Global Strategic Management oral viva(oral conversation with teacher)
19GLOBAL STRATEGIC MANAGEMENT
Global Strategic Management
Strategy is the overall means undertaken by an organisation to realize its short-term as well as long-term objectives. The various levels of a strategy are corporate level strategy, business level strategy and operational level strategy (Grant 2010).
Corporate level strategy revolves around overall purpose of a firm and value addition. For instance, Dell and Apple are in business of producing personal computers. Dell concentrates with PCs while Apples manufactures operating systems. In this case, diversification exists whereas Apple relies on Dell’s prowess to sell PCs and hence leveraging Apple’s operating systems.
Business level strategy is where a firm seeks to compete in an optimal manner within the market. For instance, Japan possesses highest number of electrical engineers in the automobile sector.
Operational Strategy entails how different organisational units strive to deliver the strategy pertaining to managing firm’s resources, processes and people. For instance, the operational strategy for Walmart Company is to use minimal inventory levels as well as prices to makes more sales.
The elements for exploring the strategy model are long-term, strategic direction and the organisation. These are interrelated.
Under long-term magnitude of strategies is ascertained in years. In some major firms, it takes 10 years. In a pharmaceutical firm for example, horizon 3 is applied where the strategy can take close to 10 years. Three horizons are applicable in this case; that is, extend and defend core business, expand emerging business as well as create viable options.
In regard to strategic direction, strategies pass through long-term direction and or trajectory. For instance, strategic direction for MySpace is from print and to internet media.
Organisations are unified entities with stakeholders. The stakeholders have varied interests. These include suppliers, consumers, alliance regulators as well as stockholders. It is important to consider people involved in organisations, their interests as well as views prior to setting up as strategy should be considered. For instance, MySpace founder crushed with News Corporation executives because of strategic direction.
The strategic position approach deals with thorough comprehension of a company’s environment especially the market which favours its performance. Resource based approach concerns itself with the application of firm’s efficiency, effectiveness and use of resources to gain performance. The emergent approach comprehends strategy as a complex process towards making informed decision. The three approaches are mutually exclusive (Grant, 2010).
PESTEL revolves around trends overtime. Basically, while using PESTEL we are concerned with macro-economic environment affecting a particular sector or industry. The environmental drivers in this case are Political, Economic, Social, Technological, Ecological and Legal (Yüksel 2012).
PESTEL Analysis of a Business School
Political – First, government initiative result to the risk of the institution failing to deliver the policy. Secondly, changes regarding tutor’s skills. Thirdly, change of curriculum with short durations given. Fourthly, requirements of being self-managing are introduced (Yüksel 2012).
Economic – the economic factors in this case includes; Local government decision to fund the school. This may affect the school’s financial establishment. Secondly, closure of local business affecting fund raising plans. Thirdly, hike of loan’s interest rates. Fourthly, the overall cost related to providing resources. This includes, teaching staff and the support, books and technological solutions such as laptops (Yüksel 2012).
Social — the social factors in this case includes; local population changes (either decrease or increase in numbers), reduction in birth rate, closure of local businesses affecting employment, inability to attract employees, poor social networking (in terms of twitter and face book) and changes to the expected qualifications (Yüksel 2012).
Technological – the underlying factors includes; change of equipment standards, obsolete hardware and software within the facility, new computer viruses affecting college operations and risk of selecting inappropriate technology within the time of change (Grant 2010).
Legislative – the factors in this case includes; enactment of new legislation (non-compliance with the law enacted), changes of legislation — for example, child-protection legislation, change of the institution’s opening time and changes to funding related to charity based organisations (Yüksel 2012).
Environmental – the environmental factors includes; construction of a highway near the institution, changes of commuting routes, waste disposal and reducing green space for other commercial activities.
The five 5 factors discussed by porters in his model are; power of buyers, the power of suppliers, threats of new entrants, threats of substitutes products and rivalry of competitors (Grundy 2006).
