Long-Term Objectives of an Enterprise - Essay Example

Assignment: Corporate Planning Q Identify at least three companies that use any of the eight specific options under the grand strategies of concentration, market development and product development. A.1 Grand strategies are a means to accomplish long term objectives of an enterprise. Selecting an appropriate grand strategy for company’s growth and future positioning, is a highly strategic decision. In the current discussion, three companies that opted for different strategies of growth are presented as case studies:- (a) Pendennis Worldclass Superyachts, U.K. (http://www.pendennis.com/), a case on use of diversification strategy. (b) Hewlett Packard and Compaq merger (http://www.hp.com/), a case study of a high value deal in technical sector. (c) Tata Motors, India (http://www.tatamotors.com/), a case study on product development for manufacture of small cars under $2500. Pendennis Worldclass Superyachts This case has been extracted from a reported study on the Pendennis success story (University of Plymouth, 2007) The Background: Pendennis is a premier super yacht service provider in Europe. Until 2004, the enterprise was predominantly into global yacht building, repair and refit market. Having acquired a new dry dock facility, the company’s capability increased to undertake refit and restoration super yachts on a global scale. This required creation and implementation, of an international marketing strategy for its existing, as well as, new products and services. The Approach: Building an alliance with the Business School, at university of Plymouth, the company sought a knowledge based partnership to identify strategic diversification opportunities for enhancing their service offerings, and reach. After extensive market study and audit of internal competencies, a three-year strategic business plan was formulated. Specific actions to double the presence of Pendennis staff in Boat Shows at Moscow and Dubai was taken. A new Marketing Information System (MkIS) to support the client relationship management was also implemented. The company also participated in Super Yacht tour of excellence in 2005, sponsored the Falmouth week, and built professional linkages with Cornwall Marine Network. The Outcomes: won the ‘Best Diversification strategy’ at Cornwall Business Awards 2006 improved visibility and branding increase in turnover by 152% (04’ to 05’) increase in profits by 260% (04’ to 05’) increased presence into new and existing markets increased training for staff enhanced reputation as a successful world class business, and a good employer, bringing benefits to the region Hewlett Packard (HP) The Background: HP is an old company which started in 1938 and was subsequently incorporated in 1947. In year 2000 (pre-merger with Compaq), HP reported a revenue of $48,253 millions, employee strength of 84,400, and was ranked 13th in Fortune 500 companies (http://money.cnn.com/magazines/fortune/fortune500_archive/full/2000/). Compaq around that time (in 1998) was in financial difficulties with 15000 layoffs (http://www.enotes.com/biz-encyclopedia/layoffs). Some major problems ailing HP pre-merger were: (a) shrinking margins (b) slow in technology adaptation (c) needed strong complementary business lines. The Approach: The famous merger of technological giants (HP and Compaq) received worldwide accolades and criticism, but attention, nonetheless. The merger process went through many steps (Burgelman & McKinney, 2005): formulating the integration logic and performance goals creating the integration plan executing the operational integration The Outcomes: Literature reveals varied viewpoints, from success to horror stories. Despite the criticism, HP used the $25 billion merger to address key operational concerns in an effort to better react to a fundamental shift in customer values. In the five years since merger, HP has more than doubled its shareholder value surpassing both IBM and Dell in total shareholder returns (Buchanan, O’Brien, and Reitsma, 2008). For the success of a merger, four key drivers are necessary:- (a) sound strategic rationale (b) best of the merging companies (c) managing stakeholders (d) excellence in merger execution Tata Motors (This case has summarized a reported study on the Nano success story (Oxyer, Deans, Shivaraman, Ghosh, and Pleines, 2009) The Background: Almost 100 years since Henry Ford’s spectacular promise to build a car for the multitude, Tata Motors have revived a similar agenda that of building ultra-low-cost-car (ULCC), priced between $2500 and $5000, beating the best in international competition. Speaking at a Press Conference in March 2009, the Chairman of Tata Sons and Tata Motors, Mr. Ratan Tata, said, “The Nano represents the spirit of breaking conventional barriers” (see company’s official website for details). The Approach: The route to this mega-success (early days yet), lies in product design and innovation. The Tata Nano is BS-III* compliant, and comes with an all-new 2-cylinder aluminium MPFI 624 cc petrol engine mated to a four-speed gear box, which is available in three variants. Addressing the “common-person” market, Tata Motors have taken the first step to beat international competition. The Outcomes: Tata Nano in India is touted as a huge success. Bookings for the car are oversubscribed. The success factors that are critical to product development and innovation are:- (a) entrance and development