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This part juxtaposes theory, practice and my personal experiences. The strategy stated here aims to address the problem mentioned in the preceding chapter. It builds on and refers to the preceding theory and research work. Since our intension is to go “From Zero to Hero” by using strategic leverage, we need a certain kind of theoretical plot to follow.
The methodology most likely behind this approach here is nameable as a three step process (STP process):Describe Your SituationWhat do you know? What data you have to collect about what happens? What is the current situation? Where do you want to go?
Describe Your TargetsWhat forms your vision (believes, objectives)? What are your objectives? What are your indicators of success?
Look at the Path you GoAre you using the right forms of techniques? Are you working within the range of your resources? Are you getting the results? Is your plan integrate-able?
To better illustrate the whole ploy of the following steps let’s take usage of the following graph:
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Every business concept bases on planning and above all stays strategic planning. In this chapter we want to elaborate a business strategy and enable and make sure that it allows to trigger action on the operational level. For that we start with the following two steps:Landscape definitionThink about the landscape you are in and define or envision it. Strategic IntentionDefine your strategic intention and so enable yourself to pursue your objectives.
These both steps rely on literature we have already analyzed - so let’s inherit the findings of it.
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To make a long story short, we are undergoing a phase of fast and sometimes chaotic changes. Some call it transition to a new phase of civilization (Age of Access). Out of question is that social and technological norms have a shorter lifespan than ever before. That causes turmoil and anxiety. And societies are perhaps overstrained from relentless changes that forms today’s stage of civilization. And some say that will cause also much of conflicts and opportunities in the business world. But anyhow, there are some key traits that enabled companies to prosper over years. Some of them are:Sensitivity A fine intuition for the business environment - the ability to learn and adjust.Cohesion and identity The ability to build a community with personality, vision, and purpose.Tolerance and decentralization The ability to build long lasting relationships.Conservative financing Not focusing on short-term advantage with the lure of all the finance tools available.
Since an enterprise is an ongoing community of human being, an organic entity capable of learning and capable of creating its own processes, goals, and persona. Why not emphasize knowledge rather than finance? As we know from above statements, a management that act like that has the potential to become great and endure for decades. Mutual respect and trust is the cornerstone of such an approach, fostered at the interpersonal relationship level. It Involves all stakeholders: distributors, suppliers, firms in related industries, and even competitors as potential assistants or partners. Discontinuities or exogenous shocks in the business environment can cause strategic drifts and call for transformational changes. Whereas strategic inflection points just show new trends that emerge (subtle or radical). Executives have to watch for hints where such diversion acquires critical mass and takes off. The impacts on the own business can be striking:
But we know from the ecological theory, that almost surely market interactions mimic long term stability of the ecology. Can we take that for granted regarding our business environment? So since changes appear frequently, I propose to act or react, rather than just watch what’s going on. Now I will try to give the reader with my comments a convincing answer for that, here in the strategy section.
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Everything in the business world centers around satisfaction of target audiences, let’s call them stakeholders. Stakeholders are either shareholders (capital market side), customers (product market side), suppliers (process side) or organizational enabler (managers and employees). Every firm is interconnected with a certain group of stakeholders Such stakeholders highly influence a firm’s performance and they are value maximizer. And since they have a hand in the business, a firm needs to obtain their support in order to stay competitive. That calls for adequate strategies and tactics to fight battles on several fronts. Successful strategies are those that attain value-creation, mostly characterized by deliver the highest possible value (above-average returns) and stakeholders satisfaction. The idea of stakeholder satisfaction aims to build long-lasting relationship, possibly for a lifetime, in order to safe costs. Such a strategy is then promising, when it is guided by a desire to obtain and realize high standards. Some of a firm’s capabilities are the corporate culture, the passion for business, and the controlled risk-taking manner. But also stakeholders - they are describable as a firm’s network, and hence they are a source of capability to manage core processes. Clearly, the better the quality of the business network, the more likely successful a firm competes against other business networks in the marketplace.
The term referring to direction and control of a firm’s performance is called corporate governance. The aim of corporate governance is to align managers decisions and stakeholders interests in order to achieve a competitive advantage. Corporate governance is strategic thinking and influences the outcome of managerial decisions. Some governance mechanism often found in today’s corporations represent foremost financial interests: risk minimization (ownership concentration), representation of shareholders interests (board of directors), and alignment of interests between managers and shareholders (executive compensation). But as we know from above statements, a system is only then effective, when all stakeholder interests are served. Economically successful nations often show a high degree of entrepreneurship. And every firm has a potential of entrepreneurial behavior. Combined with a strategic perspective, it can trigger simultaneous effect in both opportunity seeking and competitive advantage seeking. That will give the basis to design and implement entrepreneurial strategies for wealth-creation. We know that the identification and exploitation of opportunities is the purpose of entrepreneurship. That bases on the above mentioned activation of a firm’s capabilities. And last but not least key for successful entrepreneurship is the commercialization of products and processes through innovation. The management of innovations are executable by three basic approaches: Internal corporate venturingStrategic alliancesAcquisitionsBesides entrepreneurial behavior the value sharing within a network is key for innovation and integration. Cross-functional integration supports corporate venturing activities and leads to better commercialization of innovations. Internal corporate venturing creates either single product champions (a fluke), or through exploitation of strategies and structures innovative processes or products. And therefore in the latter case, a firm’s strategy, its structure, and reward and control systems highly influences its success. But a consistent and effective process of innovation requires more and more specialized knowledge. For that firms can form strategic alliances to gain access to needed knowledge. And sometimes firms use acquisitions to gain knowledge and capabilities that allows for specialization and enrich their internal innovation processes with that. And here venture capitalists support SSU’s with needed capital to realize such acquisitions. Executives are likely to better know what they do by thinking strategical. And they may be able to create value for all stakeholders.
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Due to the fact that we live in a turbulent and globalizing environment, it is a good advice to focus on what really matters. That allows to conduct effective and efficient business tasks. Here strategic thinking helps to take the line of success. Strategic thinking and decision making in organizations occurs at individual and aggregate levels. Such strategic work is not independent, but interacts at each stage of the work. But how appears strategic work? There are several ways to bring it out:Strategy as plan (direction, guide, course of action)Strategy as ploy (maneuver - intended to outwit a competitor)Strategy as pattern (consistent pattern of past behavior - realized rather than intended)Strategy as position (brands, products etc. - determined outside a firm)Strategy as perspective (determined by a master strategist in a firm)Let’s agree upon the term of strategy as a mix of plan (administrative work), pattern (experience) and perspective (firm’s strategists) that will be used in the subsequent chapters. Strategic thinking leads to management processes. Strategic management involves both conceptual and analytical thought processes. The aim is to find the ideal strategy to solve a certain issue. But every firm maneuvers in its own specific situation. Thus a strategy only makes sense for a specific company in its specific environment. So a strategy is contingent upon a company’s resources and its environment (industry, landscape). A given strategy may be good or bad, depending on these two factors. So managers have to diagnose strategic needs in context, and to develop strategies in context.
