between the business models of Microsoft and Red Hat outlined in Illustration Capsule 1.2 on page 16 of the text. While most of us are familiar with the Microsoft model less is known about how Red Hat operates and seeks to compete. If you visit the website of Red Hat there is a video clip that enthusiastically spells out the virtues of their model. Why do you think Microsofts model is more successful than that of Red Hat?
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Reading 1.3
Turn to the article by Kaplan and Norton and read about the use of strategy maps in understanding the key elements of an organisations strategy. The reading provides a good introduction to strategy and also highlights the concept of developing strategic themes around the four key internal processes in any strategy. In later units we will revisit the concept of the balanced scorecard both in terms of mapping the key elements of strategy and as a control device its original proposed use.
Website
http://news.smh.com.au/business/us-newspapers-struggling-to-survive-20081214 6y5g.html.
Summary
This.topic.has.attempted.to.set.the.scene.for.the.study.of.strategic.management..It. serves.as.an.introduction.to.concepts.outlined.in.greater.detail.in.following.topics. A.systems.approach.describes.the.purpose.of.an.organisation.as.adding.value.to. goods.or.services.provided.by.a.supplier.in.order.to.meet.the.needs.of.a.customer.in.a. competitive.and.dynamic.market.environment..The.resources.and.capabilities,.together. with.the.learned.knowledge.in.the.organisation,.allow.it.to.sustain.its.competitive. advantage.within.the.external.regulatory,.social.and.economic.environment.in.which.it. is.forced.to.operate. The.development.of.strategic.management.theory.has.emerged.relatively.recently.as. a.result.of.the.need.to.cope.with.the.combined.effects.of.an.increasingly.competitive. global.environment.and.the.need.to.effectively.utilise.the.resources,.capabilities.and. knowledge.contained.within.the.organisation..At.its.more.proactive.form,.strategy. assumes.crisis.dimensions. Although.there.will.be.much.emphasis.in.the.remainder.of.this.unit.on.the.processes,. tools.and.techniques.available.for.use.in.the.practice.of.strategic.management,.the. theory.and.practice.of.strategic.management,.beyond.the.application.of.prescriptive. models,.is.a.relatively.new.and.emerging.field..Strategic.management,.according.to. Browne.(1994,.p..30),.is.not.simply.a.matter.of.practice.or.of.technique..it.is.also. thinking.about.what.needs.to.be.done.
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Activity 1.4
The prominent difference in the business models employed by Microsoft and Red Hat Linux can be found in their respective different revenue-cost-profit economics. Microsoft sells proprietary code software while giving away service. Red Hat Linux, on the other hand, gives software away and depends heavily on sales of technical support services, training, and consultancy services.
Topic 2
The five phases of strategic management
Introduction
The.textbook.has.a.large.number.of.diverse.case.studies.that.illustrate.the.concepts.of. strategic.management.being.outlined.in.these.individual.topics..Where.it.is.thought. applicable,.use.will.be.made.of.several.of.these.cases..In.this.chapter.we.will.make.use. of.one.of.the.shorter.cases.that.has.an.international.and.technology.theme,.(Case.#.11. .C217.of.the.text). The.first.topic.was.concerned.with.a.general.introduction.to.strategic.management.and. identified.and.defined.a.number.of.terms.and.concepts.we.will.continue.to.use.in.other. topics..In.this.topic.we.introduce.a.model.of.strategic.management.which.forms.the. basis.for.the.rest.of.the.unit.and.upon.which.the.textbook.is.structured..The.authors. maintain.that.there.are.five.phases.to.the.process.of.creating.and.executing.a.strategic. management.approach.in.organisations.and.this.topic.reviews.these.five.elements.in. turn.using.the.Nintendo.Case.case.to.illustrate.the.various.phases.being.discussed. In.this.topic.we.will.first.consider.the.different.types.of.strategy.that.Mintzberg. identifies.since.his.approach.is.not.always.in.accord.with.that.of.the.textbook.authors.. We.will.then.present.from.the.textbook.an.overview.of.the.managerial.ins.and.outs.of. crafting.and.executing.company.strategies..Special.attention.is.given.to.managements. direction-setting.responsibilities..charting.a.strategic.course,.setting.performance. targets,.and.choosing.a.strategy.capable.of.producing.the.desired.outcomes..The. topic.also.examines.which.kinds.of.strategic.decisions.are.made.at.what.levels.of. management.and.the.roles.and.responsibilities.of.the.companys.board.of.directors.in. the.strategy-making,.strategy-executing.process. We.will.conclude.the.topic.by.reviewing.the.universitys.own.Strategic.Plan.2005 2010.Mid-term.review;.2008.
Objectives
At.the.conclusion.of.this.topic.you.should.be.able.to: . . . . . . . . . explain.the.five.Ps.of.Mintzbergs.view.of.strategy describe.the.five.phases.of.crafting.and.executing.a.strategy distinguish.between.a.strategic.vision.and.a.mission.statement identify.the.elements.of.effective.vision.statements explain.the.importance.of.effectively.communicating.vision.statements distinguish.between.financial.and.strategic.objectives analyse.the.role.of.the.different.levels.of.an.organisation.in.determining.a.strategy appraise.the.key.aspects.of.the.implementing.phase.of.strategy explain.why.evaluation.and.adjustment.of.strategy.is.important.
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Materials required
Textbook Thompson,.Strickland.&.Gamble,.2010.Chapter.2. Readings 2.1. Mintzberg,.H.1996,.Five.Ps.for.strategy,.in.H.Mintzberg.&.JB.Quinn.(eds),.The Strategy Process: Concepts, Contexts, Cases,.3rd.edn,.Prentice.Hall,.New.Jersey,. pp..1017. 2.2. Southern.Cross.University.2008,.Strategic Plan 20052010 Mid-term review: 2008. Crafting.and.executing.a.strategy.are.the.heart.and.soul.of.managing.a.business. enterprise..On.page.24.of.the.text.the.five.steps.involved.in.crafting.and.executing. a.strategy.are.described.and.then.they.depicted.in.Figure.21.1.on.page.24..We.now. proceed.to.examine.each.of.these.steps.in.turn.
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Activity 2.1
From this information, and from your reading of the case, suggest the strategic vision of Iwata. You will find the tables on pages 25 and 26 of the text helpful in this regard as well as some examples of vision statements detailed in Illustration Capsule 2.1 on page 27. (This is an early exercise and we will review your effort later in the topic.)
Reading 2.1
Turn now to Reading 2.1 and read pages 1017.
Activity 2.2
Mintzberg (1996) refers to five definitions of strategy: plan ploy pattern position perspective.
What are differences between these five Ps? How would you apply these five Ps to the Nintendo Case? As discussed in Topic 1, the process of strategy formulation is not simple. It is affected by the complexity and rate of change in the external environment as well as the personal and cultural influences within the organisation.
We.now.consider.the.textbook.approach.to.crafting.and.executing.a.strategy.
Textbook
Read pages 22 to 33.
There.are.a.number.of.elements.involved.in.developing.a.strategic.vision.for.an. organisation..The.vision.should.chart.the.course.for.the.organisation.and.give.it.an. indication.of.where.it.is.heading..Such.visions.need.to.be.distinctive.and.specific.and. understood.by.all.parties.within.the.organisation..Visions.must.form.the.basis.for. strategic.decisions..In.committing.an.organisation.to.move.in.a.certain.direction.there. are.factors.both.within.and.without.the.organisation.that.need.to.be.considered.and. these.are.depicted.in.Table.2.1.(page.25). While.there.is.much.talk.about.the.importance.of.vision.statements.for.organisations. as.the.launching.pad.for.crafting.and.executing.an.effective.strategy,.often.scant. attention.is.paid.to.the.design.or.wording.of.such.statements..Table.2.2.(page.26). suggests.seven.desirable.characteristics.of.effective.vision.statements.while.Table.2.3. (page.26).highlights.some.of.the.shortcomings.of.vision.statements.
Activity 2.3
Read the vision statements on page 27 of the textbook (Illustration Capsule 2.1). What do you think is missing from the vision statement of Caterpillar?
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Activity 2.4
Turn to Exercise 1 on page 53 of the text. Go to the website of Caterpillar and from information provided in that website, write a new vision statement for the company which would improve on the one given on page 27 of the text. The vision statement should be no more than 1520 words but following the guides given in Table 2.2. Check your new vision for Caterpillar against the recommended ways of constructing a vision statement according to the text.
Activity 2.5
Find some ironies and contradictions in an organisations vision and or mission statement.
Values
We.will.be.concerned.with.values.at.different.stages.in.this.unit.and.here.we.have.the. first.discussion.of.the.importance.and.impact.of.a.companys.values.on.the.strategic. vision.taken..(Can.an.organisation.have.values.or.are.they.a.reflection.of.the.values.of. the.leaders.within.organisations?)..A.definition.of.values.is.given.at.the.bottom.of.page. 29.and.some.examples.are.given.on.pages.2931. The.real.question.is.whether.values.are.just.motherhood.statements.without.any. substance.or.whether.they.are.a.true.reflection.of.the.organisations.practices..If. they.are.real.then.these.values.should.be.reflected.in.the.vision.statement.of.that. organisation..In.this.regard.see.the.link.between.Yahoos.mission.and.its.values.in. Illustration.Capsule.2.3.(page.31)..Some.well.known.examples.of.organisations.that. failed.to.live.up.to.their.vision.statements.are.given.on.pages.2930.
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Activity 2.6
Review your vision statement from Activity 2.1. Would you make any changes to your vision statement now?
Setting objectives
Textbook
Read pages 3337.
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Activity 2.7
Illustration Capsule 2.3 on page 35 of the text, examples of company objectives, shows selected objectives of several prominent companies. Discussion question: What do you consider is the prominent purpose of an organisations stated objectives?
A.companys.financial.performance.measures.are.really.lagging.indicators.that.reflect. the.results.of.past.decisions.and.organisational.activities..The.best.and.most.reliable. leading.indicators.of.a.companys.future.financial.performance.and.business.prospects. are.strategic.outcomes.that.indicate.whether.the.companys.competitiveness.and. market.position.are.stronger.or.weaker..The.degree.to.which.a.companys.managers. set,.pursue,.and.achieve.strategic.objectives.tends.to.be.a.reliable.leading.indicator.of. its.ability.to.generate.higher.profits.from.business.operations. The.balanced.scorecard.for.measuring.company.performance.requires.setting.both. financial.and.strategic.objectives.and.tracking.their.achievement..Unless.a.company.is. in.deep.financial.difficulty,.company.managers.are.well.advised.to.put.more.emphasis. on.achieving.strategic.objectives.than.on.achieving.financial.objectives.whenever.a. trade-off.has.to.be.made..What.ultimately.enables.a.company.to.deliver.better.financial. results.from.operations.is.the.achievement.of.strategic.objectives.that.improve.its. competitiveness.and.market.strength.
Activity 2.8
Explain why a growing number of companies are utilising both financial and strategic objectives to create a balanced scorecard approach to measuring company performance.
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situation.in.which.short-range.objectives.differ.from.long-range.objectives.occurs. when.managers.are.trying.to.elevate.organisational.performance.and.cannot.reach.the. long-range.target.in.just.one.year. The.issue.for.management,.especially.of.publicly.listed.companies,.is.that.their. shareholders.demand.instant.returns.and.more.often.than.not.the.management.have. a.significant.part.of.their.remuneration.based.on.the.KPIs.that.underpin.the.company. objectives..This.fact.alone.should.mean.you.can.hear.bells.clanging.in.your.head.as. these.rockstar.CEOs.belt.out.the.usual.rhetoric.of.soft.and.hard.objectives..Ultimately,. theyre.chasing.hard.(financial).objectives.as.opposed.to.say.a.happy.workplace,. since.the.latter.cannot.be.quantified.in.a.way.that.appeals.to.shareholders.
Activity 2.9
Set out some financial and strategic objectives for Nintendo Case for the next year and next five years. Use some of the data in the case study to assist you to determine some objectives. The company website might prove useful here.
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Crafting a strategy
Textbook
Read pages 3741.
The.third.step.in.crafting.and.executing.a.strategy.is.involved.with.the.how.to. scenarios.that.will.ensure.the.vision.and.objectives.are.carried.out..People.within. the.organisation.have.to.be.responsible.for.crafting.the.strategy.once.the.vision.and. objectives.are.known..In.large.organisations.like.Nintendo,.individuals.like.Iwata. are.only.partially.responsible.for.the.doing.aspects.of.setting.a.strategy.although. it.is.inevitable.that.he.will.get.others.involved.in.the.strategic.process..In.larger. organisations.there.are.usually.many.levels.of.the.organisation.and.many.individuals. who.have.this.role. The.text.discusses.the.role.of.the.participants.in.crafting.a.strategy.from.the.CEO. down..While.it.is.assumed.that.senior.managers.of.large.organisations.might. be.involved.in.such.strategic.activities.this.is.not.necessarily.the.case..In.many. organisations.it.is.expected.that.all.managers.will.have.some.part.to.play.in.charting. the.future.direction.of.the.organisation.and.crafting.appropriate.strategies. Involving.teams.of.people.to.dissect.complex.situations.and.come.up.with.strategic. solutions.is.becoming.increasingly.necessary.in.many.businesses..Not.only.are.many. strategic.issues.too.far-reaching.or.too.involved.for.a.single.manager.to.handle,.but. they.often.cut.across.functional.areas.and.departments,.thus.requiring.the.contributions. of.many.different.disciplinary.experts.and.the.collaboration.of.managers.from. different.parts.of.the.organisation..The.team.effort.is.considered.more.important.than. any.one.individual.or.group.at.the.higher.echelons.of.the.organisation..A.valuable. strength.of.collaborative.strategy.making.is.that.the.group.of.people.charged.with. crafting.the.strategy.can.easily.include.the.very.people.who.will.also.be.charged.with. implementing.and.executing.it. In.some.companies,.top.management.makes.a.regular.practice.of.encouraging. individuals.and.teams.to.develop.and.champion.proposals.for.new.product.lines.and. new.business.ventures..The.idea.is.to.unleash.the.talents.and.energies.of.promising. corporate intrapreneurs.
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This.extensive.amount.of.strategic.input.is.in.stark.contrast.to.smaller.organisations. where.strategic.decision.making.falls.into.the.lap.of.the.owner.and.maybe.one.or.two. other.individuals.only..(Like.so.many.management.books.across.a.range.of.business. disciplines,.this.textbook.spends.a.lot.of.time.discussing.large.organisations.and.not. much.time.is.spent.on.smaller.organisations.) The.challenge.for.large.organisations.is.thus.to.integrate.these.diverse.inputs.into.the. strategic.formulation.process.to.ensure.there.is.a.unity.and.that.the.same.strategic. vision.and.objectives.are.being.pursued..Then.bringing.all.these.elements.together. (vision,.objectives.and.strategy).constitutes.the.strategic plan.for.the.organisation.. This.is.discussed.on.pages.41.onwards.in.the.text.
Textbook
Read pages 4142.
So.much.of.strategic.management.is.concerned.with.the.crafting.of.strategy.that.often. its.execution.is.given.less.focus..Indeed.this.textbook.only.has.two.of.its.thirteen. chapters.specifically.devoted.to.implementation.issues. How.strategies.are.executed.will.depend.on.a.range.of.circumstances.including.how. much.change.in.existing.strategies.is.needed.or.intended.and.how.conducive.is.the. work.culture.for.changes.needed.in.strategy..The.specific.actions.that.usually.form. part.of.the.implementation.process.are.outlined.on.pages.4142.and.each.of.these.can. prove.to.be.a.challenge.within.itself. Good.strategy.executing.involves.creating.strong.fits.between.strategy.and. organisational.capabilities,.between.strategy.and.the.reward.structure,.between. strategy.and.internal.operating.systems,.and.between.strategy.and.the.organisations. climate.and.culture..The.stronger.these.fits,.the.better.the.execution.and.the.better.the. companys.chances.of.achieving.its.performance.targets.
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Activity 2.10
What steps if any has Iwata taken to implement the strategy of Nintendo Case? Do you consider there is a close fit between the organisations capabilities and its strategy?
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Reading 2.2
Turn to Reading 2.2 and note the following: our vision our mission our values.
This is followed by an outline of five objectives in the areas of: choice and esteem the student experience research regional engagement enterprise.
Within each of these objectives there are included some strategies to be used in the pursuit of these objectives, some indicators of progress and some targets. This document illustrates precisely the issues that this topic has covered to date.
Corporate governance
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Textbook
Read pages 4950.
Activity 2.11
Suggest some future strategies for Nintendo Case. Ensure these strategies are in line with the vision and objectives you have identified for the company.
Summary
In.this.topic.we.have.considered.the.five.phases.of.crafting.and.executing.strategic. management.after.reviewing.the.Mintzberg.perspective.on.strategy..The.importance.of. strategic.vision,.financial.and.strategic.objectives,.people.involved.in.strategic.decision. making.and.the.implementation.and.review.of.a.chosen.strategy.were.discussed.in. turn. In.order.to.carry.out.a.process.of.formulating.strategy,.a.strategy.analysis.of.the.factors. affecting.the.organisation.needs.to.be.carried.out..This.involves.an.examination.of.the. opportunities.and.threats.in.the.external.environment.together.with.the.strengths.and. weaknesses.within.the.organisation..This.process.is.termed.a.SWOT.analysis. The.issues.to.be.considered.in.carrying.out.a.SWOT.analysis.and.the.more.important. models.that.can.assist.are.discussed.in.the.next.topics.
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Activity 2.3
Vision statements are presented by organisations to portray the companys future business scope and thus respond to the question of where we are going. The Caterpillar vision statement appears to be: vague, bland, not distinctive enough, too reliant on superlatives, and very broad in wording.
Topic 3
External analysis: Industry and competitive analysis
Introduction
Managers.must.be.able.to.perceptively.diagnose.a.companys.external.and.internal. environments.to.succeed.in.crafting.a.strategy.that.is.an.excellent.fit.with.the. companys.situation,.is.capable.of.building.competitive.advantage,.and.promises.to. boost.company.performance..the.three.criteria.of.a.winning.strategy. It.is.very.important.to.focus.any.consideration.of.the.external.domain.and.environment. on.the.key.factors.affecting.the.strategic.direction.of.the.organisation..Many.external. factors.impose.opportunities.and.threats.on.all.organisations..However,.some. opportunities.and.threats.can.assist.an.organisation.to.obtain.a.sustainable.competitive. advantage.over.competitors..It.is.these.that.need.to.be.identified.in.an.external. analysis. Developing.company.strategy.begins.with.a.strategic.appraisal.of.the.companys. external.and.internal.situations.to.form.a.strategic.vision.of.where.the.company.needs. to.head,.then.moves.toward.an.evaluation.of.the.most.promising.alternative.strategies. and.business.models,.and.finally.culminates.in.a.choice.of.strategy. This.topic.presents.the.concepts.and.analytical.tools.for.assessing.a.single-business. companys.external.environment..Attention.centres.on.the.competitive.arena.in. which.a.company.operates,.together.with.the.technological,.societal,.regulatory,. or.demographic.influences.in.the.macro-environment.that.are.acting.to.reshape.the. companys.future.market.arena. The.textbook.chapter.is.very.long,.but.it.is.well.set.out.with.useful.diagrams..It.relies. heavily.on.the.work.of.Michael.Porter.and.his.study.of.competitive.forces..The.thrust. of.the.chapter.is.to.do.with.competitive.pressures.that.organisations.continually. address..You.would.be.advised.to.take.this.chapter.section.by.section.rather.than.tackle. it.all.in.one.bite! To.illustrate.the.concepts.being.covered.references.and.activities.will.use.two.case. studies.from.the.textbook,.one.of.which.was.introduced.in.the.previous.topic..The. activities.will.be.reviewed.in.teletutorials.or.in.classroom.situations.
