Conglomerate Diversification: Strategy Directions and Choices - Essay Example

Strategy Directions and Choices Conglomerate diversification, its merits and demerits First, conglomerate takes placewhen a firm/ company expand its business to an area unrelated to its major business. This is an outcome of merger or buyout of an additional company or if the company is looking into developing different products or services that are not similar to those it already offers. In many cases, companies enjoy benefits of conglomerate diversification arising from increased revenues and extensive business coverage. On the contrary, a merger company may be vulnerable to failures and losses especially if the management is not experienced with the new products/services or if the new company is over-stretched. Merits of Conglomerate Diversification Diversification is a type of growth strategy. Strategies involved in growth engage a considerable improvement in performance goals (normally market share and sales) besides levels of performance. Several companies employ one or more of these strategies. One of the major reasons is that held by established investors and executives that bigger is better (Johnson et al, 2011, p.90).An improvement in sales is normally used to gauge performance. Although the profits may remain stable or less, an improvement always please many people with the assumption that since are improving so will the profits. Managers also rewarded when an organization successfully pursues a growth strategy since they receive commissions based on sales. The managers of such organizations are get recognition and power. They get invites to address the same to professional groups as well as interviews and media coverage compared to managers from companies with larger sales but less growth rates. Such companies are more reputable and attract competent human resource. The possibilities of stage production lead to large size. For instance, better connections with suppliers are possible through bulky orders causing lower costs hence quantity discounts, custom- made productions and enhanced delivery affordable for smaller operations. Additionally, they could cut down on cost by better positioned warehouses, effective advertising and shipping efficiencies. The size of the company in relation to its customers and suppliers determines its bargaining power as well as the ability to set prices and services offered. Demerits It has been known to cause over expansion of the organization’s resources. The entire process involves market with new and unrelated products. It is implemented among the internal diversification strategies because of high risks. Besides, research and development and advertising costs are expensive compared to those of existing products. In effect the possibility of letdown is greater when the market and product are new. Perchance the main drawback associated with conglomerate diversification strategy is the rise of administrative issues resulting from operating distinct business. Managers from various departments have different experiences making it difficult to work together well. Additionally competition among the strategic business units for resources might involve shifting resources from one department to another causing rivalry and other administrative issues. Lastly, entering business with apparently guaranteeing opportunities should be treated with caution. The management team must be skilled and experienced. Lack of knowledge in some business will definitely cost the company. The new business might be promising but challenges will definitely come up. Madonna’s Case Study Madonna’s competitive strategy is focused differentiation. Her products are perceived as superior quality, have a considerable price premium and targeted towards niche markets. Such are the albums and singles, concerts, films, children books and style icon for Pepsi, GAP and Max Factor. Her career picked from a religious note, she advocated for the essence of women’s sexuality during the 90’s. She is a public figure and therefore will avoid conflicts with everyone all means possible (Whittington & Scholes 2011, p.19). In 2003, she withdrew the Che Gevara image and although she is not very relevant in today’s market, her consumers know she is unpredictable and can surprise them anytime. The Britney kiss for instance presents her with a distinct advantage and mass selling opportunity in the overly competitive music industry (Fouz-Hernández, & Jarman-Ivens, 2004, P.183). Madonna has been eulogized for her stunning beauty and recommendable sense of fashion. From this, I will suggest that she launch a talk over cutting across the universe and share the secrets with her consumers. Maybe it’s a her diet, exercising, sleep, supplements or other factors that make have a stunning beauty at a time when most of her age mates have wrinkles and white hair (Whittington & Scholes 2011, p.19). Strategy Implementation & Impact Strategic leadership is the manager’s capability to demonstrate some strategic vision for the company or a part of it, encourage and pursue his/her subordinate to acquire that vision. Richard Lynch a retired Professor of