Which are the aspects you will keep in mind about the perspective of management to be an effective Strategic Manager in an industry?
During the last half of the twentieth century, many barriers to international trade fell and a wave of firms began pursuing global strategies to gain a competitive advantage. However, some industries benefit more from globalization than do others, and some nations have a comparative advantage over other nations in certain industries. To create a successful global strategy, managers first must understand the nature of global industries and the dynamics of global competition.
Sources of Competitive Advantage from a Global Strategy
A well-designed global strategy can help a firm to gain a competitive advantage. This advantage can arise from the following sources:
- Economies of scale from access to more customers and markets
- Exploit another country’s resources – labor, raw materials
- Extend the product life cycle – older products can be sold in lesser developed countries
- Operational flexibility – shift production as costs, exchange rates, etc. change over time
- First mover advantage and only provider of a product to a market
- Cross subsidization between countries
- Transfer price
- Diversify macroeconomic risks (business cycles not perfectly correlated among countries)
- Diversify operational risks (labor problems, earthquakes, wars)
- Broaden learning opportunities due to diversity of operating environments
- Crossover customers between markets – reputation and brand identification
Sumantra Ghoshal of INSEAD proposed a framework comprising three categories of strategic objectives and three sources of advantage that can be used to achieve them. Assembling these into a matrix results in the following framework:
Sources of Competitive Advantage
Efficiency in Operations
Exploit factor cost differences
Scale in each activity
Sharing investments and costs
Market or policy-induced changes
Balancing scale with strategic & operational risks
Innovation and Learning
Societal differences in management and organization
Experience – cost reduction and innovation
Shared learning across activities
The Nature of Competitive Advantage in Global Industries
A global industry can be defined as:
- An industry in which firms must compete in all world markets of that product in order to survive.
- An industry in which a firm’s competitive advantage depends on economies of scale and economies of scope gained across markets.
Some industries are more suited for globalization than are others. The following drivers determine an industry’s globalization potential.
- Cost Drivers
- Location of strategic resources
- Differences in country costs
- Potential for economies of scale (production, R&D, etc.) Flat experience curves in an industry inhibits globalization. One reason that the facsimile industry had more global potential than the furniture industry is that for fax machines, the production costs drop 30%-40% with each doubling of volume; the curve is much flatter for the furniture industry and many service industries. Industries for which the larger expenses are in R&D, such as the aircraft industry, exhibit more economies of scale than those industries for which the larger expenses are rent and labor, such as the dry cleaning industry. Industries in which costs drop by at least 20% for each doubling of volume tend to be good candidates for globalization.
- Transportation costs (value/bulk or value/weight ratio) => Diamonds and semiconductors are more global than ice.
- Customer Drivers
- Common customer needs favor globalization. For example, the facsimile industry’s customers have more homogeneous needs than those of the furniture industry, whose needs are defined by local tastes, culture, etc.
- Global customers: if a firm’s customers are other global businesses, globalization may be required to reach these customers in all their markets. Furthermore, global customers often require globally standardized products.
- Global channels require a globally coordinated marketing program. Strong established local distribution channels inhibits globalization.
- Transferable marketing: whether marketing elements such as brand names and advertising require little local adaptation. World brands with non-dictionary names may be developed in order to benefit from a single global advertising campaign.
Country Comparative Advantages
Competitiveadvantage is a firm’s ability to transform inputs into goods and services at a maximum profit on a sustained basis, better than competitors. Comparative advantage resides in the factor endowments and created endowments of particular regions. Factor endowments include land, natural resources, labor, and the size of the local population.
In the 1920’s, Swedish economists Eli Hecksher and Bertil Ohlin developed the factor-proportions theory, according to which a country enjoys a comparative advantage in those goods that make intensive use of factors that the country has in relative abundance.
Types of International Strategy: Multi-domestic vs. Global
- Product customized for each market
- Decentralized control – local decision making
- Effective when large differences exist between countries
- Advantages: product differentiation, local responsiveness, minimized political risk, minimized exchange rate risk
- Product is the same in all countries.
