The Corporate Strategy Model

The Corporate Strategy Model Understanding the strategic position is concerned with identifying the impact on strategy of the external environment, an organizations strategic capability and the expectations and influence of stakeholders. The sort of questions this raises are central to future strategies. The Environment Environment plays an important role in building up the strategies and how it affects the organisation strategies and goals looking out for the opportunities and threats from the outer world. Therefore it is very important to evaluate the environmental impacts on the organization. The capabilities Capabilities depends upon the resources and competences within the organization. One way of thinking about the strategic capability of an organization is to consider its strengths and weaknesses. Look for the core competences and USPs which the competitors will find difficult to imitate. Purpose The major influences of stakeholder expectations is organizations purposes. Purpose is summarized in an organisations vision, mission and values. This is important since it clarifies who should the organization serve and how should it work. this reflects the corporate social responsibilities and ethics. Culture These influences directly either on organizational, sectoral or national. Corporate Governance Corporate Governance is concerned with the structures and systems of control by which managers are held accountable to those who have legitimate stake in an organization. (4) There are many other reason which has made its presence an important issue for the organization. Out of which the three main reasons are as follows; The separation of ownership and management control which means that the organization works with hierarchy or within the chain of governance. This chain basically represents those groups that influence an organization through their involvement in either ownership or management of an organization. Scandals by the corporate have increased a lot of public debate about different parties in the governance chain should interact and influence each other. Most notable here is the relationship between shareholders and the boards of businesses as well as relationship between government or public funding bodies and public sector organizations. Increased accountability to wider Stakeholder interests has also come to be increasingly advocated; in particular the argument that corporations need to be more visibly accountable and responsive , not only to owners and managers in the governance chain but to wider social interest. Governance Structure Strategic Purpose Social responsibility and ethics Stakeholder expectations Figure 4.0 Influences on strategic purpose (4) The governance chain explains completely the roles and relationships of different groups which are present in the governance of an organization. The chain is very simple to understand it is similar like a family tree. It has shareholders, family members, managers and a board. It is a large and publicly quoted organization with more investors layers as well. Hence good corporate governance can be achieved only if it is an embedded part of corporate life: part of the DNA of the organisation, its internal processes and the way it makes information available externally. In many countries most companies are run mostly for the benefit of the shareholders, the rightful owners. But there is another model, where companies are run for the benefit of other significant groupings as well such as customers, the general public or employees. This is the stakeholder model. Choosing a board for each of these models or something in between requires people with different backgrounds and outlooks. The following table compares the shareholder and stakeholder models: Shareholders Stakeholders Maximize shareholder value and look after shareholder interests Look after all stakeholder interests, especially public Seek profitability and efficiency Look for survival, long term growth, and stability Hard-nosed and commercial Less concerned with profit than value for money A Stakeholders mapping can be used appropriately to understand the stakeholders influence. Stakeholder mapping can define his expectations and power and helps in understanding political priorities. It emphasizes the importance of two issues: Interest of the stakeholder group on organizations purposes and choice of strategies Power of stakeholders to actually do it They are described in a quadrant of four different types based on level of interest and their power, as follows Non Profit Organizations A non-profit organization is an organization which does not distribute its surplus funds to owners or shareholders, but instead uses them to help pursue its goals. Examples of NPOs include charities (i.e. charitable organizations), trade unions, and public arts organizations. Most governments and government agencies meet this definition, but in most countries they are considered a separate type of organization and not counted as NPOs. They are in most countries exempt from income and property taxation. Profit Organizations An organization is a social arrangement which pursues collective goals, controls its own performance, and has a boundary separating it from its environment. It is a business which has a primary goal of making profit and a proposed goal such as helping the environment. Differences between Profit and Non-profit Organization Ownership is the quantitative difference between for- and not-for-profit organizations. For-profit organizations can be privately owned and may re-distribute taxable wealth to employees and shareholders. By contrast, not-for-profit organizations do not have owners. They have controlling members or boards, but these people cannot sell their shares to others or personally benefit in any taxable way. While they are able to earn a profit, more accurately called a surplus, such earnings must be retained by the organization for its self-preservation, expansion and future plans. Earnings may not benefit individuals or stake-holders. While