Corporate Strategy Essay, Research Paper
The 21st century heralds business opportunities that transcend global barriers. The world witnesses volatile business models – what seems strategically appropriate today may be considered ‘passe’ or inapplicable in a matter of months. Before progressing further let us focus on the central task of critically analysing the statement at hand: “In a fast changing world where businesses are benefited by external forces, managers need to be enabled to respond capably, to keep the company on track and to meet its objectives. They must be outwardly focused, aware of important trends that will impact on business or industry. They need to be opportunistic aware without loosing the inwardly looking focus on doing things better and responding to threats.”
The underlined words/phrases draw one’s immediate attention and social scrutiny.
The interpretation of the word ‘fast’ has been exchanging over time periods. Circa 1900s, ‘fast’ change was deciphered as a change over a period of 10 years or so. As technology and society developed around the 1950s, fast change was relative to a change which occurred in 3-4 years. The last decade of 20th century witnessed a proliferation of scientific technologies and business trends and scenarios could alter in the matter of months. The world in the 21st century promises to be more dynamic than ever before and the term ‘fast’ shall invariably be redefined to a much shorter time-span than hitherto. In essence, business managers need to be aware that it is imperative to be on their toes, so to speak, and preempt the expectations and demands of the fast changing business environment.
The phase from the topic ‘businesses are benefited by external forces’ is controversial and debatable. It is agreed that the changing environment throws up opportunities for organizations to exploit. It is also agreed that if an organization exploits these opportunities then it can benefit. The assumption, thus, in the phase is that the organization will exploit the opportunity created by the environment and external forces. There are a plethora of incidents which indicate otherwise. External forces and environment alternatives have compelled many organizations and industries to down their shutters or made them uncompetitive. So, it is injudicious to conclude that external forces always benefit businesses. This brings us to the twin paradigm – ‘outwardly and inwardly focused’. The statement covers that an organization must be well aware of the environment, both outside and inside the organization. The outside or external environment refers to the Political, Economic, Social, and Technological (PEST) scenarios. Another component of the external environment is the competitors. The focus, thus must be on PEST and Competitor analysis. The internal environment refers to the organization’s strategic capability, that is, strengths and weaknesses. The stakeholders are also a part of the internal environment. Thus the focus must also be on analysing the strategic capability and stakeholder analysis.
The topic statement provides us with a strong guideline. The discussion must centre around the fast changing environment and its implications thereof to an organization. The organization must endeavor to conduct a strategic analysis (external and internal environment) to sustain. With these guidelines, let us further our discussion, with the aid of some local (Indian) examples.
“Strategic Analysis is conducted with the strategic position of the organization. What changes are going on in the environment, and how will they affect the organization and its activities? What is that those people and groups associated with the organization – managers, shareholders or owners, unions and so on who are stakeholders in the organization – aspire to, and what is expected for the future development of the organization.[1]
Based on this definition we can extrapolate that strategic analysis is a two pronged process.
As iterated earlier, external environment analysis attempts to analyze the PEST scenarios and competitors.
The internal environment analysis is concerned with the start capability (strength and weaknesses) and stakeholders.
External environment analysis answers some very basic, yet essential questions. It indicates the emerging trends in the environment and enables a firm to determine the responses to these changes in the environment. In other words, on environment analysis aims at evaluating the trends and events in the environment. These events and trends may figure out to be favorable or unfavorable from the firm’s standpoint. In essence, environmental analysis attempts to highlight the Opportunities and Threats that may emerge for an organization due to political, economic, social, and technological changes or events. An instance which springs to mind instantly is the Essar group. With the economic reforms in India, the power sector was opened to private investments. The government had promised several sops and concessions in order to abet private investment in this sector (economic change). The Essar Group, during this time was involved in setting up of a power plant that was to provide power for its own consumption. With the opening up of the power sector for the private participation, the Essar Group saw an opportunity. They promptly converted their power unit into a power project with the help of the concessions available through the new power policy. Essar power was the first power plant commissioned by the private sector in India and reaped tremendous allied benefits. This instance educates the advantage of keeping one’s eyes on the environment and cashing in on opportunities. The environment consists of political ,economic, social, and technological scenarios. Thus it is imperative for organizations to employ the tool of PEST Analysis to survey the environment.