strategies (b) benchmarking and cost analysis (c) cost and pricing targets (d) collaboration and cross functional alignment Q.3 Can a manager of any company avoid making decision? Why or why not? A.3 Firstly on a philosophical note, no human being, leave alone a manager, can live without making a decision. It’s all a dilemma of choice in life. For example, which route do I take today to go to my office; should I have a hamburger or pizza; do I accept a new job offer or continue with my current one; and, in this case of assignment submission, which five, amongst the ten questions do I choose to answer? Sometimes ironically, taking no decision is itself a decision! The only question that needs to be addressed is how to make the right decision, and a right choice. Decision making is an integral part of a manager’s job. There is no escape from it. At times, a manager may make a decision “by the seat of the pants,” or simply, from “the gut instincts.” Neither of these are acceptable traits of a professional manager. The larger issue is: can important decisions be made quickly? Does quickly lead to better decisions? Is it a special skill of the gifted few? Are there suitable processes, and guidelines, that promote good and quick decision making? Making timely, good decisions is definitely one of the key skills of an effective manager. "The greater the speed of strategic decision process, the greater the performance in high-velocity environments" (Eisenhardt, 1989). More significantly, decision making must match the pace of change in the external marketplace, otherwise, opportunities are lost, and agile competitors gain an advantage. Effective decision making is not just about quick and impactful decisions, but also of ensuring that the decisions receive the right support and commitment for its effective implementation. In this context, decision-making merges with leadership, particularly the degree, and manner, in which a leader involves with others in the decision making process. Participation aids in aligning individual goals of group members with the goals of the organization (Vroom, 2003). While decision making may suggest due diligence and careful consideration of a million variables from the area of managers’ control or concern; Simon (1990) presented the theory of bounded rationality. The theory purports the idea that humans will detect, or acknowledge, a reasonable number from the multitude of influencing variables when facing a problem which requires action. Thus, bounded rationality considers the limitations of human computational ability, and environmental constraints that exist in the real world. Literature survey on the subject of decision making suggests that a manager’s ability to choose behaviour patterns correlate highly with effective decision making. The specific behaviour traits that influence decision making are: analytical versus intuitive styles risk taking against uncertainty positive attitude authoritative versus collaborative efforts creativity, innovation, and thinking “out-of-the-box” Judgements have strong influences on decision making. Abercrombie (1960) studied the intricate process behind the development of a judgement, and the organization of information in the human mind. Six judgemental biases that affect decision making are reported in literature:- Representativeness: The decision maker links the current problem symptoms with resembling experiences of the past. In such a situation the temptation is to disregard all other objective information, and alternatives, and go with ‘hunched’ trigger of the past experiences. Fairness: In trying to appear to be fair, a manager inadvertently introduces biases in decision making. In the name of fairness, at times, a manager may be tempted to forego an alternative that offers the competitor some benefit, even though it may be the most rational choice. Framing the problem: The manner in which a problem or concern is structured and presented, influences decision making in a big way. The structuring of the problem appears to “bias” the human mind and the perception of seeing a glass as half full, or half empty. Availability: Decision making is also affected by the frequent use of information that readily comes to the mind. Managers often jump to a conclusion, ignoring the necessary step of searching, and evaluating, plausible alternatives. Anchoring and Adjustment: Managers, many a time, quickly sieve information to identify the starting point for a problem resolution, or choice selection. Having done that, the temptation is to refine the search, and adjust the decision, around the anchored start point. Escalation of commitment: In many instances managers’ fall prey to the biases arising from escalation of commitment; knowing pretty well, that a chosen position has a high probability of failure. For example, continuing investment in a prior decision which has failed (sunk cost scenario). At times, ego plays a big role in continuance with a bad decision, stemming from the fear, that the impression of how others perceive the manager may take a beating. In short, decision making is the only reason, why managers are needed in the first place. A good sound decision can play a pivotal role in business growth and achieving organizational goals. Q.4 What are some of the important considerations in making a sales forecast? A.4 The basic texture of an organization’s business is enveloped by the three C’s: customers, competitors, and company. Business