We have seen that strategic management may be planned and emergent, dynamic, and interactive. partially deliberate and partially unplanned. Strategic thinking and resulting leadership are conditions for successful management processes. This entails to anticipate events, envision possibilities and maintain flexibility for example. One of a company’s strategic resources is the top-level management. Let’s call them executives and/or strategists. They can be a source of competitive advantage when they are effective and efficient. Such managers develop a business strategy that builds on unique resources and capabilities: uses valuable, rare, costly-to-imitate, and non-substitutable resources and capabilities to gain competitive advantage in order to deliver the highest possible value. It heightens the success rate when they focus on attractive industries (future technologies) and appropriate strategy implementation. Executives are confronted with unpredictable situations, and processes they are in are often informal, intuitive, non-routinized. They have to strategize in ad hoc, flexible, dynamic, and implicit ways. That requires serenity, a feeling that base on judgment, sense, proportion, balance, and appropriateness. And so their decision-making should base on diverse skills; Including entrepreneurship since they work in an environment of stimulous-response, which calls for clear live action. Often they develop a network of relationships, from which they gain general insights and specific details to be used in making strategic decisions. The fewer the organizational planning (SSU’s), the more likely they tend to use mental road maps. Some argue that uncertainty makes the optimum strategy determination impossible: Neither the time, nor the information required for such calculations is available (fast changes in the business environment). And so strategic outcomes cannot be determined in advance. But a development of multiple outcomes may helps to better predict possible outcomes. Why not using a form of mental scenario planning? But that calls for the ability to get the big picture. Scenario planning deals with insight, complexity, and subtlety, not with formal analysis and numbers. With the use of ICT, executives are able to even more easily reinforce their strategic thinking. And so strategic management refers to a more structured approach, a process to develop and implement some kind of plans to meet identified needs. If it bases on ethical thinking and subsequent actions, executives are able to create and bring certain values into an organization. Some components of effective strategic leadership are:Think Strategically Work out your vision, objectives and a mission statement to give your business the strategic direction and long-term orientation.Embrace Core Competencies Include it in your strategic thinking and so ensure that you deliver the highest possible value with your market offering.Develop Human Capital Human capital has to be maximized in order to meet requirements of tomorrow’s organizations.Build Entrepreneurial OrganizationA sustainable organization is one that has the ability to change a firm’s culture to the better whenever needed. Emphasize Ethical Practice Treatment with dignity and reward of ethical behavior is part of corporate governance and basic for a successful long-term business plan.Establish Balanced Organizational Control That means a flexible use of core competencies, balanced between strategic and financial control. The achievement of leader-ship is measurable with a balanced scorecard for example. It supports strategic leaders to control their strategic management (strate-gy formulation and imple-mentation). But before that there is some knowledge needed of what strategy is about - it is essential to apply strategic leadership. Strate-gic thinking should not be in -- conflict to tactical actions. Strategy clearly stays atop tactics, is more complex, and more substantial. Strategy is a planning that explains how to get where one want to go. Tactics in turn, cares about the right implementation of strategic plans. Tactic is more flexibly adaptive than strategy. And tactics deal with specific actions by particular people. The way how inputs comes in are different: There are more top-down inputs for strategies, and more bottom-up ones for tactics. Or in perspective of a SMB that tries to globalize: Strategy refers more to internal decisions, while tactic refers more to external decisions. Here a strategic step would be to allocate resources. Whereas a tactical step would be to change studying competitive rivalry. A firm is more likely able to predict tactic outcomes than to foreseen strategic outcomes. So strategy and tactics build on each other. Now see a short list of qualities executives should consider when developing the ideal strategy for their entity:ObjectivesThe strategy needs to base on objective that are capable to obtain the desired outcome.Given FactorsThe external environment, the organization’s resources, and core competencies – executives have to ensure a good fit between all of them so to reach feasibility and appropriateness.Competitive AdvantageCapability of providing the organization with unique and sustainable ones.Dynamic, Flexible, and AdaptiveThe strategy needs to tolerate a changing environment.The strategy All these qualities have to be valuable without cross-subsidization - sufficient on its own.
Executives are either leaders (visionaries) who inspire and care about substance. Or they are managers who care about processes, plans, and form.
But the lack of leadership qualities at the level of strategic management is proven as damaging and can paralyze an entire organization.
Check the list of common management failures to beware of: See Appendix XIII. Perhaps that calls for changes of leadership, organizational form, or processes. So we come to the point to ask for the basic approach a firm is more likely to pursue:. Industrial Organization Approach Mainly worry about competitive rivalry, resource allocation, economies of scale in terms of profit maximization, rationality, and a self interested behavior.Sociological Organization ApproachBasically caring about human interactions, bounded rationality, satisfying behavior, Economies of scale in terms of profit sub-optimality.
I propose rather a sociological approach contrariwise. Because this way better allows fluidity in the normal course. And it is more in line with an uncertain and ambiguous world we live in. It is more likely the approach that fits with factors SSU’s encounter, but certainly will challenge them. Now I do not further explain these ideas here, but will catch up with that in the chapter “Organizational Actions”.
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Globalization is among other change forces (new technologies, cultural pluralism, knowledge capital) that disrupt the continuity of our lives. Economic globalization refers to changes in the world economy (volume of trade) and national societies. The current level of global economy allows for partnerships and alliances throughout the world. And that again is a success factor with many advantages for the business world like: 1. cost reduction, 2. enhanced customer preference, and 3. improved program effectiveness. In more detail, the first one means the maximization of economies of scale by expanding outputs and keep inputs stable (unit costs). As well as the access to largest and cheapest raw materials and technologies. Also there are more choices when recruiting the ideal workforce for a firm. The second one relates to larger customer base that the related greater earning potential. And the third one mentions the opportunity for smaller companies to expand a business extremely fast. Globalization calls for specialization of production, and that turns into an ad-vantage the more the output covers a sub-stantial proportion of the total world de-mand. Globalization means to go every-where around the globe. See also Appendix XIV. And since globalization can be seen as a form of direct country com petition in terms of appropriate education and skills, there are some disadvantages related With, like loss of domestic jobs, trade barrier issues, currency problems, increased transportation cost, as well as language barriers. Globalization doesn’t mean a beneficial spread of democracy and capitalism. Rather it allows to leverage the own assets against others.
Thus the more the assets, the bigger the benefits will be. Cleary, big companies benefit exquisitely more from globalization than small ones. It strengths the margin of multinational enterprises, while those without financial assets will have to rely on credits. On the other hand it weakens the autonomy of national states, which probably will press ahead their global interventionist policy. So there is much room for trouble yet around the globe. Now let’s turn to a more detailed list of advantages of globalization:Expandable sales (specialization, niche politics, or early PLC –stage).Higher profits when manufacturing costs decrease the more products are sold.Ideal acquiring conditions for resources in terms of quality and cost. Risk minimization when taking advantage of different business cycles or markets.Overcoming of national regulations for more international trade.Improved communication and transportation in terms of access and speed.These benefits of globalization makes it also attractive for SSU’s to take part. Or according to future technology advisers of futuretag: The time is ready for SSU’s to globalize.