It is a well established fact that the political environment impacts businesses. The economic environment is often a byproduct of the political environment. Legislation’s, policies (foreign and economic) are dependent on the ruling political party. Any alteration in policies can pose threats or opportunities to organizations. For instance, IBM and Coca Cola had to literally pack their bags and leave India in 1973 due to political considerations.
Technology has become a paramount factor for organizations. Collating, storing, analyzing information has become technology based. Changes in the technological environment is ubiquitous and continuous. A firm has to decide on how to embrace technology to improve operations and at the same time keep a watch at substitute products emanating from new technology. One does not only have to view the technological environment pertaining to the industry in which he is in. technology can throw up opportunities and threats in a multitude of ways. The example of Satyam Infosys is very appropriate at this juncture. This well known company was once associated with an industry totally unrelated to information technology. It was formally involved in the construction business. However, the trends indicated that IT was ripe for investment and thus ensure the foray into IT from construction and Satyam Infosys was the thus the first private Internet Service Provider in India. The government was embracing IT in a big way and the environment in India was conducive to investment in IT industry. These factors prompted the switch and it seems to have been judicious.
The PEST analysis is a very useful model for surveying the external opportunities and threats and should be used continuously by organizations wanting to adapt to trends and events.
Competitor Analysis refers to the process of examining the objectives, resources, performance and strategy of a competitor. This study reveals on organizing the strengths and weaknesses of a competitor and may also offer lessons on the environment and how to deal with it. In today’s environment, when competitive advantage is exceedingly important, firms must know their competitors thoroughly in order to survive. As mentioned by David Faulkner etal, “Competitor analysis is concerned with five basic attributes of the competitor:
1. Its comparative market strength in relation to the key compe
2. Its resources and core competencies.
3. Its current and possible future strategy.
4. Its culture, and hence the assumptions it makes about itself and the industry.
5. Its objectives and goals both at corporate and at business unit level.”[1]
External environment analysis empowers an organisation to preempt the threat of substitutes, threat of substitutes, threat of competitors – all this by simply keeping an eye on the developments in the environment The organisation can also exploit opportunities by following developments in the external environment.
Internal Environmental Analysis attempts to audit the resources an organization possesses. The resources of an organization are physical, human, financial, intangibles. These resources are essential for implementing strategies and thus their audit is of paramount importance to an organization. The internal resource audit attempts to assess the inherent strengths of the resource base and identify the weaknesses which the firm has to look into. The organization must also take into account the claims of the stakeholders. Stakeholder analysis involves the primary step of first identifying stakeholders; assess their interest; gauge the implication of the claims they are likely to make on the firm; decide on the strategic challenges which arise due to stakeholders. For instance, the shareholders of a firm may react adversely if the firm decides to divest its stake in one of the Strategic Business Units. Though the move may be strategically appropriate, yet due to the fear that the move would cause the shareholders to sell their equity (resulting in loss of market capitalization), the firm may deter from doing so. Similarly, other stakeholders such as employees, suppliers, customers have their share of concerns and the firm has to analyze the reaction of all before employing any strategy.
Let us now proceed to examine the case of Canon, India.
Canon decided to enter the Indian photocopier machine market in February,1997.
The major players in the market were Modi-Xerox -the market leaderwith 58% of market share, RPG-Ricoh and HCL Toshiba. Within two years, Canon proved the analysts wrong by capturing 18% of the photocopier market, knocking Ricoh out from the number two slot. The case of Canon has many lessons in the offering for firms venturing into new markets.
What has Canon done right?
1. Pest Analysis -Canon evaluated the environmental factors appropriately before investing in India. The Political environment at the time of Canon’s entry in 1997 was stable. Though the government was a coalition, yet it was pro-liberalisation. This spelt stability on the economic policies front and thus the political environment was conducive to investment.