- Centralized control – little decision-making authority on the local level
- Effective when differences between countries are small
- Advantages: cost, coordinated activities, faster product development
A fully multi-local value chain will have every function from R&D to distribution and service performed entirely at the local level in each country. At the other extreme, a fully global value chain will source each activity in a different country.
Philips is a good example of a company that followed a multidomestic strategy. This strategy resulted in:
- Innovation from local R&D
- Entrepreneurial spirit
- Products tailored to individual countries
- High quality due to backward integration
The multi-domestic strategy also presented Philips with many challenges:
- High costs due to tailored products and duplication across countries
- The innovation from the local R&D groups resulted in products that were R&D driven instead of market driven.
- Decentralized control meant that national buy-in was required before introducing a product – time to market was slow.
Since Philip’s had a relatively small market share in the European appliance market, one must analyze the cost structure to determine if the acquisition would offer Whirlpool a competitive advantage. With the acquisition, Whirlpool would be able to cut costs on raw materials, depreciation and maintenance, R&D, and general and administrative costs. These costs represented 53% of Whirlpool’s cost structure. Compared to most other industries, this percentage of costs that could benefit from economies of scale is quite large. It would be reasonable to expect a 10% reduction in these costs, an amount that would decrease overall cost by 5.3%, doubling profits. Such potential justifies the risk of increasing the complexity of the organization.
Because of the different preferences of consumers in different markets, a purely global strategy with standard products was not appropriate. Whirlpool would have to adapt its products to local markets, but maintain some global integration in order to realize cost benefits. This strategy is known as “mass customization.”
Whirlpool acquired Philips’ Major Domestic Appliance Division, 47% in 1989 and the remainder in 1991. Initially, margins doubled as predicted. However, local competitors responded by better tailoring their products and cutting costs; Whirlpool’s profits then began to decline. Whirlpool applied the same strategy to Asia, but GE was outperforming Whirlpool there by tailoring its products as part of its multi-domestic strategy.
Globalizing Service Businesses
Service industries tend to have a flat experience curve and lower economies of scale. However, some economy of scale may be gained through knowledge sharing, which enables the cost of developing the knowledge over a larger base. Also, in some industries such as professional services, capacity utilization can better be managed as the scope of operations increases. On the customer side, because a service firm’s customers may themselves be operating internationally, global expansion may be a necessity. Knowledge gained in foreign markets can used to better service customers. Finally, being global also enhances a firm’s reputation, which is critical in service businesses.
High quality service products often depend on the service firm’s culture, and maintaining a consistent culture when expanding globally is a challenge.
Bain faced the following challenges, which depend on the firm’s strategy and which affect the ability to maintain a consistent culture:
- Coordinating across offices and sharing knowledge
- Whether to hire locals or international staff
- How to compensate
Modes of Foreign Market Entry
An important part of a global strategy is the method that the firm will use to enter the foreign market. There are four possible modes of foreign market entry:
- Licensing (includes franchising)
- Joint Venture
- Foreign Direct Investment
These options vary in their degree of speed, control, and risk, as well as the required level of investment and market knowledge. The entry mode selection can have a significant impact on the firm’s foreign market success.
Issues in Emerging Economies
In emerging economies, capital markets are relatively inefficient. There is a lack of information, the cost of capital is high, and venture capital is virtually nonexistent. Because of the scarcity of high-quality educational institutions, the labor markets lack well trained people and companies often must fill the void. Because of lacking communications infrastructure, building a brand name is difficult but good brands are highly valued because of lower product quality of the alternatives. Relationships with government officials often are necessary to succeed, and contracts may not be well enforced by the legal system.
When a large government monopoly (e.g. a state-owned oil company) is privatized, there often is political pressure in the country against allowing the firm to be acquired by a foreign entity. Whereas a very large U.S. oil company may prefer acquisitions, because of the anti-foreign sentiment joint ventures often are more appropriate for outside companies interested in newly privatized emerging economy firms.