Power of Buyers
If buyers command the market, prices of products falls while quality demanded increases. This cause profits to diminish (Grundy 2006). For instance, the customers who hold more powers in terms of bargaining are large corporations such as Wal-Mart. This is because they buy in large volumes.
Power of Suppliers
If the power of suppliers is high, they demand high prices and reduce quality of output. This is turn reduces the profitability (Grundy 2006). For instance, Coca-Cola uses ingredients on her soft drinks which include sweetener, caffeine and carbonated water. However being a large firm, the company commands the suppliers’ market meaning that the pressure is moderately low.
Threats of new Entrants
New entrants into the market wage competition and rivalry. This cause prices to go down. Alternatively, prices of raw materials increases. This in turns reduce the profits. For instance, the entry barriers do exist for Coca-Cola. The company experience an increase in number of new brands in the market. Quite often than not, consumers try the new brands (an example is Pepsi).
Threat of Products Substitutes
The customers tend to prefer substitute products instead of the existing ones. This limits the price of existing products causing a downfall in profits (Grundy 2006). For instance, too many energy drinks products do exist in the market for Coca-Cola. The company doesn’t own entirely unique favour. While doing tests, consumers confuse between Coca-Cola brand and Pepsi.
Rivalry of Competitors
The profits in the market reduce if competitors command the market. However, profits rise if there are low entry barriers, high exit barriers, a stable product in the sector, low brand royalty and if there are high fixed costs (Grundy 2006). Presently, the main competitor of Coca-Cola is Pepsi. Pepsi has a broad range of assorted products under her brand. The two companies are predominant in the market and committed in sponsoring outdoor activities.
The idea of critical success factors delves on key variables and or conditions which have tremendous effect on how organisations objectives or strategic goals are realized (Grant 2010).
Critical success factors are directly related to what the industry consumers want and how industry firms survive competition. These issues occur overtime and complete the industry life cycle (Grant 2010). The stages of industry life cycle are as follows;
Introduction – this is the start point of the industry coupled with sensitizing customers and opening new channels of distribution. For instance with the introduction of Apple tables and phones, consumers all over the world were posing queries about the new brand. Therefore Apple Inc. had to perform rigorous marketing of the new product.
Growth – this is the point where customers start to demand products. For instance, Apple products get adopted in the market at an early stage. Sales grow tremendously while profits sour. At this stage, the company operates the market as a monopoly due to its domineering effect.
Shakeout – this is peak point of demand where products are changes with new ones. For instance, before the other companies ‘get wind’ of the existing Apple product, Apple starts to prepare introducing another new product.
Mature – there is saturation of demand and declining prices of products. At this stage, competition still exists. For example, Apple and Dell have operated as leaders in the computing world. The company experience decline sales at the maturity stage, mounting pressure on other manufacturers.
Decline – there is no growth of industry. For instance, in the world market, minivans are popular and preferred than station wagons. Moreover, with technological advancement, more products become obsolete (preference on CDs over vinyl record).
Resource based view of a strategy means that competitive advantage as well as superior performance of a firm correlates to distinctiveness of her capabilities. The dynamic capabilities of a firm are its ability renew as well as recreate strategic capabilities to go in line with the needs of the ever changing environments (Knott 2009).
Resource audit entails a process of ascertaining what a business entity owns. The resources are in form of physical resources, financial resources, human resources as well as intangibles. The audit of resources for a firm takes into account specific needs of the industry such as experience and knowledge in a particular field. It takes considerable time to perform resource audit for an organisation. However, the information and data derived from the process is very invaluable (Knott 2009).
The idea behind resource audit is that business is about resources. Observing and applying what the business has to realize the goals is the major key point. Companies that are engaged in resource audit get optimal production of their resources and invaluably succeed. Therefore, it is prudent for business partners of my organisation to discover the existing resources within the firm which can yield numerous benefits. An ongoing approach towards bettering resource utilization is a step that any firm that want to succeed should embrace and prioritizes (Knott 2009).
