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Analysis of different strategy across companies and the ...

  1. 1. 1 Analysis of Strategic Difference and Importance By Kevin Fan Faculty of Economic and Commerce University of Melbourne May, 2002 1
  2. 2. 2 Introduction The concept of Business Strategy exists throughout every part of a company. Each company has its own Business Strategy to identify company’s goal and to guide the company to achieve the goal. Due to the different condition each company has, different business strategies are used in companies, and usually they act significant roles on determining the future of companies. To recognize how different business strategies across companies and why they are important, first of all, it is necessary to make clear of what the concept of Business strategy is. Concept of Business Strategy Business Strategy is a broad term for companies. It does not only deal with the goal of a company, but also the management, marketing and supply of the company. According to Kenneth (1971), Business Strategy in a company should be “the pattern of major objectives, purposes, or goals and essential policies and plans for achieving those goals” From this, it can be understood that Business Strategy is mainly about what a company wants and how should the company do to satisfy this want. Here there are two main points need to be clarified. One is about the main goal a company wants to achieve. It is commonly known as the Grand Strategy (Kotha & Daniel, 1989). The second point is about the plans for achieving the goals. This domain includes Business Strategy that deals with management, marketing and supply. It is known as Business-Level Strategy (Daft, 2000). Business-Level Strategy includes numerous strategies, but generally they can be classified into two branches: Competitive Strategy and Cooperative Strategy (Porter, 1980 &1987). Grand Strategy The overall goal a company goes toward refers to the Grand Strategy of a company. According to Daft’s (2000) idea, Grand Strategies fall into three general categories: growth, stability and retrenchment. This is, according to specific condition, a company’s overall goal would be in one of these three. For example, a company that has efficient management but lacks of profit might choose to use Growth Strategy. Another point to make is, as the condition changes, the companies could change their Grand Strategy accordingly. Following the previous example, if the company grew successfully, the executives probably re-decide and change their Grand Strategy to 2
  3. 3. 3 Stability or Pause Strategy (Daft, 2000), which lets the company takes time to adjust, to make it runs more efficiently. Briefly Grand Strategy is like a framework of the whole Business Strategy. How to achieve the goal exactly? Companies have to move its attention on Business-Level Strategy. Competitive and Cooperative Strategies Business-Level Strategy includes Competitive and Cooperative Strategies. The objectives of both strategies are basically the same, to help a company to achieve competitive advantage against its rival. This can be explained by Porter’s (1980) idea, “developing a Competitive Strategy is developing a broad formula for how a business is going to compete.” Cooperative Strategy would achieve the same outcome, if used appropriately (Porter, 1987). From this idea, it can be inferred that the difference between these two strategies is merely the form of the action taken. According to the basic structure of a company, competitive advantage can be achieve through 3 main different manners, which are management, marketing and supply. Cost Leadership Strategy (Porter 1980) is one of the competitive Strategies that apply on a company based on management. It seeks to reduce the cost of a company by managing more efficiently. For instance, in a learning organization (Peter 1990), everyone is engaged in identifying and solving problems. Workers are trained and have the experience and capability to handle problems, such as understand customer needs. The company does not have to expend resource to solve every single problem, so that it achieves competitive advantage. According to Slaster and Olson (2001), marketing strategy would also achieve competitive advantage over the market by differentiating decisions relating to market segmentation, targeting, and the development of a positioning strategy based on product, price, place and promotion. For example, to target a very different market from rivals would achieve certain competitive advantage on the specific market. The third manner of achieving competitive strategy is to through Supply Chain Strategy. Chopra (2001) pointed out that in a company Supply Chain Strategy determines the procurement and transportation of raw materials, production and distribution of the product. Dell Computer (Daft, 2000) is a company that uses this strategy very well. It sets up factory and warehouse in Malaysia, provides online order service and deliveries computers to customer directly, not through any retailer. By doing this, Dell 3