Objectives
At.the.conclusion.of.this.topic.you.should.be.able.to: . . . distinguish.between.a.firms.macroenvironment.and.its.immediate.industry.and. competitive.environment identify.an.industrys.key.economic.features outline.the.five.forces.of.competition.tool.and.how.it.can.be.used.to.determine.the. degree.of.competitive.pressures.an.organisation.faces
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. . . . .
Materials required
Textbook Thompson.et.al..Chapter.3. Readings 3.1. Slater,.SF.&.Olson,.EM.2002,.A.fresh.look.at.industry.and.market.analysis. (understanding.markets.beyond.the.Five.Competitive.Forces.Model),.Business Horizons,.vol..45,.no..1,.JanFeb,.pp..1522.
Textbook
Read pages 5660.
Managers.are.not.equipped.to.act.wisely.in.steering.a.company.in.a.different.direction. or.altering.its.strategy.until.they.have.a.deep.understanding.of.the.companys.situation.. This.understanding.requires.thinking.strategically.about.two.facets.of.the.companys. situation: a.. the.industry.and.the.competitive.environment.in.which.the.company.operates.and. the.forces.acting.to.reshape.that.environment b.. the.companys.own.market.position.and.competitiveness..its.resources.and. capabilities,.its.strengths.and.weaknesses.vis--vis.rivals,.and.its.windows.of. opportunity. Figure.3.1.in.the.text.(page.56).depicts.the.sequence.recommended.for.managers.to. pursue. All.companies.operate.in.a.macro-environment.shaped.by.influences.emanating. from.the.economy.at.large,.population.demographics,.societal.values.and.lifestyles,. governmental.legislation.and.regulation,.technological.factors,.and.the.industry.and. competitive.arena.in.which.the.company.operates. Figure.3.2.in.the.text,.(page.57).identifies.the.arenas.within.an.organisations.macroenvironment..One.of.these.is.general.economic.conditions..The.importance.of.this. factor.cannot.be.overestimated. The.global.financial.meltdown.and.accompanying.economic.crises.that.affected. the.major.economies.of.the.world.in.the.last.few.months.of.2008.had.serious. consequences.for.many.organisations..One.of.the.most.noteworthy.industries.affected. was.the.American.motor.vehicle.industry.where.the.three.major.manufacturers.were. on.the.brink.of.collapse.at.the.end.of.2008.and.were.bailed.out.only.by.government. financial.support..Organisations.that.had.been.enjoying.profitable.economic.times.for. some.years.were.caught.up.in.the.collapses.of.well.established.financial.institutions. and.many.faced.bankruptcy.and.failure.with.subsequent.massive.job.losses..At.the. time.of.writing.the.world.economy.is.still.trying.to.adjust.to.the.consequences.of.these. major.changes.
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Activity 3.1
Use Table 3.1 to identify the relevant industry traits of the video game/console industry.
Question 2: What competitive forces are at work in the industry and how strong are they?
Textbook
Read pages 6079.
Michael.Porter.(1985).developed.the.Five-Forces.Model.to.help.identify.the.nature.of. competition.in.an.industry..The.aim.of.the.analysis.is.to.identify.the.main.sources.of. competitive.forces.and.to.consider.the.strength.of.these.forces..It.is.a.key.analytical. tool.in.strategic.management,.hence.it.is.critical.to.build.skills.in.undertaking.the. analysis..Figure.3.3.(page.61),The.Five-Forces.Model.of.Competition:.A.Key.Tool.for. Diagnosing.the.Competitive.Environment,.depicts.this.tool. In.analysing.the.five.competitive.forces.it.is.necessary.to.assess.the.strength.of.each. competitive.force.(Strong?.Moderate?.Weak?). The.aim.is.to.explain.how.each.force.acts.to.create.competitive.pressure.and.to.decide. whether.overall.competition.is.brutal,.fierce,.strong,.normal/moderate,.or.weak.. Five.forces.analysis.is.a.very.difficult.concept.to.apply.to.multi-industry.companies. such.as.Wesfarmers.(WES),.a.publicly.listed.Australian.company.that.operates.in.
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financial.services,.energy,.agriculture.and.retail.supermarkets..There.will.invariably.be. limitations.and.difficulties.when.applying.a.five.forces.analysis.to.such.a.firm,.which. is.important.to.remember.when.considering.your.assignment.cases.. Rivalry.among.competing.sellers.is.usually.the.most.powerful.of.the.five.forces. The.first.step.is.to.check.which.weapons.of.competitive.rivalry.are.most.actively.used. by.rivals.in.jockeying.for.position..These.might.include: . . . . . . . . price quality performance.features.offered customer.service warranties/guarantees advertising/promotions dealer.networks product.innovation.
The.next.step.is.to.consider.the.factors.that.cause.rivalry.to.be.stronger..This.could.be. because.of.there.are.many.firms,.that.are.approximately.equal.in.size.and.capability.. Rivalry.might.also.be.high.where.there.is.slow.market.growth..These.industry. conditions.tempt.some.firms.to.go.on.the.offensive.to.boost.volume.and.market.share. The.situation.becomes.more.critical.when.customers.have.low.costs.in.switching. brands,.hence.there.is.little.brand.loyalty.protecting.the.organisations.market.share. This.climate.then.creates.the.environment.where.one.or.more.firms.initiate.moves.to. bolster.their.standing.at.the.expense.of.rivals..A.successful.strategic.move.in.this.type. of.industry.carries.a.big.pay-off..Generally,.it.costs.more.to.get.out.of.a.business.than. to.stay.in,.so.the.pay-off.comes.in.terms.of.maintaining.or.improving.standing.in.the. industry..and.profitability. Firms.have.diverse.strategies,.corporate.priorities,.resources,.and.countries.of.origin. and.this.will.impact.on.their.ability.and.will.to.react.to.competitive.pressures.in.the. industry.and.to.initiate.new.strategic.moves. It.is.a.principle.of.competitive.markets.that.competitive.jockeying.among.rival.firms. is.dynamic.and.ever.changing..This.is.evidenced.by.industry.members.initiating.new. offensive.and.defensive.moves.by.changing.from.one.mix.of.competitive.weapons.to. another..Think.of.the.intense.rivalry.between.real.estate.agents,.banks,.motor.vehicle. companies,.supermarket.chains.and.television.channels. The.key.factors.determining.rivalry.among.sellers.are: . . . . . . . . the.number.of.competitors.and.their.relative.size.and.capability rivalry.stronger.when.demand.is.growing.slowly price.cuts.to.boost.volume.intensifies.rivalry stronger.when.lower.customer.switching.costs stronger.when.one.or.more.competitor.moves.to.boost.position.in.market rivalry.increases.with.the.size.of.the.pay-out.for.successful.strategic.moves exit.barriers.increase.rivalry the.more.diverse.the.competitors,.the.more.rivalry.becomes.more.volatile.and. unpredictable . rivalry.increases.when.strong.companies.outside.the.industry.acquire.weak.firms. in.the.industry. Figure.3.4.(page.63).is.a.useful.summary.of.these.factors.
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Activity 3.2
Refer again to the Nintendo Case. Using the concepts just discussed determine how intense the rivalry is in the video game industry in which Nintendo competes. Could it be that Nintendo actually operates in two distinct markets?
Activity 3.3
To what extent is the threat of new entry a problem for Nintendo. Use the right hand box in Figure 3.5 to help answer the question.
Activity 3.4
To what extent does Nintendo face competitive pressure from sellers of substitute products? (What are the substitutes for both these businesses?) Use Figure 3.6 (page 71) as a guide to answering this question.
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As.a.general.principle.of.competitive.markets,.suppliers.are.a.stronger.force.the.more. they.can.exercise.power.over:.prices.charged,.quality/performance.of.items.supplied. and.the.amounts.and.delivery.times..Figure.3.7.(page.74).is.helpful.in.explaining.the. possible.threats.created.by.suppliers. In.summary,.the.key.factors.determining.the.competitive.force.of.powerful.suppliers. are: . . . . . . few.suppliers unique.product high.switching.costs threat.of.forward.integration supplier.has.cost.or.quality.advantage unimportant.industry.for.supplier.
Activity 3.5
What is the power of suppliers in the video game/console industry? Which suppliers have power? And which dont?
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The.competitive.environment.is.unattractive.when:
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Activity 3.6
To what extent do you consider that Nintendo has created a strategy that will achieve the three objectives listed above?
Reading 3.1
Turn to Reading 3.1 The Five Forces model was developed by Porter over twenty years ago. This reading by Salter and Olson aims to bring this up to date, cover the main criticism of the model and develop a model with more market-related elements. You will find an augmented model in this reading that adds the dimensions of market growth and turbulence, and the impact of networks on strategy.
Driving forces
Industries.change.because.forces.are.driving.industry.participants.to.alter.their. actions..The.driving.forces.are.the.major.underlying.causes.of.changing.industry.and. competitive.conditions..These.driving.forces.are.discussed.in.detail.on.pages.7886. and.summarised.in.Table.3.2.on.page.80..Possibly.the.most.interesting.ones.are.the. first.two.and.last.one..There.is.a.wealth.of.information.in.these.few.pages.about.major. trends.affecting.industry.competitiveness.
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In.analysing.driving.forces: 1.. identify.those.forces.likely.to.exert.greatest.influence.over.next.13.years..Usually. no.more.than.34.factors.qualify. 2.. assess.the.impact.of.the.3.or.4.factors..Ask.what.difference.will.the.forces.make. (favourable?,.unfavourable?). A.driving-force.analysis.enables.the.firm.to.separate.the.major.causes.of.industry. change.from.the.minor.ones..There.are.usually.no.more.than.three.or.four.factors.that. qualify.as.driving.forces..Managers.can.use.environmental.scanning.to.help.identify. potential.forces.that.can.influence.their.industries..This.involves.monitoring.and. interpreting.social,.political,.economic,.ecological,.and.technological.events.to.spot. budding.trends.that.could.eventually.impact.on.the.industry. Remember: manage elephants not rabbits..Usually.no.more.than.three.or.four. qualify.as.driving.forces.
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Activity 3.7
What would you consider to be the three major factors driving change in the video game industry?
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Some.strategic.groups.are.usually.more.favourably.positioned.than.others.because. driving.forces.and.competitive.pressures.do.not.affect.each.group.evenly.and.because. profit.prospects.vary.among.groups.based.on.the.relative.attractiveness.of.their.market. positions. In.summary: . . . Strategic.groups.consist.of.rival.firms.that.have.similar.competitive.approaches. and.positions.may.be.similar.along.one.or.more.dimensions. A.strategic.group.map.displays.different.competitive.positions.that.rival.firms. occupy. Firms.in.the.same.strategic.group.have.one.or.more.competitive.characteristics.in. common.
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Activity 3.8
Construct a strategic map for Nintendo, Xbox and Sony PS. What does this map reveal?
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Activity 3.9
What strategic moves do you think are likely in Nintendos industry by its rivals and why will these moves be made?
Clothing.manufacturing.industry:
Tin.and.aluminium.can.industry:
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Activity 3.10
What do you consider are the KSFs in the video game/console industry?
Industry assessment
The.aim.of.industry.assessment.is.to.identify.the.factors.that.make.the.industry. attractive.or.unattractive..It.also.aims.to.identify.special.industry.issues/problems.and. the.overall.profit.outlook. The.important.factors.in.assessing.the.industry.are.summarised.on.pages.9495. The.aim.of.this.exercise.is.to.develop.conclusions.about.whether.the.industry.and. competitive.environment.are.attractive.or.unattractive,.both.near-.and.long-term,.for. earning.good.profits. There.are.two.things.to.keep.in.mind.in.conducting.an.industry.and.competitive. situation.analysis: 1.. Evaluating.industry.and.competitive.conditions.cannot.be.reduced.to.a.formulalike.exercise..thoughtful.analysis.is.essential. 2.. Sweeping.industry.and.competitive.analyses.need.to.done.every.one.to.three. years. Again.you.can.refresh.and.reinforce.your.understanding.of.the.elements.of.this.long. chapter.by.reviewing.the.key.points.on.pages.9598.
Summary
In.this.topic.we.have.covered.the.main.elements.of.undertaking.an.industry.and. competitive.analysis.for.a.firm..We.discussed.the.answers.to.the.seven.main.questions. asked.in.undertaking.an.assessment.of.the.external.environment.faced.by.a.firm..The. main.tools.of.analysis.discussed.were.the.Five-Forces.Model.developed.by.Michael. Porter.and.strategic.mapping..We.also.considered.the.development.of.key.success. factors.considering.the.steps.necessary.to.develop.them..We.concluded.with.a.brief. discussion.of.some.of.the.techniques.that.can.be.employed.in.undertaking.research. into.the.market.and.our.customers..In.the.next.topic.we.proceed.to.look.within.the.firm. itself.at.its.resources.and.the.competitive.strengths.they.might.or.might.not.produce.
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Topic 4
Analysing a companys resources and competitive position
Introduction
In.the.previous.topic.we.were.concerned.with.looking.outside.the.organisation.in.order. to.assess.what.forces.it.would.have.to.face.in.determining.a.strategy..This.approach. relied.heavily.on.the.work.of.Michael.Porter.and.his.competitive.forces.model..In.this. topic.we.take.a.completely.different.perspective.and.look.within.the.organisation.in. order.to.determine.how.a.strategy.is.influenced.by.the.resources.and.capabilities.that. organisation.has..This.will.require.us.to.consider.the.increasingly.popular.strategy. known.as.the.resources-based view of.the.firm.which.is.the.opposite.approach.to.that. taken.by.Porter. This.topic.also.covers.a.lot.of.territory.and.sometimes.the.components.seem.somewhat. disjointed..We.will.first.discuss.the.resources-based.view.of.strategic.management.. The.text.does.not.cover.this.approach.as.fully.as.other.sources.so.some.additional. references.will.be.used..From.the.resources-based.view.we.move.to.the.concept.of. the.SWOT.analysis,.one.of.the.best.known.and.used.strategic.management.tools..We. then.digress.to.some.extent.to.look.at.pricing.and.cost.considerations.as.competitive. tools.which.leads.into.the.field.of.company.value.chain.analysis..The.use.of. benchmarking.as.a.tool.is.then.examined.and.strategies.are.suggested.for.remedying. cost.disadvantages.coming.out.of.this.analysis..The.topic.concludes.with.techniques. available.for.determining.a.companys.overall.competitive.strength.and.the.burning. issues.coming.out.of.such.analysis.that.merit.management.attention. We.will.continue.to.use.our.two.case.studies.where.appropriate.in.this.topic.
Objectives
At.the.conclusion.of.this.topic.you.should.be.able.to: . . . . . . . . . analyse.the.features.of.the.resource-based.view.of.strategy compare.the.resource-based.view.with.the.Porter.view identify.the.components.of.a.single.business.companys.strategy explain.the.features.of.SWOT.analysis examine.the.techniques.of.value.chain.analysis.and.its.usefulness evaluate.the.nature.of.activity-based.costing explain.how.benchmarking.can.be.used.to.assist.in.determining.a.companys. competitiveness outline.the.steps.in.a.competitive.strength.assessment apply.the.tools.in.this.topic.to.selected.case.studies.
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Materials Required
Textbook Thompson.et.al..Chapter.4. Readings 4.1. Henry,.A.2007,.Understanding Strategic Management,.Oxford.University.Press,. London,.Chapter.5,.http://www.oup.com/uk/orc/bin/9780199288304/henry_ch05. pdf..(online only) 4.2. Scholey,.C.2005,.Strategy.Maps:.a.step-by-step.guide.to.measuring,.managing. and.communicating.the.plan,.Journal of Business Strategy,.vol..26,.no..3,. pp..1219.
The.argument.put.forward.in.the.Resource-Based.View.of.the.Firm.(RBV).and.by. competence.authors.is.that.success.depends.on.identifying.and.leveraging.the.core. resources.and.capabilities.of.the.firm.regardless.of.the.external.environment.which. was.the.focus.of.the.Porter.studies..The.RBV.focuses.almost.exclusively.on.the. internal.environment,.with.passing.consideration.of.the.availability.of.the.resources. and.opportunities.in.the.external.environment. Sustainable.competitive.advantage.(SCA).stems.from.the.development.of.unique.and. valuable.bundles.of.resources.and.capabilities.that.set.a.firm.apart.from.competitors.. Why.is.Canon.so.successful,.for.example,.with.a.large.range.of.quite.different. products.in.varied.markets?.The.answer.is.that.they.have.a.very.well-developed. competence.in.optical.imaging.which.allows.them.to.compete.in.photocopiers,. printers,.cameras.and.so.on.
Textbook
Read from the bottom of page 100 through to the end of the first paragraph on page 110.
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The.text.goes.so.far.as.to.distinguish.between.a.competence,.core.competence.and. distinctive.competence.(bottom.of.page.106.to.the.top.of.page.109)..The.relevance.of. this.distinction.is.illustrated.on.page.109. Capabilities.are.the.ways.organisations.bring.together.and.use.the.resources..The. capabilities.are.more.likely.to.be.intangible.systems.such.as.management.ability,. culture,.informal.systems.of.integration.and.so.on..The.capabilities.tend.to.be.far.more. complex.than.resources.and,.thus,.are.the.key.to.an.advantage.that.cannot.be.imitated. by.other.firms..A.manager.can.more.easily.hire.new.recruits.to.raise.the.skill.resource. than.weave.the.new.employees.together.into.a.high-performing.team. Competences.are.those.bundles.of.resources,.linked.by.capabilities,.that.have.the. potential.to.give.the.firm.a.sustainable.competitive.advantage..The.main.types.of. resources.are.outlined.on.page.106.and.on.page.107..To.this.list.we.can.add.financial. resources.such.as.cashflow.and.new.equity.availability.(see.key.financial.ratios.on. Table.4.1.pages.104105). With.unique.resource.and.capability.bundles.existing.as.relatively.permanent. characteristics.of.firms,.SCA.can.be.achieved.by.leveraging.off.these.unique.aspects.of. the.firm..Very.often,.this.takes.the.form.of.developing.economies.of.scope..Honda,. for.example,.produces.lawn.mowers,.cars,.motorcycles,.generators.and.so.on..The. economy.of.scope.is.in.the.ability.of.Honda.to.use.its.core.competence.to.produce.a. broad.range.(scope).of.products.for.very.different.markets. From.an.industry,.market.or.product.perspective,.firms.such.as.Honda.appear.to.be. involved.in.unrelated.diversification..But,.from.the.RBV.perspective,.Honda.is.very. focused.on.the.development.and.use.of.its.core.competence.
