Industry Type and Its Effects on Organisational Strategy - Assignment Example

192685 B300 TMA04 “Industry type affects organisational strategy”. Discuss this ment. Use General Motors (GM Company) as an example from organisations you are familiar with to support your discussion. The following discussion will examine whether industry type does affect the organisational strategy of firms that solely operate within specific economic sectors. All businesses in theory at least attempt to maximise their efficiency as well as their overall performance by using the most appropriate organisational strategy. Businesses logically should therefore adjust their actual operational strategy to fit in with the industry type or economic sector that they specifically operate within. The discussion below will examine whether industry type does affect the organisational strategy of enterprises because it is practical to do so (The Business, 26th March 2006). Companies are free to choose whatever organisational strategy they want to, and could choose not to have any formal or structured strategy at all. The senior management of companies to guide their organisation towards high productivity levels, high profits, as well as efficiency generally uses organisational strategy. As will be discussed organisational strategy can be highly adaptable and senior management is generally well advised to review it on a regular basis (The Business, 26th March 2006). Such analysis will discuss if changes are due to businesses believing that the particular operational strategy they conduct their operations is the most effective means of achieving high profits and good levels of productivity as well as high volumes of sales. Sometimes organisational strategy has to be amended to damage limitation exercises rather than profit maximisation schemes. Businesses that are unable to alter their organisational strategy as quickly or as effectively as their rivals then their profits and over all sales performance could suffer directly as a result. Organisational strategy can be determined by theoretical considerations whilst some businesses base their strategies solely on their previous experiences operating within their type of industry (The Business, 27th November 2005). Different types of industries can also rise, develop, and then decline over prolonged time periods which means that businesses may adopt similar or different organisational strategies to survive the worst effects of decline and perhaps even lead to periods of renewed growth. The organisations that are better organised and have coherent strategies are the most likely to thrive instead of merely surviving within the increasingly competitive global economy (The Business, 27th November 2005). The car industry like any other type of industry can be vulnerable to national, international, and increasingly global economic conditions and trends. Periods of high growth rates interspersed with economic downturns or recessions are known to directly affect the performance of the majority of businesses, with consequences for their turnover and profitability. However some companies and even types of industry appear to be more likely to make higher profits during economic booms and less prone to decline during recessions. The organisational strategy operated within different types of industry can partially explain why some companies are able to outperform rival organisations within their industry type. Marketing, location, and efficient production techniques also help to explain why some companies do better than others when they all operate within the same economic conditions (The Business, 26th March 2006). The car industry over all was one of the most successful industry types to develop and expand massively throughout the 20th century, especially in the post-war period. The car industry was one of the first industry types to introduce mass production techniques as a means of improving productivity, efficiency, and of course profits. The car industry just like any other type of industry develops, expands, sometimes contracts, and is liable to change over the long-term period. However not every business within the car industry performs in the same way (The Business, 27th November 2005). The business selected to provide the main examples of the arguments for and against the notion that industry type shapes organisational strategy is the American based multinational corporation General Motors. As a company General Motors currently operates on a global basis, and is not just confined to the North American car markets. Indeed General Motors could be viewed as tone of the world’s first significant multinational corporation, and as such its operational strategy can have an impact on the lives of millions of people across the globe (The Business, 26th March 2006). Despite falling levels of sales and profits in recent years General Motors remains a multinational corporation that plays a significant role within the global economy, even if other motor car companies have attempted to take market share away from it. General Motors arguably reached the zenith of its global growth, total market sales share, and profits in the immediate post-war period, especially during the 1950s and the 1960s. Since that time the predominant economic position of the United States and its leading multinational corporations have been overturned by rivals from the European Union and most notably from Japan. The competition from the Japanese has drastically affected the market share that General Motors has been able to achieve across the globe. General Motors was slow to change its operational strategy whilst those of the Japanese carmakers were more effective in gaining and maintaining market share. Japanese firms not only produced cars more efficiently; they designed cars that people