BUSINESS STRATEGY

Business Strategy

 

Part I: Business Strategies

Introduction

            As companies grow and move in the international market, challenges and opportunities are encountered. Different factors affect organizations. Now more than ever, companies need to focus on developing strategies that will address the different threats posed by the internal and external environment and at the same time explore the opportunities the new business environment provides. Strategy is the direction that a company seeks to pursue. Strategies are geared toward the achievement of business goals. A company’s success rely on it ability to manage its resources and capabilities and its ability to change and develop according to the demands of the business environment.

 

International Business Strategy: Ford Motor Company

            International business strategy reflects the managerial thinking of the company’s overseas operations as some kind of extension of its domestic operations, which is to be supported. Hence, overseas operations are designed to contribute the sales of the domestic product lines or supplying raw materials or components to the domestic operations. Companies with international strategy view domestic market as the primary market but perceive overseas markets as accessories. As a result, the parent company dictates the strategic directions by providing the blueprints for policies and operational guidelines and assigning expatriate managers to overseas posts. Strategic decisions concerning foreign operations tend to be made opportunistically or on an unplanned basis (Bartlett and Ghoshal 1992 cited in Culpan 2002).

            Ford used to implement an international strategy. During the 1970’s Ford’s position as the second largest vehicle producer in the United States was threatened by the industry crisis. Its products suffered from serious quality problems. The company did not have the financial resources to develop the products that were being demanded by US consumers. Ford’s international operations kept it afloat. Ford used an international strategy in order to support its US (domestic) operations. Its foreign sales provided the cash flow needed by the parent company to survive (Studer-Noguez 2002).

           

Multinational Business Strategy: Unilever

A Multinational company means that a company recognizes the importance of overseas markets and makes a greater commitment than an international company by considering local market characteristics. This type of firm leverages foreign market opportunities by responding to the needs of the local market while it faces local competition. Consequently, it adjusts its strategy, products, and even management practices country by country. Its fundamental strategy evolves around having a number of national subsidiaries sensitive and responsive to each national market. As an extension of this strategic approach, each subsidiary is run autonomously by making its own entrepreneurial decisions concerning the new initiatives (Bartlett and Ghoshal 1992 cited in Culpan 2002).

            Unilever is the second largest consumer goods company in the world. This British-Dutch firm currently markets over 1,500 brands of food, home and personal care products in 158 countries and has annual revenue of more than billion. Much of this success can be attributed to its high national responsiveness and low economic integration strategy. Unilever’s strategy is to remain close to customers in the local markets while giving regional managers authority to make operating decisions in these geographic areas (Rugman and Hodgetts 2001).

 

Global Business Strategy: UNIQLO

A global business emphasizes production efficiency rather than responsiveness to the local market. This type of company exploits the scale economy advantages by making and selling products worldwide. To achieve worldwide efficiency, a global company sets up its production facilities in selected countries and distributes its products across countries. The underlying assumption of the global company is that worldwide consumer demand is similar, and therefore there is no need to modify its products country by country (Bartlett and Ghoshal 1992 cited in Culpan 2002).

UNIQLO offers high quality, fashionable clothes at a very affordable price. UNIQLO focuses on limited product range to achieve economies of scale. UNIQLO clothes are made under licence in mainland China and South East Asia under strict design and quality controls. The company maintains close control over every aspect of the business, from product planning, development and procurement of fabrics and clothing design, all the way through manufacturing, distribution and sales. The company integrates all its production sites in China and other countries and UNIQLO stores in more than 700 distant locations around the world in order to achieve the organizational objectives (Fast Retailing Annual Report 2005).

 

Transnational Business Strategy: Asea Brown Boveri

A transnational company combines both the benefits of production efficiency and local responsiveness. This type of company aims at accomplishing production efficiency while making necessary changes in product design, manufacturing, and distribution because of the local market conditions. It combines multinational and global strategic mentalities into single strategic orientation (Bartlett and Ghoshal 1992 cited in Culpan 2002).

            A transnational strategy is useful in achieving the benefits of both global and multinational strategies. The overseas subsidiaries are incorporated into the overall structure across several proportions. Every subsidiary is empowered to respond to the local market (Zwass 1998). The transnational company is characterized by unique contributions by all its entities integrated into worldwide operations.

            One prominent example of a transnational company is Asea Brown Boveri (ABB). ABB is an electrical-equipment giant that demonstrates a portrait of a geocentric organization at work. It balances global scale and state-of-the-art technology with strong local-market bonds. It is a multicultural organization with headquarters in Sweden and Switzerland. It is managed as a flexible network unit and the management functions as facilitator of information and knowledge flows. ABB optimizes business globally through product specialization, expanding cross-border economies of scale in learning and solving problems. At the same time, it maintains local roots, building products in the countries where they are sold, recruiting the best local talent, conducting research in labs around the world, and working with local governments to increase exports (Kadzban and Motwani 1995).