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of.the.resource.gives.the.firm.a.competitive.advantage..The.catch.is.that.it.must. allow.for.the.production.of.an.output.that.is.needed.by.stakeholders..If.a.firm.has. a.rare.resource.then.the.search.should.be.for.market.opportunities. 4.. Appropriability..if.a.resource.can.be.appropriated.(taken.away).from.the.firm. then.any.competitive.advantage.will.not.be.sustainable..The.most.common.way. resources.may.be.taken.away.from.a.firm.is.by.head-hunter.firms.luring.the.best. staff.to.move.to.competitors..A.dramatic.example.of.the.effect.of.appropriability. on.sustainability.of.competitive.advantage.is.the.advertising.firm.Saatchi.and. Saatchi..Once.the.most.famous.and.dominant.advertising.agency.in.the.world,.the. creative.teams,.almost.en.masse,.walked.out.of.the.firm..Saatchi.and.Saatchi.never. fully.recovered.from.this.disaster.
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Activity 4.1
What are the resource strengths and competitive capabilities of Nintendo? Be as specific as you can.
Having.considered.the.resource-based.view.of.strategy.as.a.mainly.one-off.part.of.this. chapter.we.can.return.to.the.start.of.the.chapter.in.the.textbook.and.follow.its.themes.
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Textbook
Read the section (Question 1) from pages 102103.
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Activity 4.2
Would you consider that the strategies of Nintendo are working effectively? Why or why not?
We.can.now.move.onto.a.consideration.of.SWOT.analysis.
SWOT analysis
Textbook
Read from halfway down page 106 to halfway down page 116.
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Activity 4.3
Conduct a SWOT for Nintendo.
The.higher.a.companys.costs.are.above.those.of.close.rivals,.the.more.competitively. vulnerable.it.becomes!
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The.aim.of.the.value.chain.system.is.to.assess.a.companys.cost.competitiveness.and. involves.comparing.costs.all.along.the.industrys.value.chain..Suppliers.value.chains. are.relevant.because.costs,.quality,.and.performance.of.inputs.provided.by.suppliers. influence.a.firms.own.costs.and.product.performance..Forward.channel.allies.value. chains.are.also.relevant.because.forward.channel.allies.costs.and.margins.are.part.of. price.paid.by.the.ultimate.end-user..As.a.rule,.all.activities.performed.should.affect. end-user.satisfaction. A.representative.value.chain.distinguishing.between.primary.and.secondary.activities. is.illustrated.in.Figure.4.3.(page.118). Examples of key value chain activities Paper.industry: . . . . . . . . . . . . . . . . timber.farming logging pulp.mills papermaking printing.and.publishing. parts.and.components.manufacture assembly wholesale.distribution retail.sales. processing.of.basic.ingredients syrup.manufacture bottling.and.can.filling wholesale.distribution retailing. programming disk.loading
Manufacturing:
Food.industry:
Software.industry:
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. .
marketing distribution.
An.important.aspect.of.value.chain.analysis.is.the.specification.of.broad.performance. indicators.at.the.overall.organisational.level,.such.as.the.delivery.of.high.levels.of. customer.satisfaction,.and.the.articulation.of.measures.at.the.operational.level.to. indicate.how.tasks.contribute.to.the.achievement.of.these.broad.goals. This.cascading.process.provides.the.potential.for.individuals.to.direct.their.efforts. in.ways.consistent.with.the.primary.goal.of.delivering.customer.satisfaction.in.costeffective.ways. It.also.enables.management.to.set.only.a.few.well-chosen.goals.at.the.core.of.the. organisation,.and.let.those.close.to.the.work.situation.determine.the.specific.details. that.will.enable.their.operations.to.contribute.to.the.achievement.of.the.primary. organisational.goals. The.value.chain.helps.identify.the.critical.things.that.add.value..Having.identified.the. core.functions.and.activities.that.create.value,.the.organisation.can.send.elements.to.a. team.for.further.study..These.teams.can.study.the.current.situation,.identify.its.cost.and. options.to.improve.the.activity.i.e..What.have.we.got?.What.needs.to.be.done.to.get. better? The.value.chain.helps.decide.what.the.core.competencies.really.are.and.enables. decisions.about.outsourcing.and.downsizing. It.is.necessary.to.create.two.value.chains..one.for.the.present.and.one.for.the.ideal.. This.enables.gap.analysis. It.is.also.possible.to.encapsulate.the.organisations.core.competence.in.one.sentence. .a.capability.statement. Without.ignoring.the.need.to.be.efficient.we.must.take.care.that.concerns.over. efficiency.do.not.override.the.need.for.effectiveness.
Benchmarking
Benchmarking.the.costs.of.key.value.chain.activities.focuses.on.cross-company. comparisons.of.how.well.activities.are.performed.in.respect.to: . . purchase.of.materials payment.of.suppliers
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. . . . . .
The.objectives.of.benchmarking.are.to:.1).understand.best.practices,.2).learn.how.to. lower.costs.and.3).take.action.to.improve.cost.competitiveness. Benchmarking.can.be.seen.as.the.managers.best.tool.for.determining.how.efficient. the.firm.is.in.performing.key.functions.and.activities,.the.firms.cost.position.and.if. processes.need.improvement..This.often.requires.in-depth.analysis.of.competing.and. non-competing.firms.practices.and.infrastructure. The.results.of.a.benchmarking.exercise.enable.the.company.to.determine.whether.a. company.is.performing.particular.value.chain.activities.efficiently..It.helps.develop. understanding.of.the.best.practices.in.performing.an.activity..Finally,.it.enables.an. assessment.of.whether.costs.are.in.line.with.competitors. Benchmarking.also.helps.the.company.learn.how.lower.costs.are.achieved.and.enables. it.to.take.action.to.improve.cost.competitiveness.
Other.principles.for.ethical.conduct.when.benchmarking.are.found.in.Illustration. Capsule.4.2.(page.124).
Cost competitiveness
A.companys.cost.competitiveness.depends.on.how.well.it.manages.its.value.chain. relative.to.competitors..There.are.three.areas.that.contribute.to.cost.differences: 1.. suppliers.activities 2.. the.companys.own.internal.activities 3.. forward.channel.activities. Some.suggested.remedies.for.each.of.these.areas.are.described.from.the.bottom.of. page.124.to.halfway.down.page.126. A.company.can.create.competitive.advantage.by.managing.its.value.chain.so.as.to. integrate.the.knowledge.and.skills.of.employees.in.competitively.valuable.ways.and. leverage.economies.of.learning/experience. It.can.also.coordinate.related.activities.in.ways.that.build.valuable.capabilities.and. build.dominating.expertise.in.a.value.chain.activity.that.are.critical.to.customer. satisfaction.or.market.success..Some.suggestions.as.to.how.an.organisation.can.use. value.chain.analysis.to.outperform.competitors.more.proficiently.or.more.cheaply.is. outlined.in.Figure.4.5.(page.127).
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Activity 4.4
Turn to Exercise 1 on page 136 and complete the five questions asked on either Nintendo or a company you work for or have worked for.
Textbook
Read pages 131132.
Strategic issues
The.final.question.seeks.to.determine.what.issues.the.company.needs.to.address.. That.is,.what.should.management.be.worried.about.and.what.items.should.be.on. the.companys.worry.list..This.requires.thinking.strategically.about.the.pluses.and. minuses.in.the.industry.and.competitive.situation;.the.companys.resource.strengths. and.weaknesses.and.the.attractiveness.of.its.competitive.position.
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A.good.strategy.must.address.each.and.every.strategic.issue! The.following.questions.help.in.identifying.the.strategic.issues: . . . . . . Is.present.strategy.adequate.in.light.of.competitive.pressures.and.driving.forces? Is.the.strategy.well-matched.to.the.industrys.key.success.factors? Does.the.company.need.new.or.different.resource.strengths.and.competitive. capabilities? Does.the.present.strategy.adequately.protect.against.external.threats.and.resource. deficiencies? Is.the.firm.vulnerable.to.competitive.attack.by.rivals? Where.are.the.strong/weak.spots.in.present.strategy?
Activity 4.5
With regards to Nintendo what would be your assessment of their competitive strength. Which strategic issues should be on the front burner for both companies. Why?
Strategic mapping
A.convenient.way.of.identifying.strategic.issues.and.themes.is.to.use.a.strategy.map.. We.read.about.the.approach.earlier.in.this.unit.in.Reading.1.3.by.the.creators.of.the. Balanced.Scorecard,.Kaplan.and.Norton..The.next.reading.provides.a.step-by-step. guide.to.the.preparation.of.a.strategy.map..Mapping.provides.a.visual.representation. of.the.key.elements.of.strategy,.allows.for.the.development.of.strategic.themes,.and. can.be.used.in.internal.assessment.to.identify.gaps.in.capabilities.that.need.to.be. addressed.for.successful.strategic.implementation.
Reading 4.2
Turn to Reading 4.2 and read pages 1219.
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Summary
In.this.topic.we.have.completed.a.review.of.the.steps.necessary.to.undertake. an.internal.analysis.of.a.company..We.did.this.by.first.considering.the.growing. importance.of.a.resource-based.view.of.strategy.focusing.on.the.internal.competencies. and.capabilities.that.can.give.an.organisation.a.competitive.advantage..One.of.the. most.common.outputs.of.the.internal.and.external.analysis.is.a.SWOT.analysis.. We.also.considered.one.of.the.most.valuable.tools.in.Strategic.Management..the. value.chain..A.value.chain.can.be.used.to.describe.a.whole.industry.or.the.internal. activities.within.a.company..When.coupled.with.activity.based.costing,.the.result.is. a.comprehensive.view.of.where.the.firm.adds.costs.in.its.processes..Benchmarking. is.also.facilitated.through.use.of.the.value.chain..This.analysis.can.lead.to.the. consideration.of.a.range.of.strategic.options.including.outsourcing. Having.introduced.some.tools.of.analysis.in.this.topic.and.Topic.3.we.can.now. consider.the.major.generic.strategies.available.to.organisations..We.do.this.in.Topic.5.
48
Topic 5
The five generic competitive strategies
Introduction
New ways to LA mean cheaper fares to United States January 31 2009, Sydney Morning Herald The debut of two more carriers on the route from Australia to Los Angeles means cheaper fares, writes Clive Dorman. After.waiting.out.a.decade-long.pricing.winter,.spring.has.sprung.for.travellers. heading.to.the.US,.with.fares.almost.halving.as.two.new.competitors.muscle.in. During.its.last.Christmas.as.the.price.dominator,.Qantas.held.peak.holiday.fares. to.Los.Angeles.as.high.as.$3300.return..Its.only.competitor,.United.Airlines,. has.struggled.to.maintain.its.flights.to.Australia,.reeling.from.the.effects.of. September.11,.2001,.and.trading.while.under.bankruptcy.protection. Virgin.Blues.new.long-haul.carrier,.V.Australia,.starts.services.between.Sydney. and.Los.Angeles.next.month..In.the.lead-up,.it.has.pitched.its.best.fares.as.low.as. $1200.return..They.have.settled.at.$1400-$1600.return.for.travel.in.the.next.few. months,.compared.with.$1800-$2500.last.year.on.Qantas.and.United,.which.is. following.suit. More.competition.will.arrive.in.July.when.the.worlds.biggest.airline,.Delta. (after.taking.over.Northwest.Airlines),.starts.flying.from.LA.to.Sydney.daily. Overall.the.number.of.seats.on.the.market.will.increase.by.about.30.per.cent,. which.means,.in.simple.terms,.the.airlines.will.have.to.drop.their.ticket.prices.by. 30.per.cent.if.they.hope.to.fill.their.planes. Qantas,.however,.is.hoping.to.command.a.premium.on.its.fares.to.LA.as.it. replaces.Boeing.747.jumbos.with.the.sex.appeal.of.its.new.Airbus.A380.superjumbos..Qantas.claims.the.A380.gives.passengers.more.space.in.all.classes.. Economy.seats.slide.forward.instead.of.falling.back.on.the.seat.row.behind,. offering.increased.recline.and.the.addition.of.a.foot.net..Seat.rows.are.still.spaced. 31.inches.(78.7.centimetres).apart,.which.is.an.inch.less.than.the.so-called.seat. pitch.on.V.Australias.new.Boeing.777300s. All.four.competitors.have.indicated.they.will.try.to.raise.fares.in.the.US.summer,. starting.in.June..Online.fares.for.travel.in.the.middle.of.the.year.start.at.$1800.. But.this.should.be.regarded.only.as.an.early.bid;.if.all.those.extra.seats.arent. filling,.discounts.will.be.rolled.out.in.the.next.few.months.and.the.price.will.fall. However,.almost.as.important.is.what.happens.at.the.other.end.when.passengers. disembark.at.Los.Angeles.airport.(LAX),.which.regularly.gets.some.of.the. worlds.worst.reviews.from.consumers.for.its.shabbiness,.overcrowding.and. surliness.from.customs.and.security.staff.
49
50
LAX.is.a.total.disgrace.and.I.live.in.a.so-called.Third.World.country,.a.foreign. visitor.wrote.recently.in.a.review.at.www.airlinequality.com..a.comment.typical. of.many. Qantas.will.pit.its.Oneworld.alliance.connections.from.LAX.with.American. Airlines.against.Uniteds.Star.Alliance.and.Deltas.SkyTeam..V.Australia.will.go. into.battle.with.no.alliance.but.a.series.of.agreements.with.airlines,.some.even. members.of.rival.groupings. One.of.V.Australias.advantages.is.it.is.the.only.service.to.leave.Sydney.for.the. US.at.night.but.this.will.also.be.one.of.its.limitations,.as.it.arrives.at.LAX.at. 4.30pm.after.east-coast.connections.have.departed..However,.you.will.be.able.to. catch.the.Virgin.America.red-eye.to.New.York,.for.example,.at.9.15pm.
Developments.subsequent.to.the.publication.of.the.above.article.have.seen.Virgin.and. Delta.enter.into.a.code.share.partnership..However.industry.data.suggests.that.costs. per.passenger.are.20%.lower.on.Qantas.new.A380.which.gives.Qantas.a.major.cost. advantage,.let.alone.the.marketing.advantage.of.having.the.worlds.biggest.and.newest. aircraft.in.its.fleet. Recent.financial.performance.of.V.Australia.suggests.it.has.a.long.way.to.go.to. be.profitable.for.VBA..Last.year.it.lost.approximately.$40M.from.its.longhaul. operations..Finally,.Virgin.is.competing.with.the.elephant.in.the.room..Qantas.not. only.has.scale,.a.war.chest.of.cash.and.significant.code.share.alliances,.it.also.has.a. government.that.protects.Qantas.from.real.competition.wherever.possible..Singapore. Airlines.for.example.have.been.precluded.from.the.transpacific.route.from.Australia. to.the.USA.for.more.than.15.years..This.is.despite.Singapore.Airlines.offering.reports. indicating.an.increase.in.inbound.tourism.for.Australia. If.you.are.interested.in.reading.more.about.this.and.seeing.just.how.convenient. government.can.be.in.setting.strategy,.visit.this.URL:.http://sauder.ubc.ca/en/Faculty/
Research_Centres/Centre_for_Transportation_Studies/~/media/Files/Faculty%20 Research/Publications/Hodgkinson%20-%20Restrictions.ashx.
Despite.the.free.market.rhetoric.and.mentality,.along.with.a.free.trade.agreement. between.Australia.and.Singapore,.theres.no.doubt.that.Qantas.have.powerful. allies,.and.put.simply,.Virgin.does.not..The.key.message.here.is.that.you.can.never. underestimate.the.strategic.advantage.of.having.a.government.behind.your.firm. Australians.travelling.to.the.USA.have.long.complained.that.the.existing.few.carriers. had.been.able.to.set.prices.at.high.levels.because.there.were.so.few.competitors.flying. this.route..As.the.article.above.suggests.the.entry.of.two.new.competitors.into.the. market.might.have.the.effect.of.reducing.these.fares..V.Australia.intends.to.use.its. low-cost.pricing.strategies.as.its.means.of.breaking.into.this.lucrative.market..It.is. strategies.such.as.this.(low-cost.pricing).that.will.be.our.focus.in.this.topic. In.this.unit.we.will.consider.the.ways.in.which.an.organisation.may.compete.in.its. industry..The.discussion.flows.from.the.initial.work.of.Michael.Porter.who.originally. argued.that.there.were.only.two.generic.strategies.for.competition:.low.cost.or.through. differentiating.the.firms.product.from.that.of.its.competitors..This.has.been.advanced. over.the.years.and.at.least.five.generic.competitive.strategies.have.been.identified.. We.will.consider.each.of.these.strategies.in.this.unit..We.will.conclude.the.unit.by. considering.some.competitive.options.that.firms.might.take.after.considering.their. internal.and.external.environment..The.issue.of.positioning.has.developed.since.the. original.work.of.Porter.in.the.1980s.and.now.it.is.common.to.consider.positioning.as. conscious.decisions.about.the.balance.of.value.offered.to.the.customer,.at.what.price. We.will.continue.to.use.our.two.cases.to.illustrate.points.being.made.in.the.discussion.
51
Objectives
At.the.conclusion.of.this.topic.you.should.be.able.to: . . . . . . outline.and.compare.the.five.main.generic.strategies explain.how.and.when.a.low-cost.strategy.can.be.used.to.achieve.competitive. advantage analyse.the.types.of.differentiation.strategies.and.when.such.a.strategy.is.most. likely.to.be.successful explain.the.nature.of.a.best-cost.strategy.and.its.benefits.and.risks assess.the.types.of.niche.market.strategies.available.and.when.such.strategies. should.be.used.and.avoided illustrate.the.use.of.these.generic.strategies.in.case.studies.
Materials required
Textbook Thompson.et.al..Chapter.5. Reading 5.1. Parnell,.JA.2006,.Generic.Strategies.after.two.decades:.a.reconceptualization.of. competitive.strategy,.Management Decision,.vol..44,.no..8,.pp..11391154.
52
Textbook
Read pages 140162.
There.are.five.generic.competitive.strategies.discussed.in.the.text.and.illustrated.in. Figure.5.1.(page.134)..From.the.figure.we.see.the.most.interesting.one.is.the.bestcost.provider.since.it.sits.in.the.middle.of.the.other.four..The.broad.characteristics.of. each.strategy.are.summarised.within.the.chapter..Porter,.as.a.leader.and.significantly. influential.scholar.in.the.field,.argued.successfully.for.years.that.you.needed.to. have.one.strategy.or.another,.since.to.have.more.than.one.meant.being.stuck.in.the. middle..Fast.forward.a.few.years.and.the.academics.have.caught.on.that.Porter.not. only.pertains.to.an.era.of.industrialised.economics.and.economies,.he.is.blatantly. contradicting.himself.when.he.created.best-cost.provider,.since.it.sits.precisely.in.the. middle.of.his.four.generic.strategies..Criticisms.of.Porters.concepts.are.probably.best. handled.by.critical.scholars.who.avidly.debate.the.merits.of.many.of.Porters.concepts.. However,.you.as.a.strategic.management.student.will.likely.come.up.with.some.of. your.own.misgivings.about.some.of.Porters.concepts.too. If.you.are.interested.in.gaining.more.perspective.on.this.issue.from.a.practitioner.and. scholars.perspective,.then.it.is.recommended.that.you.obtain.a.copy.of.Mintzberg,. Alstrand.and.Lampels.excellent.book,.A Strategy Safari: The complete guide through the wilds of strategic management..This.book.critiques.the.prescriptive.nature.of. Porters.concepts.and.of.the.positioning.school.in.general..An.SCU.academic,.Dr. Steven.French,.has.also.published.significant.works.on.not.only.strategic.management,. but.also.on.Michael.Porters.work.and.concepts. These.are.briefly.discussed.below.
