Business Strategy and Corporate Strategy in the Aircraft Engine Industry - Term Paper Example

?Running Head: AIRCRAFT ENGINE INDUSTRY Study of business strategy and corporate strategy in the aircraft engine industry name] [Date] Introduction: There are organizations that focus on a single or a very few industries, while there are other organizations that are highly diversified conglomerates. Business strategy is developed to bring about competitiveness in organizations in a particular industry. It helps firms to attain their objectives in a particular business line. In contrast, corporate strategy has a much wider perspective. It gives diversified conglomerates competitiveness across the industries. It helps in achieving the objectives of organizations as a whole. A strategy refers to the coordinated means by which an organization pursues its goals and objectives (book_study, n.d.) In this context, the strategies of the two leading companies in the aircraft engine industry-GE and Rolls Royce assumes significance. GE is the market leader in aircraft engine sales. It is a highly diversified conglomerate with exposure in business of light bulbs, medical devices, commercial jet engines, home mortgages, broadcasting and self storage facilities. The sale of aircraft engines accounts for less than 10% of its revenues. In contrast, Rolls Royce holds the second position in aircraft engine sales. 74% of its revenue comes from this industry. Therefore, business strategy in the aircraft engine industry is the key for Rolls Royce, while corporate strategy assumes much importance for GE (book_study, n.d., p. 10). This paper aims to study these two companies of the aircraft engine industry and comment on the differences in strategies adopted by them. From the findings of the study, the paper draws conclusions regarding the differences of business strategy and corporate strategy. Thesis argument: How does business strategy differ from corporate strategy? The triangle of corporate strategy: This theory views corporate strategy as a triangle consisting of resources, businesses and organizations. Organizations are linked to resources by co-ordination; resources are linked to businesses to generate competitive advantage and businesses are linked to organizations by control. The resources of an organization can lie anywhere in a continuum- from highly specialized to general. Depending on the position of the resources in the continuum, an organization has to decide on the set of businesses it should operate and other design criteria. General nature of resources gives wide scope of business. Co-ordination is achieved through transfer of resources. Size of corporate office is small and financial control system is adopted. Specialized nature of resources narrows the scope of business. Co-ordination is achieved through sharing of resources. Size of corporate office is large and operating control system is adopted. (Collis, Montgomery, Campbell & Goold, 1999, p. 4-6) Vision & Strategy of Rolls Royce: Rolls Royce is a global company that believes in the principle of sustainable development. The Global Code of Business Ethics of Rolls Royce includes continuous improvement of production facilities, being world class in health, safety and environment management and being socially responsible. Social progress depends on economic development which can be brought about by fresh, dependable and inexpensive energy and transport system. Rolls Royce has strong R & D facilities and record of innovation. It uses these strengths to develop efficient energy and transport system. Through the application of consistent business strategy, Rolls Royce has matured during the previous 2 decades. “Civil aerospace, Defense aerospace, Marine and energy” are the four global markets in which Rolls Royce operates. Of these global markets, civil aerospace accounted for almost 45% of the underlying revenue in the year 2010. (Our consistent strategy, 2011) The core characteristics underlying the strategies of Rolls Royce are as follows: Closeness to customers: Rolls Royce is an organization highly focused on its customers. It is the customers who determine the strategy of the organization. Domain knowledge: Rolls Royce has a deep understanding of the aircraft engine industry from its experience over the years. Integrated systems: Products of Rolls Royce are integrated into systems that ensure increased value delivery to customers. Technological superiority: R & D capabilities and ability to innovate underlie the technological superiority of Rolls Royce. Operational excellence: It is achieved through constant efforts to satisfy and go beyond customers’ anticipation. Organizational capability: Organizational capability of Rolls Royce pertains to its ability to attract and retain the best people globally. Brand: Rolls Royce is recognized globally for the quality of its brands. (Our consistent strategy, 2011) Vision & Strategies of GE: GE vision and strategies revolve around five growth imperatives. These are as follows: Launch great new products: Increased investment in R & D, talent of people and a model of innovation underlies the technical the technical leadership of GE. Launch of great new products is a result of this technical leadership. Grow services and software: 70% of infrastructure earnings of GE come from services. (GE 2010 Annual Report, 2010, pp. 6-8) There is tremendous growth opportunity for GE in the services and software sectors. Prominent in growth markets: GE’s revenue has increased by above 10% yearly during the last decade. (GE 2010 Annual Report, 2010, pp. 6-8) GE’s strategy revolves around leading in growth markets by making long-term investments in the Middle East, Africa, Canada, Latin America, Australia and Russia. Expand from the core: Infrastructure sector is the core competency of GE. Therefore, investing, expanding and winning in infrastructure and adjacent sectors is a