Economic environment in India, too was very healthy. The new economic policies were pro-investment. Deregulation, and liberalization of Industrial Licensing had already taken place. FERA was liberalised which meant that foreign investment and technology import were made easier. Fiscal and monetary reforms were in the pipeline and pointed towards a bright future. Public sector participation was being abetted by the government. All in all, the economic environment, too was ripe.
Social environment in India was a mixed bag. Though the middle class was burgeoning, yet the population below the poverty line was a concern. A major part of the Indian population lived in small villages which did not even have access to electricity. However, the social environment was not of much of a concern to the firm.
Technological environment prevalent in India was very dynamic. India was fast being recognized worldwide as the leader in Information Technology. Allied industries were booming and India seemed to be on its way up. Though there was an associated fear that this aspect of the technological environment posed. The development of Information Technology threatened to produce a ‘paperless office’. This was a direct threat to the sustainability of not just Canon but the entire photocopier industry.
2. Competitor Analysis- Though the market leader, Modi-Xerox, had the lion’s share of the market, Canon, India was spot on in analyzing its strengths and weaknesses. Modi-Xerox was concentrating on the offices and corporate clients. This was one of their strength areas. Since Modi-Xerox was not focussing on another major segment – the ‘jobber’ segment(the corner-shop which does a photocopy)- Canon, India decided to vigorously attack it! So, Canon, India identified one of the weaknesses of the competitor and converted it into an opportunity. At this time, RPG-Ricoh ( the second largest player) was involved with restructuring its business and could not employ any tactics to thwart Canon,India’s entry. The timing of the entry seems to be strategically very appropriate as RPG-Ricoh was unable to react due to its restructuring. Thus, Canon, India capitalized on another weakness(though a temporary one).
Eyeing the huge market segment of jobbers (which accounted for 60% 0f India’s photocopying work), Canon, India formulated several market penetration strategies. Modi-Xerox was catering to the corporate clients and was thus high priced. Canon,India introduced slow machines at cheap prices to satiate the demand of the jobbers segment.
3. Internal Appraisal/Analysis- Canon,India understood its core competency very well. They have reiterated that their core competency lies in imaging technology. Worldwide, Canon has overtaken Xerox in the photocopier segment. Canon,India realized that its weakness lies in the fact that it is serving the jobbers segment. This is a weakness a the jobbers segment is spread over a large geographical area- in all major and small towns of India. Thus, the geographical spread which Canon,India had to cover to service the machines would make after sales service a very arduous task. This could prove to be a weakness for the organization. To address this issue Canon, India deployed the ServiceEdge, a customer care solution that helps provide bettercustomer support. This is a relationship management package that has been designed by Wipro.[2]
The case of Canon,India is an apt instance of an organization that has employed strategic analysis to investigate the variables present in the industry and the country of its operation. The findings of the analysis have been used to formulate strategies. As a result, Canon,India has established itself very strongly in the Indian photocopiers market and is giving its competition a run for its money.
The topic at hand stresses on the organizations to be outwardly and inwardly focussed. Strategy must be developed by keeping in mind: 1).the opportunities thrown up by the environment or, 2).according to the resources and the competencies of the organization. These two paradigms are called the fit view and the stretch view. The notion of fit sees managers trying to startegize by being sensitive to the environment trends and forces. In essence , the fit approach looks at devising strategies based on market opportunities. The stretch view, on the other hand, stresses on being aware of the core competencies of the firm and enter a market on its basis. The core competencies and the internal resources will provide the firm the competitive advantage and sustain profitability. The central idea, according to Neville Bain, the author of the topic statement, that organizations must keep in mind is that both the fit and stretch views need to be integrated and business decisions must due to an amalgam of the two approaches. In the dynamic environment of today, it is very important to reconcile the two approaches and form strategies based on the holistic analysis of the internal and external environment
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[1] David Faulkner and Cliff Bowman, “The Essence Of Competitive Strategy”, Prentice Hall, India , P50
[2] Alokananda Chakraborty,”Cloning Differently”, Advertising And Marketing, issue-31st Jul,1999, p38-46
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[1] Gerri Johnson and Kevan Scholes, (4th edition),”Exploring Corporate Strategy”, Prentice Hall Of India, P18
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