53
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Activity 5.1
Think of an organisation that is truly observing a low-cost leadership model. I suggest you avoid saying Virgin, since they are in no mans land strategically. They have a higher cost base than Jetstar and Tiger and ultimately have gone down the road of me too, less the actual tangibles which Qantas for example still offer (meals, blankets and entertainment etc.)
Differentiation strategies
Textbook
Read pages 149154.
The.aim.of.differentiation.strategies.is.to.incorporate.differentiating.features.that.cause. buyers.to.prefer.the.firms.product.or.service.over.the.brands.of.rivals..The.managers. challenge.is.to.find.ways.to.differentiate.that.create.value.for.buyers.and.that.are.not. easily.matched.or.cheaply.copied.by.rivals..The.limiting.factor,.however,.is.to.not. spend.more.to.achieve.differentiation.than.the.price.premium.that.can.be.charged.for. the.final.product. The.appeal.of.a.differentiation.strategy.is.that.it.is.a.powerful.competitive.approach. when.uniqueness.can.be.achieved.in.ways.that: . . . buyers.perceive.as.valuable rivals.find.hard.to.match.or.copy can.be.incorporated.at.a.cost.well.below.the.price.premium.that.buyers.will.pay.
The.key.to.competitive.advantage.is.sustaining.differentiation..Hence,.the.most. appealing.approaches.to.differentiation.are.those.that.are.hardest.for.rivals.to.match.or. imitate.and.those.that.buyers.will.find.most.appealing. The.best.choices.for.gaining.a.longer-lasting,.more.profitable.competitive.edge.are.as. follows: . new.product.innovation . technical.superiority . product.quality.and.reliability . comprehensive.customer.service. The.text.gives.some.examples.of.different.types.of.differentiation.themes.(page.149). Differentiation.opportunities.can.be.found.at.a.number.of.stages.in.the.value.chain.and. these.are.outlined.on.page.150. There.are.a.number.of.methods.to.achieve.a.differentiation-based.competitive. advantage.and.these.are.described.in.turn.on.page.152.and.include.product.attributes. and.performance,.buyer.satisfaction.and.competencies.and.capabilities.that.are.hard.to. imitate..Examples.are.given.of.each.of.these.methods. The.signals.of.value.may.be.as.important.as.actual.value.when.the.nature.of. differentiation.is.hard.to.quantify.and/or.buyers.are.making.first-time.purchases.or. repurchase.is.infrequent..It.is.also.difficult.in.cases.where.buyers.are.unsophisticated. There.are.circumstances.under.which.a.differentiation.strategy.will.work.best. and.when.it.will.have.pitfalls..The.text.first.outlines.four.market.situations.where. differentiation.is.likely.to.be.successful.(page.152)..It.then.warns.of.some.of.the. pitfalls.of.such.a.strategy.(pages.153).
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Activity 5.2
Apart from price what differentiation strategies does V Australia intend to use in its international flights? (Cynically I would suggest they use a hybrid of ironic campaigns such as to suggest that by consuming Virgin as a brand makes you an individual, and secondly that they will create an image of a low-cost carrier, but when you compare fares theres little or no difference. It would be highly likely that Virgin will give it one more year to get North America to profit, else I suspect they will redeploy their new planes to more profitable leisure routes.) Can you please find some fair and likely examples?
Activity 5.3
To what extent does Nintendo use differentiation strategies and what methods are they using? What dangers might these strategies pose for them?
Focus/niche strategies
Textbook
Read pages 156160.
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strategy.is.to.choose.a.market.niche.where.buyers.have.distinctive.preferences,.special. requirements,.or.unique.needs.and.then.develop.unique.capabilities.to.serve.the.needs. of.the.target.buyer.segment. Competitive.advantage.for.focus/niche.strategies.flows.from.being.able.to.offer.niche. buyers.something.different.from.rivals..a.differentiation.strategy..The.text.provides. some.examples.(pages.158159).of.organisations.that.have.taken.this.narrow.focus.in. their.strategic.approach. The.focus.or.niche.can.be.based.upon.low-cost.strategies.or.on.product.or.service. differentiation. Pursuing.this.type.of.strategy.is.likely.to.be.most.effective.in.the.conditions.outlined. on.pages.158159..But.such.a.strategy.has.inherent.risks.and.these.are.briefly. considered.in.the.text,.on.pages.159160. Having.outlined.the.features.of.these.strategies.we.can.then.bring.them.together.in. one.table.(Table.5.1.page.161).where.the.differences.and.similarities.can.be.compared.. There.is.a.brief.discussion.about.this.table.on.pages.160.and.162.
Activity 5.4
To what extent do Nintendo, Xbox, Sony PS3, etc. conduct niche strategies? Would it be correct to say that Xbox goes closer to using the focused differentiation strategy than Nintendo does?
Overall.which.strategies.from.the.generic.list.discussed.in.this.chapter.best.fit.the. companies.in.our.two.case.studies?
Reading 5.1
Turn to Reading 5.1 and read pages 11391154.
56
Summary
In.this.topic.we.have.discussed.the.main.generic.approaches.to.competing.within. an.industry..These.generic.strategies.emerged.from.the.work.of.Porter.who.initially. argued.that.there.were.only.four.ways.to.compete:.low.cost.or.differentiation.with.a. broad.or.a.narrow.focus. We.considered.the.features.of.each.of.these.strategic.options.and.assessed.those. situations.where.they.might.or.might.not.be.successful..While.each.of.these. strategies.has.appeal.in.different.ways.there.are.always.some.challenges.and.potential. difficulties.to.emerge.in.pursuing.the.chosen.direction..We.gave.examples.from.the. text.of.each.of.these.strategies.and.used.our.two.case.studies.as.illustrations.of.the. use.of.these.generic.strategies..The.approach.to.focusing.strategic.options.depends. on.the.developmental.culture.of.the.organisation,.the.circumstances.in.the.external. environment.and.its.approach.to.risk.management..A.number.of.alternative.strategic. thrusts.can.be.defined,.including.differentiation,.cost.leadership,.focus,.pre-emption. and.synergy..Choice.of.these.approaches.allows.strategic.options.to.be.narrowed.and. focused. These.are.the.broad.strategies..In.the.next.topic.we.will.consider.some.supplementary. strategies.that.organisations.can.use.to.supplement.these.generic.options.
Topic 6
Beyond competitive strategy
Introduction
The.following.email.was.unexpectedly.received.by.all.staff.at.the.university.in.midDecember.2008..It.was.sent.by.the.then.vice.chancellor,.Paul.Clarke.
Southern.Cross.University.has.joined.forces.with.Charles.Sturt.University.to. undertake.a.groundbreaking.study.on.the.establishment.of.a.new.regionallybased.Commonwealth.university,.with.our.two.institutions.as.foundation. partners. This.new.national.institution.would.combine.the.strengths.of.our.institutions.and. initially.a.third.interstate.university,.and.would.ensure.the.sustainable.provision. of.quality.higher.education.and.research.to.regional.communities.in.Australia. We.have.been.invited.by.the.Deputy.Prime.Minister.and.Minister.for.Education. Julia.Gillard.to.submit.a.funding.application.to.conduct.a.feasibility.study,.which. we.expect.will.be.conducted.in.the.first.half.of.next.year. As.two.of.the.leading.regional.institutions.with.complementary.capabilities.we. envisage.greatly.enhanced.opportunities.for.all.regional.students.and.for.our. research,.while.maintaining.our.existing.campuses..Southern.Cross.University. will.bring.to.the.table.considerable.research.strengths. We.envisage.a.national.institution.crossing.State.borders.with.a.specific.focus.on. accelerating.the.application.of.digital.technology.to.deliver.a.quality.and.flexible. educational.experience.in.Australia,.at.a.level.which.has.not.been.seen.before. There.are.significant.challenges.facing.the.Higher.Education.sector.and.this. proposal.ensures.that.our.regional.universities.will.be.best-placed.to.take.control. of.their.own.futures.and.play.a.leading.role.in.the.reforms.which.will.be.under. way.over.the.coming.months. Many.of.you.will.have.questions.about.the.possible.impacts.of.this.proposal.. We.will.be.working.closely.with.all.our.staff,.students.and.stakeholders.and.will. provide.opportunity.for.input.in.the.New.Year.
This.proposed.alliance.between.several.Australian.universities.is.a.great.example.of. one.of.the.supplementary.strategies.discussed.in.this.topic..In.Topic.5.we.outlined.the. generic.business.strategies.but.here.we.are.concerned.with.a.number.of.other.strategies. that.can.complement.the.chosen.generic.strategy..In.a.sense.this.topic.is.somewhat.like. a.grab-bag.of.extra.strategies.since.it.covers.a.broad.spectrum.of.possible.additional. strategies. We.will.systematically.work.through.each.of.these.supplementary.strategies..We. start.with.alliances.and.partnerships.similar.to.the.one.involving.SCU.and.mentioned. at.the.start.of.this.topic..We.then.take.this.a.step.further.by.looking.at.mergers.and. acquisitions.as.strategies..This.is.followed.by.a.consideration.of.vertical.integration. strategies.and.their.advantages.and.disadvantages..There.is.then.a.brief.section.on.the.
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58
growing.importance.of.outsourcing.as.a.business.strategy.and.why.it.is.often.chosen.. The.topic.then.moves.on.to.discuss.a.wide.range.of.offensive.strategies.available.to. organisations..One.of.these.strategies.is.increasingly.attracting.attention.and.that.is.the. blue.ocean.strategy.and.we.spend.some.time.examining.its.features.and.attraction.. After.the.offensive.strategies.we.review.the.use.of.defensive.strategies,.web.strategies. and.functional.area.strategies..The.topic.finishes.with.an.evaluation.of.the.strategy.of. being.a.first.mover. There.is.an.attempt.to.link.these.supplementary.strategies.in.Figure.6.1.on.page.162. of.the.textbook.and.it.would.be.useful.to.keep.referring.to.this.figure.as.you.work. through.the.topic.
Objectives
At.the.conclusion.of.this.topic.you.should.be.able.to: . . . . . . assess.the.types.of.strategic.alliances.organisations.can.form,.and.evaluate.such. alliances analyse.what.objectives.organisations.seek.to.achieve.by.undergoing.mergers.or. making.acquisitions outline.the.types.of.vertical.integration.moves.available.to.organisations.and. assess.their.merits.and.challenges describe.the.reasons.that.organisations.use.outsourcing.as.a.strategy explain.a.range.of.offensive.strategies.available.to.organisations.and.why.they. might.be.adopted evaluate.the.elements.of.a.blue.ocean.strategy.and.the.reasons.for.its.increasing. prominence.
Materials required
Textbook Thompson.et.al..Chapter.6. Reading 6.1. Blue.Ocean.Strategy.(Online),.Available:.http://en.wikipedia.org/wiki/Blue_Ocean_ Strategy..Accessed.24.March.2010.
Textbook
Read from the beginning of the chapter on page 166 to the end of the section at the top of page 169.
59
The.text.discusses.two.very.competitive.forces.impacting.on.organisations.and.how. a.strategic.alliance.can.be.useful.in.addressing.these.forces..The.particular.features. of.a.strategic alliance are.described.and.the.text.then.gives.some.examples.of. strategic.alliances.among.major.corporations.around.the.world..In.the.global.financial. meltdown.of.late.20082009.it.is.to.be.expected.that.there.will.be.many.attempts.at. forming.such.alliances.often.as.a.matter.of.survival. The.text.spells.out.in.detail.(pages.168170).how.strategic.alliances.can.be.beneficial. especially.in.a.growing.global.market.and.the.factors.which.will.determine.how. successful.such.an.alliance.will.prove..A.note.of.caution.is.given.about.some.potential. problems.with.such.alliances. In.the.case.of.the.proposed.strategic.alliance.involving.SCU.the.driving.forces.have. been.the.competitive.forces.in.the.university.sector,.changing.student.demographics. and.different.funding.approaches.to.universities.by.the.Australian.government.. An.isolated.regional.university.stands.to.gain.by.being.part.of.a.larger.and.broader. institution.while.still.being.able.to.retain.what.it.considers.to.be.its.competitive. advantages. Strategic.alliances.go.beyond.normal.company-to-company.dealings.but.fall.short.of. mergers.or.full.joint.venture.partnerships.with.full.ownership.ties.
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Activity 6.1
Despite the proposed SCU & CSU merger not proceeding after a consultants report revealed too many complexities, what would you consider to be the advantages and disadvantages of SCU becoming part of a strategic partnership with two other regional universities in Australia?
Mergers.and.acquisitions.are.especially.suited.to.situations.where.alliances.and. partnerships.do.not.go.far.enough.in.providing.a.company.with.access.to.the.needed. resources.and.capabilities. No.company.can.afford.to.ignore.the.strategic.and.competitive.benefits.of.acquiring.or. merging.with.another.company.to.strengthen.its.market.position.and.open.up.avenues. of.new.opportunity. The.text.first.makes.a.distinction.between.a.merger.and.an.acquisition (page.171). since.sometimes.the.terms.are.confused..It.then.goes.on.to.outline.five.strategic. objectives.of.mergers.and.acquisitions.and.a.number.of.examples.are.given.of. successful.mergers..One.successful.merger.and.acquisition.strategy.is.described.in. Illustration.Capsule.6.1.(page.174)..However.it.is.also.pointed.out.(page.174175). that.for.several.reasons.some.mergers.and.acquisitions.have.not.lived.up.to.promised. expectations.
Activity 6.2
Illustration Capsule 6.1, How Clear Channel Has Used Mergers and Acquisitions to Become a Global Market Leader. Discuss the impact loosening of rules by the FCC had on Clear Channels business strategy. Describe how acquisitions benefited this company.
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Textbook
Read pages 175178.
Vertical.integration.as.a.strategy.involves.a.firm.extending.its.competitive.scope. within.the.same.industry.either.by.movingbackward.into.the.sources.of.supply.or. forward.toward.the.end-users.of.the.final.product..A.firm.can.aim.at.either.full.or. partial.integration. The.appeal.of.backward.integration.is.that.it.generates.cost.savings.but.only.if.the. volume.needed.is.big.enough.to.capture.the.efficiencies.currently.employed.by. suppliers. There.is.potential.to.reduce.costs.through.backward.integration.when.suppliers.have. sizeable.profit.margins;.when.the.item.supplied.is.a.major.cost.component;.or,.where. the.resource.requirements.of.production.are.easily.met. It.is.possible.to.produce.a.differentiation-based.competitive.advantage.when.it. results.in.a.better-quality.part.being.produced.through.taking.control.of.production.in. backward.integration. Backward.integration.can.also.reduce.the.risk.of.depending.on.suppliers.of.crucial.raw. materials/parts/components. It.can.be.advantageous.for.a.firm.to.establish.its.own.distribution.network.if: . . . . . undependable.distribution.channels.undermine.steady.production.operations integrating.forward.into.distribution.and.retailing it.may.be.cheaper.than.going.through.independent.distributors it.may.help.achieve.stronger.product.differentiation,.allowing.escape.from.price. competition it.may.provide.better.access.to.users.
Textbook
Read pages 178180.
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Business strategy choices for specific market situations, including offensive and defensive strategies
Textbook
Read pages 181198.
As.the.text.illustrates,.there.are.numerous.strategic.choices.depending.on.the.market. conditions..A.good.way.to.determine.the.market.for.a.given.industry.is.to.conduct. an.industry.lifecycle.analysis,.which.helps.one.to.decide.whether.or.not.the.market. is.characterised.as.being.fragmented,.fast-.or.slow-growing.or.emerging.(such.as. technology.and.high.spec.R&D.critical.industries)..The.following.strategic.choices. include.a.range.of.typical.offensive.and.defensive.strategies. Offensive.and.defensive.strategies.are.undertaken.to.build.new.or.stronger.market. positions.and/or.create.competitive.advantage..Any.competitive.advantage.currently. held.will.eventually.be.eroded.by.the.actions.of.competent,.resourceful.competitors. Aldi,.the.German.supermarket.is.aggressively.challenging.the.two.major.supermarket. chains.in.Australia.with.some.of.the.strategies.mentioned.in.this.section.of.the.text.. Wal.Mart.in.America.is.an.aggressive.competitor.while.Dell.in.the.computer.industry. is.also.known.for.its.aggressive.strategies. Previous.editions.of.the.text.offered.nine.different.offensive.strategy.options.open.to. organisations,.giving.examples.of.how.each.of.these.strategies.have.been.used..It.is. worthwhile.to.note.that.the.strategies.outlined.below.are.still.relevant.today.and.apply. particularly.in.hotly.competitive.situations..Some.of.the.following.tactics.warrant. further.discussion.
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However,.challenging.strong.competitors.with.a.lower.price.is.foolhardy.unless.the. aggressor.has.a.cost.advantage.or.advantage.of.greater.financial.strength! Possible.offensive.options.for.attacking.competitors.strengths: . . . . . . . . . . . . under-price.rivals boost.advertising introduce.new.features.to.appeal.to.rivals.customers attack.with.equally.good.product.and.lower.price develop.a.low-cost.edge,.and.use.it.to.under-price.rivals offer.a.better.product.at.the.same.price leapfrog.into.next-generation.technologies add.appealing.new.features run.comparison.ads construct.new.plant.capacity offer.a.wider.product.line develop.better.customer.service.capabilities.
End-run offensives
End-run.offensives.have.the.objective.to.dodge.head-to-head.confrontations.that. escalate.competitive.intensity.or.risk.cutthroat.competition..The.aim.is.to.attempt.to. manoeuvre.around.areas.of.strong.competition.and.concentrate.on.those.areas.of.the. market.where.competition.is.the.weakest. There.are.several.optional.approaches.for.end-run.offensives..These.include.building. a.presence.in.geographic.areas.where.rivals.have.little.presence.or.exposure..The.firm. might.alternatively.introduce.products.with.different.attributes.and.features.to.better. meet.buyer.needs.or.introduce.next-generation.technologies.with.an.aim.to.leapfrog. rivals..Another.strategy.is.to.add.more.support.services.for.customers.
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Guerrilla offensives
Guerrilla.offensives.encourage.the.organisation.to.use.principles.of.surprise.and.hitand-run.to.attack.in.locations.and.at.times.where.conditions.are.most.favourable.to.it. as.the.initiator.of.the.offensive..This.approach.is.well-suited.to.small.challengers.with. limited.resources. Some.of.the.options.for.employing.guerrilla.tactics.include: . . . . . . focus.on.a.narrow.target.weakly.defended.by.rivals challenge.rivals.where.they.are.overextended.and.when.they.are.encountering. problems make.random.scattered.raids.on.leaders occasional.low-balling.on.price intense.bursts.of.promotional.activity legal.actions.charging.antitrust.violations,.patent.infringements,.or.unfair. advertising.
Pre-emptive strikes
Pre-emptive.strikes.involve.moving.first.to.secure.an.advantageous.position.that.rivals. are.unable.to.gain.or.are.discouraged.from.duplicating! Some.of.the.options.include: . . . . . . . expand.capacity.ahead.of.demand.in.hopes.of.discouraging.rivals.from.following. suit tie.up.best.or.cheapest.sources.of.essential.raw.materials move.to.secure.best.geographic.locations obtain.business.of.prestigious.customers build.an.image.in.buyers.minds.that.is.unique.and.hard.to.copy secure.exclusive.or.dominant.access.to.best.distributors acquire.desirable,.but.struggling,.competitors.
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Textbook
Read page 200 to the top of page 201.
