Business Strategy in a Global Environment - Case Study Example

? Business Strategy in a Global Environment Table of Contents 0Strategic Choice3 1.1TOWS Matrix 3 1.2Strategic Choice 5 1.2.1Cost Leadership 6 1.2.2Differentiation 6 1.2.3New Products/Services 7 1.2.4Market Development 7 1.2.5Market Penetration 8 1.3Choosing a Strategic Option 8 1.3.1Suitability 9 1.3.2Acceptability 9 1.3.3Feasibility 10 2.0Implementation Issues 10 2.1Structure 10 2.2Culture 12 3.0References 14 1.0 Strategic Choice 1.1 TOWS Matrix The determination of Farstad Shipping’s strategic choices is based on the foundations that have been laid by the SWOT matrix. This notion postulates that the observations of the SWOT matrix can be explored further through the application of the TOWS matrix whereby the integration of both external and internal factors that are associated with the organization can guide Farstad Shipping towards the achievement of it long-term goals and objectives. The application of this technique of situational analysis with regards to the company under discussion is an acknowledgement of the importance of this tool in strategic planning. Table 1.1.1 Strengths (S) Weaknesses (W) Opportunities (O) Farstad Shipping’s longstanding presence in the Singaporean shipping industry and existing knowledge about the market implies that the company has the potential to adapt to the changing dynamics of the industry by exploiting various opportunities in offshore shipping. The issue of Farstad Shipping’s limited customer base can be overcome by signing partnership agreements and commencing joint ventures with other shipping companies to expand the clientele and creating service differentiation by adopting relevant measures. Threats (T) Establishing strong relations with suppliers and creating an effective value delivery network can play a critical role as a measure of cost effectiveness. Farstad Shipping must recognize the threat which is posed by competitors and in doing so should develop effective measures to closely monitor market trends and performance. The outcome of the aforementioned situational analysis recommends that the five most viable options of strategic choice for Farstad Shipping must constitute of selections that include both business-level strategies and corporate level strategies. Therefore, the available options that have come under consideration are presented through the Business-level Matrix and the Product/Market Matrix below: Table 1.1.2 Business-level Matrix (Adapted from: Goldman and Nieuwenhuizen 2006) Table 1.1.3 Product/Market Matrix Products/services Existing New Markets Existing Market penetration New products/services New Market development Diversification (Adapted from: Johnson, Whittington & Scholes 2011) The viable strategies for Farstad Shipping which have been selected through the examination of the TOWS Matrix, the Business-level Matrix and the Product/Market Matrix are: cost leadership, differentiation, new products/services, market development and market penetration. These strategies will be assessed in greater detail in the following sections of the report. 1.2 Strategic Choice As per the company’s long-term objective, Farstad Shipping aims to become the foremost supplier of offshore tonnage to the businesses operating in the oil and gas industry (Farstad 2012a). The organization understands that it conducts operations in an industry which is marked by the presence of intense competition which is why it categorizes innovative process and technology as the main tools which can guide the organization towards success. In order to attain its long-term objectives Farstad Shipping faces the selection of a combination of five distinct business-level and corporate level strategies which must be thoroughly examined, analyzed and evaluated by keeping in view the dynamic nature of the industry in which the organization conducts its activities. Consequently, assessments on strategic choice are also pivotal to the attainment of a competitive advantage. 1.2.1 Cost Leadership The application of cost leadership as a suitable strategic choice is based on the identification of the risks that the company currently faces with regards to competitive pressures and clients’ demands for cost-efficiency. An assessment of the weaknesses presented in the SWOT analysis for Farstad postulated that high operational costs have the potential to severely undermine business operations because the income being generated from business activity is not sufficient enough to compensate for the costs that the company is currently incurring. This observation indicates that if the business continues to operate as a high-cost producer in comparison with its competitors then it would not be able to meet its long-term corporate objectives. Henceforth, the focal point of this strategic choice is the implementation of measures which can advance cost-efficiency. These measures include experience curve, economies of scale and capacity utilization (Goldman, G., & Nieuwenhuizen 2006). 1.2.2 Differentiation Much of the analysts who have examined the global shipping industry are in agreement that the characteristics of shipping companies can be analysed on the basis of the degree of differentiation, for example, organizations serving the oil industry are characterized by a low degree of differentiation (Jenssen 2003). Furthermore, the methods of achieving differentiation in the shipping industry can be defined by several means however, the primary sources in this regard are mergers and acquisitions and the formation of alliances based on strategic decisions (Notteboom 2004). A precious source of differentiation in the case of Farstad is the initiation of offshore shipping services as identified in the SWOT analysis. 