Strategic Challenges Of The 21st Century

.. tury, every company has to face the global competition. Therefore the knowledge of competition will be biggest challenge for the next century. Now every company has to make global strategy. According to the arguments of Michael Porter about the competitive strategy, he argues, is achieved in one of three ways; through cost leadership, through differentiation or through focus based strategies.

He argues that it is important that the organisation is not ‘stuck in middle’ -that it is following the one of the strategies. Mcnamee and Mchugh’s attempt to test out porter’s concepts in the clothing industry refers to ‘low price’ strategies rather than cost leadership. Karnani infers that, for cost leadership to be attained, the firm must compete on price, and Govindarajan, citing Porter, maintains that’s a strategy of low cost signifies an attempt to sell an essentially undifferentiated product at lower-than-average market price. But according to Donald Schon suggests that it is a mistake to conceive of managerial thought and managerial action as separable: he suggests that management is characterised by ‘reflection in action’. In effect, managers develop over time and through experience an understanding and interpretation of the context in which they operate, which they apply to situations they face (The challenge of strategic Management by David Faulkner & Gerry Johnson p.181).

The view of Donald Schon about the thought of managers is true. But in this century managers have to follow the arguments of Michael Porter. Otherwise may be they lost their market share. If we take one argument of the Porter like ‘Cost leadership’. It means being the lowest cost to the customer (i.e. lowest price); others interpreted it as porter intended but felt that it would be difficult to purse such a strategy.

Some companies are conducting by as ‘we aim to be lowest cost producer in our industry’; example likes supermarkets, chain stores. I think the porter model, only applicable in manufacturing industry. But we can not apply it in service industry. And Mintzberg is also linked this model only with the designing school of strategy. Global competition has increased the more importance of proper use of entrepreneur and cognitive strategy. I have banking background, in my country most of foreign banks took the 25% our customer, only due to their best internal branch atmosphere.

My bank have high bureaucracy, I tried to point out the weakness of bank. But my management replayed much negatively. We are doing the business in the best way. We do not need any suggestions. They are very much orthodox in their policies. Therefore I agree on the statement of Donald Schon.

In future, as manager, I would like to adopt the strategy of the ABB and Scandivea Bank of Sweden. They are getting strong edge our competitor by using the strategy decentralisation and ABC & ABB (activity base cost/budget). Expand product line It argues a product/service line by adding additional varieties in the base product line. The attention of this strategy is to provide a broader range of products or services for customers/clients to retain them with your company. The globalisation put a deep impact on the product line and its life.

And introduction of new products by our competitors has increased the more choice and product standardisation towards the customers. It has created a complex atmosphere in the every market. According to the Mintzberg schools of strategy, it could be linked with ‘The positioning school’ & ‘The cultural School’. The positioning school has prescriptive like the design and planning school, but the position school places a greater emphasis on the external environment at the expense of the resources, competencies & capabilities of individual firms. The cultural school is concerned with the scope of an organisation’s activities by matching to its environment.

It also deals with the major allocation and re-allocation of resources and its movement in long term. Some organisations have in culture to introduce the new and modified products after the specific time period. They are applying this strategy to hold their position in the business environment. If, we examine the most successful organisation of this century, like as Ford motors, McDonalds burger, Citizen Watch co., etc The success of these companies is based on the life of products, the life of existing products is very small and they introduce a new product after the certain time period. The life of a Burger in McDonalds is only 48 weeks, the age of any citizen watch is only six months and Ford motor also exchange its models after the every six months. The introduction of new product and services in market has been changed the perception of the customer.

I think, In this century, every organisation has to emphasis on the short life of product, and they will also emphasis on the modification and invention in products and services as soon as possible. Otherwise, their competitor will launch the new product or service and it will put ultimate effects on their market share. The learning school of strategy will be worked here. The above ‘Global strategy framework’, in his 3rd part is also indicating such strategy. It will be very important for every organisation to adopt such strategy if he wants to compete in the global market.

They have to make this strategy as the part of their cultural. Otherwise, they will be in very big trouble and they will face very difficulty to retain their customers by their historic products. The change in business environment The business environment of the any country is depended upon the following environmental factors. These factors are represented by the following figure. These factors influencing any organisation, but when organisations are going to start the global operations. Then, the position will be totally opposite.