Reading 6.1
Turn to Reading 6.1 which is an article that outlines in detail the origins and features of the blue ocean strategy and gives examples of where it has been used. It is an offensive strategy of a different kind.
Defensive strategy
Just.as.in.the.case.of.having.offensive.strategies,.firms.may.utilise.what.are.known. as.defensive.strategies,.which.are.designed.to.counter.attacks.and.ultimately.the. offensive.strategies.of.rival.firms..Previous.editions.of.the.text.have.alluded.to.these. strategies,.which.in.my.opinion.are.still.worthy.of.discussion.and.thought,.since.they. apply.in.any.economic.cycle. The.objectives.of.a.defensive.strategy.are.to.fortify.the.firms.present.position.and. help.sustain.any.competitive.advantage.currently.held..A.defensive.move.can.also. lessen.the.risk.of.being.attacked.by.a.rival.and.can.help.blunt.the.impact.of.any.attack. that.may.occur..A.company.employing.successful.defensive.tactics.can.influence. challengers.to.aim.attacks.at.other.rivals.rather.than.at.it. There.are.two.general.defensive.approaches: . . block.avenues.challengers.can.take.in.mounting.offensive.attacks make.it.clear.any.challenge.will.be.met.with.a.strong.counterattack.
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The.text.suggests.that.signals.can.be.given.that.any.aggression.will.be.defended.and. some.of.these.signals.are.identified.on.page.183.
First-mover advantages
Textbook
Read pages 199201.
The.decision.over.when.to.make.a.strategic.move.is.often.as.crucial.as.what.move.to. make..There.are.a.number.of.first-mover.advantages.that.a.company.may.achieve..A. good.example.of.these.can.be.found.in.Illustration.Capsule.6.4.on.page.200,.where. amazon.com.shows.the.significant.advantage.of.having.entered.online.retailing.back. at.the.beginning.of.this.century..It.could.be.argued.that.this.has.given.Amazon.clear. branding.and.consumer.awareness.since.they.are.established.and.trusted.When.a. company.is.a.first.mover.it.is.likely.to.make.early.commitments.to.raw.material. suppliers,.new.technologies,.and.distribution.channels..This.can.produce.cost. advantages.for.the.company.over.its.later-entering.rivals. Strategically,.moving.first.can.be.a.pre-emptive.strike.against.rivals,.generating.the. element.of.surprise.and.catching.rivals.off.guard.
First-mover disadvantages
A.company.moving.early.can.be.at.a.disadvantage,.or.fail.to.produce.an.advantage,. when.the.costs.of.pioneering.are.sizeable.and.the.loyalty.of.first-time.buyers.is.weak.. The.company.may.commit.significant.resources.to.the.strategy.but.find.that.the.sales. levels.and.competitive.position.are.not.sustainable. There.is.also.the.risk.that.rapid.technological.change.may.allow.followers.to.leapfrog. pioneers..In.many.electronic.industries.this.may.be.the.case..Who.owns.a.Beta.VCR. today? Another.risk.lies.where.the.achievements.of.the.pioneers.can.be.easily.and.quickly. imitated.by.late.movers..In.these.cases.it.may.be.relatively.easy.for.latecomers.to. crack.into.the.market.
Activity 6.3
Using Nintendo as a reference point, consider their relative position on entry choices. Do you think early or late mover is the best choice? Consider that Apple entered the MP3 industry relatively late, and therefore even though it is a technology-based product, Apple were perhaps able to more successfully differentiate based on their market intelligence and current offerings. Examples can be found even in industries and markets which are characterised by rapid change, disruptive technologies and innovations, yet as producers it is precisely this space where companies like Apple have prospered.
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A final point to consider is that in many cases products that are developed in Nintendos labs may take years to recover their investment. Also their business model, like that of printer manufacturers, is to profit on the consumables, not the device. This apparent paradox will hopefully make this activity slightly more interesting.
Summary
This.topic.adds.to.the.strategic.issues.discussed.in.the.previous.topic..We.have.covered. a.number.of.supplementary.strategies.organisations.use.including.collaborative. strategies,.vertical.integration.strategies.and.outsourcing.strategies..We.then.examined. a.range.of.offensive.strategies.available.to.organisations.especially.the.popular.blue. ocean.strategy..This.was.followed.by.a.range.of.defensive.strategies.that.can.be.used. as.well.as.an.evaluation.of.being.the.first.mover.in.pursuing.a.particular.strategy..You. would.be.well.advised.to.read.the.Key.Points.at.the.end.of.this.chapter.to.review.your. understanding.of.the.issues.in.this.topic.
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Activity 6.2
In the late 1980s, following the decision by the FCC to loosen rules regarding the ability of one company to own both radio and TV stations, Clear Channel broadened its strategy and began acquiring small, struggling TV stations. Its new strategy was to buy radio, TV, and outdoor advertising properties with operations in many of the same local markets, to share facilities and staffs to cut costs, to improve programming, and to sell advertising for all three media simultaneously. By 1998, Clear Channel had used acquisitions to build a leading position in radio and television stations. In 2003, this company owned radio and television stations, outdoor advertising, and entertainment venues in 66 countries around the world.
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Topic 7
Competing in foreign markets
Introduction
250 jobs created when Costco opens in Docklands UP TO 250 jobs will be created when US discount retailer Costco opens its first Australian warehouse at Docklands next year. The.1.3ha.shopping.barn.will.sell.a.range.of.products.including.groceries,. hardware,.white.goods,.jewellery,.electronic.equipment,.sporting.goods,.office. materials.and.homewares. Plans.to.build.the.project.were.formally.approved.by.the.State.Government.this. morning. Construction.on.the.site,.next.to.the.120m-high.Southern.Star.wheel,.will.start.in. September. The.$60.million.project.will.signal.a.major.shake-up.of.Australian.shopping. in.a.similar.way.to.the.arrival.of.German.discounter.Aldi.when.it.launched.in. Australia.in.2001. State.Planning.Minister.Justin.Madden.formally.announced.that.the.two-storey. bulk.goods.warehouse.would.go.ahead.on.the.northern.side.of.Waterfront.City,. off.Footscray.Rd. This.is.another.milestone.in.the.evolution.of.Docklands,.Mr.Madden.said. Costco.Australia.general.manager.Patrick.Noone.said.the.company.chose. Docklands.as.its.first.Australian.outlet.because.of.the.proximity.to.transport.and. the.CBD. He.said.customers.should.expect.dramatic.discounts. We.are.a.tight.operation.with.extremely.low.overheads,.he.said. The.store.will.have.parking.for.553.cars. Costco.operates.a.customer.membership.scheme..People.pay.an.annual.fee.of. about.$50.to.enter.the.store..Goods.are.said.to.be.as.much.as.70.per.cent.less. than.in.other.stores.
(Herald-Sun,.Melbourne,.20.June.2008)
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several.locations.in.Australia.(Docklands,.Sydney,.and.the.Gold.Coast).it.was.greeted. with.delight.by.those.people.in.Australia.who.have.visited.Costco.outlets.in.the.US. or.Sams.Stores.which.is.the.major.competitor.of.Costco..The.arrival.of.this.giant. wholesale.discounter.is.set.to.revolutionise.shopping.in.this.country.much.as.it.and.its. competitors.have.done.in.North.America. Costco.is.offered.as.the.second.case.study.in.this.edition.of.the.textbook..While. its.international.operations.are.only.a.minor.part.of.the.case.content.we.will.use. this.case.as.our.example.of.the.issues.being.addressed.in.this.topic.on.competing. internationally..The.challenge.will.be.to.see.how.the.range.of.going.international.. strategies.in.this.chapter.of.the.textbook.can.be.applied.to.the.Costco.expansion.plans. A.good.starting.point.for.this.topic.would.be.to.read.the.case.in.its.entirety.as.it.covers. some.of.the.issues.we.have.been.covering.so.far.in.this.unit..Moreover.for.those.of. you.unfamiliar.with.how.Costco.operates.this.will.be.a.learning.experience..A.visit. to.their.website.would.add.value.to.this.experience.and.keep.you.updated.on.recent. happenings.too..It.is.would.be.remiss.not.to.mention.that.Costcos.central.business. model.centres.on.membership.fees.and.its.economies.of.scale.when.purchasing..In.fact. Noone,.a.Costco.spokesperson,.is.quoted.as.saying.Costco.have.a.fully.transparent. pricing.structure,.that.is,.cost.+.15%.which.he.believes.gives.consumers.more. confidence.in.their.value.proposition.and.membership.arrangement. This.topic.focuses.on.strategy.options.for.expanding.beyond.domestic.boundaries. and.competing.in.the.markets.of.either.a.few.or.a.great.many.countries..The.spotlight. will.be.on.four.strategic.issues.unique.to.competing.multinationally..It.will.introduce. a.number.of.core.concepts.including.multi-country.competition,.global.competition,. profit.sanctuaries,.and.cross-market.subsidisation..The.textbook.includes.sections.on. cross-country.differences.in.cultural,.demographic,.and.market.conditions;.strategy. options.for.entering.and.competing.in.foreign.markets;.the.growing.role.of.alliances. with.foreign.partners;.the.importance.of.locating.operations.in.the.most.advantageous. countries;.and.the.special.circumstances.of.competing.in.such.emerging.markets.as. China,.India.and.Brazil..We.will.use.references.to.the.Costco.case.where.appropriate. Be.aware.that.this.is.another.long.chapter.(arent.they.all?).and.is.best.taken.in.several. doses.making.sure.each.section.is.read.thoroughly.and.understood.before.proceeding. further.
Objectives
At.the.conclusion.of.this.topic.you.should.be.able.to . . . . . . . . . . outline.the.reasons.organisations.seek.to.expand.into.foreign.markets identify.a.range.of.cultural,.demographic.and.business.challenges.facing. organisations.wishing.to.compete.internationally distinguish.between.multicountry.and.global.competition evaluate.the.range.of.strategy.options.available.for.entering.and.competing.in. foreign.markets examine.the.options.available.to.firms.seeking.competitive.advantage.in.foreign. markets analyse.the.concepts.of.profit.sanctuaries,.and.cross.market.subsidisation compare.offensive.strategies.available.for.competing.in.foreign.markets evaluate.the.use.of.strategic.alliances.for.firms.wishing.to.enter.foreign.markets identify.the.challenges.of.competing.in.emerging.countries.and.the.range.of. strategies.available.for.competing.in.these.markets appraise.how.local.firms.can.compete.against.global.competition.
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Materials required
Textbook Thompson.et.al..Chapter.7. Readings Nil. The.starting.point.for.this.topic.is.to.familiarise.yourself.with.the.Costco.company.and. especially.the.small.section.on.its.international.operations.
r r a r
Textbook
Turn to the case study Costco Wholesale Corporation: Mission, Business Model and Strategy on pages C-32 to C-50 of your textbook and read the whole case highlighting references to its international operations.
Activity 7.1
From the case study of Costco can you determine where the drive to go international originated and why?
There.is.a.long.section.in.the.text.concerning.a.range.of.issues.that.organisations.have. to.address.when.contemplating.a.strategy.of.operating.overseas..The.first.range.of. issues.are.those.of.a.cultural,.demographic.and.economic.basis..The.text.discusses. at.length.a.range.of.these.issues.in.other.countries.that.need.to.be.addressed.before. a.decision.to.move.overseas.it.taken..One.of.the.critical.decisions.to.be.made.is.the. degree.of.localisation.or.standardisation.of.the.product.or.service. Overseas.locations.can.offer.significant.economic.advantages.as.discussed.on.page. 210..Costco.has.exploited.some.of.these.advantages.in.its.overseas.operations..As.well. as.labour.costs.there.are.taxation.factors.that.figure.prominently.in.such.decisions. The.increasing.globalisation.of.international.trade.has.generated.significant.risks.in. fluctuating.exchange.rates.which.can.have.serious.and.even.devastating.impacts.on. decisions.made.to.operate.in.other.countries..These.exchange.rate.risks.are.discussed. on.pages.211212..Added.to.the.risk.of.adverse.exchange.rate.movements.are. sometimes.fickle.and.unpredictable.government.policies.discussed.on.pages.212213.
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Textbook
Read pages 213214.
Activity 7.2
From the Costco case study what can we learn about the challenges and opportunities Costco faces in expanding into new international markets? Which issues discussed so far in this topic have relevance to the Costco situation discussed in this reading?
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Activity 7.3
Review Illustration Capsule 7.2 in the textbook, Multi-country Strategies of Electronic Arts and Coca-Cola. Describe Electronic Arts strategy as either localisation or globalisation. Identify how these companies have adapted their original organisational strategies to better serve their multi-country operational needs. Has this proven to be advantageous for these organisations? Explain why or why not.
Activity 7.4
On the basis of the preceding section concerning strategy options what can we conclude about the options Costco has taken or plans to take in its international ventures.
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Textbook
Read pages 224228.
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Activity 7.5
At this stage review and reflect on the move by Costco to enter the Australian market. What do you consider are the strategic advantages and potential dangers of such a move?
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If.a.company.is.aiming.for.global.market.leadership,.then.cross-border.merger.or. acquisition.may.be.a.better.alternative.than.cross-border.alliances.or.joint.ventures.
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Activity 7.6
Review Illustration Capsule 7.2 in the textbook: five examples of cross-border strategic alliances. How is Airbus able to compete with Boeing for world leadership in large commercial aircraft? If Airbus were an independent firm that was not formed of an alliance, do you think it could have successfully entered Boeings industry?
Emerging.countries.such.as.China,.India.and.Brazil.pose.some.different.challenges.for. organisations..Tailoring.products.to.meet.social.and.cultural.norms.in.these.countries. is.a.real.challenge.discussed.on.page.231..Illustration.Capsule.7.3.gives.a.clear. example.of.how.Yum!.Brands.has.altered.its.strategy.in.China.and.India. There.are.at.least.four.strategy.options.available.for.firms.when.dealing.with.emerging. countries.and.these.are.described.on.pages.230231. A.significant.update.to.the.previous.edition.of.this.textbook.reveals.that.more.attention. is.being.paid.to.emerging.economies..You.may.of.course.be.familiar.with.the.acronym,. BRICS,.which.encompasses.the.energy.and.human.resource.rich.nations.of.Brazil,. Russia,.India,.China.and.now.South.Africa.and.South.Korea..These.important.markets. are.not.only.growing.in.terms.of.their.GDP.and.economic.might,.they.have.rising. affluence.and.growing.middle.classes,.who.are.more.and.more.becoming.ideal.for. multi-national.corporations.seeking.growth.in.the.aspirational.classes.of.consumers.
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It.is.also.worth.pointing.out.that.there.is.a.consolidated.effort.on.behalf.of.MNCs. and.particular.European.and.North.American.firms.to.establish.themselves.in.these. markets.for.future.growth.and.to.stake.a.claim.in.what.could.be.the.new.gold.fields. in.this.century..However,.it.would.be.remiss.not.to.examine.the.relative.risks.and. long-term.nature.of.investment.in.these.markets,.based.on.macro.factors.such.as. political.stability,.military.conflict.and.currency.movements..These.markets,.whilst. charactarised.as.full-steam-ahead.markets,.are.also.in.many.ways.ripe.with.risks. that.cannot.necessarily.be.detected.or.countered.easily..Therefore,.after.reading.this. section,.be.mindful.that.in.many.cases.it.is.more.about.establishing.a.footprint.within. these.emerging.economies,.rather.than.a.straight.out.profit.motive. Another.reason.for.an.international.focus.might.be.the.desire.to.use.the.profits.from. the.profit.sanctuaries.to.subsidise.competitive.actions.in.other.markets.such.as. reducing.prices..However,.anti-dumping.legislation.is.a.growing.reality.for.much.of. the.developed.and.developing.world..Therefore,.whilst.this.could.be.an.appealing. strategy,.there.are.bound.to.be.regulatory.risks.at.some.point.if.an.industry.or.firm.is. being.examined.for.dumping..A.good.local.example.can.be.found.at:.http://www.news. com.au/couriermail/story/0,23739,26693066952,00.html.
Strategy implications
Consumers.in.emerging.markets.are.highly.focused.on.price,.in.many.cases.giving. local.low-cost.competitors.the.edge..Companies.wishing.to.succeed.in.these.markets. have.to.attract.buyers.with.bargain.prices.as.well.as.better.products..an.approach.that. can.entail.a.radical.departure.from.the.strategy.used.in.other.parts.of.the.world. Because.managing.a.new.venture.in.an.emerging.market.requires.a.blend.of.global. knowledge.and.local.sensitivity.to.the.culture.and.business.practices,.the.management. team.must.usually.consist.of.a.mix.of.expatriates.and.local.managers.
Textbook
Read pages 231234.
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Summary
A.company.that.strives.for.the.domestic.competitive.advantage.must.also.think.about. how.to.craft.a.strategy.outside.its.national.boundaries..It.is.of.utmost.importance. for.the.strategist.to.understand.the.differences.in.cultural,.demographic.and.market. conditions..The.geographic.location,.exchange.rate.fluctuations.and.host.government. restrictions.are.factors.that.need.to.be.considered..It.is.also.important.to.identify.the. difference.between.multi-country.competition.and.global.competition..Multi-country. competition.is.where.there.exists.no.global.or.world.market.but.rather.just.a.collection. of.self-contained.country.markets..Global.competition,.on.the.other.hand,.is.when. leading.competitors.compete.in.many.different.countries. When.a.company.decides.to.expand.in.a.different.destination.culture,.it.must. understand.the.available.strategic.options.such.as.exporting.goods,.licensing,. franchising.or.crafting.a.multi-country.or.global.strategy..Seeking.competitive. advantage.in.foreign.markets.would.be.achieved.through.location,.using.cross-border. transfer.of.competencies.and.capabilities.and/or.using.cross-border.coordination.. Other.foreign.competitive.strategies.would.be.profit.sanctuaries,.cross-market. subsidisation.or.global.strategic.offences..If.a.company.is.seeking.global.market. leadership,.then.cross-border.mergers.or.acquisitions.may.be.a.better.alternative.than. strategic.alliances.or.joint.ventures..As.a.new.entrant.the.strategic.implications.for. obtaining.profitability.in.emerging.markets.will.come.from.being.patient.and.sensitive. to.local.conditions..This.requires.the.strategist.to.tailor-make.strategy.to.fit.specific. industry.and.company.situations. We.now.move.on.in.the.next.topic.to.consider.how.particular.strategies.can.be.crafted. to.suit.a.number.of.specific.industry.and.company.situations.
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Activity 7.3
EA uses a localisation strategy to fit its games to local markets. It develops games that are locally targeted in specific regions to match with the games material and content. It produces games in multiple languages, on multiple platforms, and markets them in up to 75 different countries. Both of these companies have modified their original home-country strategies in order to better meet and satisfy the needs of their customers around the world. The applied modifications include such actions as language changes, alteration of menu offerings, utilisation of local host-country suppliers, and designing packaging to reflect the various foreign cultures. These organisations have benefited from adopting multi-country strategies through increased sales and maintaining a strong competitive presence in the global marketplace.
Activity 7.6
Airbus is able to compete because of the pooling of resources from several companies in different countries throughout Europe. The alliance infused Airbus with resources and knowledge for competing with Boeing. The company likely would not have been successful on the same scale if it were independently started and was trying to break into the industry without the alliances resources to back it up. As the chairman of British Aerospace stated, a strategic alliance with a foreign company is one of the quickest and cheapest ways to develop a global strategy. The text indicates that strategic alliances, joint ventures, and other cooperative agreements with foreign companies are a favourite and potentially fruitful means for entering a foreign market or strengthening a firms competitiveness in world markets.