strategies are therefore, tacitly built around the customers. After all, businesses exist to serve and delight customers! And who else, than the sales and marketing workforce, understand customers better? In this context, sales forecast becomes a critical input to the success of company’s operational and strategic goals. The business strategy distillates into the market strategy underpinning strategy management decisions (Cron, and DeCarlo, 2005):- (a) Customer Relationship Management (CRM): At the heart of CRM process is information. Successful CRM efforts depend upon a combination of people, process, technology and knowledge. (b) Go-to-market strategy: An effective sales force requires support from other alternate channels, such as telemarketing, advertising and promotions; value added resellers, and internet, including social networking. Appropriate activities must be performed to attract the customers. A go-market strategy defines who will perform and for which customers. (c) Supply Chain Management (SCM): Supply chain management integrates supply and demand management, within, and across companies. As noted by the Council of Supply Chain Management Professionals (CSCMP), supply chain management includes logistics management activities, as well as, manufacturing operations. SCM drives coordination of processes and activities, with, and across marketing, sales, product design, finance, and information technology. (d) Product Development Management (PDM): The success of a company depends on how it develops, produces and markets new product or service offerings. Identifying customer needs and delivering appropriate offerings are perhaps, the two most important facets of PDM. The sales force program decisions are derived from strategy implementation decisions. These comprise: (a) sales process activities (b) structure (c) competencies, and (d) leadership. The sales force program in turn, directs the estimation of sales potential and forecast. Both, bottom-up and to-down approaches are possible in a sales forecast:- The bottom-up approach asks the question, “How much can we sell?” The top-down approach would instead ask, “How much we want to sell?” In a growing global economy, the marketplace often becomes volatile and very competitive. Examples abound, where companies often miss, and don’t realize, until it is too late, that the quarter guidance sales is going to be missed! Inaccurate sales forecasts can misguide corporate planning and hurt the bottom line. The key considerations in developing a sales forecast (Havaldar, Krishna, and Vasant, 2006) are: Estimating the current market demand. This would comprise, identifying customer segment, geographical spread, time period for forecast, and the marketing environment (spending ability, seasonal periods, recession etc.) Estimating the current company demand; this is the company’s share in the market demand. Estimating future demand based on past history, and future technological, economic, market and environmental changes. This could be segmented into macroeconomic forecast, industry sales forecast, and company’s sale forecast. Understanding the customer behaviour in terms of::- What they say about their intentions to continue buying products? What customers are actually doing in the market? What customers have done in the past in the market? The primary consideration for sales forecast is estimation of market potential which is defined as the maximum demand in a time period based on the number of potential users and their purchase rate. The company’s sales potential is a part of total industry demand. The ratio of company sales to industry sales is a measure of the market share of the organization. Estimating market size is normally conducted utilizing secondary sources in a quantitative process to establish a market universe. Typical secondary sources might include census data, publication circulation lists and sales/penetration data of comparables. Using this as a base, along with a sales interval, the rate of penetration can be estimated. The market potential of consumer goods for instance, is estimated by constructing indexes from basic economic data. The most popular multifactor index of area demand is the Buying Power Index. It is also possible to construct various scenarios based upon, assumptions of demand, distribution and promotional strategies to estimate subsets of the total to represent sales potential. Being tightly coupled with strategic management, sale forecast must also consider in some ways, the factors influencing strategic management (Corn, ibid.) in addition to the aforementioned:- Environment constraints stemming from, legal and regulatory policies, and socio cultural factors. Firm’s history and management culture Distinctive competencies in the company, mainly, marketing, financial, technology and R&D Resources available in the company, mainly, financial, personnel, brand equity, production and storage facilities, distribution and informational networks Both qualitative and quantitative sales forecast methods are used in industry. Some of the popular ones are: sales force composite, jury of executive opinion, extrapolation techniques, regression and econometric models. Quantitative methods are employed when historical data are accessible. Q.5 What are the advantages of long range planning? A.5 A management maxim states, “If you fail to plan, you plan to fail,” a truth, that’s so universal. Equally true for business