part of GE’s strategy. Create value in specialty finance: Specialty finance belongs to the GE Capital arm of GE. Superior knowledge, established customer relations and strong operating advantages gives GE competitive advantage in this area. Leadership and value creation in specialty finance will help GE to improve its competitiveness. Solve problems for customers and society: GE is dedicated not only to solve the problems of the customer but also to address concerns of the society. Environment friendliness through clean energy initiatives aims to address the problems of customers as well as society. Leadership Model at GE: The leadership model at GE encompasses domain competency, team execution, and global repositioning and leadership development. (GE 2010 Annual Report, 2010, pp. 6-8) The secrets of the legendary CEO of GE- Jack Welch which are followed by GE still today can be summarized as follows: Act like a leader and not a manager: GE embraces change and doesn’t fear it. It believes in leading instead of managing. It develops managers who share its vision. Facing realty and acting decisively and being simple and consistent are the inherent strategies of GE. Building the market leading company: GE is the market leading company in the aircraft engine industry but it does not want to narrow its market. Creating a learning culture within the company is part of strategy of GE. Forging the boundary less organization: GE emphasizes on creating an association without any boundary by getting rid of managers and bureaucracy. It wants to remain lean and sprightly like a small business. Harnessing people for competitive advantage: GE focuses on ‘speed, simplicity and self confidence’ and believes in participatory approach in order to harness people for competitive advantage. It takes the “boss” element out of the company and makes workers feel free to express themselves. Push service and globalization for double digit growth: GE emphasizes on its service business and brings in earnings by providing financial services. It builds different and international teams in order to achieve globalization and double digit growth. Instill the compulsion of quality throughout the firm: GE garners competitive advantage by quality leadership throughout the organization. In order to achieve quality, GE undertakes measurement, analysis, improvement and control of quality. It is the job of every employee at GE to ensure quality. (Slater, 1999, pp. 5-7) Business Strategy as a part of Rolls Royce: Rolls Royce maneuvers in four comprehensive markets - civil aerospace, defense aerospace, marine and energy. It invests in skill and capacity that can be taken advantage of in each of these segments to generate a viable range of products. The accomplishment of these products is established by the company’s fast and considerable gain in market share over current years. However, the investments made in these divisions to gain market share create high entry barriers. The large set up of engines creates demands for the terms of services. A major constituent of the company’s strategy is to capitalize on services revenues which include a wide-ranging group of services. The company has established an evenhanded business, with top positions in civil aerospace, defense aerospace, marine and energy markets, where its principal technology can be functional over an extensive series of products and services. Rolls Royce was the pioneer in gas turbine technology for aerospace, power generation, and marine propulsion, and is occupied in the major future plans in these fields (Gottschalk, 2006, pp.297-298). Corporate Strategy as a part of GE: Corporate strategy attempts to answer three basic questions. These are as follows: What are the businesses in which to compete? The corporate strategy of GE tells to compete in service, software and specialty finance. These businesses provide opportunities for tremendous growth. Such decision regarding venturing to new businesses is part of the corporate strategy of GE. How can corporate parent add value to various lines of business? Corporate parent can add value to the various lines of business by creating synergies. It is achieved by entering into related businesses and sharing of resources. GE has created such value through its specialty finance business. It uses this business to generate cash for funding its other businesses. In this way, one business adds value to other businesses of GE and it is a part of corporate strategy of GE. How will diversification help to compete in other industries? Diversification often gives competitive advantage to organizations. By virtue of their size, organizations have increased bargaining power to buyers and suppliers. GE uses corporate strategy to achieve this benefit. It can use its bargaining power to get competitive rates GE and Rolls Royce: Comparison Within a same industry, both GE and Rolls Royce cope with the same competitive pressures. Both the companies have to settle on as to how they would compete against each other and also against their competitors. In managing its portfolio of businesses, GE faces tactical issues that are less significant to Rolls Royce. Business strategy refers to the ways a firm goes about achieving its objectives within a particular industry segment. One of GE’s business strategies would be to decide on how to pursue its objectives within the jet engine business. This strategy may include factors as to how it competes against Rolls Royce for deals from Airbus and others, how it collaborates with other provider of technology for designing its engines, and deciding on upgrading its level with a target to reduce costs (book_study, n.d.). Corporations like GE may be involved in hundreds of separate businesses. Thus they would follow corporate strategy which would help them to operate more than one business. GE managers attend to corporate strategy questions while deciding whether to