Introduction
quotes, “To be able to compete… leave conventional corporate strategy… this is useless in a fast-changing and -moving frontier. You will never know new competitor will be”. Of course, the statement is relative to the nature of the industry wherein hi-tech firms are not protected by their fast cycle products. But pondering further about globalization, dumping practices and the awakened China, industry exemption to such statement cannot be easily applied. Presented in this paper is the effort of the writer to site specific global firms like General Motors, Toyota, Sony and, Procter and Gamble that make strategic decisions out of the ordinary method of determining the mission at the start of the business cycle. Such type of decisions, which embody ’s call, are evaluated particularly on their effects to the organization. In effect, at the end of this paper, the reader will have clearer grasp regarding this question, ”Is the failure to tag a strategy or decision as a mission-impossible beforehand have its advantages for the future of the organization?”
General Motors
Yes, General Motors (GM) is a big, multinational enterprise (MNE). FORTUNE 500 even ranked it number 1 for thirty seven years in the first half of the past century ( 2006). It was accounted for historic battles against Ford and won some of those which were fairly applause for a rival that is the pioneer and one of the masters in car assembly history. Its almost 100-year experience in automobile industry would also suggest how its organization had developed an in-depth knowledge of the competition, industry and its own competitive advantages. Bankruptcy seemed impossible rather a herald of profits. However, last year’s performance will unfold the bad things in the offing. Market share is down to 26%, a lost of .6B and a lingering turmoil of bankruptcy.
In this difficult situation, GM had partially complied with ’s quotation. It had closed some of its manufacturing sites including downsizing thousands of its labor force to cut down costs and operate in an efficient manner. It also planned on selling some of the ownership in its financial subsidiary, GMAC, to a liquid buyer to avoid continuous downgrade of credit ratings. The economies of scale, intellectual capital retention and equity financing strategies were given-up for the purpose of being liquid and solvent. In effect, these actions would capitalize and support its aggressive introduction of new models that can fight Toyota’s continuous improvement regimes.
However, its past-to-on going obligation to deliver health benefit package for its retirees is one of its previous strategies that cannot be shifted abruptly. It had bear success with the scheme in its past operations, serving as motivation and retention plan, although in its present condition such became a headache to the management. This is the other half of ’s requirement that is not met by GM. As a result, the actions of the firm are still encapsulated within the bottleneck of the past. And so, it cannot fully adjust to its competitive environment like face-to-face challenge over Toyota’s dynamic strategy of continuous improvement.
Apparently, this “lost of the other half” seemingly was the biggest obstacle for GM to resolve not only its cost-structure (since this has been addressed through downsizing and down scoping) but more importantly revenue prospects. Its stiff financial condition due to pensioning despite loss barred it from developing new models and at the same time maintaining economies of scale. In effect, Toyota is likely to outperform the still adjusting operations and financial structuring of GM by beating the latter on the quality and design of its models. For its part, GM had to play the competitive field with either little liquidity (but integrated strategy) or large liquidity (but fragmentized/ vague strategy).
Obviously, it had started to put itself to the latter despite ambiguity. However, its loosing position under obscure experience of plunging stock price (which was not felt since 1982) and neophyte smell of bankruptcy will inhibit it from realizing the optimal benefits of ’s advice rather temporary mitigation. Beyond this, GM should sustain its survival mode until such time that it had fully adjusted its resources with the new use of dynamic strategy. Perhaps, the organization should rethink its pension scheme for retirees as it prohibits flexibility especially when the firm is at financial burden like this present time. Dynamic strategy is forward looking and experience-contemplator. The instilled dogma that Toyota’s models are more reliable than GM, even though the latter had current test results to dispute such claim, had long been stored in the memory of most American buyers. GM must not only prove such in one-time press releases or banners rather absorption of some looses would be necessary as trust needs waiting to be renewed.
Toyota
If there is one firm that had flourished within the framework of dynamic and sometimes uncertain strategy, that would be Toyota. Oftentimes referred to as the most successful automaker these days, the firm’s adherence to continuous improvement strategy has well-blended the appetite of consumers. Behind such strategy, there lies a combination of internal-to-external factors analysis and reconciliation. The firm does not emit all external feedbacks and then streamline the inputs in its manufacturing backyard. It can be illustrated by mentioning the relative success of GS 450h against the innovative gas-electric vehicles developed by Ford and Honda ( 2006). The latter companies had emphasized on surging oil prices in the global market and so their new engine promises gas savings. However, such dependence on outside factors had back clashed to the inability of the models to compete in price which made the models as expensive as if customers had already paid a premium for future gas savings.