George S. Yip gives a detailed list of real globalization drivers, and an idea how to measure and employ them. See Globalization Drivers: Appendix VIII. Here you find a summary of them:Common fundamental needs -> highly standardized products and services.Global customers -> standardized processes. Easy transferable marketing elements -> uniform marketing approach.Lead countries -> participation is critical, rivalry is stronger.Lower costs for manufacturing -> standardization, concentration, positive economies.Expanded market participation -> learning and experience effectsTransportation cost -> easier entrance to foreign markets. Concentration of activities -> positive productivity/costs relationStandardization -> more effectiveness and efficiency.Technology cycles -> product development costs, exploitation and protection of technologies.Trade policies (of nations) -> business costs, technical standards.Marketing regulations -> increase rivalry, easier to invade markets. Government-owned entities -> barrier or driver for globalizationGiven that globalization changes competitive forces, global markets tend to be more harsh than single country markets. And competitors are likely to give up profits in independent countries to protect their position in interdependent countries. Hence the higher the interaction of competitors, the more global the scope should be. The degree of exploitation depends on the quality of strategy levers, a firm is able to utilize. Yip also determined them and shows how to employ such global strategy levers and measure them. For detailed information see Global Strategy Levers: Appendix VIV. But here you find a summary of them:Global market partizipation Country selection based on turnover share, in relation to total global turnover, global balance etc. For that a highly developed home market is a clear advantage. The same is true for a focused business model (transformation of inputs into values). Firms who easily can transfer and leverage both, possess the ultimative globalization driver. The Internet enables to transfer information within markets (communication, public signaling, intelligence gathering), without being physical present there. Obviously, the Internet allows to handle markets with less effort, but with a certain kind of customization. That causes reductions of transaction costs and will likely support SSU’s, if they are aggressive and well-managed. When a firm globalizes, it increases the pressure for competitors to do the same. Because competitors that enter new markets often attack funds of competitors in that markets. It is even more worst when such markets are interdependent. It is likely that globalized firms enjoy more customer acceptance, caused by their uniform operations everywhere. The number of choices on strategy levers determine the global focus of a strategy. Yip states that the most globalize-able business models are those, which require the customers to change the behavior than it requires the company to meet customer’s needs (company’s logic). Another ultimate competitive advantage would be to have no competitors in the marketplace. That can happen when markets are in the early stage of the PLC. But SSU’s have to be aware of the threat of a dominant market player, which possibly use their transferable and well proofed advantages against emerging market players. There can be a need to allocate a country’s roles, before transferring a business to certain markets. For that Yip states the idea of investing funds from CASH-COW MARKETS into WILDCAT MARKETS that become future STAR MARKETS. See Appendix IV: Growth-Competitive Matrix. Related with that is the idea to show the global strategic importance of each country. See Appendix IV: Global Importance Matrix.Global products and services to answer the question “how to serve markets with global products and services?”. The more globalized the customers are, the more globalized the supply-chain has to be. The product more likely to be global successful, is the one that is designed as a global one: A large standardized core, and a little customized periphery. For that designers have to know what are the similarities as well as the differences of customers needs around the globe. Improved quality can cause enhanced customer preference. If standardization leads to low-cost products, it can leverage one’s competitiveness and simplify invasion of new markets. Standardized products are especially important for firms which lack financial resources.Choice of locationsor its network of locations should meet local needs around the globe (source of innovation; highly skilled and/or low-cost workers; highly demanding customers; favorable factor conditions; a closeness to major markets etc.). Exchange rates can be a source of competitiveness as well. Managers have to recognize all the facts of where their business is located now and what are the costs to change it. Further, what the differences and similarities are among activities and related needs in terms of location. A good location prevents from disruption and provides flexibility. Firms should weight up strategic advantage against comparative (country-based) advantage of locations. A globally leveraged strategy seems to be the most sustainable. Whereas a untenable strategy hardly survive. To assess a country’s importance see Appendix V: Geographic Location of Activities and Appendix IV: Strategic vs. Comparative Advantage.Creation of a global marketingGlobal market development asks for overall market uniformity. For that an integrated worldwide effort with a comparative marketing intensity is key. Hence such global marketing programs look for similarities among countries and markets. Uniform should be the market planning and activities. See also Appendix V: Marketing Elements. When creating marketing programs, a marketer is well advised firstly to go to the maximum of his imagination - regardless of preferences and prejudices - and secondly to take into account nationalistic reactions before finish his marketing program. Global competitive movesMulti country competitive moves or counter parry moves are key here.
All strategies and activities need to be developed in the context of the global strategy. Local requirements need also to be taken into account. But national preferences must be subordinated and coordinated. See also Appendix VI: Competitve Moves. Globalization lever do not only bear up beneficial potential like: lower costs, improved quality (willingness to learn and gain up-to-date knowledge), and global availability (total global account management). But also drawbacks like high commitment to markets, higher coordination costs, blurred customer focus, and globally blocked industries. But in the latter case, firms can try to overcome that by acquiring a foreign participant; form a strategic alliances; hire out the own expertise to foreign partners or customers. The identification of the relevant drivers and levers is obtained by comprehensive situation analysis. It will excavate the potential of today’s and future’s globalization potential of markets and businesses. Even more it shows the broad context of competition a company is bound in. For the interconnection of drivers, levers, and capabilities, see also the scheme how to put the puzzle together (right side). Before a firm can master that, it has to trim the organization to a global one. I will not further explain that here, but refer to the concept of the 7 S of and the 5 C in the chapter “Organizational Action”. Since there is no place to hide in a global world, it seems pretty clear that if companies don’t take advantage of globalization, their competitors will do. For that see Appendix X. And see also Appendix XI - the Internet’s Effect on Globalization Drivers.
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Every corporation is situated in a certain environment, I call it the business landscape. The definition of the own landscape is a kind of strategic management work, and so executives have to take attention to it. They must envision the business landscape in order to adapt the firm to it, as well as to shape the landscape in the way that works best for the firm. To envision the business landscape ties up to analysis work and interpretation out of it. See also Appendix XV: Landscape Analysis.Situation AnalysisWhen defining a business landscape, the analyst starts seeking for opportunities and threats in the external environment. This process includes to scan the outer field, monitor it, to forecast changes, and assess them. It is the company’s task to find strategic relevance of environmental changes in certain fields like: demography, economy, politics/legislation, society/culture, technology, and globalization. Because changes those fields influence a firms competitive actions and responses, and an industry’s profit potential. Competitors future objectives, current strategies, assumptions and capabilities have to be registered. And so to know where rivals work on regarding future goals, current strategies, assumptions, and capabilities they have. Competitive rivalry describes the set of competitive actions and responses among competitors to court for advantageous market positions. Studying competitors goods and services, customer’s reaction and competitor’s behavior gives helpful information to better predict responses of competitor’s, when the own firm is planning some competitive actions. A firm possibly finds out the market commonality it has with each of its competitors. And what the related importance is to each market they serve and how similar the resources are each of them invests into marketing. Market commonality and resource similarity shape a firm’s awareness (interdependence with competitors), motivation (incentives for a move), and ability (resources for a move). And that in turn increases the quality of prediction of competitor’s behavior. Slow-cycle competitive advantages are subject to rapid and inexpensive imitations. So competition in slow-cycle markets aims more to protect, maintain, and extend existing proprietary advantages. Whereas fast-cycle markets builds more on technology advantages. Standard-cycle markets are between them and are characterized by moderately shielded from mentioned competition through using moderately sustainable advantages like serving mass-markets with economies of scale products. They all have in common, that innovation (and so shaping markets and influencing segments) is vital for promising action against competitors. So the competitive rivalry affects the financial return and the competitive advantage a firm faces in the market. A business landscape analysis refers to a certain industry