some non-profit organizations put substantial funds into hiring and rewarding their internal corporate leadership, middle-management personnel and workers, others employ unpaid volunteers and even executives may work for no compensation. However, since the late 1980s there has been a growing consensus that nonprofits can achieve their corporate targets more effectively by using some of the same methods developed in for-profit enterprises. These include effective internal management, ensuring accountability for results, and monitoring the performance of different divisions or projects in order to better benefit from their capital and workers. Those require satisfied management and that, in turn, begins with the organizations mission There are a variety of perspectives, models and approaches used in strategic planning. The way that a strategic plan is developed depends on the nature of the organizations leadership, culture of the organization, complexity of the organizations environment, size of the organization, expertise of planners, etc. For example, there are a variety of strategic planning models, including goals-based, issues-based, organic, scenario (some would assert that scenario planning is more of a technique than model), etc. Goals-based planning is probably the most common and starts with focus on the organizations mission (and vision and/or values), goals to work toward the mission, strategies to achieve the goals, and action planning (who will do what and by when). Issues-based strategic planning often starts by examining issues facing the organization, strategies to address those issues and action plans. Organic strategic planning might start by articulating the organizations vision and values, an d then action plans to achieve the vision while adhering to those values. Some planners prefer a particular approach to planning, eg, appreciative inquiry. Some plans are scoped to one year, many to three years, and some to five to ten years into the future. Some plans include only top-level information and no action plans. Some plans are five to eight pages long, while others can be considerably longer. For-profit and nonprofit business plans have many similarities. For that reason, nonprofit personnel would benefit from reading the links in the section above, For-Profit Business Planning. Some of the terms are different, but in most cases they can readily be translated into words more commonly used in the nonprofit sector. For example, balance sheet is what nonprofit call a statement of financial position, profit and loss statement (or income statement) is essentially the same as a statement of financial activities, and so on. One of the key difference between a for profit and a non profit plan is the marketing section. In a for profit business, the served customers are generally those who provide the revenues needed to cover expenses and continue operations. For a non profit, often the served constituents do not provide this sustaining funding, and it must be sought from a third party donors. This means the marketing plan must describe both how the organization will communicate its services to its service target market and how it will communicate its need for funding to its funding target market. This means detailing these two separate marketing messages and two strategies for marketing. Another key difference is the non profit part of the business plan. Financial plans for a non profit do not have to show net profit, and, if they do, there must be some explanation of what those retained earnings will be used for. They cannot be distributed as dividends, as the organization is technically owned by the public and not by the directors or board. However, profits can be accumulated for the purposes of creating an endowment or capital fund for future expenditures. An accountant should be consulted for any decisions of this nature. International dimensions of strategic business management and planning Going global is one of the key visions of most of the organizations. Choosing globalization increases the option for the organizations range of products or services and how to manage across the borders. Through international strategy framework it becomes achievable in a better way. International strategy as the core theme, depends upon two things, the external environment and organizational capabilities. If you see the figure 6.0 it focuses more on internationalisation drivers and on the capabilities side it emphasises on international and national sources of advantage. Figure 6.0 International strategy framework Internationalisation drivers Market selection Sources of competitive advantage Mode of entry International Strategy (4) Market Drivers Similar customer needs Global customers Transferable marketing Internationalisation Drivers Figure 7.0 Internalisation Drivers International Strategies Cost Drivers Scale economic Country-specific differences Favorable logistics Government Drivers Trade Policies Technical Standards Host Government Policies Competitive Drivers Interdependence between countries Competitors global strategies (4) Market globalization drivers There is a general belief that several markets are converging around the world. There are several reasons for this. First, the convergence of Gross National Product (GNP) per capita in the developed world is leading to a convergence in markets sensitive to wealth and level of income such as passenger cars, television sets, and computers. Second, there is evidence to suggest that in some industries, customers tastes, perceptions, and buying behaviours are converging, and that the world is moving towards a single global market that is basically Western and, more specifically, North American. In a landmark article titled The globalization of markets Levitt (1983) predicted that globalization drivers such as new technology would lead to homogenization of consumer desires and needs across the world. He argued that this would happen because generally consumers would prefer standard products of high quality and low price to