For instance while conducting human resource audit for Walmart, it is important to check if there is sense of unity among the employees, turnover rate, how employees are treated, career advancement programs and employees motivation. This is done through reviewing the staff files, checking job description to actual, payroll review, examination of records and conducting individualised interviews.
The criteria in which capabilities of a firm can be assessed and which can act as a basis for realizing competitive sustainable advantage are value, rarity, inimitability as well as organised to exploit (Knott 2009). This forms VRIO analysis model.
Valuable – capabilities are categorised as valuable if they able to assume opportunities and neutralise threats. They should also be valuable to consumers. Such capabilities should be a source of potential competitive advantage. For instance, companies like Apple perform perfectly well due to its innovativeness (Knott 2009).
Rare – A rare capability is the one that the firm uniquely possess. For instance, Mark Zuckerberg launched social media platform Face book. This is a rare innovation.
Inimitability – these are those capabilities that other firms find it complicated and hard to imitate. An example of driver of inimitability is patent. For instance, pharmaceutical firms patent their products. This hinders other firms from copying their products. This reason makes pharmaceutical firms very profitable in the industry (Knott 2009).
Organised – firms resources should be perfectly organised. This is mostly done through collective intelligence to a firm gained through formal systems as well as shared experience of employees. For instance, Walmart pioneered effective distribution of its retail products by applying the latest logistics technology.
There is an interrelation of the SWOT matrix with TOWS matrix. TOWS matrix stands for Threats, Opportunities, Weaknesses and Strengths. The following is a visual representation of a TOWS matrix.
ST Strategic Options – threats work in line with strengths of a firm. A firm used its strengths to nullify its prevailing threats (Knott 2009).
SO Strategic Options – the firm generates options that apply its strength to embrace available opportunities.
WO Strategic Options – a firm generates major options which take advantage of prevailing opportunities to overcome weaknesses (Knott 2009).
WT Strategic Options – a firm generates major options geared at minimizing and alleviating threats.
The main components of Collis and Rukstad’s hierarchy of firms’ statements are;
The mission – this tell why the firm exists.
Values — this explains what the firm believes in and its behaviours (Collis & Rukstad 2008).
Vision – this describes the aspirations of the firm.
Strategy — describes the potential competitive game plan of the company.
Balanced Scorecard – explains how the firm will monitor as well as implement the plan (Collis & Rukstad 2008).
For instance, the mission for Walmart is to save people’s money with an intention of giving them a better live.
The values for Walmart are individual service to customers, respect for individuals and striving for excellence.
Walmart vision is to be the best and leading retailer within the hearts of both the customers and employees.
The main strategy for Wamart is selling quality products at subsidized prices.
Walmart operates a balanced scorecard through financial perspective, internal business processes, learning and growth as well as consumer perspective (Collis & Rukstad 2008).
Shareholder Model of governance: in this model shareholders have absolute priority regarding the wealth generated by the company. Mark and Spencer based in the United Kingdom value the plight of shareholders. They recognise shareholders as the owner of the company. All the activities and operations carried out by the firm are geared at maximizing the wealth of stockholders.
Stakeholder model of governance: in this model, wealth is generated, captured as well as distributed by a number of stakeholders. However, shareholders receive the biggest chunk as well as long-term focus. Heineken International in Netherlands values the plight of stakeholders. They recognise the input that stakeholders have for the company. Examples of a number of stakeholders are the suppliers, regulators, consumers and the employees. The value of the firm is distributed among all stakeholders without favour or discrimination.
‘The business of business is business’ this is a statement articulated by Milton Friedman. The Economist used the strategy of Corporate Social Responsibility to expound his sentiments. He asserts that Corporate Social Responsibility has been on the limelight as most companies embrace CSR as part of their business strategy (Friedman 2007). Friedman acknowledged the enormous benefits that a firm achieves by adopting CSR activities. According to research, substantial number of company executives attributes adoption of CSR at one of the greatest challenges their companies are facing, due to increased pressure of implementing it (Friedman 2007). For instance, community hold companies operating in their midst responsible if things don’t work out according to their expectations. Such firms are expected to perform roads repair and maintenance, initiate education programs, and provide water for the community as well as oversee environmental hygiene.