Knowledge Management in Global Firms
There is much value in transferring knowledge and best practices between parts of a global firm. However, many barriers prevent knowledge from being transferred:
Barriers attributable to the knowledge source
- lack of motivation
- lack of credibility
- Barriers attributable to the knowledge itself – ambiguity and complexity
Barriers attributable to the knowledge recipient
- lack of motivation (not invented here syndrome)
- lack of absorptive capacity – need prerequisite knowledge to advance to next level
- Barriers attributable to the recipient’s existing process – process rigidity
- Barriers attributable to the recipient’s external environment and constraints
Furthermore, even when the transfer is successful, there often is a temporary drop in performance before the improvements are seen. During this period, there is danger of losing faith in the new way of doing things.
To facilitate knowledge transfer a firm can:
- Implement processes to systematically identify valuable knowledge and best practices.
- Create incentives to motivate both the knowledge source and recipient.
- Develop absorptive capacity in the recipient – cumulative knowledge
- Develop strong technical and social networks between parts of the firm that can share knowledge.
Country managers must have the following knowledge:
- Knowledge of strategic management
- Firm-specific knowledge
- Country-specific knowledge
- Knowledge of the global environment
The least favorable of these roles is the black hole, which is a subsidiary in a strategically important market that has few capabilities. A firm can find itself in this situation because of company traditions, ignorance of local conditions, unfavorable entry conditions, misreading the market, excessive reliance on expatriates, and poor external relations. To get out of a black hole a firm can form alliances, focus its investments, implement a local R&D organization, or when all else fails, exit the country.
Country managers assume different roles (The New Country Managers, John A. Quelch, Professor of Business Administration, Harvard Business School).
- International Structure: Country manager is a trader who implements policy.
- Multinational Structure: Country manager plays the role of a functional manager with profit and loss responsibilities.
- Transnational Structure: Country manager acts as a cabinet member (team player) since management control systems are standardized and decision-making power is shifted to the region manager. The country manager develops the lead market in his country and transfers the knowledge gained to other similar markets.
- Global Structure: Country manager acts as an ambassador and administrator. In a global firm there usually are business directors who oversee marketing and sales. The role of the country manager becomes one of a statesman. This person usually is a local with good government contacts.
organizational and personal change management, process, plans, change management and business development tips
Here are some rules for effective management of change. Managing organizational change will be more successful if you apply these simple principles. Achieving personal change will be more successful too if you use the same approach where relevant. Change management entails thoughtful planning and sensitive implementation, and above all, consultation with, and involvement of, the people affected by the changes. If you force change on people normally problems arise. Change must be realistic, achievable and measurable. These aspects are especially relevant to managing personal change. Before starting organizational change, ask yourself: What do we want to achieve with this change, why, and how will we know that the change has been achieved? Who is affected by this change, and how will they react to it? How much of this change can we achieve ourselves, and what parts of the change do we need help with? These aspects also relate strongly to the management of personal as well as organizational change.
Instead, change needs to be understood and managed in a way that people can cope effectively with it. Change can be unsettling, so the manager logically needs to be a settling influence.
If you think that you need to make a change quickly, probe the reasons – is the urgency real? Will the effects of agreeing a more sensible time-frame really be more disastrous than presiding over a disastrous change? Quick change prevents proper consultation and involvement, which leads to difficulties that take time to resolve.
You should even apply these principles to very tough change like making people redundant, closures and integrating merged or acquired organizations. Bad news needs even more careful management than routine change. Hiding behind memos and middle managers will make matters worse. Consulting with people, and helping them to understand does not weaken your position – it strengthens it. Leaders who fail to consult and involve their people in managing bad news are perceived as weak and lacking in integrity. Treat people with humanity and respect and they will reciprocate.