They have to follow regulatory framework of the country and have to change the strategy and make the new strategy according to the demographic changes of that country. Many companies plan strategically on a five-year cycle. The top CEO’s uses the cognitive school of strategy to plan this long term planning. They have to consider and evaluate the all factors and give the some predict about the future. Normally they use the Michael Porter model in which he describes the five forces, which influence industry profitability. These are ‘competitive rivalry; barriers of entry; threat of substitutes; the power of buyers and the power of suppliers’ However it is not feasible to avoid making the accurate predictions in some cases.

For example, the currency of the world aerospace industry is the US dollar; i.e. all aeroplanes are priced in US dollars. This industry makes their price strategy by the predictions of their domestic currencies by the future movement against in the US dollar. The political changes affect the economic and social dimensions. The recent failure of the WTO at Seattle, It is a very big set back for freer trade/trade-liberalisation of the globe.

This set back will put a big affect on the five years strategy cycle. The technology development is directly affected on social trends. The rapid use of technology may hasten the general drive to reduce working hours thus making it more difficult for organisations to attract employees with the appropriate skills. Last three daces, that ecological or ‘green’ factors are putting majors impact on manufacturing industry. In next century, this trend will also be more accelerated. The final area is social changes. The population rate is very much reasonable in the developed countries of the world.

But in the third world countries have been crossed the red light. This rate of increase in their population may be the biggest challenge of the next century. The movement of this population towards the developed countries is also a major problem. In 2050, the population of the world will be double as compare to 1990. The positive strategy making is an art in the presence of environmental forces.

The most well known method of making strategy is ‘Implicitly or explicitly’, the view that one market is intrinsically more profitable than other another has gained wide acceptance in the business community. According to business specialist, those companies which implicitly or explicitly build on these assumptions will find themselves skating on very thin ice. In the survival global business, every industry has to adopt this formula. They should not try to move forward with same business or same product. Like the position the school, where industry find a new type of business and those business of gaining the market then should start that business and try to make your position strong.

They are four stages in the product life cycle ‘Introduction; Growth; Maturity and Decline’. If your business have reached maturity stage than you should look for the any other business that’s at the growth stage. The environmental changes in business need the very appropriate strategy and long term planning. If any industry has not adopted the any fundamental rule and style of making strategy than it will be very difficult to compete in the global environment. Price policy & terms/conditions of billing The price strategy is put a deep impact in the sale of product.

If any industry offer more favourable terms and conditions in order to stimulate market demand for specific services. Price policy is directly to the positioning school. The positioning school emphasises on the external environment at the expanse of the resources, competencies & capabilities of individual firms. Strategies are generic, identifiable positions in the market and based on analytical calculation. These strategies also based on ‘aim and fired’. The ability of moving position to position and after analysing, anticipated then hold the position is the basic rule of positioning school.

The model of Michael Porter’s is used to make the position strategy of the any industry. Potential Entrants Threat of entrants Suppliers Buyers Bargaining power Bargaining power Threat of substitutes Substitutes To describe this model we take the example of ‘Heineken’ world leader in brewing industry. The first force is threat of entrance of other competitors. Heineken is facing the 14 major competitors in market. It is open market, and there is no any specific law to stop the new entrance.

But some people say that it is a monopoly industry of the Heineken firms. The next step is belonged to suppliers. Suppliers have a very big market and lot of their buyers in the market but the policy of Heineken is paying more intention on suppliers as compare to buyers. Because, they are responsible for supplying the raw material for their industry. Every year they change the terms and conditions with suppliers and try them make more flexible for their suppliers. Therefore they provide them low cost and high quality raw material. While the next step is belonged to buyer power, the buying power is the most important force in the market.

Where buying power of the people is strong, every businessman tries to enter in this market. The price strategy of Heineken bear is always focused the middle class people. The Heineken is supplying his bear more than 170 countries of the globe. To reduce the cost and for control the price. They have started the partnership projects throughout the world.

By applying this strategy, they not only increase the market share but also penetrated in the different region of the globe. Last step of the Poter’s model is threat of substitutes in the market. The soft drinks, energy drinks, juices and wine can effect this market. But, people who used to drink the bear, they can not survive with out drinking the bear. In the example of Heineken, the more focus on only two things price and relation with suppliers.

The reason of opening the different partnership project in throughout the world. They want to reduce the cost of product. If any industry is able to control on its cost and overheads, it can easily for it to penetrate in any market and hold its position strong. This strategy is defined in position school. Therefore, Heineken is world leader in bear market.