  4. 4. 4 Computer cut its cost and increase efficiency of supply. The same outcome, it achieved competitive advantage against it rivals. Similarly Cooperative Strategy has the same effect as Competitive Strategy. It also would achieve competitive advantages on management, marketing and supply. What a company needs to do is to cooperate with one another, which had already had the desirable competitive advantages (Daft, 2000). Strategies like Acquisitions, Mergers, Joint Ventures, Strategic Business Partnering and Preferred Supplier Arrangement are basic forms to do this. By discussing the concept of Business Strategy, it is clear that Business Strategy is a term that integrates Grand Strategy and Business-Level Strategy. It shows a company’s goal and the way to achieve the goal. However, as a matter of fact, it often can be seen that companies are not always have the same Business Strategies, so why and how do they different? Strategically different across companies The different strategies across companies are caused by two main factors: Environmental and Artificial factor. They usually decide how different the Business Strategies would be across companies. In the regard of environment, Reed (1992) indicates that there are seven external factors that are taken into account of affecting a company’s decision: Demographic, economic, natural environment, technological, political, legal and cultural. It can be understood how these factors differ companies’ strategies by thinking in a way like that; there are two companies, company A locates in Australia and company B locates in Russia. They have all of these 7 factors different. Will the cultural factor affects the strategies company A and B use in such different environment? The answer is yes. It is common that many products are changed to fit into the local market. Examples of McDonald’s different products across countries illustrate this point. Does the demographic factor differ the strategies between A and B as well? Again the answer is yes. Russia has much larger population than Australia. Company B might finds the market in Russia is big enough to use Growth Strategy, in contrast, Company A is more likely to use Pause Strategy or Global Strategy due to the relatively smaller market in Australia. Hence, it can be seen how these external environmental factors differ companies’ strategies. Moreover, Internal factors are also essential factors that 4
  5. 5. 5 differ a company’s business Strategies. In a study by Stevenson (1976), he summarized 6 internal factors that would make a company’s strategies different from one other. These factors are Management and Organization, Marketing, Human Resources, Finance, Production and Research and Development(R&D). Every company concerns these internal factors and these factors are usually not the same in every company. Some might have these factors as strengths. However, some might have them as weakness. Therefore, company has to uses different business strategies to achieve competitive advantage. For instance, a company can strengthen its R&D through Cooperative Strategies. Or maybe the company, which is already good at R&D, might focus more on a competitive marketing strategy for achieving competitive advantage over the market. In addition to all the environmental factors, artificial factor should also be taken into account. In reality, it is common that companies intentionally differ their strategies from others in order to compete and succeed. David (1997) points out that, “there is always a strategy that is a best response to other firm’s strategy.” It can be inferred that the “best response” here must be a different strategies. The reason for this is clear, competitive advantage cannot be achieve by doing the same thing. What they have to do is to differentiate their strategies. For example, in 1993 Kodak and Fujifilm both dominated 70% of their home markets respectively. During the same time, Yen dropped and Fujifilm offered pricing discount in the U.S market, tried to take over more market share from Kodak. However, Kodak successfully maintains its market share by bidding against Fujifilm for exclusive and preferential supply arrangements directly with large retail chains (David, 1997). This case illustrates how companies try to differ strategies from each other in order to achieve competitive advantage. To be brief, how Business Strategy differs across companies depends on the environmental and artificial factors. No matter how much effort companies spend on finding the better strategies, fortunately there are always some companies failed. There are diverse reasons for hat, but there is one point that is clear; Business Strategy acts a significant role here. 5