Be mindful that the chief insecurity of most staff is change itself. See the process of personal change theory to see how people react to change. Senior managers and directors responsible for managing organizational change do not, as a rule, fear change – they generally thrive on it. So remember that your people do not relish change, they find it deeply disturbing and threatening. Your people’s fear of change is as great as your own fear of failure.
responsibility for managing change
The employee does not have a responsibility to manage change – the employee’s responsibility is no other than to do their best, which is different for every person and depends on a wide variety of factors (health, maturity, stability, experience, personality, motivation, etc). Responsibility for managing change is with management and executives of the organisation – they must manage the change in a way that employees can cope with it. The manager has a responsibility to facilitate and enable change, and all that is implied within that statement, especially to understand the situation from an objective standpoint (to ‘step back’, and be non-judgemental), and then to help people understand reasons, aims, and ways of responding positively according to employees’ own situations and capabilities. Increasingly the manager’s role is to interpret, communicate and enable – not to instruct and impose, which nobody really responds to well.
change must involve the people – change must not be imposed upon the people
Be wary of expressions like ‘mindset change’, and ‘changing people’s mindsets’ or ‘changing attitudes’, because this language often indicates a tendency towards imposed or enforced change (theory x), and it implies strongly that the organization believes that its people currently have the ‘wrong’ mindset, which is never, ever, the case. If people are not approaching their tasks or the organization effectively, then the organization has the wrong mindset, not the people. Change such as new structures, policies, targets, acquisitions, disposals, re-locations, etc., all create new systems and environments, which need to be explained to people as early as possible, so that people’s involvement in validating and refining the changes themselves can be obtained.
Change management principles
- At all times involve and agree support from people within system (system = environment, processes, culture, relationships, behaviours, etc., whether personal or organisational).
- Understand where you/the organisation is at the moment.
- Understand where you want to be, when, why, and what the measures will be for having got there.
- Plan development towards above No.3 in appropriate achievable measurable stages.
- Communicate, involve, enable and facilitate involvement from people, as early and openly and as fully as is possible.
Eeight steps to successful change’
American John P Kotter (b 1947) is a Harvard Business School professor and leading thinker and author on organizational change management. Kotter’s highly regarded books ‘Leading Change’ (1995) and the follow-up ‘The Heart Of Change’ (2002) describe a helpful model for understanding and managing change. Each stage acknowledges a key principle identified by Kotter relating to people’s response and approach to change, in which people see, feel and then change.
Kotter’s eight step change model can be summarised as:
- Increase urgency – inspire people to move, make objectives real and relevant.
- Build the guiding team – get the right people in place with the right emotional commitment, and the right mix of skills and levels.
- Get the vision right – get the team to establish a simple vision and strategy, focus on emotional and creative aspects necessary to drive service and efficiency.
- Communicate for buy-in – Involve as many people as possible, communicate the essentials, simply, and to appeal and respond to people’s needs. De-clutter communications – make technology work for you rather than against.
- Empower action – Remove obstacles, enable constructive feedback and lots of support from leaders – reward and recognise progress and achievements.
- Create short-term wins – Set aims that are easy to achieve – in bite-size chunks. Manageable numbers of initiatives. Finish current stages before starting new ones.
- Don’t let up – Foster and encourage determination and persistence – ongoing change – encourage ongoing progress reporting – highlight achieved and future milestones.
- Make change stick – Reinforce the value of successful change via recruitment, promotion, new change leaders. Weave change into culture.
Ideas on illustrating change management issues
When people are confronted with the need or opportunity to change, especially when it’s ‘enforced’, as they see it, by the organization, they can become emotional. So can the managers who try to manage the change. Diffusing the emotional feelings, taking a step back, encouraging objectivity, are important to enabling sensible and constructive dialogue. To this end, managers and trainers can find it helpful to use analogies to assist themselves and other staff to look at change in a more detached way.
Job reorganization, task analysis, job transfer due to IT development or outsourcing etc
First see the modern principles which underpin successful change. It’s not always easy or perhaps even possible to consider matters at such depth, but try to if you can, or try to persuade others above in their ivory towers to think about the fundamental integrity of the situation, instead of short-term profit, or satisfying greedy shareholders.