more customized but higher-priced products. Third, in the quest to build a global brand and company image, multinational firms are increasingly favouring a global standardization of marketing and advertising efforts. This does not mean identical marketing and advertising campaigns, but the use of similar themes that send the same message across the world. Recent developments in broadcast media, particularly direct-broadcast satellite and international media, are making this more possible. CNN, for example, broadcasts standard adverts around the world. Cost globalization drivers Several key cost drivers may come into play in determining an industry globalization level. One key factor is global scale economies. That is, the costs of producing a particular product or service are often subject to economies or dis-economies of scale. Generally, economies of scale arise when a product or a process can be performed more cheaply at greater volume than at lesser volume. This is often the case when the product or service is standardized; hence it becomes hard for multinational firms to differentiate themselves, and cost becomes key in achieving and sustaining a competitive advantage. Producing different products for different countries leads to higher cost per unit. This is because multinational firms serving countries with separate products may not be able to reach the most economic scale of production for each countrys unique product. Multinational firms could reduce the cost by using common parts and components produced in different countries. Another factor is sourcing efficiencies. Global sourcing efficiencies may push multinational firms towards a global strategy. The prices of key resources used in the production process have a strong impact on the cost of the product or service, the cost of inputs depends on the bargaining power of the firm with their suppliers. For example, large firms purchasing large volumes have more clout with their suppliers than their small rivals. Hewlett-Packard (HP) is a good example. In the past, country-level subsidiaries used to solicit bids for insurance coverage independently. Each subsidiary chose the local provider who bid less than the competition. However, HP now belongs to a global insurer-insured pool which provides rebates based on business volume. In addition, as noted earlier, some countries provide a cost advantage because of low cost of raw material, low cost of labour, or low cost of transport because of location. Thus multinational firms locate their activities in different countries to benefit from these advantages. Further, in sectors where transportation cost is low, closeness to customers is not important, and urgency to distribute the product is low, multinational firms tend to concentrate their production in large plants producing large-scale products. Finally, high cost of product development drives multinational firms to focus on core products that have universal appeal to control cost. Government globalization drivers Governments have different policies for different industries. While (as discussed above) the general trend is lower trade barriers and less regulation, for a few sectors trade barriers are prohibitive and highly regulated by governments. In addition to trade barriers and regulations, technical standards are becoming similar around the world. For example, several countries have accepted new international accounting norms and standards. In Europe, the International Accounting Standards (IAS) are quickly becoming the norm. This will allow direct cross-border comparison of financial statements, and facilitate communication between subsidiaries and the centre. Companies like Nokia, the Allianz group, and Novartis are working to bring about a convergence of US accounting standards with IAS. Competitive drivers Because of tight interlinks between key world markets, intense competition across countries, and the continuous increase in the number of global competitors, multinational firms are adopting a globally centred rather than nationally centred strategy. According to George Yip, the increase in interactions between competitors from different countries requires a globally integrated strategy to monitor moves by competitors in different countries. He notes that by pursuing a global strategy, competitors create competitive interdependence among countries. This interdependence forces multinational firms to engage in competitive battles and to subsidize attacks in different countries. Cross-subsidization is only possible if the multinational firm has a global strategy that monitors competitors centrally rather than on a country-by-country basis. Globalized competitors drive industries to adopt a global strategy. Yip noted that when major competitors, especially first movers, use a global strategy to introduce customers to global products, late movers adopt the same strategy so as to achieve economies of scale or scope and other benefits associated with adopting a global strategy. Last, the ability to transfer competitive advantage globally drives multinationals to adopt a global strategy. For example, IKEA succeeded in transferring its locally developed advantage to a global market. Conversely, sectors where the competitive advantage is locally rooted and hard to transfer across countries, multinationals tend to adopt an international strategy rather than a global one. (8) Strategic Management Strategic Management is a term which underlines the importance of managers with regards to the company strategy. Strategy needs to be defined by the people especially the managers who also implement them. Strategic Management involves a greater scope than that of any one area of operational management. It is characterised in way it makes easy for the managers to make decision and judgement based on the conceptualisation of difficult issues. Corporate strategy is defined as the identification of the purpose of the organization and the plans and actions to achieve that purpose. Corporate strategy consist of two main elements: corporate level