and organizations is that, “if you fail to plan in the long term, the long term will cease your business.” A long range plan (LRP) is a comprehensive view of business extrapolated into the long future, preferably, encompassing the “life cycle” of industry. It’s a holistic view, that takes into account, the current resources and core competencies; the economic environment – present and future; coupled with technological, environmental and market dynamics, that can have a long term sustainable impact on the industry. A commonly used time frame for long term plan is three to five years. Duft (n.d.) has elucidated five key elements (table 1) for an effective long range planning. Some of these elements however, overlap in practice. Table 1 Key Elements of Long Range Planning Key element What do they achieve? Orientation Significantly influences organizational behaviour Buy-in of top management becomes imperative Orients operational level activities to strategic directions Positional Analysis Establishes pathway from past existence to future positioning Considers holistic perspective of market trends, economic climate, international policies, technological changes, and environmental impact Extensive uses SWOT and risk analysis Procedure Determination Provides actionable and function orientation to positional view Generates alternative pathways, system design, and resource management Creates performance metrics and processes for delivery and monitoring Implementation Project, process, and performance management. Identification of time lines and deliverables Requires strategies of change management Feedback Tracks performance against specified performance metrics. Continuously scans environment and flexibly adapts course corrections Improves system processes for agile response to changes. Advantages of Long Range Planning Survival and growth of business organizations is about choices. Converting current and future choices, into opportunities is the key to growth. A long range plan provides a formal method to explore and “weigh” current opportunities, and chalk out a pathway for future progress, and growth. Some specific advantages of long range planning are:- Addresses critical impact propositions for a company: LRP helps to answer some key priority questions that affect survivability and sustainability of organizations. The questions range from: company’s line of business; its underlying philosophies and purposes; long and short range objectives; impact of environmental and technological changes. Forces an objective assessment: Strategic long range planning forces a company to adjust to the new approaches, changing skills, and competencies on which they are based. Cutting-edge strategies in consumer product manufacturing, for instance, have cumulatively shifted the basis of competition, from productivity to quality, to time, to service, and to flexible manufacturing (Werther & Kerr, 1995). Provides an organizational perspective: In a global growing market, no single strategy is expected to provide a sustainable competitive advantage. LRP helps in identifying new strategies, challenge rivals by engaging in "strategy shifting," moving from one mix of competencies to another, in ways that exploit the firms strengths, and its competitors weaknesses. Unified communications, social software, business process modelling, and green IT are amongst the top 10 hottest technologies indicated by Gartner (Woodie, 2007) that would be strategy shifters in IT industry. Facilitates systems approach: LRP permits the top management of the company to look at the enterprise as a whole, and the interrelationship of parts, rather than deal with each separate part alone, and without reference to the others These linkages can foster synergy, improve resource and capacity utilization, and unravel hidden sinks, which may be draining collaborative efforts in the organization. Provides a framework for decision-making: LRP provides a framework to map operational decisions aligned with strategic directions. LRP identifies the critical benchmarks for an organization’s success, and forces an organization to re-think, and adapt to emerging uncertainties. Facilitates performance measurement: LRP permits definition of critical metrics, and prioritization of efforts within available, or extended resources. Both qualitative and quantitative performance measures are usually tracked, based upon which, course corrections, and process improvements are initiated. LRP thus acts as a control system with a feedback loop. In the context of growing global market, LRP can provide agility and flexibility to enterprises with focus on continuous improvement. Creates a channel of communication: LRP provides an excellent mechanism for establishing an open communications network. The planning process acts as a means for communications among all levels of management about objectives, strategies, and detailed operational plans (Steiner, 1979). Creates sense of participation and enhances learning: LRP facilitates organizational learning, and helps in preparing leaders of tomorrow. By helping to formulate plans, managers get a sense of satisfaction as creators of their destiny. They appreciate the key success factors and strive to achieve them. Q.8 Evaluate the mission statement of at least two companies. Evaluate the document. A.8 Mission statements embody corporate identity, and communicate to the stakeholders their- identity, purpose, direction, and values. In