There are various approaches to task analysis and job reorganization, whether prompted by outsourcing or IT development. Generally change process of this sort is pragmatic, and it’s difficult to identify transferable processes, templates, etc. Examples of projects don’t generally find their way into the public domain, although the likelihood is increasing of government project pdf’s becoming available on the web as this sort of information is increasingly required to be available to the public. IT vendor case studies and trade journals of the IT and outsourcing sectors can also provide indicators of best practice or transferable processes. There are some useful software tools now available, which are helpful, especially if the change involves a high level of complexity and a large scale.
As a broad guide when managing this sort of change, these aspects are important for the process:
- Really understand and clarify mutual expectations about the level of detail and cost that the project requires. Sometimes it’s possible to see it what you need on a table napkin. The organisational context, and other strategic drivers, personalities and politics are often more significant influences than the task analysis.
- If you are a consultant or project manager, agree expectations on a pragmatic basis. Agree the templates and systems to be used and the the level of report data required for the decisions to be made.
- Assume that the situation can be improved – it generally can be, so while it’s essential to capture all activities based on current jobs, many of these can be absorbed, superseded, updated, etc., when you begin to look at the ideal situation (‘blank sheet of paper’) possibilities, so;
- A new overview analysis enables fresh unencumbered look at the whole, which suggests new and better ways of doing things. A flip chart and a few creative minds are the main pre-requisites. It makes a great workshop session and is good for creating ownership and buy-in for major change. It’s a good process also to cascade down to departments to bring out ideas for improved processes and new ways of doing things.
- In terms of capturing all current processes and inputs, the individual job analysis templates need to enable jobs to be broken down into sub-tasks, and elements within sub-tasks.
- This is a tricky one, and not practicable in certain X-Theory cultures, nevertheless, be aware of the high probability of upsetting people whose jobs are threatened by change and try to develop a way of anticipating and reducing damaging fall-out. Treat people at risk with the respect they deserve and avoid keeping them in the dark – involve threatened people wherever possible so they can see what’s happening and why. If possible encourage the executive team to take the same humane approach, and try to establish counselling and support resources if none exist already.
- Analyses are more helpful if they identify critical vs essential task elements – this will help you to help the decision-makers to be more pragmatic (not least because by applying pressure to some of the ‘essential’ elements will reveal them to be habitual dispensable or traditional replaceable elements).
- Flow diagrams identify subtask linkage (inter and intra), variation and chronology.
- Behaviour needs identifying aside from processes.
- Standards, performance tolerance, % reliability, etc., should be indicated in task analysis as applicable to the sub-task or activity concerned.
Other points about people and change
Strong resistance to change is often rooted in deeply conditioned or historically reinforced feelings. Patience and tolerance are required to help people in these situations to see things differently. Bit by bit. There are examples of this sort of gradual staged change everywhere in the living world.
The Psychological Contract is a significant aspect of change, and offers helpful models and diagrams in understanding and managing change – potentially at a very fundamental level.
Also, certain types of people – the reliable/dependable/steady/habitual/process-oriented types – often find change very unsettling.
People who welcome change are not generally the best at being able to work reliably, dependably and follow processes. The reliability/dependability capabilities are directly opposite character traits to mobility/adaptability capabilities.
Certain industries and disciplines have a high concentration of staff who need a strong reliability/dependability personality profile, for example, health services and nursing, administration, public sector and government departments, utilities and services; these sectors will tend to have many staff with character profiles who find change difficult.
See the personality styles page to help understanding about different types of people.
Age is another factor. Erik Erikson’s fascinating Psychosocial Theory is helpful for understanding that people’s priorities and motivations are different depending on their stage of life.
The more you understand people’s needs, the better you will be able to manage change.
Be mindful of people’s strengths and weaknesses. Not everyone welcomes change. Take the time to understand the people you are dealing with, and how and why they feel like they do, before you take action.