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Topic 8
Diversification
Introduction
The.following.item.appeared.on.an.Internet.site.on.the.day.this.topic.was.being. written:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aap1rO5zXpvs&refer=ho me Spectrum Brands, Battery Maker, Seeks Bankruptcy (Update3)
By.Christopher.Scinta
Feb..3.(Bloomberg).--.Spectrum.Brands.Inc.,.the.maker.of.Rayovac.batteries.and. Spectracide.lawn-care.products,.filed.for.bankruptcy.protection.with.agreement. from.most.of.its.bondholders.to.trim.debt. The.company.listed.assets.of.$10.1.billion.and.debt.of.$4.4.billion.in.papers.filed. today.in.U.S..Bankruptcy.Court.in.San.Antonio..Fewer.than.10,000.creditors. have.claims.against.Spectrum.Brands,.according.to.the.court.filing. The.company,.which.also.makes.Remington.razors,.Cutter.insect.repellent.and. Natures.Miracle.pet.care.products,.said.today.in.a.statement.that.it.reached. agreements.with.noteholders.representing.about.70.percent.of.the.face.value.of. its.outstanding.bonds.to.pursue.a.refinancing. A.refinancing.on.the.agreed.terms.would.enable.Spectrum.Brands.to.reduce.the. amount.of.debt.on.its.balance.sheet.by.approximately.$840.million,.according. to.the.statement. U.S..Bank.N.A..of.St..Paul,.Minnesota,.was.named.as.the.largest.unsecured. creditor.in.its.role.as.indenture.trustee.for.more.than.$1.billion.in.bonds.. Harbinger.Capital.Partners.Master.Fund.I.Ltd..was.listed.as.the.next.largest. creditor,.though.the.amount.of.the.debt.was.withheld.in.the.court.filing. Spectrum.Brands.failed.to.make.a.$25.8.million.interest.payment.due.yesterday. on.its.7.3/8.percent.senior.subordinated.notes.due.2015,.triggering.a.default,. according.to.the.companys.statement. Bonds, Shares Under.the.reorganization.plan.the.company.will.ask.the.court.to.approve,. Spectrum.Brands.would.eliminate.about.$1.05.billion.in.existing.bond. obligations.by.issuing.new.bonds.to.current.noteholders.equal.to.20.percent.of. the.unpaid.principal.and.interest.on.existing.bonds..The.noteholders.would.also. receive.shares.of.new.common.stock.to.be.created.under.a.reorganization.plan,. the.company.said.in.the.statement. We.estimate.that.when.this.refinancing.has.been.completed,.the.company.will. generate.in.excess.of.$100.million.in.annual.free.cash.flow,.Chief.Executive. Kent.Hussey.said.in.the.statement.
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Objectives
At.the.conclusion.of.this.topic.you.should.be.able.to: . . . . . . . . assess.those.circumstances.that.make.diversification.a.desirable.strategy identify.the.three.tests.an.organisation.must.pass.if.a.diversification.strategy.is.to. have.a.reasonable.chance.of.success evaluate.the.three.main.diversification.strategies.open.to.organisations analyse.the.circumstances.when.diversification.into.related.businesses.is.most. attractive.and.the.importance.of.strategic.fit describe.the.circumstances.when.diversification.into.unrelated.businesses.is.an. attractive.option.and.the.potential.drawbacks.of.such.a.strategy use.the.tools.of.strategic.management.to.evaluate.a.range.of.possible.strategies.for. a.diversified.company.following.the.six.suggested.steps identify,.describe.and.evaluate.the.potential.continuing.strategies.for.an. organisation.once.it.has.determined.its.diversification.course use.a.case.study.to.illustrate.how.these.concepts.apply.to.a.real.world.diversified. company.
Materials required
Textbook Thompson.et.al..Chapter.8. Readings Nil. This.is.a.very.long.chapter.and.dry.at.times.so.it.needs.to.be.digested.in.small.doses. only..Break.the.topic.up.into.three.or.four.main.sections.and.work.through.the.sections. systematically.but.with.breaks.from.study.interspersed..We.will.use.the.case.to.try. to.apply.the.concepts.being.discussed..In.the.back.of.our.mind.is.the.fact.that.the. company.has.declared.bankruptcy.
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Textbook
Read Case 19 PepsiCos Diversification Strategy in the textbook, pages C-346 to C-361 from start to finish glancing at the financial data and other exhibits. Note the financial data on C-360 reveals significant increases in shareholder value and profitability. The interesting information is which areas Pepsi has deliberately entered into and acquired in its snack, salty and beverage products.
When to diversify
Textbook
Read pages 238244.
When.there.are.substantial.risks.that.a.single.business.companys.market.may.dry. up.or.when.opportunities.to.grow.revenues.and.earnings.in.the.companys.mainstay. business.begin.to.peter.out,.managers.usually.have.to.make.diversifying.into.other. businesses.a.top.consideration. We.are.first.told.in.the.text.(pages.239240).that.there.are.four.distinct.facets.to. crafting.a.diversified.strategy..Since.these.facets.are.time.consuming.they.are.often. delegated.to.specific.business.units. There.are.at.least.four.situations.which.may.arise.that.suggest.or.impel.the.company.to. consider.diversification..These.situations.are.explained.on.page.241. A.company.can.diversify.into.closely.related.businesses.or.into.totally.unrelated. businesses..There.is.no.tried-and-true.method.for.determining.when.it.is.time.to. diversify..Judgements.about.diversification.timing.are.best.made.case.by.case,. according.to.the.companys.own.unique.situation. Not.only.must.organisations.diversify.to.spread.business.risk.but.the.strategy.must. produce.added.shareholder.value..Such.a.strategy.must.pass.the.three.tests.outlined.on. page.270: . . . the.industry.attractiveness.test the.cost-of-entry.test the.better-off.test.
Activity 8.1
From your reading of Case 19 suggest why Pepsi considered a diversification strategy. From the evidence in the Exhibits did these diversification moves improve shareholder value? (Do you see any problems emerging in areas Pepsi has ventured into?)
Each.of.these.is.discussed.in.turn.on.pages.243244.with.the.merits.and.demerits.of. each.considered.
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Textbook
Read pages 244250.
When.we.consider.the.diversification.strategies.of.Pepsi.the.critical.question.(in.view. of.what.happened).is.whether.the.successful.moves.in.North.America.were.able.to. be.replicated.internationally..The.text.first.outlines.the.arguments.why.diversification. should.be.into.related.businesses.(page.244) Strategic.fits.can.occur.anywhere.along.the.value.chain.and.the.text.discusses.(pages. 246247).the.potential.for.such.fits.in.the.areas.of.R&D,.supply.chain,.manufacturing,. distribution,.sales.and.marketing.and.administrative.support. These.potential.advantages.are.illustrated.well.in.Figure.8.2.(page.246)..Some. examples.of.companies.that.have.diversified.successfully.into.related.industries.are. given.in.Illustration.Capsule.8.1.(page.245). When.the.potential.for.economies of scope.is.added.to.these.other.benefits.there.is.a. great.opportunity.for.added.shareholder.value.provided.management.has.successfully. pursued.internal.actions.to.capture.these.benefits.
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Activity 8.2
To what extent did Pepsi diversify into related businesses? Which synergies were evident in the companies they acquired?
As.an.alternative.to.related.businesses.an.organisation.can.diversify.into.unrelated. and.uncharted.waters.by.moving.into.a.completely.different.line.of.business.. The.aim.here.is.to.grow.revenue.and.earnings..Much.time.is.thus.spent.screening. potential.businesses.to.acquire.or.joint.venture.with..A.number.of.criteria.are.used. by.organisations.contemplating.this.type.of.diversification.and.these.are.spelt.out.on. pages.251..It.is.unusual.to.undertake.unrelated.diversification.by.starting.up.a.new. business.entity. Pursuing.an.unrelated.strategy.has.several.distinct.attractions.and.these.are.described. on.pages.252.and.254..There.is.an.inherent.attractiveness.in.not.having.all.ones. eggs.in.the.same.basket.and.an.unrelated.strategy.offers.this.possibility..However.in. order.to.get.the.desired.gains.from.such.a.strategy.there.are.some.challenging.tasks. ahead.for.company.executives.and.these.are.outlined.on.page.254..While.there.are. advantages,.there.are.two.big.drawbacks.to.following.this.strategic.approach:.the. demanding.managerial.requirements.and.the.limited.competitive.advantage.potential.. These.are.explained.on.pages.254255.
Activity 8.3
Review Illustration Capsule 8.2 on page 254 from the textbook, Unrelated Diversification at General Electric, United Technologies, American Standard, and Lancaster Colony.
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Pick one of the four companies listed and explain why you think that company has an unrelated diversification strategy. Check on the Internet if the strategy seems to be working.
Textbook
Read pages 257282.
Having.come.this.far.in.the.topic.in.considering.alternative.strategic.diversification. options.we.now.need.to.consider.whether.the.effort.is.justified. This.requires.us.to.introduce.several.new.tools.of.analysis..The.text.spells.out.in.great. details.a.series.of.six.steps.that.should.be.used.to.determine.whether.the.diversifying. move.will.prove.successful.or.not..It.starts.by.first.listing.the.steps.on.pages.257258. 1.. 2.. 3.. 4.. 5.. Evaluating.industry.attractiveness. Evaluating.business-unit.competitive.strength. Checking.the.competitive.advantage.potential.of.cross-business.strategic.fits. Checking.for.resources.fit. Ranking.the.business.units.on.the.basis.of.performance.and.priority.for.resource. allocation. 6.. Crafting.new.strategic.moves.to.improve.overall.corporate.performance.
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a.score..These.factors.are.outlined.on.pages.261262.and.the.scoring.technique.is. explained.and.interpreted.on.page.262.with.Table.8.2.used.to.give.an.example.of.how. this.scoring/weighting.tool.is.used. Using.a.nine-cell.matrix.to.simultaneously.portray.industry.attractiveness.and. competitive.strength:.the.industry.attractiveness.and.business.strength.scores.can. be.used.to.portray.the.strategic.positions.of.each.business.in.a.diversified.company.. How.this.is.done.is.illustrated.in.Figure.8.5.(page.264).and.the.meaning.of.the. cells.is.explained.on.pages.264.to.the.bottom.of.265..The.nine-cell.attractivenessstrength.matrix.provides.clear,.strong.logic.for.why.a.diversified.company.needs.to. consider.both.industry.attractiveness.and.business.strength.in.allocating.resources.and. investment.capital.to.its.different.businesses.
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a.businesss.prospects..It.is.a.short.step.from.ranking.the.prospects.of.business.units. to.drawing.conclusions.about.whether.the.company.as.a.whole.is.capable.of.strong,. mediocre,.or.weak.performance..These.issues.are.discussed.on.pages.270271. The.rankings.of.future.performance.generally.determine.what.priority.the.corporate. parent.should.give.to.each.business.in.terms.of.resource.allocation..Business. subsidiaries.with.the.brightest.profit.and.growth.prospects.and.solid.strategic.and. resource.fits.generally.should.head.the.list.for.corporate.resource.support. For.a.companys.diversification.strategy.to.generate.ever-higher.levels.of.performance,. corporate.managers.have.to.do.an.effective.job.of.steering.resources.out.of.low. opportunity.areas.into.high-opportunity.areas..The.text.(page.271).suggests.how. decisions.might.be.made.as.to.which.subsidiaries.might.receive.most.of.the.available. resources.while.Figure.8.7.(page.271).sets.out.the.options.(strategic.and.financial).for. allocating.resources.among.competing.business.units.in.the.diversified.structure.
Activity 8.4
At this stage refer again to the PepsiCo case study. Use the concepts and tools discussed in the previous six steps to try to determine the industry attractiveness and the relative attractiveness of the different acquired businesses and whether there were appropriate strategic fits with Pepsi. Should the low growth internationally have been obvious given your analysis?
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Activity 8.5
Complete Exercises 2 and 3 on page 287 of the text.
Summary
Diversification.becomes.an.attractive.strategy.when.a.company.runs.out.of.profitable. growth.opportunities,.and.its.purpose.is.to.build.shareholder.value.which.is.the. ultimate.justification.for.diversifying..Strategies.for.entering.new.businesses.would.be. acquisition,.internal.start-up.or.either.a.joint.venture.or.strategic.partnership..The.path. of.diversification.would.be.through.a.related.or.unrelated.business..Related.businesses. possess.competitively.valuable.cross-business.value.chain.matchups,.and.unrelated. businesses.have.very.dissimilar.value.chains,.containing.no.competitively.useful. cross-business.relationships..Moreover,.there.is.nothing.that.would.prevent.a.company. from.subscribing.to.a.combination.of.the.two.related-unrelated.diversification. strategies. When.examining.a.diversified.companys.strategy.to.decide.on.how.to.improve.its. performance,.a.strategic.analyst.must.evaluate.the.industry.attractiveness,.businessunit.competitive.strength,.check.for.cross-business.strategic.and.resource.fits,.rank. the.business.units.on.the.basis.of.performance.and.priority.for.resource.allocation,. and.craft.new.strategic.moves.to.improve.overall.corporate.performance..After.the. company.diversifies,.it.needs.to.broaden.its.business.base,.narrow.its.diversification. base,.restructure.its.business.line-up.and/or.consider.the.diversity.of.its.national. markets..This.will.then.require.acting.socially.responsible.when.considering.strategic. ethical.decisions.
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Activity 8.3
Students can pick from GE, United Technologies, American Standard, and Lancaster Colony. In their answers, students should reflect an understanding of the basic premise of unrelated diversification, which is that any company that can be acquired on good financial terms and that has satisfactory growth and earnings potential represents a good acquisition and a good business opportunity for the diversifying enterprise.
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GCM
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Unit evalUation
For.Items.113,.please.indicate.the.extent.to.which.you.agree.or.disagree.with.the.statements.about.the.unit.by. using.the.following.scale:
1 = Strongly agree 2 = Agree 3 = Neutral 4 = Disagree 5 = Strongly disagree
In.response.to.each.statement.please.circle.the.number.that.most.accurately.reflects.your.opinion.
Assessment
. 6.. The.arrangements.for.submitting.assignments.were.suitable.. . 7.. My.work.was.marked.and.returned.within.a.reasonable.time.. 1. 1. 2. 2. 3. 3. 4. 4. 5 5
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1. 1. 1. 1. 1. 1.
2. 2. 2. 2. 2. 2.
3. 3. 3. 3. 3. 3.
4. 4. 4. 4. 4. 4.
5 5 5 5. 5. 5
If.you.provided.a.strongly.disagree.response,.please.indicate.why.
Staff contact
For.Items.1419,.the.15.scale.means.the.following:
1 = Always 2 = Usually 3 = Sometimes 4 = Rarely 5 = Never
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1.
2.
3.
4.
On.a.separate.piece.of.paper,.please.suggest.ways.we.could.improve.any.aspect.of.administrative.support.in.this. unit..You.may.wish.to.include.comments.under.the.headings.of: Administrative support University services General (e.g. Would you recommend this course/unit?)
Topic 9
Strategy, ethics and environmental sustainability
Introduction
In.this.topic.and.Topic.11.we.take.a.different.approach.to.strategy.than.we.find.in.other. topics..These.two.topics.are.concerned.with.the.people.who.lie.behind.the.making. of.strategy.and.their.behaviour..We.deal.with.some.issues.that.are.complex.and.often. emotional..In.between.we.focus.in.Topic.10.on.the.implementation.of.strategy. Let.us.start.this.topic.in.a.completely.different.and.thought.provoking.way..We.will. commence.with.two.activities.that.will.highlight.the.types.of.issues.to.be.raised.
Activity 9.1
Turn to page 306 in the textbook. Answer the questions under Illustration Capsule 9.1. It is suggested that your responses might give some indication of your ethical stance.
Objectives
At.the.conclusion.of.this.topic.you.should.be.able.to: . . . . . . . . . . explain.the.concept.of.business.ethics distinguish.between.the.schools.of.thought.concerning.business.ethics evaluate.the.three.categories.of.management.morality describe.the.main.drivers.of.unethical.behaviour explain.the.various.approaches.organisations.can.take.towards.managing.ethical. conduct appraise.why.business.practices.should.be.ethical distinguish.between.social.responsibility.and.social.conscience explain.various.ways.in.which.businesses.can.exhibit.socially.responsible. behaviour examine.the.moral.and.business.cases.for.social.responsibility assess.the.controversy.concerning.the.actions.of.business.executives.in.their. approaches.to.social.responsibility.
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Materials required
Textbook Thompson.et.al..Chapter.9 Reading 9.1. Branco,.MC.&.Rodrigues,.LL.2006,.Corporate.Social.Responsibility.and. Resource-Based.Perspectives,.Journal of Business Ethics,.vol..69,.iss..2,. December,.pp..111132. There.are.two.cases.in.our.textbook.that.will.be.used.to.illustrate.the.content.of. this.topic..They.are.Cases.25.and.26..The.first.deals.with.the.ethics.and.social. responsibility.of.a.very.large.liquor.and.wine.producer,.Gallo.in.the.USA;.the.second. focuses.on.the.use.of.cheap.foreign.labour.in.the.manufacture.of.goods.for.Western. markets.
Textbook
Read Cases 25 and 26 in the textbook identifying issues of ethics and social responsibility in the cases. It is interesting to point out that since the previous edition of the text, there has been a name change to this chapter: that is, it now includes the concept of environmental sustainability too. Being mindful of greenwash and the general popularist policy directions of many governments (particularly northern European), it is interesting to note an American textbook now considers it important to make this inclusion.
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Reading 9.1
Turn to Reading 9.1 and read pages 111132.
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Activity 9.2
What approach to business ethics would you say Nike and Walmart take? Considering where Nike was some years back, accused of child and human exploitation, it is fascinating to see where they are now. Take a look at the following website http:// ethisphere.com/wme2009/ and note how many firms there are that you wouldnt have thought eligible.
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Imagine.for.a.moment.how.a.CEO.of.a.cigarette.or.alcohol.producer.might.balance.the. need.to.appear.ethical.with.voracious.investor.expectations.and.requirements.
Textbook
Read page 307.
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Activity 9.3
Which ethical approach would you suggest Gallo are taking in Case 25? What would you do differently, if anything?
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. . . .
Numerous.textbooks.and.management.journals.espouse.the.value.of.being.ethical;. we.usually.see.this.in.the.form.of.case.studies.that.indicate.failure.of.the.firm.due. to.unethical.or.unsustainable.conduct..However,.it.is.also.worthwhile.considering. just.how.many.firms.prosper.despite.their.apparent.lack.of.regard.for.people,.the. environment,.broad.stakeholder.view.and.even.their.customers..Think.of.businesses. engaged.in.casinos,.tobacco,.alcohol,.adult.and.the.military.for.starters. Many.companies.have.adopted.codes.of.ethical.behaviour.and.put.these.out.in.the. public.domain..A.good.example.of.this.is.found.in.Illustration.9.2.on.page.311.. Consider.the.challenges.when.it.comes.to.employing.cheap.labour.in.locations. where.many.companies.source.their.imports..Bear.in.mind.the.added.pressure.of. globalisation.and.the.penchant.of.consumers.wanting.the.cheapest.prices.on.all.sorts.of. products.and.services..These.have.to.be.sourced.in.fiercely.competitive.conditions. At.this.stage.it.might.be.interesting.to.re-evaluate.your.own.business.ethics.from. Illustration.Capsule.9.1.(page.306).which.you.may.have.completed.at.the.beginning.of. the.topic.