1.2.3 New Products/Services This corporate-level strategy intends to provide a new and distinct direction to Farstad Shipping by encouraging the organization to explore new business horizons. It is understood that the primary operations of the company are focused towards fulfilling the requirements of the oil and gas industry. Even then, the company specifically focuses on platform supply vessels with much of the operations being conducted in the North Sea. Henceforth, this strategic choice asserts that the organization should invest in offering alternative shipping services within the same market. 1.2.4 Market Development While, Farstad Shipping’s operations within the Singaporean market have shown successful results there is no doubt that both the internal and external factors of the organization have the potential to concurrently affect the demand for its services in a negative manner. However, if the external and internal issues facing the company are handled effectively then it is highly likely that these factors could act as the strengths of the business while, bringing in tremendous growth opportunities for the company. According to Farstad’s (2012b) Annual Report the rising price of oil in the global markets invites great potential for shipping companies who are offering their services to the oil industry because increasing oil prices are indicative of the fact that activity in offshore markets will also rise in the near future as a consequence of this worldwide trend. Similarly, latest developments in several nations have also been promising from the shipping front with governments dedicating a significant amount of their budget for the development of the shipping sector. Recent advancements in Vietnam’s shipping infrastructure are an example of this and essentially represent the possibility of new markets for Farstad Shipping. 1.2.5 Market Penetration The strategy of market penetration postulates that Farstad should focus on effectively delivering its current range of services to its existing markets. This view is supported by the company’s highly promising financial performance which reached its peak in 2007 with the organization recording its highest ever operating revenue which stood at NOK 2514.3 million. Additionally, the findings of the situational analysis also echo this point of view by recognizing Farstad’s existing operational strategies as one of its key resources which must be maintained on a consistent basis by utilizing existing expertise, services and serving the same markets. 1.3 Choosing a Strategic Option Following an examination of the selected business-level and corporate-level strategies, the desired strategy which has emerged as the most suitable, acceptable and feasible choice for Farstad Shipping is that of market development. 1.3.1 Suitability The suitability of market development with respect to the given market situation, environment and trends is governed by the external and internal factors. The most pivotal external factors in this regard are global economic trends, the worldwide demand for oil and the rising price levels of the commodity. Consequently, poor recorded performance from the North Sea market in the last year shows that Farstad’s potential for growth in existing markets has been minimized which is why the company must direct its resources towards the markets of West Africa and the Mexican Gulf which have tremendous potential for growth and expansion (Farstad 2012b). 1.3.2 Acceptability Farstad Shipping’s stakeholders expect that the company maintain its influential position in the shipping industry by maintaining its market share and gaining maximum benefit from the industry’s growth potential. Henceforth, the acceptability of this option is best reflected by taking into accounts the expectations and demands of various stakeholders of the company. The consequences of market development take into account the global demand for oil and the critical role that Farstad can play in fulfilling this requirement. Moreover, environmental concerns are addressed by the concepts of sustainability and innovation to ensure that the company’s operations do not harm the planet in any way. 1.3.3 Feasibility From the period which commenced from 2000 onwards the number of vessels in Farstad’s fleet has increased to 950 which is a significant increase in the organization’s resources and in its capacity to serve various markets (Farstad 2012b). Furthermore, the company is currently engaged in several infrastructure and development projects the purpose of which is to build more innovative and technologically advance vessels that have the ability to exhibit greater engine capacity along with several advanced functionalities (Farstad 2012b). Such developments in the company’s resource capacity can play a pivotal role in making the strategy of market development a success. 2.0 Implementation Issues The course of strategy implementation is a comprehensive consideration with respect to organizational factors, issues and characteristics that have the potential to impact the extent to which the selected strategy is able to achieve its core objectives. However, the concepts of fundamental concern in this section of the report have been identified broadly as structure and culture. 