Strategic Management at Middlesex University, London, England defines it as the ability to model an organization’s decisions and produce high value within given time, not only individually but also through motivating others in the organization (Lynch, 2009, p.620). Its major goal is productivity and creating an environment whereby workers foresee the organization’s needs in the background of their own job. Figure 1 shows the five constituents of valuable strategic leadership developed by Professor Richard Lynch with an aim of describing strategic leadership Figure2 shows the transcendent leadership model Figure 3 shows the differences and similarities between the Successful and Effective Strategic Leadership model and the Transcendent Leadership model (Crossan, et al, 2008, p.570). Theme 3 .Current Trends in Strategy- Honda’s Case Strategy is a merged and inclusive arrangement created to make sure fundamental goals in an organization are accomplished. They can be intended or emergent since it takes more than a company intends to do and what it essentially does because there might be an accident along the way leading to changes. The entry of Honda in the American market was deliberate since they started an American establishment in Los Angeles where the population and climate were attractive. Then the original plan was to put the 250cc and 350cc on sale in the American market with luxury in mind. The company followed a deliberate strategy of advancing the market region by region and penetrates the market by selling motorcycles for less than $250 as a retail price compared to competitors who sold theirs from $1000 to$ 1500 (Johnson et al, 2011, p.111). Despite the powerful external restrictions in America, Honda did not capitulate but waited for longer to get started. Its publicity was not impressive as compared to the competitors; they had used the undergraduate university students to try the best Honda campaign in advertisement. However, the management was not in favor of the proposal with the advertising firm. Promotions that had been designed for the bigger motorcycle machines failed because of engine flaws. They were most confident with 250cc and 350cc motorcycle machines. The appearances were also amazing and attractive. The deliberate case follows as technical problems with bigger motorcycle (250cc and 350cc) as slow and vulnerable to mechanical failures. Therefore, Honda suffered losses on air freighting them to Japan for repairs. Those working for the company resorted to using 50cc super-cub for transport and sport activities. This again brought some substantial competitive edge for the company, making them sell like hot cakes. Then unpredicted happened when on duty the 50cc cubs attracted Sears Roebuck. Honda shifted to selling the 50cc which was an emergent strategy. In addition to using an undergraduate advertising major at UCLA project which proved to be an effective campaign advert for Honda, ‘You meet the nicest people on a Honda’. This cleansed motorcyclists off the bad reputation. Although Honda used the deliberate strategy in America, it also used emergent and became successful (Alexander &Jeffrey, 2008, p.209). Therefore, its success cannot be attributed to a single strategy because they soon learnt of their miscalculations and responded to the unseen. The entire case is filled with failure and success of the company in penetrating a new market. The company should have been more cautious before the implementation of the big machines in America. They should have exported a few of them as samples then many more later if the outcome matched their expectation. The right-first –time principle asserts that the results of any process should be free of error so that the next task depending on the predecessor tasks don’t suffer the burden of correcting errors and reworks that would cause delays in production increase production expenses as well as the cost of lost opportunities of sales acquired from customers who preferred to wait and shift to other brands. ReferencesTop of Form Alexander, J. (2008). Japans Motorcycle Wars an Industry History: An Industry History. UBC Press. http://www.myilibrary.com?id=245696. BERGER, A. (2011). Global Corporate Strategy - Honda Case Study. München, GRIN Verlag GmbH. http://nbn-resolving.de/urn:nbn:de:101:1-201107181258 Chemers, M. M. (2000). Leadership research and theory: A functional integration. Group Dynamics: Theory, Research, and Practice, 4, 27-43. doi:10.1037/1089-2699.4.1.27. Crossan, M., Vera, D and Nanjad, L. (2008) Transcendent Leadership: strategic leadership in dynamic environments. The Leadership Quarterly Vol. (19) 5, 569-581.Lynch, R., (2009) Strategic Management, 5th Edition. New York: Prentice Hall. Fouz-Hernández, S., & Jarman-Ivens, F. (2004). Madonnas drowned worlds: new approaches to her cultural transformations, 1983-2003. Burlington, Vt, Ashgate. Johnson, W. (2011). Exploring Strategy, 9th Edition, New York: Pearson. Lynch, R. L., & Lynch, R. L. (2008). Strategic management. Harlow, Financial Times Prentice Hall. Whittington, J. & Scholes, M. (2011) Exploring Strategy, 9th Edition. 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