  6. 6. 6 Importance of Strategy Business Strategy has substantial effect on a company’s success and failure. How substantial it is can be seen on the importance of its function. Companies have to rely on the functions of strategies to survive, run properly and achieve goals. Jain (1990) uses a vivid metaphor for Business Strategy, “without a strategy, an organization is like a ship without a rudder, going around in circles.” A function of strategy is to guide the company with an overall direction here. Without this function, company would get lost with its direction; everyone in the company is ambiguous about what they should do. Should the marketing manager think of strategy to improve sales or maintain the current condition? Should the human resource manager focus recruiting or training employees? Should the factory director thinking about way to increase the productivity or to cut cost? All of these questions need to be answer with a clear Grand Strategy by the company. Otherwise, failure would be a coming threat to a company. In addition to just having a direction to go, companies need strategies to cope with difficulties. According to Dobbins and Pettman’s (1997) idea, “a company needs Business Strategy to focus on its strengths and opportunities, and either to avoid or overcome the weaknesses and threats.” This sentence identifies the significance of Business Strategy on the function of coping with difficulties. Sometimes some external and internal factors would bring vital problems to a company. Competitive and Cooperative Strategies are indispensable here to help. Supposed a company face financial difficulty. It can either choose not to use any strategy and fail the business or try to resolve the problem by using some strategies such as Cost-Leadership Strategy. Hence, it can be seen how strategies function importantly to help a company to survive. No doubt that avoiding failure is important to a company. Moreover, Ricard (2002) indicated that, “connecting with the right strategy at the right time supported with the right resources will produce the best possible results. Putting in simple words, Business Strategy is requisite to a company, because another function of strategies brings the company to a desirable future.” General Motor’s Retail Operating System meets its goal by using a common system to provide easy, just-in-time access to 6
  7. 7. 7 information, via web-based delivery, for all GM employees and all GM retailers (HR Focus, 1999).” In this case, GM mixed several competitive strategies in the form of Retail Operating System in order to achieve its goal. Firstly, this web-based system cuts the communication cost between employees and retailers. And as the system is easy and just-in-time access, so the efficiency of the company is improved. Secondly, in the regard of marketing, it achieves the place advantage. Retailers were not restrained by the traditional way of obtaining information from GM. Thirdly the procedure of supply is simplified by the web-based delivery, which means GM has a cheaper and more efficient supply chain. As a result, GM gained competitive advantage and moved toward its goals by using strategies. Consequently business strategy is so important to a company. It does not only tell a company which way to go, also teach it how survive and succeed. Conclusion In summary, the concept of Business Strategy is broad, but not fixed. Every company can understand it in a different way and develop its own strategies according to different environment and marketing condition. Due to this reason the importance of Business Strategy is illustrated differently as well, but basically a company has to have a Business Strategy to guide which direction to go and how to perform better toward its goal. 7
  8. 8. 8 Reference: Chopra Sunil & Meindl Peter, 2001, Supply Chain Management, (New Jersey: Prenice Hall), p25-27. Daft Richard L., 2000, Management, (Orlando: Harcourt college Publishers), p235-255. David P. Baron, 1997, “Integrated Strategy And International Trade Disputes: The Kodak-Fuji Film Case “, Journal of Economics & Management Strategy, V6, i2, p291. Dobbins.R. & Pettman B.O, 1997, “Self-development: the nine basic skills for business success”, Journal of Management Development, Volume 16, Number 8, p521 HR Focus (anonymous), 1999 Feb, “GM’s Online Strategy”, v76 i2, p11(1). Jain Subhash C., 1990, Marketing Planning & Strategy, (Chicago: South- Western Publishing Co.), p11. Kenneth R. Andrews, 1971, The Concept of Cooperate Strategy (Homewood, Ill.: Dow Jones-Irwin),p28. Kotha Suresh & Daniel Orna, 1989, “Generic Manufacturing Strategies: A Conceptual Synthesis,” Strategic Management Journal, i10, p211-231. Peter Senge, 1990,The Fifth Discipline: The Art and Practice of Learning Organization (New York: Doubleday/Crrency.) Porter Michael E, 1980, Competitive Strategy (New York: Free Press), 36-46; 1987, “Corporate Strategy: The State of Strategic Thinking”, The Economist, May 23, p.19-22. Richard W. Oliver, 2002, “The Strategic Sweet Spot”, The Journal of Business Strategy, Mar, v23, i2, p6 Reed Peter W., 1992, Marketing planning and strategy (Marrickville: Harcout Brace Jovanovich), p33, p46-66 Slaster Stanley F. & Olson Eric M., 2001, “Marketing’s Contribution to The Implementation of Business Strategy: An Empirical Analysis”, Strategic Management Journal, 22: p1055-1067. Stevenson Howard H., 1976 Spring, “Defining Corporate Strengths and Weaknesses,” Sloan Management Review, i 7, p51-68. 8