Toyota, on the other hand, remained focus on internal-to-external reconciliation highlighting differentiation which is internally-stimulated decision. It can be thought that the firm cannot afford high manufacturing costs to develop a gas-saving engine and so it opted to settle on providing an environmental-friendly and performance-based cars instead. This is done as proxy to the lost of value-added gas-saver feature in other models. Although Ford and Honda were on the right track to anticipate global escalation of gas prices, they were on the other side of anticipating the importance of internally-generated strengths. Toyota had thought outside the box (since it was easy to know where gas prices will go) by viewing the global event as “given” and the purpose of manufacturers is to give the customers value so that their purchase, and subsequently, maintenance costs would be supported.
Another unusual action by Toyota is its official entrance of rivaling Ford, Chevy and Dodge truck products. The three brands were almost encrypted in the minds of customers particularly in the United States. Nissan had dubbed the strategy as “too ambitious” for a firm that is only selling an old model truck for 150,000 more or less annually. On the other hand, Toyota is planning to initially produce double of this quantity for its new full-size truck release. The move is a departure from the conventional thinking of securing a market niche and be able to prevent competition in products that the organization has no or lacks competitive advantage. Toyota may have its success in light vehicles and model cars but critics argued that (like Nissan) the plan would end not that too bold.
Toyota is well-known for its durability and quality generally. The full-size truck expansion might have been underestimated. As the firm adheres to dynamic way of resolving strategy issues, peculiar and sometimes foolish answers would have found. Well, it is how Toyota confronts the competitive landscape. And as for , this is one proof suggestive to auto-makers that “you will never know who your new competitor will be”. Toyota is broadening its market base partly behind the reason of strong cash flows and bright investor prospect for the firm’s future health. In this view, the move although risky and distortedly calculated for many, losses would be easily absorb not solely by the firm but the financial market as well. With bolder and bolder plans developed by the firm, investors wanted to ride along its ship for mutual gains and losses. Truly, being dynamic is worthy for a formidable firm like Toyota.
Sony
The competitive world of Sony had long been transformed since its last superior stake of Walkman ( 2006). The new era where it belongs involved Microsoft, Sharp and Apple Computer. All of which are high-technology firms. As a result, products are classified as fast-cycle wherein speed to market and innovation are key ingredients to success. In the consumer electronics, Sony is fighting to get a fair share of the market for its line of differentiated products. To do this, conventional strategists would highly require the firm to adhere to the mentioned key ingredients to assure success of every product being lunched. The ingenuity of industry competitors to a specific type of product wherein they excel (Sharp: TV, Apple: MP3, Microsoft: X-Box) supports the conventional thinking.
However, the announcement that the newest model of video game console called Play Station 3 will take some deployment delay before the market disregarded such analysts’ disputes and competitor’s threats. Sony might be on the verge of loosing the opportunity to enjoy the gains from meeting the short-run demand of customers. On the other hand, it complied with ’s call of dynamic strategy which is out of the ordinary. It is also within the estimate that competitors are not easily deciphered and can easily bite a firm in the back. The query then is how Sony’s new product (to note: play station 2 is the best seller for console games) will gain and how much with the new strategy?
Before answering this question, it is helpful to mention that Sony had already built a name in gaming products. The confidence level of the firm that consumers will still patronize the up-coming model is big. However, X-Box might have eaten a large portion of the old model’s market, thereby, causing the delay huge amount of opportunity costs. On the other hand, Sony might also want to exhaust the remaining stocks of its old models to be able for the new model achieves its optimal sales without cannibalizing the sales of the old model. To settle the ambiguous reason, Sony disclosed that it was taking the peculiar action for the purpose of deepening the curiosity of customers thereby flaming their desire to purchase.
With this simple demand-based decision, resources of the firm including its potential revenues and upper hand in the fast-cycle industry were undermined in favor of a relatively riskier decision. Highly differentiated competitors particularly Microsoft would have developed improved gaming console by the time the PS3 formally reaches the market. In effect, product revenues are exposed to heavy competition between these two firms which is detrimental to the optimal prospect of the new PS3. The new strategy transforms Sony into seemingly speculating entity ready to take the risks of loss when decisions do not meet expectations.
The ambiguous strategy of Sony apparently mimicked its environment in which it is exposed to uncertainty and excessive rivalry. It serves as its clothing to mitigate such impacts. The firm wanted to create its own unique competitive advantage in an industry where such is hardly sustainable in the long-run. It uses its name and vast array of products (the latter is good for leveraging losses) to support its newly developed strategy. In addition, the delay also provided the firm the opportunity to exploit the financial market since investors are encouraged to buy its share today prior to the on-set of the anticipated blockbuster product. In effect, new funds will flow and would be the shield the firm would apply in case where the ambiguous strategy fails or becomes sub-optimal. The new thinking, thus, submits itself to diverse functions including the anticipation of failure, exploitation of opportunities and mind-game.
Procter and Gamble
The case of Procter and Gamble (PG) somehow approached the new strategic thinking of . It is the concern of the firm to integrate its activities vertically as to achieve market power or horizontally for economies of scale. As a pre-condition, firms under mergers and acquisitions should be compatible with each operations either one will serve as a forward or backward supplier or simply provide strategic synergy with the other. Such action becomes crucial when outsourcing is not efficient including the presence of risk from leaking the treasured business patent to competitors.