 

Part II: Strategic Management

Strategic Position

Analyzing the strategic position of the company gives a clear understanding about the impact and effects of the external environment, the company’s strategic capability and the expectations and influence of stakeholders on the company’s overall business strategy.

1. Environmental Factors – environmental influence and trends are considered as layers around the organization. The most general layer is the macro-environment where the understanding of political, economic, social, technological, environmental and legal influences (PESTEL) can provide an overall picture of the variety of factors that affect the organization. The sources of competition are also an important concern for the organization. The five forces framework aims to identify the sources of competition in terms of barriers to entry, the power of the buyers and suppliers, the threat of substitutes and the extent of competitive rivalry.

2. Strategic Capability – strategic capability is concerned with the adequacy and sustainability of resources and competences required for an organization to survive and prosper. Companies who effectively use their strategic capabilities achieve competitive advantage. Strategic capabilities comprise tangible and intangible resources and competences – the way such resources are used and deployed. In dynamic conditions, strategic capabilities are hard to maintain. Success will depend on the companies ability to change strategic capabilities.

            For example, ABB considers Research and Development (R&D) as its core strategic capability. The company spends large amount of resources in building this strategic capability. Research and Development has helped the company to constantly innovate and upgrade its operations and businesses. Along with its strong research and development efforts, ABB develops other strategic capabilities through innovation, quality, proximity to customers and speed. In 2006, the company completed its biggest project – the Estlink power connection between Estonia and Finland. Using environmentally friendly technology pioneered by ABB, the company was able to deliver the power link in just 19 months, a record for this type of installation. This only shows that ABB is able to use its strategic capabilities and is able to develop and change these capabilities in order to maintain its leading market position.

3. Expectations and Purposes – expectations and purposes are influenced by four main factors: corporate governance, stakeholder expectations, business ethics and culture. The corporate governance arrangements determine whom the organization is there to serve an how the purposes and priorities should be decided.

            ABB’s corporate governance principle is committed to the highest international standards for corporate governance, and supports the general principles as set forth in the Swiss Code of Best Practice, as well as those of the capital markets where its share are listed and traded. In addition to the provisions of the Swiss Code of Obligations, ABB’s principles and rules on corporate governance are laid down in ABB’s Articles of Incorporation, the ABB Ltd Board Regulations, the regulations of ABB’s board committees and the ABB Code of Conduct. The Board of Directors amend those documents to reflect the most recent developments and practices, as well as top ensure compliance with applicable laws and regulations.

            Stakeholders differ in terms of the power that they hold and the extent to which they are actively interested in the strategies that an organization is pursuing. For example, customers look to ABB for innovation, reliability and integrity. The company’s standards of behavior aim to ensure that the company and its people deliver those values. The employees as stakeholders are also given importance by the company. ABB strives to give employees the tools they need – equipment and information – to be effective. Employee safety, training and development are also given particular attention by top management. How ABB does business is crucial to its reputation and success and business partners are views as allies. ABB expects fair competition in its markets and applies the same standard in dealing with suppliers.

 

Strategic Choices

            Strategic choices involve the analysis of the essential factors that shape future strategies in both the business unit and corporate levels and the choices that are available for the organization in order to efficiently and effectively implement its strategies (ABB Code of Conduct 2007).

1. Business-Level

            Business-level strategy is about competing better or, in the public services, providing best value services. Organizations consist of a number of strategic business units (SBUs) and business-level strategy need to be developed for each of these SBUs.

            ABB is a leader in power and automation technologies that aims at performance improvement while at the same time taking the impact on the environment into consideration. The business units of ABB have different strategies. Each SBU aims to achieve overall organizational objective and mission.

• Power Products – the unit incorporates ABB’s manufacturing network for transformers, switchgear, circuit breakers, cables and associated equipment. The aim of the SBU is to offer components to transmit and distribute electricity.


• Power Systems – offers turnkey systems and services for power transmission and distribution grids and power plants. In power generation, Power Systems offers the instrumentation, control and electrification of power plants.


• Automation Products – this ABB business serves customers with energy efficient and reliable products to improve customers’ productivity, including drives, motors and generators, low voltage products, instrumentation and analytical, and power electronics.


• Process Automation – the main focus of this business is to provide customers with integrated solutions for control, plant optimization, and industry-specific application knowledge.

Corporate-Level

            Corporate strategy is concerned with decisions of the parent about the product and international scope; and how they seek to add value to that created by their business units. The corporate parent is concerned with decisions and activities above the level of business units.

Direction Development

            There are three broad methods of strategy development:

• Internal development has the major benefit of building organizational competences through learning. It can result in overstretched resources and the loss of the advantages of specializations.


• Mergers and acquisitions may have advantages of speed and the ability to acquire competences not already held ‘in-house’. 


• Strategic alliances have many different forms. The most successful alliance appear to be those where partners have positive attitudes managing and developing the partnership.