broad terms, mission statements seek to amplify the goals, and aspirations of an organization. The characteristics of a good mission statement must be:- Market Oriented Realistic Specific Fit into market environment Distinguish competencies Motivating For the purposes of this assignment, the mission statements of: PepsiCo and Honda have been studied and evaluated. PepsiCo The PepsiCo’s mission statement (http://www.pepsico.com/Company/Our-Mission-and-Vision.html) articulates three broad statements:- a) Be, “the worlds premier consumer Products Company focused on convenient foods and beverages.” The broadness of the PepsiCo’s mission statement is no exception to the general rule. Undoubtedly, every living person on earth could be seen as a potential customer, partner, recipient or supplier, reacted with the company. Yet, the statement is open to diverse interpretation. Does, “premier” mean top three companies by market share, or market cap, in the food and beverages segment? Company’s annual report (PepsiCo-Report, 2008) claims presence of PepsiCo in about 200 countries, and second in market brand in the US (Beverage Digest, 2009). Or, does premier mean, simply, “beat Coke.” b) Produce financial rewards to investors by providing opportunities for growth and enrichment to employees, business partners, and the communities. Although this is a “wide-brush” statement, benefits means different things to different stakeholders. The EPS is one indicator of interest for the investor. PepsiCo reports 8% year-to-date growth in EPS (PEP Q3 conference call, 2009) and is targeting a growth of 11-13% as EPS guidance growth. Whereas, benefits to employee would mean, safe working environment, superior monetary compensation, etc. Of course, the stakeholders still have the opportunity to verify the Company’s adherence with mission statement by watching quarterly and annual reports presented by the firm. c) The last part of the mission statement reads, “and in everything we do, we strive for honesty, fairness and integrity.” These are generic purports that qualify the manner in which the Company proposes to accomplish the broadly stated mission. From the stakeholders’ point of view, organizational climate, attrition rate, legal cases against the company, CSR activities, and branding could possibly be some indicators that could be tracked. Although the mission statement per se addressed all segments of stakeholders, the claims therein, are not directly measurable (Ackoff, 1986). Honda The Honda’s mission statement (http://world.honda.com/profile/philosophy/) enunciates the Company principles, and management policies:- a) “Maintaining a global viewpoint, we are dedicated to supplying products of the highest quality, yet at a reasonable price for worldwide customer satisfaction.” The mission statement identifies the marketing arena as global, the offerings of products in a generic sense (the reader must infer that these refer to automobile of varied types), quality and price are typified vaguely with adjectives. b) Through management policies, Honda describes how the mission narratives would be accomplished:- Proceed always with ambition and youthfulness. Respect sound theory, develop fresh ideas, and make the most effective use of time. Enjoy work and encourage open communication. Strive constantly for a harmonious flow of work. Be ever mindful of the value of research and endeavour. c) The Honda culture is exemplified on the power of dreams. As stated by Honda, “dreams inspire us to create innovative products that enhance mobility and benefit society. To meet the particular needs of customers in different regions around the world, we base our sales networks, research and development centres and manufacturing facilities in each region. Furthermore, as a socially responsible corporate citizen, we strive to address important environmental and safety issues.” Honda’s articulation is definitely more comprehensive, and sets the direction right. The most distinctive tone of the statement is in its alignment towards environmental and safety issues. But once again, it leaves to the stakeholder, to carefully synthesize from the annual reports and financial statements, to evaluate measurability and robustness of the Company’s performance, vis-à-vis, the mission statement. Pearce and David (1987) proposed an eight-element yardstick to analyze the quality and completeness of mission statements. The application and inference of the yardstick to PepsiCo and Honda mission statement is enumerated in table 2: Table 2 Applying 8-element yardstick to PepsiCo and Honda mission statements Key Element Description PepsiCo Honda Identifying target customers Yes Yes Identifying principal offering Yes Yes Specifying geographic location Yes Yes Identification of core technologies Not Specifically Not Specifically Commitment to survival, growth and profitability Yes, as financial rewards Can be inferred Statement of Company’s philosophy Yes Yes Identification of Company’s self concept Can be inferred Yes, under management policies Identification of firm’s desired public image Yes Yes, pretty strongly Both the mission statements are market-centric. The benefits accruing to customers appear better articulated in Honda, than in PepsiCo. In terms of the criteria of differentiating the firm’s from their competitors, Honda’s proposition is stronger, as exemplified in its management policies. 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