a firm is in. Here Philip Kotler provides a description what an industry is about: An industry is a group of firms that offer a close range of goods or services that are close substitutes for one another. His classification criteria for industries are the number of sellers; the degree of product differentiation; the presence or absence of entry, mobility and exit barriers; the cost structure; the degree of vertical integration (backward, forward); and the degree of globalization. Then a executive is likely to apply Porter’s Five-Force analysis to find a firm’s current position in the landscape in order to influence the forces that affects it. The forces of the inner circle are : 1. threat of entry, power of suppliers; 2. power of buyers; 3. power of suppliers; 4. product substitutes; and 5. intensity of rivalry. But also the forces of the outer circle are of interest. All those forces affect a firm on its strategic actions within its industry. The Five-Force Model helps you to find out, who are your competitors current ones as well as tomorrow’s competitors. It is more likely that established business are hurt by emerging competitors or new technologies than by current competitors. A competitor analysis aims to reveal a competitor’s:Strategies -> what kind of way do competitors pursue in the market?Objectives -> what is competition aiming in the market?Strengths & Weaknesses -> of competition.Reaction patterns -> slow or fast reactors in the market.All that was analysis work on the external environment of a firm. Now follows the analyses of the internal environment by seeking for strengths and weaknesses within the organization. For that a analyst can apply the 7-S and 5-C methodology. That shows now how to leverage strategic intent into a company’s mission. The last step of an analyst is then to cross opportunities (found in external environment analysis) with strengths, (found in internal organization analysis). So with such a SWOT-analysis the executive elevates a firm’s strategic chances. The same is true when crossing threats and weaknesses in order to display strategic risks. The exploitation of core competencies is only helpful when they allow a firm to exploit opportunities in the external environment. Situation analysis (external environment, internal organization) excavates resources, capabilities, and core competencies and allows to formulate target product markets and the customers, summarized in the strategic mission. There-upon follows a strategic gap planning. Here an analyst identifies room for improvement and gives the strategists the best basis to set strategic objectives. For example some sales target that a firm wants to achieve: Either trough an intensive growth, integrative growth, or through diversification.For more details see also Igor Ansoff’s corporate strategies, mentioned in the sub-chapter “Develop a Strategy”. Let’s sum up that: The situation analysis shows where to set strategic objectives and how to leverage strategic intent into a company’s mission, so how to use resources, capabilities, and core competencies to create a market offering.A Global Strategy AnalysisExecutives not only have to analyze the current situation, but also the status of globalization in their business, in order to assess the globalization potential it brings along. A guideline to evaluate this is given by Yip. He mentions a 10 step approach to conduct such a global strategy analysis. For more see Appendix VII. This analysis work brings clarification about today’s and future’s globalization potential of markets and businesses. Further it shows the context of competition a company is bound in. An evaluation of action plans helps to set priorities for changes necessary to conduct for the purpose of globalization.A Marketing Strategy AnalysisA marketer is also an analyst - a trend tracker and opportunity seeker. Given the information out of the situation analysis - significant changes or similar - he starts now with market research in the predefined field. Market research is closely related to Information Technology (MIS), since IT is able to convert market information into decision support instruments. An MIS normally consists of an internal record system; an market-intelligence system; a marketing research system; and a computerized marketing decision support system. It’s the marketer’s obligation to identify trends in the mentioned external fields. Here a short overview of the fields he works on:Demographic area With all the changes in population growth; mixes of ages; ethnic composition; educational levels; families (traditional, non-traditional); geographic shifts in population. Economic environment With the changes in income distribution; saving-levels; availability of credits. Technological area Describing technological changes; related governmental regulations; opportunities for innovation; changing in R&D expenses. Natural environment That area centers about (shrinking) raw material resources; rising energy costs; pollution levels; changing behavior of governments and societies regarding environmental protection. The socio-cultural area With country-specific core and secondary values, including needs of subcultures. Political and legal environments Here it is to deal with regulations and special-interest groups.
Basically, trends in the above mentioned area call more likely for micro-marketing rather than mass marketing. But a marketer has to keep in mind that globalization requires a uniform market approach. Of interest here is the decision making or buying process. Of more relevance for the target group of this thesis is the Industrial Buying (B2B) process. Industrial Buying is a more comprehensive way of obtaining materials needed to produce goods and services. Buying processes incorporate several phases - from the problem recognition to the performance review (right side). Business marketers need to be aware of the role of professional purchasing and related influences. And how an appropriate decision making process may looks like is illustrated on the next page:
When talking about B2B buying, the seller faces organizational decision-makers which mostly have a formal approach in doing their job. Therefore, sellers too have to be well prepared. A market researcher finds that B2B buying behavior is sometimes complex. So he needs to understand the buyer’s information and evaluation behavior. See also Buying Process: Appendix XVI.
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We learned that every business concept bases on planning and above all stays strategic planning. So that your strategy is complete and can trigger some action, try now to tackle the following steps:Write out your strategic intension in full (vision and mission statement)Do Landscape analysisFormulate subordinated goals and strategies. These steps are basic for entail operational action. And for a better illustration where we are now in the process, we use again the graph that illustrates us the whole ploy:
The steps listed here are still real strategic ones. Now let’s work though the whole process onward.
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As we know from defining the business landscape, the situation analysis shows us shows how to leverage strategic intent into a company’s mission. Or more specific how to use resources, capabilities, and core competencies to formulate target product markets and customers. Which is summarized in the strategic mission. The strategic mission in turn is build on a firm’s vision and objective setting. And these should be directed by an organization’s core values and beliefs. A vision statement contains a brief summary what an organization aims to be somewhere in the future (10 to 20 years), if everything goes as predicted. An effective vision statement is:clear and unambiguouspaints a vivid picturedescribes the futureis memorable and engaginginvolves aspirations that are realisticis aligned with the organizations values and cultureis driven by customer needsIt sets clear standards for target customers, markets, principal products or services, geographic domain, core technologies, company philosophy and values, concern for survival, growth and profits. And it has to
answer the
question “What do we want to become in the future?
“. A vision statement is the roof for every kind of strategical thinking and acting, and it inspires the personnel.
A mission statement expresses objectives in order to make the vision real. It is a pretty clear roadmap of what today is to do in order to attain the goals set before. Such objectives help to unify employees towards the superior cause. An effective mission statement does:establish boundaries to guide strategy formulationacknowledge responsibilities to various stakeholderssuggest standards of individual behavior - ethicsset performance standardsThe latter one refers to profitability, service quality, market share and positioning, innovation management, and worker performance. A mission statement provides immediate guidance, and
answers the question “what do we have to do to reach our objectives?”. See also A Mission Statement: Appendix XVI.
Mission statements often describe what will be done, by whom, for whom, and why.
Strategic Objectives, on the one hand, shows the destination a firm wants to reach in certain fields, like Marketing, Finance etc. On the other hand, they show us the so called strategic gaps (see strategic gap analysis) between the current status and the desired future status. A gap describes the room for improvement, it’s a deficiency. Objectives are more likely to be quantitatively formulated as to time frame and magnitude of effect, as opposed to goals and targets which are less likely specific. But Objectives and goals have to be congruent to each other. Often there is a need to arrange a hierarchy regarding the time-span (short-term, medium-term, and long-term). An objective sequencing describes the effect of using one objective as a stepping-stone to the next (stairway). Individuals within organizations will almost surely have personal goals. And they can limit the progress of reaching organizational goals, when they are incompatible with each other. Objectives should be composed in context with an organization’s culture. Executives should encourage others to adapt their own personal goals to the organization's overall vision. An objective plan has to
answer the question “What is needed to make the vision real?”. It is the executive's responsibility to communicate them regularly, create narratives that illustrate them, act as a role-model and embodying them. And an executive has to create short-term targets that are consistent with the above mentioned.