Activity 9.4
Consider how difficult it would be to lead a global or MNC firm, ensuring you are behaving ethically according to the universalist and relativist ethical schools. What, for example, would you do if you were a CEO of a large timber logging company which was restricted from cutting down old growth timber. Consider the following: Would you look to obtain sources from other countries? Would you apply the same rigorous environmental standards in say Penang that you would have to apply in say Tasmania? What choices do you have? How do you please your shareholders and the communities you harvest your product from?
So.far.we.have.been.focussing.only.on.business.ethics..We.now.move.to.the.second. area.affecting.business.practice.and.that.is.the.issue.of.social.responsibility.
Textbook
Read pages 310321
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Organisations.have.a.number.of.different.strategies.they.can.adopt.to.demonstrate.that. they.are.seeking.to.behave.in.a.socially.responsible.manner..Five.of.these.actions.are. described.in.turn.on.pages.311.to.321: . . efforts.to.employ.an.ethical.strategy.and.observe.ethical.principles.in.operating. the.business making.charitable.contributions,.donating.money.and.the.time.of.company. personnel.to.community.service.endeavours,.supporting.various.worthy. organisational.causes,.and.reaching.out.to.make.a.difference.in.the.lives.of.the. disadvantaged actions.to.protect.or.enhance.the.environment.and.in.particular,.to.minimise.or. eliminate.any.adverse.impact.on.the.environment.stemming.from.the.companys. own.business.activities actions.to.create.a.work.environment.that.enhances.the.quality.of.life.for. employees.and.makes.the.company.a.great.place.to.work actions.to.build.a.workforce.that.is.diverse.with.respect.to.gender,.race,.national. origin,.and.perhaps.other.aspects.that.different.people.bring.to.the.workplace.
. .
These.five.components.are.neatly.summarised.in.Figure.9.2.(page.313).
Summary
Business.ethics.means.the.application.of.general.ethical.principles.and.standards.to. business.behaviour,.and.business.actions.are.judged.by.the.general.ethical.standards. of.society,.not.by.a.special.set.of.permissive.standards..The.three.categories.of. management.morality.would.be.the.moral,.immoral.and.amoral.manager..The. drivers.of.unethical.strategies.would.be.overzealous.pursuit.of.personal.gain,.heavy. pressure.on.company.managers,.and.a.company.culture.that.puts.profitability.ahead.of. ethical.behaviour..The.school.of.ethical.universalism.holds.that.human.nature.is.the. same.everywhere.and.thus.that.ethical.rules.are.cross-culture..The.school.of.ethical. relativism.holds.that.different.societal.cultures.and.customs.give.rise.to.divergent. values.and.ethical.principles.of.right.and.wrong. The.approaches.taken.to.manage.a.companys.ethical.conduct.would.be.the. unconcerned.or.non-issue,.the.damage.control,.compliance.and.ethical.culture. approach..The.essence.of.socially.responsible.business.behaviour.is.that.a.company. should.strive.to.balance.the.benefits.of.strategic.actions.to.benefit.shareholders. and.to.proactively.mitigate.any.harmful.effects.on.the.environment.that.its.actions. and.business.can.have..Each.companys.strategic.efforts.to.operate.in.a.socially. responsible.manner.should.be.custom-tailored.and.matched.to.its.core.values.and. business.mission,.thereby.representing.its.own.statement.about.how.we.do.business,. and.how.we.intend.to.fulfil.our.duties.to.all.stakeholders.and.society.at.large. (Hang.in.there..We.only.have.two.more.topics.and.three.more.chapters.to.negotiate.)
Activity 9.4
Student answers will vary depending on their personal perspectives. Some students will agree with the prosecutors, that the commissions are the same as kickbacks. Others will look for ways to make such arrangements beneficial and practical without abuse.
Topic 10
Building an organisation capable of good strategy execution
Introduction
Implementing.strategy.is.an.action-oriented,.operations-driven.activity.revolving. around.managing.people.and.business.processes..It.is.tougher.and.more.timeconsuming.than.crafting.strategy.and.it.is.where.most.strategies.fail..It.is.often.said. that.successful.strategy.is.10%.crafting.and.90%.implementation..Success.depends.on. the.manager.doing.a.good.job.of.leading,.motivating.and.working.with.others.to.create. fits.between.strategy.and.how.an.organisation.does.things. In.this.topic.we.will.initially.tackle.the.first.of.the.strategy.implementation.tasks:. building.resource.capabilities.and.structuring.the.organisation..We.will.see.that.it. is.largely.a.people.management.issue,.finding.the.right.people.and.motivating.the. organisation.to.build.the.necessary.capabilities.to.implement.strategies.that.lead.to.the. development.of.competitive.advantage. Chapter.10.examines.the.process.of.executing.an.organisational.strategy..It.has. an.emphasis.on.the.conversion.of.a.strategy.into.actions.and.good.results.for. organisations..The.chapter.explores.how.executing.strategy.is.an.operations-driven. activity.that.revolves.around.the.management.of.people.and.business.processes.. It.asserts.that.successfully.executing.a.strategy.depends.on.doing.a.good.job.of. working.with.and.through.others,.building.and.strengthening.competitive.capabilities,. motivating.and.rewarding.people.in.a.strategy-supportive.manner,.and.instilling.a. discipline.of.getting.things.done. Chapter.11.discusses.five.additional.managerial.actions.that.facilitate.the.success. of.a.companys.strategy.execution.efforts..These.include.(1).marshalling.resources. to.support.the.strategy.execution.effort,.(2).instituting.policies.and.procedures.that. facilitate.strategy.execution,.(3).adopting.best.practices.and.striving.for.continuous. improvement.in.how.value.chain.activities.are.performed,.(4).installing.information. and.operating.systems.that.enable.company.personnel.to.carry.out.their.strategic. roles.proficiently,.and.(5).tying.rewards.and.incentives.directly.to.the.achievement.of. strategic.and.financial.targets.and.to.good.strategy.execution. In.the.final.topic.of.this.unit.(Topic.11).we.will.look.at.corporate.culture.and.the. leadership.that.is.needed.to.ensure.that.the.strategies.that.have.been.crafted.will.be. executed.and.implemented..That.will.involve.reviewing.Chapter.12.in.the.textbook. The.last.three.chapters.need.to.be.considered.as.a.unit.on.their.own..There.are.eight. separate.but.inter-related.aspects.of.implementation.that.we.will.now.embark.upon.. These.are.broken.up.across.three.chapters.in.the.textbook.but.only.two.topics.in.this. Study.Guide..This.topic.also.has.a.lot.of.content.but.the.concepts.are.not.difficult.and. need.to.be.taken.slowly.with.time.to.reflect.on.each.of.the.many.issues.raised.
103
Objectives
At.the.conclusion.of.this.topic.you.should.be.able.to: . . . . . . . . . . outline.the.critical.components.of.an.effective.strategic.implementation.strategy differentiate.the.components.of.the.strategy.execution.process explain.the.elements.of.an.effective.staffing.plan.for.an.organisation.implementing. a.strategy explain.the.importance.of.building.core.competencies.and.capabilities.in. organisations outline.how.choices.are.made.about.outsourcing.or.keeping.activities.in-house assess.the.elements.required.in.structuring.the.work.effort.to.achieve.strategy. execution explain.how.new.policies.and.procedures.can.assist.in.strategy.implementation describe.the.types.of.best.practices.that.can.be.used.to.monitor.strategy.execution. processes examine.the.key.features.needed.in.information.and.operating.systems.to.assist.in. strategy.execution explain.the.essential.elements.involved.in.tying.rewards.and.incentives.to.strategy. execution.
Materials required
Textbook Thompson.et.al..Chapters.10.and.11. Readings Nil.
Unless.you.have.a.trained,.literate,.motivated.Work.force,.and.give.them. decision-making.authority,.you.dont.get.satisfied.customers.
(Anthony.Rucci. Chief.Administrative.Officer,.Sears.Roebuck)
Textbook
Read pages 329331.
Strategy.is.a.tough.management.job.because.of.the.demanding.variety.of.managerial. activities.that.have.to.be.performed..There.are.numerous.ways.to.tackle.each.activity.. It.also.requires.a.high.level.of.people.management.skills.and.demands.perseverance. to.successfully.launch.a.variety.of.initiatives..Managers.find.that.there.are.a.large. number.of.bedevilling.issues.to.be.worked.out.and.they.constantly.find.themselves. battling.resistance.to.change.within.the.organisation..This.compounds.the.difficulties. of.integrating.the.efforts.of.work.groups.into.a.smoothly.functioning.whole. Implementing.a.new.strategy.takes.adept.leadership.to: . . . . overcome.pockets.of.doubt build.consensus secure.commitment.of.concerned.parties get.all.implementation.pieces.in.place.and.coordinated.
The.simple.message.on.pages.329331.is.that.executing.strategy.is.more.difficult. than.formulating.it.and.it.requires.the.involvement.of.all.managers.in.an.organisation.. Moreover.we.are.reminded.on.page.331.that.there.is.no.one-best-fit.for.executing. strategy.and.that.the.execution.process.must.be.tailor.made.to.fit.the.companys.own. circumstances. There.are.eight.components.identified.as.being.essential.for.the.successful. implementation.of.a.strategy.and.these.are.listed.on.pages.329330.and.well.illustrated. in.Figure.10.1..(page.330)..These.eight.segments.in.Figure.10.1.are.the.content.of.the. next.three.chapters.in.the.textbook..The.starting.point.for.implementing.strategy.is.for. an.organisation.to.know.what.needs.to.be.done.better.and.differently..How.this.is.done. will.differ.between.large.and.small.organisations.(page.330331).
Textbook
Read pages 336341.
Building.core.competencies,.resource.strengths,.and.organisational.capabilities.that. rivals.cannot.match.is.a.sound.foundation.for.sustainable.competitive.advantage! Some.of.the.strategically-relevant.core.or.distinctive.competencies.that.may.need.to.be. built.include: . . . . . . . . . . greater.proficiency.in.product.development better.manufacturing.know-how capability.to.provide.better.after-sale.service faster.response.to.changing.customer.needs superior.cost-cutting.skills capacity.to.speed.new.products.to.market superior.inventory.management.systems better.marketing.and.merchandising.skills specialised.depth.in.unique.technologies greater.effectiveness.in.promoting.union-management.cooperation.
The.text.gives.a.very.useful.framework.for.building.capabilities,.suggesting.three. stages.in.building.capabilities.(page.337).are.necessary: Step 1 Step.1.is.to.select.people.with.relevant.skills/experience.and.broaden.or.deepen.their. individual.abilities.as.needed..The.aim.is.to.mould.the.energies.and.work.products.of. individuals.into.a.cooperative.group.effort.to.create.organisational.ability. Step 2 As.experience.builds,.such.that.the.organisation.learns.to.accomplish.the.activity. consistently.well.and.at.acceptable.cost,.the.ability.translates.into.a.competence.and. an.organisational.capability. Capabilities.emerge.from.establishing.and.nurturing.collaborative.working. relationships.between.individuals.and.groups.in.departments.and.between.a.company. and.its.external.allies. Step 3 If.mastery.of.a.core.competence.is.achieved.to.the.point.where.the.organisation.has. the.capability.to.perform.the.activity.better.than.rivals,.the.capability.becomes.a. distinctive.competence.and.holds.potential.for.competitive.advantage..This.is.the. optimal.outcome.of.the.capability-building.process!
a r
Activity 10.1
Review Illustration Capsule 10.1 on page 334, How General Electric Develops a Talented and Deep Management Team from the textbook. Identify the four key elements that support General Electrics efforts to build a talentrich stable of managers. Has this approach proven to be successful? Explain.
Part.of.strategy.execution.is.the.organising.of.tasks.and.work.groups.to.carry.out. the.implementation..While.all.organisations.will.have.their.own.way.to.organise. these.tasks.there.are.considerations.that.are.common.to.all.companies.and.these.are. presented.in.Figure.10.3.(page.342).and.discussed.in.detail.on.pages.343345. One.of.the.first.decisions.is.to.determine.which.activities.to.perform.internally.and. which.to.outsource..The.advantages.of.outsourcing.activities.are.spelt.out.on.pages. 342.with.some.examples.given.of.successful.outsourcing.arrangements..However. there.are.some.dangers.in.excessive.or.unwise.outsourcing.and.these.are.discussed.on. page.344. The.second.step.is.to.determine.which.activities.will.be.the.main.building.blocks.of. the.organisational.structure.and.the.task.here.(pages.345346).is.to.determine.which. structures.best.fit.which.strategies. The.next.challenge.in.implementation.is.to.decide.how.much.authority.and. independence.is.to.be.given.to.each.business.unit.and.employee..The.advantages.and. disadvantages.of.centralised.and.decentralised.structures.are.discussed.on.pages.346 349.and.summarised.well.in.Table.10.1.(page.347)..While.many.organisations.have. moved.towards.more.decentralised.structures.this.creates.challenges.in.maintaining. control.and.capturing.strategic.fit.and.these.issues.are.discussed.on.pages.348349. There.are.two.other.issues.that.remain.here.and.the.first.of.these.is.the.need.to.provide. for.some.degree.of.internal.cross-unit.coordination.(pages.349351)..There.are.many. strategy-critical.activities.that.cut.across.different.functions.and.these.need.to.be. coordinated..The.second.issue.is.to.maintain.collaboration.with.outside.suppliers.and. strategic.allies.(page.351). Since.the.latest.edition.of.this.text,.the.section.on.organisational.structure.has.been. left.out,.however.in.the.opinion.of.the.writer,.it.is.no.less.important,.regarding.the. execution.of.strategy..In.fact,.strategy.101,.or.even.elementary.management.texts. allude.the.need.of.having.a.strategy.before.a.structure..Mintzberg.engages.with.this. concept.in.his.elaboration.of.the.Design.School.
a a
Activity 10.2
Review Illustration Capsule 10.2 on page 340 from the textbook, Toyotas Legendary Production System: A Capability That Translates into Competitive Advantage What two TPS techniques do you think are the most unusual? How do you think these help Toyota to pursue a more efficient manufacturing operation?
Activity 10.3
Complete Exercise 1 on pages 355 of the text.
Textbook
Read pages 358359.
Textbook
Read pages 370373.
Examples.are.given.on.pages.370371.of.types.of.systems.that.have.been.put.to.good. use..The.author.of.this.Study.Guide.has.also.had.a.good.deal.of.experience.with.SAP,. a.specialist.in.Enterprise.Resource.Planning.(ERP).and.Business.Intelligence.systems.. The.direct.benefit.of.using.an.ERP.is.that.it.integrates.all.parts.of.the.business,. reduces.reporting.times.and.offers.managers.and.users.enhanced.visibility.and.process. improvement. There.are.many.competitors.in.the.ERP.market,.but.predominantly.SAP,.Microsoft,. Oracle.and.Accenture.are.the.bigger.players,.and.ultimately.this.group.makes.up.the. vast.majority.of.market.share.for.ERP.in.large.enterprises.(LEs).and.even.small.to. medium.enterprise.(SMEs)..Think.of.any.franchise.business.and.you.will.see.systems. which.are.easily.replicated.to.each.new.site,.store.or.territory.and.ultimately.backend. systems.which.give.strategic.information.and.data.that.support.management.decisions. and.operations.management. Mobilising.information.and.creating.systems.to.use.knowledge.effectively.can.yield. competitive.advantage. Innovative,.state-of-the-art.support.systems.can.be.a.basis. for.competitive.advantage.if.they.give.a.firm.capabilities.that.rivals.cant.match!.The. systems.in.place.must.not.only.provide.information.but.also.act.as.controls..The.roles. and.requirements.of.such.systems.are.explained.on.pages.371372. Accurate,.timely.information.is.essential.to.guide.action.in.implementing.strategy.. Prompt.feedback.on.implementation.activities.is.needed.before.actions.are.fully. completed..Key.strategic.performance.indicators.must.be.tracked.as.often.as.practical. because.they.provide.the.barometers.of.overall.performance..Information.systems. should.provide.data.on.customers,.operations,.employees,.suppliers/partners/ collaborative.allies,.and.of.course,.financial.performance. The.challenge.in.exercising.adequate.control.over.empowered.employees.lies.in.how. to.ensure.the.actions.of.employees.stay.within.acceptable.bounds..Diagnostic.control. systems.can.be.of.use.with.the.benefit.that.they.relieve.managers.of.the.burden.of. constant.monitoring..Some.of.the.control.methods.include: . establishing.boundaries.on.what.not.to.do,.allowing.freedom.to.act.with.limits . face-to-face.meetings.to.assess.performance. The.importance.of.adequate.controls.is.discussed.on.pages.372373.
Elements.of.both.positive.and.negative.rewards.are.necessary..However,.it.is.generally. recognised.that.challenge.and.competition.is.necessary.for.self-satisfaction..Hence.the. prevailing.view.is.that.positive.approaches.work.better.than.negative.ones..Positive. rewards.can.lead.to.enthusiasm,.effort.and.initiative. Rewards.are.the.single.most.powerful.tool.to.win.commitment.to.the.strategy..The. objectives.are.to.generously.reward.those.achieving.objectives.and.to.deny.rewards. to.those.who.do.not..As.a.general.principle,.the.company.should.make.strategic. performance.measures.the.dominant.basis.for.designing.incentives..A.properly. designed.reward.structure.is.managements.most.powerful.strategy-implementing.tool.. An.example.of.linking.incentives.to.strategy.execution.is.given.in.Illustration.Capsule. 11.2.(page.376). The.challenge.of.striking.the.right.balance.between.reward.and.punishment.is. described.on.page.375.and.the.importance.of.basing.rewards.on.results.is.stressed.on. pages.375377. Some.guidelines.for.designing.effective.compensation.systems.are.outlined.on.pages. 379380..It.is.critical.that.these.guidelines.are.both.communicated.and.understood. In.summary,.the.guidelines.for.designing.an.effective.compensation.system.are: . . . . the.payoff.must.be.a.major,.not.a.minor,.piece.of.the.total.compensation.package the.incentive.plan.should.extend.to.all.employees the.company.must.administer.the.system.with.scrupulous.fairness incentives.must.be.linked.only.to.achieving.the.performance.targets.in.the. strategic.plan.
Summary
In.this.unit.we.have.covered.a.wide.range.of.the.issues.and.principles.involved.in. implementing.strategy..It.is.by.far.the.hardest.element.of.strategic.management,. because.it.is.where.we.leave.the.realm.of.analysis.and.creative.thinking.and.set.about. convincing.the.organisation.to.accept.and.run.with.the.chosen.strategy..It.is.also.where. most.strategies.that.fail.have.problems. You.should.focus.most.of.your.attention.on.the.issues.of.leadership.and.building.core. competencies.because.these.lie.at.the.heart.of.the.new.approaches.to.management. including.programs.like.TQM.and.benchmarking..They.are.also.the.keys.to.successful. strategies.into.the.next.era.in.business.
f f
Activity 10.1
The four key elements employed by this organisation include: transferring managers across divisional, business, or functional lines for sustained periods of time, exhibition of the four Es by potential executive candidates, proficiency in what is termed workout, and attendance in the Leadership Development Centre. This approach has proven to be highly successful for the organisation. Today, General Electric is widely considered to be one of the best-managed companies in the world, partly because of its concerted effort to develop outstanding managers.