The cultural web depicts behavioural, physical as well as symbolic manifestations of a particular culture which informs as well as gets informed by taken-for-granted assumptions, and or paradigm of a firm (Mossop, Dennick, Hammond & Robbé 2013).
The funder of cultural web was Gerry Johnson. In the web, there are six interrelated elements. The six elements are as follows:
Stories – this are past happenings that people used to talk about both within and out of the firm. Who and what that the firm chooses to immortalize talks a great deal about its values as well as behaviours (Mossop, Dennick, Hammond & Robbé 2013).
Rituals – these are daily behaviours as well as people’s actions which signal acceptable behaviours.
Symbols – this is normally visual representation of a firm in terms of logos, formal and informal dress codes.
Organizational Structure – this is the structure defined by a chart as well as unwritten power lines as well as influence. This indicates whose roles are most valued.
Control Systems – this entails how the company is controlled (Mossop, Dennick, Hammond & Robbé 2013).
Power Structures – this illustrates pockets of real authority within the company. This includes senior executives, a group of company executives or a department.
Example: in one of call centre agent in the UK, the following issues transpired;
Organisational structure: lack of experience for team managers, frequent change in teams and lack of promotion.
Myths and Stories: Disasters occurred, low morale in the workplace, poor home and work balance and cost cutting.
Rituals and Routines: Customer service, staff development plans and employees survey reports.
Strategists use SWOT analysis to perform comparative analysis between their company and that of competitors. The SWOT of key competitors is constructed by ascertaining whether the strengths of Strategist’s Company might exploit their weaknesses. The reverse happens.
The SWOT is also applied as the main source of ideas through consideration of how strengths of the company can enable it to embrace prevailing opportunities as well as whether weaknesses might worsen the threats that the company is susceptible of. It also gives an analysis of how the firm can respond if the case occurs (Grant 2010).
Example is SWOT Analysis for Microsoft;
Strengths – High capacity for applications as well as operational capacity. The company has flexible and experienced workforce.
Weaknesses – Firm is highly dependent on accoutrements producers for her operating system.
Opportunities – cheaper telecommunication products, accessible markets and brand acceptance.
Threats – stiff competition waged by Apple and Linux. Software piracy is bartering consumers’ application software.
Porter’s Generic model is divided into three parts. These are cost leadership, differentiation strategy and focus strategy:
This entails lowering costs than that of the industry average whilst maintaining high quality. This increases the profitability levels of the firm. It is also achieved by boosting the market share by charging lower prices. The cost leadership is achieved by low input costs, experience, efficiency in design of products and economies of scale (Ormanidhi & String 2008).
This entails coming up with attractive products that those of rivals. This solely depends with nature of industry as well as the products themselves. Moreover, the concept will entail features, support, functionality as well as the brand image towards the consumers’ value.
This entails making a section of a specific cadre of consumers and focusing on their specific needs as per the exclusion of others. Differentiation focus targets specific needs which other differentiators never serve well. The company then gains price premium because of such special attribute. Cost focus is a wider cost-based strategy which is difficult as a result of its propensity to serve broad range of needs (Ormanidhi & String 2008).
For instance, Wal-Mart pursued cost differentiation strategy. The intention of the firm was to serve a substantial number of consumers. Therefore the firm introduced low-cost material technology which mandated the company to purchase, distribute as well as sell its products at subsidised prices than rival competitors.
The Strategy Clock takes a more focused customer angle. Strategy clock contains five parts as explained below.