The next practical step of strategy work is mentioned in the chapter “Develop the Strategy”. Before that we have a quick view what competitive advantage means in more detail.
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The central purpose of a business activity is to add value. In more detail it’s the difference between the market value of input and output, including all resources needed in this process. The prime reason of competitive advantage is to identify the own core competencies, and then assemble a collection of assets that will allow to add value. Three types of capabilities are the source of competitive advantage: Innovation Highly influences products and services, processes and economies.Reputation Aims to affect customer, markets, partners.Organizational structure Tries to change business system or value chain, assets and resources.
Competitive advantage may result from efforts in different areas of the firm, like: Cost cutting in production; innovative research and development; more effective purchasing of needed components; or financing for a new distribution facility. And there are plenty of other samples executives may find in their corporation. The basis for competitive advantage are mainly: 1. customer market; 2. products and services; 3. business systems or value chain; 4. assets and resources; 5. partner network; and 6. economies (scale and/or scope). See also Appendix II: Competitive Advantage Hexagon. A firm can start from a single corner of the hexagon but should suddenly add strength at every point of it. Because competitors will certainly study and probably copying the most noticeable advantages, (products and services for example. An excellent point for every company is to try to coordinate its value-chain better than competitors do. A value-chain analysis helps to find out the competitive potential of resources and capabilities to perform primary and support activities, and to understand cost structures as well as the activities that can create value. Intangible assets base mostly on tangible ones and are only valuable (and perceivable) in combination with them. Using a network’s strength to leverage the own business is also superior, as well as the reduction of costs per unit with increases of the production volume. The real market power comes from the mix of multiple bases of advantages. Competitive advantage originates more likely from capabilities (groupings of tangible and intangible resources) than from single sources. In that case competitors are less likely to see or imitate core competencies, that are based on capabilities within a firm and cultivated there. Employee’s knowledge is one of the most important source of competitive advantage. Since it’s pretty easy to share people’s knowledge with ICT, it’s a good idea to do so. Strategists try to exploit current advantages and simultaneously use their resources and capabilities to form new advantages to pursuit competitive success in the future. But in the century of the internet, it is easy to reduce sustainability of many competitive advantages. So firms are well advised to duplicate their value-creation ability by using unique resources, capabilities, and core competencies and form new value-creating propositions. An advantage succeeds then, when it allows to provide superior value to satisfy customers better than competitors do. The key idea is to reach competitive as well as sustainable advantage. The most sustainable advantage is to exploit opportunities for creating competitive positions that others either ignore or cannot exploit. An advantage lasts only if it can be protected from competition and the customer can be convinced that exploring alternatives is unproductive. Retaining current customers show that there is a kind of competitive advantage (loyalty effect). If a firm is able to add sustainability, it perhaps reaches customer lifetime value. From now, the term advantage that will be mentioned in the subsequent chapters will exactly refer to competitive as well as sustainable advantage. Scarcely available factors are more likely a source of sustainable advantage. And perhaps there is no better source of competitive advantage than a continuous stream of delighted customers. Trust is clearly a guarantor for sustainability when it is one of the core values in cooperation with stakeholders. And trustworthiness is valued by stakeholders, because it reduces managing costs (controlling, monitoring, replacing) and maximizes opportunity exploitation. Changes in the business environment can reflect value migrations between industries, between companies, and within companies. And yesterday’s success can become today’s root of weakness. So innovation becomes important; nonetheless it is a quantum innovation (disruptive), or an incremental Innovation. But superior innovation counts, like new products, new technologies and new sources of organization. And not the price innovation.
It’s important to manage the outcome of innovation. This includes commercialization, positioning, practicability, and quickness in bring it to the market. Firms should weight up strategic advantage against comparative (country-based) advantage of locations. A globally leverage-able advantage seems to be the most sustainable. See also Appendix IV: Strategic vs. Comparative Advantage.
Such an advantage can be a technology-based one - transferable and leverage-able. The same is true for a clearly focused business model. Firms who easily can transfer and leverage both, possess the ultimate globalization driver. SME’s are likely to generate relative higher outputs (efficiency), but in turn are not likely to handle large-scale production. A highly dominant market position, due to a better transferable and proofed advantage, is often being used against emerging market players. So a firm with a strong developed home market has clearly an advantage against competition. SSU’s are then globally promising, when they work out a sustainable competitive advantage.
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Every business entity requires a certain degree of long-term and overall direction regarding policies (values, culture, behavior), objectives, resources, capabilities, and management knowledge, summarized in the mission statement. This supports the appropriate use of resources and the right behavior in the consensus of given circumstances. The essence out of that is called a corporate strategy and represents a cohesive idea what to do now. If a firm is able to successfully implement the strategy, it can play its advantage against others in the market. But how to develop that strategy? The strategy must be formulated by writing down the idea how to obtain the goals set in the mission statement. A strategy formulation includes:See the Big PictureAsk yourself where you are and define the landscape you are in. And ask yourself where you want to be in the nearer future.Strategical ActionWhen you have defined your landscape, you are ready to work out a vision and your mission statement for your entity, including a objective setting.Operational ActionThe tangible answer for the question “but how to reach it?” is given by the short-range and long-range plans of actions you have to work out. They bring into being your strategic work of the mission statement.
If the strategy already exists, there is possibly a need for a strategic change. Executives have to watch for hints. These are the critical points at which a strategy must take a new direction to keep pace with the changing business environment. More literature about that is available - search for reengineering. Strategy formulation, nonetheless of its term, is an on-going, never-ending, and integrated process that requires continuous reassessment and reformation. It is partially planned and partially unplanned. The next level of strategy is called the business strategy. It is subordinated to the corporate strategy. But let’s assume that because of the limited size of SSU’s, there is no need to take the business strategy apart from the corporate strategy. So the next strategic level deals with the functional strategies, which encompasses the managing of marketing, human resource, financial resources, and operational activities. Mostly associated with short and medium term plans that include the limitations to the domain of each department’s responsibility (SBUs, profit centers etc.). The next and most tangible level typifies the operational strategies. They are very narrow in focus and dealing with day-to-day operational activities such as scheduling criteria. They operate within a budget but are not at liberty to adjust or create these budgets. Operational level strategies are informed by functional strategies, which in turn are informed by business and/or corporate level strategies. Now we need to take attention to the business strategy, or in other words the CORE STRATEGY. A core strategy should include the basis for advantage, and it should be effective. The core strategy gives specific information which need to meet and which technology to use in order to meet that need. Some of key elements are:Type of products/services to offer.Customers to serve.Geographic markets to serve.Sources of advantage that can be used.Functional areas (strategies) accomplish value-adding activities.Competitive posture including competitors to target.Investments to do.As we know from previous chapters, there are some proven acknowledged strategies. And we will now look about some of them. First of all at Porter’s corporate strategies: Overall-Cost-Leadership StrategyThis strategy aims to obtain the lowest production and delivery costs in order to dictate prizes and win large market shares.Differentiation StrategyKey here is the concentration on superior performance in an area of importance of large numbers of customers in certain markets, and striving for customer loyalty.Focus StrategyTo limit the scope on narrow market segments in order to pursue either cost-leadership or differentiation within the segments; out-competing rivals on basis of lower cost, or offering niche members customized solutions. Or even a new form of strategy:Best-Cost Provider StrategyThat gives customers more value for the money (low cost and upscale differentiation
).