Activity 10.2
Students should select two choices from among the eight listed in this example. Student responses will vary, but students should be exhibiting some personal viewpoints or perspectives that otherwise may not have been brought to light. This sharing should facilitate further classroom discussion about quality control.
Topic 11
Culture, leadership and strategic execution
Introduction
Planet Google As Google celebrates its 10th birthday, its control of the Internet seems unassailable. But is the search engine as benign as its creators intended? Gerard Wright reports.
This.is.a.Google.search..Eric.Schmidt.has.just.introduced.himself,.waiting,. unannounced.and.unassuming,.until.a.conversation.finishes..He.is.a.tallish.man. with.a.face.surprisingly.youthful.for.its.53.years,.its.upper.reaches.obscured.by. large,.rimless.glasses. The.meeting.has.been.planned.and.co-coordinated.across.ocean.and.continent. over.several.weeks:.a.sit-down.with.the.CEO.of.the.world-changing,.futurechallenging,.multi-billion-dollar.company.that.is.Google..We.each.have.a. minder;.polite,.diligent.young.men,.at.least.one.of.whom.has.an.already. staggering.to-do.list:.the.examination.and.explanation.of.the.companys. philosophy,.prospects.and.challenges.on.its.tenth.anniversary. All.that.is.missing.is.a.place.to.stage.the.interview..A.conference.room.door.is. opened..Schmidt.looks.in,.the.occupants.look.up..Its.taken..So.is.the.next.one. Schmidt.(Dr.Schmidt,.with.a.PhD.in.electrical.engineering.and.computer. sciences,.as.his.business.card.introduces.him).speaks.matter.of.factly.and.his. pronouncements.can.sound.science-fictional,.but.its.clear.his.public.ego.has.long. since.abandoned.the.commute.to.this.corner.of.Californias.Silicon.Valley..I.let. go.of.that.a.long.time.ago,.says.the.chief.executive.who.cant.command.his.own. conference.room.as.we.walk.along.a.hallway. Recalls.Miriam.Rivera,.one.of.the.companys.first.in-house.lawyers:.Less. management.was.a.hallmark.of.Googles.early.days..There.wasnt.much.of.a. desire.for,.and.respect.for,.management. Googles.campus,.or.Googleplex,.in.Mountain.View,.one.of.a.string.of.suburbs. along.the.101.Freeway.south.of.San.Francisco,.is.spacious.and.airy,.a.network.of. two-storey,.glass-enclosed.buildings.redesigned.in.2004..In.ways.large.and.small. it.mirrors.Googles.outlook.and.ambitions:.a.company.that.is.the.21st.century. version.of.the.quintessential.American.dream,.but.is.no.longer.of.America..As. of.July,.52.per.cent.of.its.revenue.comes.from.outside.the.country..Its.websites. are.two.of.the.10.most.viewed.in.India..Its.social.networking.site.dominates. discourse.in.Brazil..Last.year.it.answered.47.3.per.cent.of.the.worlds.internet. search.queries.(61.9.per.cent.in.June.in.the.US),.around.250.million.a.day.
115
This.is.reflected.on.a.computer.screen.in.the.buildings.lobby..It.is.an.image.of. Earth,.a.real-time.satellite.view.of.the.globe,.surrounded.by.the.infinity.of.space.. The.planet.slowly.rotates.and,.as.it.does,.coloured.beams.of.light.shoot.into.the. atmosphere..These.represent.Google.searches,.2800.a.second,.in.English,.French,. Spanish,.Portuguese,.German. This.place.is.where.the.internet.resides,.which.is.almost.everywhere..The. exception.is.Africa,.sunlit.and.arid.across.its.northern.third,.timeless.and. disconnected,.but.otherwise.the.image.on.this.oversized.flat.screen.is.beyond. cool,.and.a.powerful,.wordless.statement..Earth.in.the.grip.of.Google. The.globe.revolves..Its.11am.in.Mountain.View..The.familiar,.beloved. continental.outline.between.the.Pacific.and.Indian.oceans.appears..A.beam.of. light.shoots.up..The.cursor.scrolls.across.it..At.2am,.western.time,.a.search. request.has.been.typed.in.Bunbury..Ditto.at.4am.in.Horsham.and.Moe. The.layout.of.the.Google.offices.was.conceived.in.a.way.that.echoed.the.conceits. and.personalities.of.its.youthful.founders,.both.25.when.the.company.was. launched.in.1998..Larry.Page.and.Sergey.Brin.overlaid.the.design.blueprint.with. a.map.of.the.world,.with.a.view.to.naming.conference.rooms.and.other.meeting. places.by.their.proximity.to.the.worlds.cities..Thus,.the.small.square.room.on. the.second.floor,.with.whiteboard,.table,.chairs.and.phone,.with.Timbuktu.affixed. to.one.of.its.windows. Back.at.the.search,.another.assistant.answers.the.request.for.space..She.tells. Schmidt.that.Santiago.may.be.available..Santiago?.Schmidt.replies,.perplexed.. Wheres.that? The.yurts..small,.noise-proof.meeting.rooms.that.can.be.quickly.assembled.in. any.open.space..are.occupied..Every.third.person.walking.the.hallways.seems.to. be.engrossed.in.an.open.laptop.computer..A.partly.opened.door.beckons.and.an. interview.space.is.found..Schmidt.scans.my.business.card.quoting.a.decade-old. Hotmail.address..Microsoft!.Those.bastards!.Well.have.to.get.you.a.Gmail. address,.he.says.
(The Australian.Magazine,.September.2008)
The.15th.edition.of.this.textbook.had.Google.as.one.of.its.case.studies..(Indeed.this. case.was.used.as.a.final.examination.case.in.one.particular.trimester.this.unit.was. offered)..Google.is.an.extremely.interesting.case.to.study.mainly.because.it.is.so.well. known.as.the.major.search.engine.but.also.because.of.its.unusual.culture.and.strong. leadership..Some.of.this.is.evident.in.the.extract.above.from.Reading.11.1 This.topic.covers.Chapter.12.of.the.textbook.which.explores.the.two.remaining. managerial.tasks.that.shape.the.outcome.of.efforts.to.execute.a.companys.strategy.. These.two.tasks.include.(1).creating.a.strategy-supportive.corporate.culture.and. (2).exerting.the.internal.leadership.needed.to.drive.the.implementation.of.strategic. initiatives.forward. In.this.final.topic.we.will.complete.our.discussion.of.implementing.strategy.by. considering.the.important.issues.of.culture.and.leadership.and.their.impact.on. implementing.strategy.
Objectives
At.the.conclusion.of.this.topic.you.should.be.able.to: . . . identify.the.key.features.of.a.companys.corporate.culture differentiate.between.strong.and.weak.cultures identify.the.characteristics.of.unhealthy.cultures
. . . . .
Materials required
Textbook Thompson.et.al..Chapter.12. Reading 11.1.Planet.Google.(online),.available:.http://www.theaustralian.com.au/news/ features/planet-google/story-e6frg8h61111117404083..Accessed.March.24.2010.
Corporate culture
Textbook
Read pages 384410.
Other.examples.of.culture.are.depicted.in.Illustration.Capsule.12.1.(page.387).for. Google.and.Alberto-Culver.
Reading 11.1
Turn to Reading 11.1 and read the full Planet Google article.
Activity 11.1
Compare the section on Google in Illustration Capsule 12.1 with the culture described in Reading 11.1.
In.trying.to.identify.and.describe.a.culture.there.are.a.number.of.factors.to.consider. and.these.are.outlined.on.pages.386390..Corporate.culture.usually.comes.from.the. founder.or.early.leader,.and.becomes.entrenched.through.an.influential.individual. or.work.group..The.culture.becomes.reflected.in.policies,.vision,.or.strategies.and. traditions,.supervisory.practices,.employee.attitudes..Organisational.politics.reinforce. the.culture..The.culture.also.dictates.the.way.relationships.with.stakeholders.are. developed. Corporate.culture.is.sustained.through.the.continuity.of.leadership.and.HR.policies. that.select.new.employees.based.on.how.well.their.personalities.fit.the.culture.. The.culture.becomes.entrenched.further.by.the.systematic.indoctrination.of.new. employees..A.culture.can.also.be.evident.in.the.behaviour.of.senior.employees.to. reinforce.core.values..Culture.is.also.evidenced.by.features.like.story-telling.of. company.legends.and.ceremonies.honouring.employees.who.display.cultural.ideals. This.is.considered.on.pages.388389..This.is.followed.by.a.listing.and.brief.discussion. of.a.number.of.ways.in.which.the.established.culture.can.be.perpetuated.(page.389). It.also.needs.to.be.reckoned.that.sub-cultures.can.arise.within.organisations.and.pose. problems.for.the.established.culture..This.issue.is.highlighted.on.page.390. Culture.can.contribute.to..or.hinder..successful.strategy.execution..This.is.because. the.requirements.for.successful.strategy.execution.may..or.may.not..be.compatible. with.the.culture..Overall,.a.close.match.between.culture.and.strategy.promotes. effective.strategy.execution. Strategy-supportive.cultures.shape.the.mood.and.temperament.of.the.work.force.. positively.affecting.organisational.energy,.work.habits,.and.operating.practices..The. culture.may.provide.standards,.values,.informal.rules.and.peer.pressures.that.nurture. and.motivate.people.to.do.their.jobs.in.ways.that.promote.good.strategy.execution..It. can.also.strengthen.employee.identification.with.the.company,.its.performance.targets,. and.strategy. Strategy-supportive.cultures.stimulate.people.to.take.on.the.challenge.of.realising.the. companys.vision,.do.their.jobs.competently.and.with.enthusiasm,.and.collaborate. with.others.to.execute.the.strategy..The.optimal.condition.is.a.work.environment.that. promotes.can.do.attitudes.and.accepts.change..This.can.breed.the.capabilities.needed. to.execute.strategy.effectively.
A.culture.comes.to.be.strong.through.a.leader.who.establishes.values.consistent.with. customer.needs,.competitive.conditions.and.the.strategic.requirements.of.the.company.. This.instils.a.deep,.abiding.commitment.to.espoused.values.and.business.philosophy:. Practising.what.is.preached!.There.is.also.a.genuine.concern.for.the.wellbeing.of. customers,.employees.and.shareholders. Strong.cultures.promote.good.strategy.execution.where.theres.fit..They.hurt.execution. where.theres.little.fit. Weak.culture.companies.have.many.subcultures.where.few.values.and.norms. are.widely.shared..They.have.few.strong.traditions.and.little.cohesion.among.the. departments..This.is.evidenced.by.weak.employee.allegiance.to.the.companys.vision. and.strategy.and.a.lack.of.a.strong.sense.of.company.identity. The.characteristics.of.low.performance.cultures.include.a.politicised.internal. environment.where.issues.are.resolved.on.the.basis.of.turf..a.culture.of.disparate.subunits..There.is.usually.hostility.to.change.such.that.experimentation.and.efforts.to.alter. the.status.quo.are.discouraged..Employees.avoid.risks.because.of.the.fear.of.failure.. Low-performance.cultures.promote.managers.who.are.more.concerned.about.process. than.about.results..They.also.demonstrate.an.aversion.to.look.outside.for.superior. practices,.preferring.instead.a.must-be-invented.here.syndrome. Some.cultures.are.particularly.unhealthy.and.the.text.discusses.four.of.these.unhealthy. characteristics.on.pages.392394.
Activity 11.2
From Reading 11.1 describe the key values that you feel are part of the Google work environment. In what ways have they contributed to the success of the company?
a r
Activity 11.3
Review Illustration Capsule 12.2 from the textbook, The Culture-Change Effort at Alberto-Culvers North American Division. What resulted from this organisations concerted effort to implement cultural change?
We.can.now.move.on.into.the.second.part.of.this.topic.which.is.leadership.and.its.role. in.the.strategy.execution.process.
1. Staying on top of how well things are going Regular.visits.to.the.field.and.talking.with.many.different.people.at.many.different. levels..to.stay.on.top.of.how.well.the.strategy.execution.process.is.going,.a.manager. needs.to.develop.a.broad.network.of.contacts.and.sources.of.information,.both.formal. and.informal. The.regular.channels.include.talking.with.key.subordinates,.attending.presentations. and.meetings,.reading.reviews.of.the.latest.operating.results,.talking.to.customers,. watching.the.competitive.reactions.of.rival.firms,.exchanging.emails.and.holding. telephone.conversations.with.people.in.outlying.locations,.making.onsite.visits,.and. listening.to.rank-and-file.employees. One.of.the.best.ways.for.executives.in.charge.of.strategy.execution.to.stay.on.top.of. things.is.by.making.use.of.the.technique.often.labelled.managing.by.walking.around. 2. Putting constructive pressure on the organisation to achieve good results Managers.have.to.be.out.front.in.mobilising.organisational.energy.behind.the.drive. for.good.strategy.execution.and.operating.excellence..A.culture.where.there.is. constructive.pressure.to.achieve.good.results.is.a.valuable.contributor.to.good.strategy. execution.and.operating.excellence..Results-oriented.cultures.are.permeated.with.a. spirit.of.achievement.and.have.a.good.track.record.in.meeting.or.beating.performance. targets. Successfully.leading.the.effort.to.instil.a.spirit.of.high.achievement.into.the.culture. generally.entails.such.leadership.actions.and.managerial.practices.as: . . . . . . treating.employees.with.dignity.and.respect making.champions.of.people.who.turn.in.winning.performances encouraging.employees.to.use.initiative.and.creativity.in.performing.their.work setting.stretch.objectives.and.clearly.communicating.an.expectation.that.company. personnel.are.to.give.their.best.in.achieving.performance.targets granting.employees.enough.autonomy.to.stand.out,.excel,.and.contribute using.the.full.range.of.motivational.techniques.and.compensation.incentives.to. inspire.company.personnel,.nurture.a.results-oriented.work.climate,.and.enforce. high-performance.standards celebrating.individual,.group,.and.company.successes.
. 3.
Leading the development of better competencies and capabilities A.third.avenue.to.better.strategy.execution.and.operating.excellence.is.proactively. strengthening.organisational.competencies.and.competitive.capabilities..This.often. requires.top.management.intervention..Aside.from.leading.efforts.to.strengthen. existing.competencies.and.capabilities,.effective.strategy.leaders.try.to.anticipate. changes.in.customer-market.requirements.and.proactively.build.new.competencies.and. capabilities.that.offer.a.competitive.edge.over.rivals. Proactively.building.new.competences.and.capabilities.ahead.of.rivals.to.gain.a. competitive.edge.is.strategic.leadership.of.the.best.kind,.but.strengthening.the. companys.resource.base.in.reaction.to.newly.developed.capabilities.of.pioneering. rivals.occurs.more.frequently.
4.
Displaying ethical integrity and leading social responsibility initiatives For.an.organisation.to.avoid.the.pitfalls.of.scandal.and.disgrace.and.consistently. display.the.intent.to.conduct.its.business.in.a.socially.acceptable.manner,.the.CEO.and. those.around.the.CEO.must.be.openly.and.unswervingly.committed.to.ethical.conduct. and.socially.redeeming.principles.and.core.values. Leading.the.effort.to.operate.the.companys.business.in.an.ethically.principled.fashion. has.three.pieces: . . the.CEO.and.other.senior.executives.must.set.an.excellent.example.in.their. actions.and.decisions top.management.must.declare.unequivocal.support.for.the.companys.ethical. code.and.take.an.uncompromising.stand.on.expecting.all.company.personnel.to. conduct.themselves.in.an.ethical.fashion.at.all.times top.management.must.be.prepared.to.act.as.the.final.arbiter.on.hard.calls.
The.16th.edition.of.the.text.suggests.some.actions.that.senior.executives.need.to.do.if. they.are.serious.about.enforcing.ethical.behaviour.(page.444). As.well.as.the.creation.of.an.effective.ethics.compliance.process.leaders.need.to. demonstrate.genuine.commitment.to.a.strategy.of.social.responsibility..Business. leaders.who.want.their.companies.to.be.regarded.as.exemplary.corporate.citizens.must. not.only.see.that.their.companies.operate.ethically.but.also.take.a.lead.role.in.crafting. a.social.responsibility.strategy.that.positively.improves.the.wellbeing.of.employees,. the.environment,.the.communities.in.which.they.operate,.and.society.at.large..What. separates.companies.that.make.a.sincere.effort.to.carry.their.weight.in.being.good. corporate.citizens.from.companies.that.are.content.to.do.only.what.is.legally.required. of.them.are.company.leaders.who.believe.strongly.that.just.making.a.profit.is.not.good. enough..Such.leaders.are.committed.to.a.higher.standard.of.performance.that.includes. social.and.environmental.metrics.as.well.as.financial.and.strategic.metrics. 5. Leading the process of making corrective adjustments The.leadership.challenge.of.making.corrective.adjustments.is.twofold:.deciding.when. adjustments.are.needed.and.deciding.what.adjustments.to.make. The.process.of.corrective.action.varies.according.to.the.situation..Some.suggestions.of. the.processes.that.might.be.involved.are.given.on.page.446.of.the.16th.edition.of.the. text. Success.in.initiating.corrective.actions.usually.hinges.on.a.thorough.analysis.of.the. situation,.the.exercise.of.good.business.judgment.in.deciding.what.actions.to.take,.and. good.implementation.of.the.corrective.actions.that.are.initiated. A.final.word.on.managing.the.process.of.crafting.and.executing.strategy:.The.best.tests. of.good.strategic.leadership.are.whether.the.company.has.a.good.strategy.and.whether. the.strategy.execution.effort.is.delivering.the.hoped.for.results..If.these.two.conditions. exist,.the.chances.are.excellent.that.the.company.has.good.strategic.leadership.
Summary
In.summary,.it.is.worth.repeating.that.culture.can.contribute.to..or.hinder..successful. strategy.execution..This.is.because.the.requirements.for.successful.strategy.execution. may..or.may.not..be.compatible.with.the.culture..Overall,.a.close.match.between. culture.and.strategy.promotes.effective.strategy.execution..And.culture.needs.to.be. supported.by.strong.leadership.practice..We.outlined.some.of.the.actions.needed.to.be. taken.by.managers.if.the.strategy.is.to.be.successfully.implemented. You.have.now.reached.the.end.of.the.information.contained.in.this.unit..Not.only.have. you.been.presented.with.the.content.of.strategic.models.but.the.application.of.these. has.also.been.addressed.and.you.have.had.the.opportunity.of.applying.them.yourself. to.a.number.of.case.studies..It.has.been.assumed.that.you.have.a.good.knowledge. of.functional.and.process.management.from.your.previous.studies..From.this.base. this.unit.has.tried.to.link.them.into.a.holistic.approach.to.strategic.management.of.an. organisation. Although.there.has.been.a.concentration.on.larger,.commercial.organisations,.the. concepts,.approaches.and.methods.of.thinking.about.organisational.development.can. be.applied.to.all.types.of.organisations..This.is,.again,.to.emphasise.the.importance.of. comparative.analysis.in.organisations.and.analytical.perspectives.on.how.organisations. tend.to.behave.under.contingent.circumstances..Your.task.is.also.to.understand.the. ways.in.which.these.can.be.applied.in.various.organisational.contexts.
Activity 11.3
The culture change effort at Alberto-Culver North America was viewed as a major contributor to improved performance. Since 1993, when the change effort began, until 2001, the divisions sales increased from $350 million to over $600 million.