enter a new business. Even decisions regarding which business to enter, are issues that come under corporate strategy. If a synergy is tried to be formed between two different forms of a business, then that would require a company’s corporate strategy to think about helping the business units to work together. Diversification may also put a company like GE in a better competitive position, which is hence decided by the corporate strategy of the company (book_study, n.d.). The business strategy of Rolls Royce continues to address the global markets, invest in infrastructure and technology, develop a viable set of products and services, grow share in the market, and add value for its customers. The company continues to invest in capital projects which also include major aerospace facilities. The company has become a global company active in 50 countries, producing power solutions for customers in aerospace, marine and energy markets (Rolls-Royce, n.d.). Earlier GE concentrated on military engines, whereas Rolls engines were used on airplane having inadequate marketable success. In the early 1970s, GE planned a major move into business production using expertise that it had developed for military plans. GE brought a long record of technological firsts in jet engine mechanism, and a well-built international focus and pledge. GE has a technological superiority, and provides all support practically all product support (Rutgers University, 2002, pp.259-270). This report has tried to bring out a difference between “Corporate Strategy” and “Business Strategy”, taking two companies into consideration, namely Rolls Royce and General Electric. The difference in the two companies lays in the fact that one company, that is, Rolls Royce, has its focus on a single or a fewer number of businesses in its portfolio. On the other hand a company like GE has its diversified business spread in different areas. This is where their strategies differ. GE, who has its business diversified into several areas, needs to follow corporate strategy which focuses on such diversifications. Rolls Royce would need to follow business strategy as its focus is mainly on a single business. It may be a difficult task to understand the differences between a corporate level and a business level strategy. However, there is a difference between the two which the managers and makers of strategy need to understand for the ultimate benefit of the organization. Understanding the differences would also help in avoiding problems relating to communication and strategy execution. A corporate strategy involves decisions that involve the organization as a whole. It is concerned with the factors that may affect the overall organization in terms of its size or composition. Thus it also focuses on a company’s diversification strategies and helps it plan when and where to diversify. On the other hand, a business strategy is the plan that focuses on how a business competes in a particular business sector. This would deal with the pricing, marketing and manufacturing concerns of the firm (Clark, 2011). The main difference between the two strategies lies in their scope. While a corporate strategy would concern over the entire organization and all its businesses as a whole, a business strategy would deal with a particular business and its factors. Both the strategies are equally important for an organization. However their use must depend on the needs of the company (Clark, 2011). For example, as seen in the cases of Roll Royce and GE, GE needs to give more stress on corporate strategy as its businesses are more diversified, and so plans have to be taken concerning the entire organization such that these diversifications may ultimately benefit the organization as a whole. Rolls Royce, focusing mainly on a single business is thus more concerned with business level strategy. Concluding remarks Ultimately the difference between the two strategies can be determined from the questions that these strategies answer. A business strategy basically answers the questions as to how a company would achieve its objectives today competing with its competitors, and tomorrow. A corporate strategy responds to the questions associated with managing a company that operates in more than one business - the questions being in what business the company would diversify, how that diversification would benefit the firm, and how can the organization add value for its customers through the different lines of business (book_study, n.d.). Thus, through this report, an idea of the difference between the two strategies has been obtained, particularly taking into consideration the examples of Rolls Royce and GE companies. References 1. Book study 2. Clark, W. (2011). The Difference Between Corporate Strategy & Business Strategy, ehow, Retrieved on July 4, 2011 from: http://www.ehow.com/info_7904252_difference-corporate-strategy-business-strategy.html 3. Collis, D. J. Montgomery, C. A. Campbell, A. & Goold, M. (1999). Harvard business review on Corporate Strateg. Boston: Harvard Business Press 4. Furrer, O. (2010). Corporate Level Strategy. United Kingdom: Taylor & Francis 5. GE 2010 Annual Report. (2010). GE, Retrieved on July 4, 2011 from: http://www.ge.com/ar2010/pdf/GE_AR10.pdf 6. Gottschalk, P. (2006). E-business strategy, sourcing, and governance. United States: Idea Group Inc (IGI) 7. Our consistent strategy. (2011). Rolls Royce Annual Report 2010, Retrieved on July 4, 2011 from: http://www.rolls-royce.com/reports/2010/businessreview/our-consistent-strategy.shtml 8. Rolls-Royce Group plc. ( 2011). Rolls-Royce, rolls-royce, Retrieved on July 4, 2011 from: http://www.rolls-royce.com/investors/company_profile/company_overview/ 9. Rutgers University. (2002). Cooperative strategies in international business. England: Emerald Group Publishing 10. Slater, R. (1999). Jack Welch and the GE way. United States: McGraw-Hill Professional Read More