What we can learn from Porter’s corporate strategies is the importance to choose one of the above mentioned fields rather than to position the company between them. To recognize the own industry as a value chain and to see the own contribution to it from a customer's point of view is crucial. So every operation should be examined in terms of what value it adds in the eyes of the final customer. For that executives can apply tools like: perceptual mapping, multi-dimensional scaling, discriminant analysis, factor analysis, conjoint analysis, preference regression and cluster analysis. Entity struc-tures influence the strategies, which in turn follow industry’s structure, and vice versa. But besides the Porter strategies, there are also other interesting ones. For example let’s have a look at Ansoff’s corporate strategies, which are prepared in a similar graph, called the Ansoff-Matrix. This matrix is divided into 4 fields: Market penetration StrategyExisting markets and existing products which leads to an intensive growth.Product development StrategyExisting markets but new products which leads to an integrative growth.Market development StrategyHere are new markets and existing products which leads to an integrative growth.Diversification StrategyAnd here are not only new markets but also new products which leads to an diversification growth.
Ansoff’s approach does not only give some general ideas how to organize a whole business, but also how to deal with marketing issues. So the choice made here will also be the choice for the marketing strategy. It’s up to the executive to estimate the most promising route here. Now we break the core strategy into specific strategic tasks for the functional strategy level. The capabilities and skills are defined here that have to be done. The focus is on alignment and on manageability of these functions. Such functions should have a multi-functional scope and involve stakeholders along the value-chain. Strategic tasks can look like the following:Our input costs will be lower because of… centralization.Our output process is speeded up because of… the use of ICT and JIT techniques.Our customers will pay a premium because of… the outstanding quality.Our response to market needs is quicker because of… we are agile and strong positioned.Top management must lead those processes and set aggressive (improvement) goals. Here ICT allows for simpler strategic structures and a well coordination of the various aspects of management under a cohesive strategy. Or in other words: to obtain a optimum mix of resources. Here benchmarking will help us to get through the process. It pulls-up to:Improve cost, quality, service, and product innovation.Break down organizational barriers between departments.Eliminate layers of management creating flatter organizational hierarchies.Close relationships with customers and suppliers.Intelligently use of new technology.See your industry as a global one.Improve human resource skills.Functional strategies should build upon processes rather than tasks. In this way people recognize projects from inception to completion. And that avoids functional silos, and eliminates waste due to functional overlap and interdepartmental communications. So efficiency is the object of process management, which in turn is a basis for advantage. Now we turn it into an INTERNATIONAL STRATEGY. But the strategy chosen should be proven successfully in the home market, before expanding it to foreign fields (accumulating of advantages). If that is done, do analysis of the following: 1. Attractiveness of foreign markets; 2. Potential competition in such markets; 3. Ways how to adapt to local conditions; 4. How to manage business on a larger geographic area. There are some drivers that will accelerate the process of internationalization of the core strategy: 1. Increased market size; 2. Opportunity to earn a return on large investments; 3. Economies of scale and scope; 4. Learning effects; 5. Advantage of locations. Three types of international strategies are well proven - learn from them: The Multidomestic Strategy that focuses on country-to-country competition. Typically for this strategy are decentralized strategic and operating decisions in each country. So each country-unit can tailor its goods and services to its market. This strategy is implemented through a company’s geographic area structure spread over the world. The Global Strategy that assumes a high level of standardization of products and services across countries, regions and markets. Companies use the global product division structure to implement it. Its characteristics are global centralization of strategic and operating decisions to gain economies of scope and scale. Decisions are reached at the headquarter. And the Transnational Strategy combines aspects of both the multidomestic and the global strategies so as to strengthen country responsiveness and centralized decision making and coordination. Such a strategy sways between integration and non-integration, formalization and non-formalization. For that companies use a combination structure which requires an integrated network and a culture of individual commitment where continual training is key. Most notably, large corporations are trying to use a transnational strategy. Whereas smaller firms are more likely to execute a multidomestic strategy. But the latter one could result in a weakened market position, because of the differences of countries served, which absorb plenty of performance. Furthermore, due to restricted resources and a more narrow focus, SSU’s are more qualified to pursue a GLOBAL STRATEGY than a transnational one. That’s because it allows for poolability of resources and so we focus here on such benefits of a global strategy, like: Borderless demand and sale; access to resources; expanded product life-cycle; and so maximized profits. Let’s keep in mind that before dealing with globalization, a firm has to master internationalization. If that is done a firm can change the rules and try to globalize the core strategy. That allows then to leverage advantages on a worldwide scale. But it takes a while, depending on available resources and capabilities. Regarding the strategic horizon of such a strategy, entities that ogle with the term globalization have to determine some aspects, like:
First, what is the potential of the worldwide business (analysis of globalization drivers); Second, what part to globalize of the own business (industry or landscape analysis); Third: What are the industry drivers relative to the position and resources (analysis of global strategy levers). See also Appendix I: A Framework for Global Strategy. There are several techniques and strategies feasible to expand the own business to foreign grounds:Export products to foreign soilLicense your technology to foreign partnerCooperate strategically with foreign partners (form strategic alliances)Make acquisitions on foreign soilEstablish new wholly owned subsidiaries on foreign soil.See also Appendix I: Strategies on Foreign Ground. Here first movers can often pocket above-average returns until competitors winning back loyalty of their customers. The first movers often pocket premium fees. And they have the awareness, motivation, or ability needed to be ahead of competition. In turn the advantages of the second movers are to quickly and successfully incur first movers advantages but avoid their mistakes. That’s what competitive rivalry is about. It requires to initiate a large number of actions, depending on organizational size: either many in numbers, or a few but concentrated ones. A chosen market position (purpose, value, scope etc.) is a base denominator for successful competition. And so it can dampen ones ability to take competitive actions, which then calls for reengineering. To change a chosen market position, in order to capture another one, is often pretty much a challenge.
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So basically, we have completed the most important strategic steps in order to organize our business globally. And now we are ready for operational business steps. But it’s not just as simple as that: Here again, we will first start with strategic issues, but with subordinated ones on the functional level. After that follow some ideas how to emboss tactical actions for a SSU-business. As have learned that every business concept bases on planning, let’s remind of our graph to illustrate the whole ploy we work through:
Operational action now demonstrates that we streak the last part of the ploy, so the following steps:Operational ActivitiesFormulation of supporting programs for the functional areas, and based on strategic steps.ImplementationImplementation of all the strategic and operational action.Loop ClosingGo and gather feedback out of your network and exercise control about the implementation work.
These three are the basic operational steps at the functional level. Here the area most related with an SSU’s output that becomes globally aware are marketing activities. Consequently we start right there.
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Marketing aims to create, promote and deliver goods and services to attract target customers. The literature shows us that nowadays it’s not sufficient to simply offer products. Rather there is an increasingly demand for assistance (networks) that helps us to migrate value from products to support to solutions. Philip Kotler is perhaps the most reputed marketing expert. We know from him that the challenge of globalization calls for global marketing in order to meet:Digitalization and connectivity.Disintermediation and reintermediation in the dotcom economy.Operational and marketing customization and customerization.Industry convergence (intersection of industries).The priorities to handle here at the Marketing-Strategy level are:Priorities of Products and Markets - where exactly to engage and where not.Politics of Branding- and Communication - what especially to highlight.Guidelines for Infrastructure and Leadership - how to do the job.So we should already be best prepare to solve these issues. See also Appendix XI: Influences on Marketing Strategy. Many business experts have developed sound marketing strategies that are now applicable here on the marketing level. Kotler identified the following marketing strategies:Marketing StrategiesCompetitive strategiesMarket challenger strategiesMarket follower strategiesMarket nicher strategiesSee Appendix XVII: Kotler’s Marketing Strategies.