2.1 Structure According to Miller (1987: p55) the business-level strategy that an organization chooses to implement must share a correlation with the structure of the company by complementing the contexts in which it is applied. Therefore, the objective behind undertaking a strategic choice of market development indicates that this corporate-level strategy should ideally be applicable to the business activities and operations of Farstad Shipping. As shown in prior researches the association between structure and strategy is widely acknowledged however, these studies fail to take into account several crucial aspects by solely focusing on the significance of diversification with respect to strategy and structure (Miller 1986: p233). Nonetheless, the varying outcomes of business-level strategies such as market differentiation and product differentiation are such that they respond to either bureaucratic structural devices or organic tools of strategic management (Miller 1987: p55). According to Meyer (1993: p64) structural implications within an organization are of immense importance such that each operational structure in a company can be viewed as a system which possesses its own unique objectives in accordance with set rewards. Consequently, with respect to a company which operates on a functional basis each distinct department is said to pursue its unique needs. However, the role of strategy remains consistent throughout the operations of each functional division such that functional objectives should be viewed as smaller segments of an organization’s overall destiny. The company structure of Farstad Shipping ASA which is presented in the diagram below shows how the operations of the company are arranged in relation with the organization’s global operations. Table 2.1.1 Company Structure (Adapted from: Farstad Company Structure 2012c) Of all the companies that operate under the banner of Farstad Shipping including Farstad Shipping Pte. Ltd. which conducts business in Singapore, six companies enjoy the ownership of their own vessels (Farstad 2012c). Based on this structure, the advancement of a market development strategy should be conducted within the company’s groups which have enough resources to explore new markets and exploit various opportunities. 2.2 Culture Robbins (2001: p506) defines organizational culture as “a system of shared meanings held by members that distinguishes the organizations from other organizations”. It is the essence of this definition which encompasses the ways in which activities and operations are undertaken at an organization and how these activities are different from the functioning of other companies. The major characteristic of the organizational culture at Farstad Shipping is team orientation. This notion asserts that the management and the employees at Farstad strive to deliver optimum performance by working as a team rather than focusing on separate goals that pose a conflict with the company’s overall, long-term objectives. Bass and Avolio (1993: p112) note that the leadership practices in an organization play a critical role in the formation of its organizational culture. Farstad Shipping’s longstanding presence and unparalleled values display such strength in the organization’s vision which is followed by the group religiously across its worldwide locations. Robbins (2001: p507) understands that organizational culture shapes the perceptions of an organization’s workforce. This notion postulates that cultures which are not receptive to innovation, risk-taking and change can act as obstacles to an organization’s success. The adoption of a strategy of market development implies that the management and the workforce must come together to acknowledge and understand the risks that are associated with it. Companies always face the possibility of failure when entering new markets, which is a consequence of failing to adapt to the demands of another culture, both national and organizational. Henceforth, if Farstad Shipping wishes to maximize the potential benefits of market development it must realize the role of national and organizational culture in making this move successful. The impact of organizational culture is highly extensive; consequently, this notion is also associated with the birth of subcultures which may hinder the progress of the company in new markets. It is the duty of the leadership to recognize the presence of such cultures to ensure that each and every member of the team is willing to embark upon the venture of market development. Therefore, any reservations, fears and uncertainties regarding the implementation of the strategy must be addressed by the management in an effective manner so that problems and issue that may emerge during the execution phase maybe avoided. 3.0 References BASS, B. M., & AVOLIO, B. J. (1993). Transformational leadership and organizational culture. Public administration quarterly, 112-121. FARSTAD (2012a). Business Concept. Farstad Shipping. Accessed 23 July 2013 [online] FARSTAD (2012b). Annual Report. Farstad Shipping. Accessed 23 July 23, 2013 FARSTAD (2012c). Company Structure. Farstad Shipping. Accessed 23 July 2013 GOLDMAN, G., & NIEUWENHUIZEN, C. (2006). Strategy: Sustaining competitive advantage in a globalised context. Juta and Company Ltd. JENSSEN, J. I. (2003). Innovation, capabilities and competitive advantage in Norwegian shipping. Maritime Policy & Management, 30(2), 93-106. LAMB, CW, HAIR, JF, MCDANIEL, C, SUMMERS, J & GARDINER, M 2009, MKTG, 1st edn, Cengage Learning Australia, South Melbourne, Victoria, Australia. MEYER, C. (1993). Fast cycle time: How to align purpose, strategy, and structure for speed. Simon and Schuster. MILLER, D. (1986). Configurations of strategy and structure: Towards a synthesis.Strategic management journal, 7(3), 233-249. MILLER, D. (1987). The structural and environmental correlates of business strategy. Strategic Management Journal, 8(1), 55-76. NOTTEBOOM, T. E. (2004). Container shipping and ports: an overview. Review of network economics, 3(2). ROBBINS, S. P. (2001). Organizational behavior. Upper Saddle River, N.J., Prentice Hall. Read More