Business development driven change
Business development potentially includes everything involved with the quality of the business or the organization. Business development planning first requires establishing the business development aims, and then formulating a business development strategy, which would comprise some or all of the following methods of development.
- sales development
- new product development
- new market development
- business organization, shape, structure and processes development (eg, outsourcing, e-business, etc)
- tools, equipment, plant, logistics and supply-chain development
- people, management and communications (capabilities and training) development
- strategic partnerships and distribution routes development
- international development
- acquisitions and disposals
Generally business development is partly scientific, and partly subjective, based on the feelings and wishes of the business owners or CEO. There are so many ways to develop a business which achieve growth and improvement, and rarely is just one of these a single best solution. Business development is what some people call a ‘black art’, ie., difficult to analyse, and difficult to apply a replicable process.
Fast changing environments
Planning, implementing and managing change in a fast-changing environment is increasingly the situation in which most organizations now work.
Dynamic environments such as these require dynamic processes, people, systems and culture, especially for managing change successfully, notably effectively optimising organizational response to market opportunities and threats.
Key elements for success:
- Plan long-term broadly – a sound strategic vision, not a specific detailed plan (the latter is impossible to predict reliably). Detailed five years plans are out of date two weeks after they are written. Focus on detail for establishing and measuring delivery of immediate actions, not medium-to-long-term plans.
- Establish forums and communicating methods to enable immediate review and decision-making. Participation of interested people is essential. This enables their input to be gained, their approval and commitment to be secured, and automatically takes care of communicating the actions and expectations.
- Empower people to make decisions at a local operating level – delegate responsibility and power as much as possible (or at least encourage people to make recommendations which can be quickly approved).
- Remove (as far as is possible) from strategic change and approval processes and teams (or circumvent) any ultra-cautious, ultra-autocratic or compulsively-interfering executives. Autocracy and interference are the biggest obstacles to establishing a successful and sustainable dynamic culture and capability.
- Encourage, enable and develop capable people to be active in other areas of the organization via ‘virtual teams’ and ‘matrix management’.
- Scrutinise and optimise ICT (information and communications technology) systems to enable effective information management and key activity team-working.
- Use workshops as a vehicle to review priorities, agree broad medium-to-long-term vision and aims, and to agree short term action plans and implementation method and accountabilities.
- Adjust recruitment, training and development to accelerate the development of people who contribute positively to a culture of empowered dynamism.
Troubleshooting’ tipsfor investigating apparent poor performance
If you are ever give the job of ‘troubleshooting’ or investigating (apparent) poor performance, perhaps in another location or business belonging to your own organisation, or perhaps as a consultancy project, here are some simple tips:
Actually ‘troubleshooting’ isn’t a great word – it scares people. Use ‘facilitator’ or ‘helper’ instead. It sets a more helpful and cooperative tone.
On which point, you could well find that the main issue will be people’s resistance and defensiveness to someone coming in to their organisation do what you are doing. When you overcome that challenge, then you can start comparing what’s happening with what the organisation sets out to do (mission, values, goals, priorities, targets, key performance indicators, processes, measures); how the people feel about things (staff turnover, retention, morale, attitudes); and how customers and suppliers feel about things too (actually go out and visit customers, and ex-customers particularly).
And then be led by the people there as to what can be improved. You should adopt the role of a researcher and enabler rather than a problem solver.
Plan lots of questions that will help people to tell you how they feel about things – customers and staff and suppliers – and what they think can be done to improve things.
Avoid asking ‘why’ unless they’re really trusting you and working with you. Used early, ‘why’ puts people on the defence and you’ll not find out anything.
It’s likely that you’ll have to write a report and recommendations afterwards, in which case try wherever possible to involve the people in what you say about them. Let there be no surprises. Be constructive. Accentuate the positive. Be straight and open with people.
Enjoy the experience. Be respectful and helpful to people and they’ll be respectful and helpful to you.
———– Shivashankar. V. Jirli.