But here I would like to tie up with Ansoff’s, corporate strategies we discussed before. If executives have determined for a field in Ansoff’s matrix, they also have prearranged the marketing strategy for their firm. So let’s have a quick view at them again:Ansoff StrategiesMarket penetration - to serve existing markets with existing products - the aim is to intensify growth in selected areas.Product development - to handle existing markets with new products – the aim is to integrate growth in selected areas but with a surplus in the offering.Market development - to attract new markets (customers), but with existing products – the aim is to integrative growth on new terrain, but with existing competencies.Diversification - diversification now completely turns around the whole range of offerings: new markets are served with new products – the aim is to diversify the growth.Click here to see again the Ansoff-Matrix on page 97. we know that a marketing strategy is the way to realize
marketing objectives. Such objectives look like:Marketing ObjectivesLow-cost products.Best-made production.Delivering more value for customer’s money.Or save customer money.Providing superior customer service.Enhancing customer performance.Providing more convenient locations.Make a more reliable & durable product.A strategy and objectives are not enough, a marketer needs also to develop a sound marketing concept which lists the priorities and steps to execute as operational action. The minimum requirements for such a concept are:Marketing ConceptExecutive summaryTable of contentsOverview of current marketing situationAnalysis of opportunities and issues Summary of financial and marketing objectivesOverview of the (product-) marketing strategyDescription of marketing action-programProject of profit and loss statementsSummary of controls used in monitoring the progressDo not forget the 7-P’s of marketing we analyzed. Because they support you while organizing your marketing ideas: product, price, promotion, place, participants, process and physical surroundings, and partners. And do also remember at the 4 C’s of marketing: customer solution, cost to the customer, convenience, and communication. A good point is to consider marketing more as an art than just a war for overaggressive prices. So marketing rewards creative ideas. People buy a product because of the basic needs they look for. These are the core features (qualifying dimension), that must be offered to attract potential customers (e.g. if you need a car, you need a license and finance). Then there are the specific needs the product also should fulfill. These are the factors that actually affect the customer's purchase of a specific product or brand (determining dimensions). For more detail see Appendix XVIII: Marketing Concept Approach.
The marketers task here is clearly to find the right way - in today’s demanding and globalized environment - in order to bring goods and services to target groups of buyers.
From marketing I pass now over to organizational actions, as the other operational domain that is of interest here (others are also essential but not within the scope of the thesis).
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To keep pace with emerging needs in business and society, firms have to form boundaryless and flexible organizations. They should be strongly bound into a far-reaching stakeholder network. Hence I will call such a virtual and agile entity simply a network organization. The ultimate ambition of this network organization, is, to obtain stakeholder’s support. In consequence, they permanently have to evolve themselves => effectiveness; and reach a yearly productivity growth in two digit numbers at least => efficiency. This is pretty ambitious and calls for clever decision-makers on every level of such entities. Clearly such executives have to rely on what they now best - their core competencies. And they outsource non-core functions within their network, which gives them access to skills and each other’s markets, and possibly allows to share costs. Such networks compose of individuals and other small organizations. Work should be defined as processes to be done without time boundaries. There, a flexible and broad banded pay that is tied to processes, performance and shareholder value is thinkable. Clearly the foundation has to be a ethical attitude, displayed by all of its stakeholders. The people most likely to work for such an entity are decision-maker that prefer to work in team-based structures.
The future of business in not getting simpler. Hence the virtual and agile entity has to find ways to master it. A promising idea is specialization, as we can deduce from above statement. Or, the fragmentation and segmentation of mass markets into niches, called niche-politics. The ideas are just then promising, when they add an ongoing set of values (response) to the network of stakeholders. And that in turn calls for a sustainable strategic horizon – which means a long-term focus. But what are now the needs for managers that lead such entities on the way to success? Here are some main determinants that address this question:Communicate purposes and objectives broadly.Stay informed and know the landscape.Keep learning and embrace new technologies.Continuously reengineer processes.Divergent in thinking - about difference and uniqueness.Strategy actors and activists.And most likely the qualifying dimensions for executives that lead a network organization are:Straightforward and clear attitude.Hard-working and disciplined.Fiercely loyal to the company, the brand, the people.Ethnic sense to treat people with dignity and fairnessDo their job in a flexible and speedy manner.Executives should ask themselves how they can most effectively create partnerships that continuously create greater value to the whole network organization, recognizing the ever-changing needs it undergoes. So executives have to have the right network of people that support them. Those people are likely to lead whole processes. That calls for strategic thinking and a flexible work
behavior. Entities that can combine all the above mentioned are likely to release a modern offering:The Modern Market OfferingConsisting of an array of models but with a standardized core. Slightly customizable to fulfill more demanding orders. Products that are easy reconfigure- and update-able.
And all that in a rapid manner. As noted before such a network organization is likely to take advantage out of the network, like: trustfulness and high loyalty, long-term relationship, perceived competencies, and so a weightily power in decision-making. But of course there are some latent risks related with a network in general: Being at the mercy of it, too less economies of scale or scope, advantages become obsolete, and changes in relationships calls for more effort. The whole task of building the network organization and its activities need to be developed in the context of the overall global strategy. But perhaps there exist some organizational barriers and if so they have to be removed. Starting with the most easily changeable aspects, in order to prepare the way for the more difficult changes. Self-evident is that different level of networking (technical assignment, functions) can mean different level of globalization. The diverse aspects of organizations are summarizable in the 7-S of Architecture and the 5-C of Capabilities. Executives have to address every of the following issues when building their network organization:The Dimensions of the 7-CStructureSystemsStaffStyle (processes. leadership)Shared Values/Culture
The Dimensions of the 5-CCompetenceCoordinationCommitmentCommunicationCapacity ManagementThe strategy works then fully, when all the mentioned aspects cooperate with each other. What is true for a global organization is also true for our network organization: It has to be able to go everywhere it wants and bring in its assets, use resources needed, and generates profits on a global scale. If companies don’t do that, their competitors will do it. See also Appendix X.
One of the key underlying principle that our network organization should bring along is a core ideology. When it is the right core set of values, it will nurture the network and allow it to keep effectiveness and efficiency, even when strategy and tactics change frequently. Because the core ideology is the foundation of a strong network. A strong core ideology tries more likely to encourages intellectual capital and personal capacity of individuals, and less likely for short term profit goals, cost cutting, or permanent restructuring. So the decision making and a flexible leadership (most knowledgeable person) in the task at hand. All that should have an influence on the quality of strategic findings:
Collective aspirations expand consciousness and are likely to allow people to see the big picture. Therefore not only hard factors (tangible things), but also soft factors (emotions, ethics) will influence the network organization. There are 5 components that nurture ethic behavior:Personal ResponsibilityBased on self reliance, and mastery - we accept that we are the masters of our own destiny. We make decisions and live with the consequences of them. When a problem needs to be fixed, or an opportunity exploited, we take the initiative to learn the required skills to get it done.Mental Models We explore our personal mental models to understand the subtle effect they have on our behavior.Shared vision The vision of where we want to be in the future is discussed and communicated to all. It provides guidance and energy for the journey ahead.Team learning We learn together in teams. This involves a shift from “a spirit of advocacy to a spirit of enquiry”.Systems thinking We look at the whole rather than the parts (Fifth discipline). It is the glue that integrates the other four into a coherent strategy. For an alternative approach to the “learning organization”.