No frills – there is a need for a firm to focus on the very most sensitive market segments. Example regarding this is Ryanair. The firm may be attractive in regard to market entry. The firm may gain experience in order to use it to expand and develop its strategy. For instance Japanese manufactured low quality cars at low prices in 1960s. The strategy enabled them gain entry into the market (Johnson, Scholes & Whittington 2008).
Low Price – this is about maintaining lower prices as compared to competitors whilst still maintaining high value products. Example to this is Japanese cars manufactured in 1970’s and 1980’s. Another example is Walmart which offer lowest prices possible for her goods. The company’s profit margin is low and depends on bulky sales to generate profits.
Hybrid – this seek to maintain the lower prices as well as differentiation strategy as that of competitors. For instance, small firms never compete with large corporations within the same market. Moreover, they lack capacity to produce high value commodities. Rather, they produce dependable products at a subsidized price.
Differentiation – the firm strive to provide products completely different than the competitors regarding valued dimensions, whilst maintaining high prices. This is achieved through marketing, product uniqueness and use of competence based approach (Johnson, Scholes & Whittington 2008). For instance, Apple differentiates her laptops by offering unique user experiences. The product contains same functionality as the normal PC but the two differentiate sharply.
Focused Strategy – the firm provides high value known in the industry and thus justifying its price premium. For instance, Rolex watch is a luxury commodity. The product’s quality is high in order to fetch higher brand image. The target market of the product is small.
The McDonald’s is reputable for yielding low margins of her products. The company has been successful in the adoption and implementation of the strategy, basically by offering fast-food meals at very low prices. The company differentiate it pricing through division of labour. In this context, McDonald’s hires and train inexperienced employees rather than hiring highly experienced cooks. The company has very few managers who earn higher wages. The labour savings allows the firm to offer services as well as her goods at lower prices. The company benefits from creating a lineage of satisfied customers and employees. The resultant effect is normally high profits which results to the firm’s expansion.
An example of a successful company using no frill strategy is Primark. The company is based in the United Kingdom and is doing well in a very highly competitive market. Primark has a slogan to its customers reading; look good while you pay less’. The company deals with high quality clothing that sell at very subsidized price. For instance a pair of quality jeans sells at only 4 dollars in the company’s stores. The company understand the needs of the market. It has a clear market positioning within the cheap end of the market. They manage the cost tightly and mainly sourcing materials from overseas. They win an edge in marketing and promoting their products. The high sale obtained maintains the firm at the profitability level making the company self-sustaining.
There are three criteria of choosing a strategy; that is, Suitability, Acceptability and Feasibility.
A strategy should be suitable in regard to the environment, resources and or expectations. The most suitable of all should be assessed using systematic approach.
These should be gauged on returns or profitability. The most common methods used are profitability analysis (using ROCE, Payback method and DCF), cost benefit analysis, real options and shareholder value analysis. Risk analysis should also be conducted. Examples of risk analysis tools applicable are financial ratios and sensitivity analysis. Moreover, shareholders reactions should be ascertained through stakeholders’ mapping (Johnson, Scholes & Whittington 2008).
These should gauge both affordability and resourcing once the strategy is implemented.
In order to achieve this, a strategy matrix is constructed. Different strategies are lined on one side while relative evaluation is done to each strategy by ascertaining whether it is suitable acceptable or feasible (Johnson, Scholes & Whittington 2008).
Finally, ranking is done and the strategy that is highly ranked is chosen.
For instance, while launching new products, Apple conducts in-depth strategic analysis. First, the company ensures that any products that get to the consumer fulfil the intended objective. Secondly, the firm conduct customer review and feedback (feasibility study) to ascertain desire level of the product. Thirdly, Apple does feasibility testing of the product in terms of technical testing, cost analysis as well as profitability testing before the product is released in the market.
Grant, R. M. (2010), Contemporary Strategy Analysis. Text and cases (7th ed.) Wiley, Chichester
Adopted from : http://blog.oxfordcollegeofmarketing.com/wp-content/uploads/2016/06/TOWS-Analysis.png, on 17th March, 2017
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