In the global business, if organisation makes a flexible policy towards price and it’s billing. And introduction the reward system for selling the certain quantity with the grace pay back time period with the no interest rate. This kind of strategy will be helpful to increase the market share. If any company pay no attention towards than this element can create a big challenge for any industry. It can also be used sometimes to effect rationalisation strategies or reflect improved competitive position.

Strategic alliances Strategic alliances, joint ventures, dynamic networks, constellations, co-operative agreements, collective strategies, all make an appearance and develop significance for the analyst of industry structure as well as for the industrial practitioner. The forms of strategic alliances are categorised by Dephillippi and Read as either unilateral or bilateral. Unilateral agreements are so called because they typically involve minimal amounts of partner interdependence. Examples would be technical training supplier contracts, franchising, patent licensing, or marketing consultancy. The agreements have quite specific tasks, and each partner could terminate the agreement without great cost.

Strategic alliances are bilateral agreements and involve a larger amount of interdependence. They include non-equity co-operative agreements, equity joint ventures and consortia. (The challenge of strategic management by David Faulkner p.123). Johanson and Mattsson’s define the strategic alliance as A particular mode of inter-organisational relationship in which the partners make substantial investment in developing a long term collaborative effort, and common orientation. Strategic alliances are now widely recognised and best way to meet the environment challenges and retain the internal business of firm in pace conditions.

They have certain inherent characteristics like speed of creation, flexibility, opportunities for specialisation, access to additional resources and risk limitation-all of which make them attractive when compared with the alternatives of internal development, acquisition /market purchases. Alliances can be unstable for a number of internal and external factors. External factors like globalisation, technology, and economies of scale and scope, growing turbulence and declining trade barriers. Internal factors like as resource dependency (access to market, technology, special skills and raw material), transaction costs, risk limitation, speed and defence against predators. But most of alliances have broken in the half stage. The 60% reason of their failure in the third world country is interference and instability of their government. But in the developed countries, we have lot of examples of long-term alliances and they also produce the some incredible results.

In November 1989 Cincinnati Bell information system of the USA set up an alliance with the Kingston Communication of Hull, England to sell its equipment of telecommunication throughout the Europe market. CBIS provides the equipment and Kingston the sales effort. This alliance is focused one with clear remits, and understandings of respective contributions and rewards. Global business is dominated by the 500 largest multinational enterprises (MENs) out of some 30,000 MENs in total. The top 500 MENs account for 80 per cent of all world’s foreign direct investment (FDI) and over half its trade. Most global trade and investment are now intra firm and occur in business networks or clusters – in motor vehicles, chemicals or electronics.

But operating globally means operating regionally. For instance, in the market triad of North America, the EU and Japan production and assembly is regional although competition is now global. Managers of large MNEs often serve as leaders of “flagships” in these business networks. Other firms can have important roles as network partners, that is, as key suppliers and customers, and small- and medium-sized businesses can also participate. Government can also be a partner (as in the case of Japan) but only by acting as a facilitator to help improve competitiveness, not as a regulator. (By Alan Rugman, Templeton College, Oxford 15 Feb 1999).

I think in this century, the importance of strategic alliance will be more increase. But, according to ‘Learning school’ of Mintezberg, strategies appear first as patterns out of the past, only later, perhaps as plans for the future, and ultimately as perspectives to guide overall behaviour. Therefore, to sign any alliance, manager should know about the market, customer, organisation behaviour and political history of the country, and also make sure that business in its introduction stage not in maturity stage. And their alliance will bring the some excellent result and mutual corporation in all the business operations. Otherwise it is always a big strategic challenge for the management. The cognitive and learning schools of strategy are helpful in this case.

Conclusion I think with the impact of the Globalisation, every organisation has to more concentrated on the chase of best intellectual skill. If organisation have the best skills than they can perform every job in good manners. As I describe in my “Managing across border”, a global strategic challenge and it linked with learning and cognitive school of strategy. But it is only when possible when we have best intellectual skills. Generating the funds is an art of managers and their proper utilisation is also a big art.

A manager can get this art by understanding by the learning and designing/planning schools of strategy. The process of Globalisation and everyday new invention and e- commerce has increased the demand and as well as the choice of customer. This element can be control and estimated by the position and culture school of strategy. It is very important for a Global Manager, that he should be well aware from all schools of strategy and others theories and he should also know, either it is proper and well evaluated strategy or not. Every strategy should be well define and divided into small steps.

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