wanted to buy and be seen driving (The Business, 27th November 2005). For people that wished to study the organisational strategy of a globally successful multinational corporation, General Motors appeared to be the best example to study and to analyse. General Motors had taken the best features of modern mass production techniques to sell more cars than anybody else had and to make higher profits than any of their American competitors, as well as their European, and Japanese rivals. In theory all these rival carmakers should operate very similar organisational strategies within the same industry type and sector of the economy. The strength of the foreign competitors especially Toyota meant that General Motors resorted to strident cost cutting exercises to start reversing its mounting loses. Loses were commonly blamed upon the many faults or inaccuracies of the production techniques employed by General Motors (The Business, 26th March 2006). The industry type that General Motors was the leading manufacturer within, the automobile industry was a sector of the global economy that for many decades could be used as the best example of the virtues of mass production techniques. Besides mass production was able to demonstrate as well as the main justification for the specialisation of obtaining different components from different supplier, increased levels of operating efficiency (The Business, 26th March 2006). Business analysts have argued that in recent years General Motors experienced slumps in market share, sales volume, and thus drastically reduced revenue levels as a result of not implementing an operational strategy, or failing to achieve it if it did exist. General Motors seemed to lack any coherent sense of strategy or direction when faced with stiff competition from rivals such as Toyota that do have effective organisational strategy, as well as a sound sense of what potential customers are looking for when they go to buy a new car. Such inefficiency, along with tentative leadership, lacklustre car designs and management mishaps have conspired to give Toyota and other foreign carmakers the competitive edge, analysts say. It is not necessarily the efficiency or lack of it that demonstrates the need to alter organisational strategy whenever companies find that their market shares and therefore their profits are declining sharply. Toyotas popular designs have eaten into Detroits market share. There is no let-up in sight, with the Japanese carmaker planning to build at least two more plants in the United States and Canada (The Business, 27th November 2005). Things were not destined to remain forever highly positive and generally successful for General Motors though. In its golden age General Motors did not sufficient allowances for the development of new car models or the need to modernise production techniques to make the most advantages from technical advances (The Business, 26th March 2006). Increased competition from Japanese carmakers in general and most notably Toyota in particular have severely hit the revenues of General Motors. From nearly a 50% US market share during its heyday, GM has slipped to less than 25%. So far this year sales [2006] have risen only 1.3% (The Business, 26th March 2006). Over the decades many of the world’s most successful businesses have developed and used organisational strategy to make themselves more competitive than their nearest rivals. Organisational strategy was developed so those businesses could adapt more readily than without such concept to changing economic conditions, and therefore perform better over the long-term (The Business, 26th March 2006). ‘With 185,000 employees worldwide and $28bn a year sales, the bankruptcy of Delphi, the car parts company that declared Chapter 11 protection … is the largest of any industrial company in history Delphi has lost $5.5bn over the past six quarters’ (The Business, 16th October 2005). There is one explanation of General Motor’s inability to remain competitive against its main Japanese rivals that is not related to the company’s overall lack of efficiency, that it is too expensive to run its car making operations. The Japanese carmakers have in the last three decades made enormous inroads into the car markets that General Motors alongside Ford had dominated since the inter-war period. ‘Steve Miller, Delphis chief executive, has gone on the offensive on behalf of management against the union. He says Delphis bankruptcy is a watershed event in the industry as it struggles to compete with low-wage competition around the globe. Miller has compared the coming turmoil in Detroit with recent upheavals in the US steel and airline industries. Millers been chairman, and chief executive at Bethlehem Steel, and a director at UAL, United Airlines parent. At Delphi, which was spun off by GM in 1999, he has seen the Americas largest auto parts maker slide into trouble because of unsustainable labour costs’’(The Business, 16th October 2005). Organisational strategy can therefore vary with different types of industry, yet it does not have to do so. The senior management teams of every business organisation predominantly determine organisational strategy. These senior management teams forms their organisational strategy based on theoretical and practical considerations. Whilst the senior management of General Motors primarily based their organisational strategy upon increasing efficiency and productivity it failed to control production costs or ensure that potential customers wanted to buy its cars. . Bibliography Crunch time for GM - Tracey Boles - Chief Reporter Sunday, 27th November 2005 GM staves off bankruptcy - Joe Lauria in New York Sunday, 26th March 2006 – The Business GM faces fallout of Delphi disaster - Joe Lauria in New York Sunday, 16th October 2005 – The Business Read More