Strategy into Action

1. Organizing – organizing for success is about an organization’s configuration. This is composed of three related strands:

• Structures – there are many structural types. Each structure responds differently to the challenges and demands of the company’s internal and external environment. ABB recognizes that traditional structure of transnational companies, with smaller versions of the parent company are replicated in countries around the world. To be successful and compete in longer term, ABB is developing a globally-integrated structure where jobs are allocated to those best suit the challenge.


• Processes – there are different processes that an organization can use in order to facilitate strategy.


• Relationships – like structures and processes, relationships are also necessary in order to achieve success. Internally key issues are centralization versus devolution and strategy style. Externally, there are choices around outsourcing, alliances, virtuality and networks which may help or hinder success.

             

2. Enabling – the organization’s resources are important factors in the achievement of success. Managers and individuals who are below senior managers in organizations usually control resources activities and business processes that are crucial in enabling strategic success. Resource management is important in enabling strategic success. Systems and procedures are important in resource management. People are also important. Information plays a significant role in the enabling of success. Information technology is of particular attention at the moment with continuing rapid advances in information technology. Finance is a resource of central importance in all organizations. Technology development affect the competitive forces on an organization and also its strategic capability.

            ABB invests in a core group of local manager who are open-minded, respectful, and appreciative of other countries. Moreover, these managers are generous, patient, persevering, and imaginative. Management seeks opportunities to innovate and goes so far as to ‘overinform’ employees with the sharing of information. ABB promotes worldwide people-rotation teams, which facilitate synergetic opportunities. Countries and individuals realize their own roles, appreciate one another, and know that each business unit complements the next.

            The ultimate goal of ABB is to enhance competitiveness by fostering innovation, increasing customer orientation and driving efficiency by using its global reach and resources. In production, the company has assigned global responsibility for product development to particular factories around the world. The company is also streamlining its operations in human resources, information technology and finance to raise efficiency. In view of dynamic global markets and the consistently high quality of research staff in emerging countries in Asia, ABB has significantly expanded its research base in India and China, where about 40 per cent of ABB’s research resources are now spent.

3. Managing Change

            A recurrent theme in strategic management is the management of change. Change include the need to understand how the context of an organization should influence the approach to change.

            Leadership has played a critical role in bringing about culture change at ABB. Leaders are characterized by competence, ambition, courage and integrity. They lead by example and help to motivate their colleagues. ABB operates in an environment where constant change and innovation are important. Through its world-class research and development facilities and its innovative technology, ABB pursues change. ABB is a world leader in the development of sophisticated computer and software and systems needed to provide secure Internet power trading between producers and consumers. A decade ago, buying and selling electricity as a commodity was technically impossible. However, advances in computing and internet-based trading have encouraged the deregulation of utilities and introduced the world to competitive electricity markets. ABB was able to manage change effectively and the company was able to deal with the new demands of the customers and the changes in the microenvironment. For example, with the launch in 2006 of energy trading markets in the Philippines and Western Australia, ABB put seven systems around the world based on its Network Manager BMS solution. The change in ABB was successful.

 

Part III: Effective Implementation of Strategy

1. Resources must be Adequate to Support Strategic Intent

            Because strategy must be implemented in the future as well as the present, resources, present and intended will determine the scope of the strategy that is feasible. If a firm’s resources are stretched thin and fully utilized in the present, it will be difficult to build reserves for the future, let alone respond effectively to unanticipated exigencies. Thus, management must build surplus resources that can be developed for competition in the future while deploying other assets effectively in the present.

2. Well-Aligned Organizational Structure

            The structure must be able to integrate a wide variety of specialized skills for its strategy to be accomplished. As competitive environments become more dynamic and organizations grow in complexity, integrating mechanisms become correspondingly more important. The organization structure must also be adaptable because rates of change are accelerating and competition is growing rapidly.

3. Motivation of Individuals at all Levels

            This means that strategy managers must be able to overcome the natural resistance of people to change and a wide range of cultural barriers (Roney 2004).

 

Conclusion

            In a global economy where boundaries are non-existent, many organizations have begun to exploit different markets. Companies are starting to expand their operations. Many companies established subsidiaries and business units abroad. There are different strategies that companies are implementing when they choose to expand – international, multinational, global and transnational. International strategy reflects the managerial thinking that views overseas operations as extension to domestic operations. The strategies of the company remains focused on the domestic market. In multinational strategy, the company recognizes the importance of overseas markets. Each business unit is run autonomously in order to respond to the demands of the local markets. A global business on the other hand emphasizes production efficiency rather than local responsiveness. The ultimate goal of global strategy is global efficiency. Lastly, a transnational strategy seeks to combine the benefits of both multinational and global strategies. A transnational company aims at accomplishing production efficiency while making necessary changes in product design, manufacturing, and distribution. We see in the case of ABB that transnational companies encounter different challenges and issues. ABB was able to grow and expand its operations in different countries because it managed its resources and capabilities effectively. ABB continues to change and improve. ABB analyzes both its external and internal environment in order to determine and further enhance its strengths and effectively deal with its weaknesses. The success of the organization with different SBUs in different parts of the world is because of integration and well-designed strategic plans.

 

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