strategy and business level strategy .See figure 7.0 At Corporate Level: All the decisions need to be taken over what business the company is in or should be in. The culture and leadership of the organization are also important at this broad general level. Corporate strategy is the pattern of major objectives, purpose or goals and essential policies or plans for achieving those goals, stated in such a way as to define what business the company is in or be in and the kind of company it is or be. (9) At Business Level: corporate strategy is more alarmed with the competing for customers, generating value from the resources and the underlying principle of the sustainable competitive advantages of those resources over rival companies. Figure 8.0 The essence of corporate strategy At the individual business level: How do we complete successfully? What is our sustainable competitive advantage? How can we innovate? Who are our customers? What value do we add? At the general corporate level: What business are we in? What business we should be in? What business our basic directions for the future? What is our culture and leadership style? What is our attitude to strategic change? What should it be? What is the purpose of the organization? And what are our strategies to achieve this? (10) The three main areas of strategy At both the levels of corporate strategy every organization has to manage its strategies in three main areas: Organizations internal resources; External environment within the area of organization operates; Organizations ability to add value to its organizations process. Resources Strategy Resources of any organization includes human resource skills, investors and the capital. Organizations need to build a good strategies to optimise the use of the resources. In particular, it is essential to investigate the sustainable competitive advantage that will allow the organization to survive and prosper against competition. Environmental strategy Environment encompasses all the aspect external to the organization itself: not only the economic and political circumstances, which depends place to place but competitors, customers and suppliers, who may vary widely around the world, but also competitors, customers are particularly important here. Hence organizations therefore needs to develop corporate strategies that are best suited to their strengths and weakness in relation to the environment in which they operate. Adding Value Apart from environment and resources organizations still need to add value to the supplies brought into the organization. For long term survival, an organization take their supplies seriously and then deliver its output to its customers. The main purpose of corporate strategy is to make the organization create and add vital values to make sure the organization adapts the changes and continue to add value in future. Core areas of Corporate Strategy There are three core areas of corporate strategy are strategic analysis, strategy development and strategy implementation. Strategic analysis: The organization, its mission and objectives have to be examined and analysed. Corporate strategy provides value for the people involved in the organization, its stakeholders but its the managers who decide the objectives of the organization. They also analyse the resources and examine the objectives as well as the relationship with the environment. Strategy development: A strategy options has to be developed and then the right has to be selected. To be successful, the strategy is build upon a particular skills of the organization and the special relationship that it has or can develop with the other outside suppliers, customers, distributors and government. Strategy implementation: The selected options now has to be implemented and the organization will find many other difficulties in terms of motivation, power relationships, government negotiations, company acquisitions and many other matters. Hierarchical Characteristics of Strategy Strategy can be formulated on three different levels: Corporate level Business unit level Functional or Operational level, While strategy may be about competing and surviving as a rum, one can argue that products, not corporations compete, and products are developed by business units. The role or the corporation then is to manage its business units and products so that each is competitive and so that each continues to corporate purposes. While the corporation must manage its portfolio of businesses to grow and survive, the success of a diversified firm depends upon its ability to manage each of its product lines, While there is no single competition to Textron, we can talk about the competitors and strategy of each of its business units. In the finance business segment, for example, the chief rivals ate major banks providing commercial financing. Many matagers consider the business level to be the proper focus for strategic planning. Corporate Level Strategy Corporate level strategy fundamentally is concerned with the selection of businesses in which the company should compete and with the development and coordination of that portfolio of businesses. It is concerned with: Reach Defining the Issues that are corporate responsibilities; this might include identifying the overall goals of the corporation. The types of businesses In which the corporation should be involved and the way in which businesses will be integrated and managed . Competitive Contact defining where in the corporation competition is to be localized. Take the case of insurance; In the mid-1990s, Aetna as a corporation was clearly identified with its commercial and property casualty insurance products. Managing Activities and Business Interrelationships Corporate strategy seeks to develop synergies by sharing and coordinating staff and other resources across business units. investing financial units across business unit to complement other corporate business unit. Management Practices Corporations decide how business units are to be governed: through direct Corporate intervention (centralization) or through more or less autonomous government (decentralization) that relies on persuasions and rewards. Corporations are responsible for creating value through their businesses. They do so by managing their portfolio of businesses. ensuring that the businesses are successful over the long-term. developing business units. and sometimes ensuring that each business is compatible with others in the portfolio. Business Level Strategy A strategic business unit may be a division, product line, or other profit centre that can be planned independently from the other business units of the firm. At the business unit level. the strategic issues are less about the coordination of operating units and more about developing and sustaining a compititive advantage for the goods and services that are produced. At the business level the strategy formulation phase deals with: positioning the business against rivals anticipating changes in demand and technologies and adjusting the strategy to accommodate them inf1uencing the nature of competition through strategic actions such as vertical integration and through political actions such as lobbying. Functional Level Strategy The functional level of the organization is the level of the operating divisions and departments. The strategic issues at the functional level are related to business processes and the value chain. Functional level strategies in marketing, finance, operations, human resources and RD involve the development and coordination of resources through which business unit level strategies can be executed efficiently and effectively. Functional units of an organization are involved in higher level strategies by providing input into the business unit level and corporate level strategy such as providing information on resources and capabilities on which the higher level strategies can be based. Figure 9.0 Levels of Strategy (10) Global Strategies Global strategies have been deliberately pursued in some industries to integrate worldwide strategy. Essentially, strategy is centralised for the whole world, with an integrated network of production and market positions in all the leading countries on a broadly similar platform. The need for strategic business management planning can be easily understood by the porters diamond model. The diamond model is an economical model developed by Michael Porter in his book The Competitive Advantage of Nations, where he published his theory of why particular industries become competitive in particular locations. The phenomena that are analysed are classified into six broad factors incorporated into the Porter diamond, which has become a key tool for the analysis of competitiveness: Factor conditions are human resources, physical resources, knowledge resources, capital resources and infrastructure. Specialized resources are often specific for an industry and important for its competitiveness. Specific resources can be created to compensate for factor disadvantages. Demand conditions in the home market can help companies create a competitive advantage, when sophisticated home market buyers pressure firms to innovate faster and to create more advanced products that those of competitors. Related and supporting industries can produce inputs which are important for innovation and internationalization. These industries provide cost-effective inputs, but they also participate in the upgrading process, thus stimulating other companies in the chain to innovate. Firm strategy, structure and rivalry constitutes the fourth determinant of competitiveness. The way in which companies are created, set goals and are managed is important for success. But the presence of intense rivalry in the home base is also important; it creates pressure to innovate in order to upgrade competitiveness. Government can influence each of the above four determinants of competitiveness. Clearly government can influence the supply conditions of key production factors, demand conditions in the home market, and competition between firms. Government interventions can occur at local, regional, national or supranational level. Chance events are occurrences that are outside of control of a firm. They are important because they create discontinuities in which some gain competitive positions and some lose. The Porter thesis is that these factors interact with each other to create conditions where innovation and improved competitiveness occurs. (11) Figure 10.0 Porters Diamond Model Government Related and supporting industries Demand Conditions Factor Conditions (11) Conclusion No nonprofit entrepreneur should launch prior to completing a strategic business management planning. This is where entrepreneurs perform the well-known SWOT analysis to determine the Strengths, Weaknesses, Opportunities and Threats (SWOT) associated with their nonprofit business proposition. Strengths and weaknesses identify factors that are under their control, such as what they do better or worse than the competition. Opportunities and threats are external or not under their control. For example, an opportunity may be a new foundation looking to fund nonprofit organizations within a specific time frame. A threat may be the lack of philanthropic donations due to a recent tax increase or the reduction of the nonprofit tax deduction. Many nonprofits fail because they fail to complete their SWOT strategic analysis. The strategic planning process depends on the nature and needs of the organization and the its immediate external environment. For example, planning should be carried out frequently in an organization whose products and services are in an industry that is changing rapidly . In this situation, planning might be carried out once or even twice a year and done in a very comprehensive and detailed fashion (that is, with attention to mission, vision, values, environmental scan, issues, goals, strategies, objectives, responsibilities, time lines, budgets, etc). On the other hand, if the organization has been around for many years and is in a fairly stable marketplace, then plann