Executives have to unify people’s personal goals with the network organization’s goals. Otherwise the come out could be damaging.
People are the principal element in every business process, and so an investment in people’s knowledge pays off. The idea of knowledge here comprises the human capital (the knowledge inside the heads of employees), the customer capital (the knowledge inside the heads of customers that decide to buy from you), and the structural capital (the knowledge that resides in the company itself).
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The mainly strategic point of view, as we have taken so far, stresses firstly the importance of planning. But not of less importance is the implementation part, because it enables the successful transformation of a strategy into a real outcome. Hence a strategy is then complete, when it is well implemented. But an appropriate exit timing of any strategy should be an integral part as well, before the given strategy gets obsolete. But now let’s concentrate on the key process of implementation:Strategy ImplementationSelecting the right people for the right positions.Appoint inside or outside implementation specialists.Exercise strategic leadership and establish a chain of commandTop-down commitment and internal champions are a must.Build a capable organization an consider culture, mix of skills, experience, beliefs.Allocate resources and develop skills, competencies and capabilities.Organize processes, responsibility, and execution to people and monitor results. Best practice approach for improvement and simple practices - execute them fanatically.Rewards are a must and have to be tied on key strategic targets.
Strongly related with that is the implementation of subsequent programs. So the acquisition of requisite resources for each single task. And further training, process testing, and documentation are also substantial for a auspicious implementation of strategic work.
Here a well proven idea is to provide shocking levels of responsiveness, in order to galvanize the whole organization that something important has to be done.
Strategy implementation deals with targets and actual business results, and executives have to ensure them. For that they apply strategic control to measure the outcomes.
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Strategy implementation relates to strategic control, because it’s necessary to check the outcomes. Hence, strategic control is the touchstone of planned actions and changes. Executives have to keep strategic control. They can do that through information control - so to screen effectiveness, which answers the question: are we doing the right things? And through b
ehavioral control – so to check efficiency: are we doing things right? A set of cultural standards is a nice tool to measure behavior in overall conduct and it encourages the identification with the own network organization. When the standards are unwritten, they should be made feasible for everybody in the organization. Rewards are a further element to stimulate desired behavior and so to develop the culture needed. Again, globalization pushes the transformation of industries and unburdens firms like SSU’s from cumbersome physical assets. We know that it changes the competitive landscape, redefines it, and affects the synthesis of market segments, and disintermediates ancestral channels. So to measure business progress and changes, executives can make use of the balanced scorecard principle. With that they are able to measure targets like: financial, marketing, production, organizational development, and new product development, in order to achieve a balanced perspective. This access to information allows executives to take a much more comprehensive view on strategic results than ever before. And clearly it gives executives a much more comprehensive tool to control strategic outcomes. Therefore I strongly recommend executives to study the balanced scorecard methodology (right side). For more information about it check their Website.
Especially balance score- card is a fine tool to monitor strategic results and fit them into the big picture of strategic changes.
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Addressing all functional areas, I think that there is a strong correlation among them and executives have to find out where exactly. I will only give 2-3 ideas here nto to go beyond the thesis’ scope.
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Entities need access to financial resources, pretty often to external ones. As we learned in the analysis part, a conservative financing better supports a sustainable growth. Here I have two advices for executives how to deal with issues in the financial area. The first advice is to measure their financial success in terms of the EVA-principle. Let’s see how the inventor, Bennet Steward, explains EVA: “Economic Value Added is the financial performance measure that comes closer than any other to capturing the true economic profit of an enterprise. EVA® also is the performance measure most directly linked to the creation of shareholder wealth over time. Stern Stewart & Co. guides client companies through the implementation of a complete EVA-based financial management and incentive compensation system that gives managers superior information - and superior motivation - to make decisions that will create the greatest shareholder wealth in any publicly owned or private enterprise”:
For more information about it check their Website. The second advice I give is NOT to raise credits with payment of interest that are higher than the above mentioned yearly EVA return. Otherwise executives basically harm the own organization substantially. As I noted before here in the strategy part, a SSU should reach a yearly growth in two-digit numbers. The best way is to open up financial resources that are cheap. But perhaps there is no cheap capital available. Alternatives for SSU’s are Venture Capital funds. The business of venture capitalists is to invest third-parties funds into SSU’s, SMB’s, and IPO’s. They categorize their investment as a high risk one and so they are likely to obtain the highest possible performance (IRR) with their capital. And so they basically exert much of pressure on the payee of capital. But don’t take for granted that a two-digit yearly growth enables to pay interest of about 20% for venture capital. Therefore executives have to carefully select which funds they want to finance their business.
For more information about venture capitalist expectations visit their European Website - and there choose the report you like out of the list.
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The technology and operations area goes deep into all the aspects of how to produce goods and services. Several processes shape operations into a competitive management tool: Customer Relationship Process Or also called CRM - it describes the interface a company has with its customers. These in terms of Marketing & Sale, Manufacturing or Services, but also through every other single contact the company has with its clients (e.g. Accounting etc.).New Service/Product Development Process This process is triggered by the CRM-Process and aims to (better) fulfill changed market-needs.Order Fulfillment Process It is the task to exercise best practice in the value-chain (supply-chain).Supplier Relationship Process means the selection and flow of services, materials and information needed to generate the own goods and services.
The operations functions are responsible to transform inputs into finished goods and services. Productivity here means the value of outputs (advantage) divided by the values of inputs (resources, capabilities). So clearly an advantage can be reached by choosing the right resources and capabilities (e.g. new technology, new operations) and by an effective management and by an efficient operation of them. Executives have to consider the way of ethics, a diverse workforce to deal with, and environmental issues. Strategy decisions for operations management are of high importance. The outcome could be a waste of resources for years. It is evident, that all decisions should reflect the (corporate) strategy. Then follows the operations concept which lines out how operation takes place and works efficient. The first task is to assist the basis for advantage in the marketplace. So all relevant issues have to be recognized and analyzed alternatives - if there are some - have to be found and the very best selected. The performance of the performance of the value chain (operations processes) determine the outcome of a desired change. For more information about TOM/OM expectations see also the following Websites-.
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During my MBA-block in HRM we had to deal with the M&A project of CENTERPULSE that was acquired by both, ZIMMER and Smith&Nephew. So our consulting group aimed to take the best out of the deal for all involved people. As mentioned in chapter “Organizational Action” it’s the people that makes the difference here. When people can’t be motivated to bring in their resources, there is no business to made. So we had developed an idea where to concentrate the main effort on to better management the acquisition of CENTERPULSE. The following graph shows our plot. Take attention to the spots market with red, because these are the main issues we discussed here in the previous three chapter and they are centric for HRM:
For more up-to-date information about HRM visit some interesting Websites of Human-Resource organizations.
To work out your own strategy and your concept in all the above mentioned areas, just pick out the ideas you like most, or contact me for a more careful consulting. With that statement I will now close the strategy chapter and turn to the conclusion.
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