However, the previous acquisition of PG for Gillette (’s 2006) in the late 2005 (which is termed as the biggest acquisition of its history) (Procter stock tumbles as sales disappoint 2006) was a departure to either synergy or integration. Gillette is a metal brand far from the portfolio of PG which is health care in general. Apparently, it is doubtful that there is machinery that would compliment the operations of the two. Although it can be argued that PG is a diversified firm, analyzing its line of products, one would say that it is doing a related-constrained diversification wherein it is in the middle of a dominant business and a much unrelated businesses. More appropriately, the firm is indicative to exploit not the infrastructure of Gillette rather its name and earning potential. In short, the firm wanted to hold a top-ranking brand in the business which is closely connected to its line of products.
The move is not operationally strategic per se but more apparently it is financially strategic to the firm. The interim effects of the acquisition contributed to the quarterly gain in profit of 37%. This suggests that PG relies on the capability of Gillette to earn not on its capability to share its resources. In addition, PGs unique strategy of acquiring known brands in replace of market power and economies of scale had initially paid when the giant retailer Wal-Mart reduced its store products and clutter in favor of customer’s bestsellers. As a result, rivals such as Playtex and Spectrum had been adversely affected by the forward supplier’s call. This heaven-sent announcement gave detergent and beauty products of PG a large snatch on the customer base even though its focus was acquisition rather operation in developing quality for brand names.
However, the non-conventional thinking of PG is partly reflective of some weaknesses. First, the too much heterogeneous brands it has would result to inefficiencies and risks since human resources and machineries are differently functioning: an “earthquake” in one operation cannot be helped by the other. There is also the problem of too much diversification where financial management could not resolve billion dollar failure of an acquisition. Lastly, the path taken by PG requires time for benefits to emerge, therefore, patience is the key wherein investors could have little of.
Conclusion
Sample firms above exhibited vague strategic activities that forgo equity financing (GM), external signals/ market niche (Toyota), innovation/ speed-to-market (Sony), and economies of scale/ market power (PG). These are fair proofs that are addressing the apprehension of on a rapidly changing, fast moving and iguana-like competitive environment. The general effect to these firms of adapting hybrid-dynamic strategy is obviously larger financial flexibility. Except for GM, being financially stable gave these firms the intent and capability to depart from traditional corporate strategy. In specific terms, they are rewarded with financial relaxation/ renewed chance to operate (GM), market expansion (Toyota), promising product launch (Sony) and distribution channel preference (PG).
Corporate strategy implies that firms’ resources and capabilities are integrated and coordinated into pre-determined set of goals to gain competitive advantages. Due to departure of such firms to this, they have obtained flexibility in deciding operational and tactical issues that their firms are facing. As a result, there is a need for strict environmental and competitive scanning/ monitoring that should be done to offset the adverse effects of blurred goals. The advantage of corporate strategy against dynamic decision is that it minimizes organizational risks associated with the firm’s faulty decision or the environmental shocks. It provides the ceiling and floor as the basis for maximum and minimum results the firm should expect. The methodology of corporate strategy is like a thread that attaches resources, capabilities, core competencies and competitiveness in one single path. It is a guide that the firm follows.
On the other hand, sample firms above exhibited risk-tolerant decisions as a result (and could be cause) of management shift of decision framework. The thread turned to be fragmented while the organization takes every situation as a matter of opportunity or threat based on the real-time and industry-led perception. Conventional thinking is dropped and a more challenging endeavor awaits every organizational leader. Being global firms makes them realize the practicality of “let the environment question, and we answer” mind-set. Others like GM used dynamic strategy as a manifestation of failed long-run success while the three used it to capitalize on their business strength and financial depth. Whatever the reason would be, being dynamic stimulates the decision-making to view the broader side of success horizon due to the absence of being risk-averse. The picture is clearer and the leadership including the investors could pull a bunch of profitable prospects.
It is a general rule in the stock market trading that for an entity to invest in a firm “the expected rate of return should equalize the level of risk in the transaction”. As the model of Ohmae connotes substantial shouldering of a firm for environmental as well as internal risks, the cash and capital structure of the firm is highly regarded as pre-condition before corporate strategies are abolished in favor of dynamic ones. The stance of sample firms especially Toyota’s new trucks are exposed to risk failures with little historic evidence of larger expected rate of return. However, due to financial strength of the firm (unlike GM), it is able to embrace the idea with liquidity guarantee on risks that may happen. And so, the ultimate effect of ’s model to the daring firm is either to substantially gain or modestly loose (Toyota) or substantially gain or go bankrupt (GM). Finally, effects are relative to the extent of a decision in relation to liquidity.
Bibliography
Credit:ivythesis.typepad.com
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