Relationship between Business Level Strategy, Corporate Level Strategy and Network Level Strategy - Essay Example

Strategic Management work Part B Assignment Case Marks and Spencer plc Relationship between Business Level Strategy, Corporate Level Strategy and Network Level Strategy 1.0 Introduction: The nature of the strategic decisions the managers make in an organization is to coordinate the resources, capabilities and core competencies are usually out of routine. They have the effect of significantly influencing the firm's capabilities to earn returns at levels above the normal level attainable by the firm. The job of the managers in formulating these strategic decisions to identify, develop and protect the resources, capabilities and core competencies of the organization, though appear to be easy are in fact much complicated and involves attempting a proper mixture of the strategies at various levels, like business level strategies, corporate level strategies and network level strategies. Sometimes it may extend to studying the strategic decisions in the international context also. This part of the paper deals with the studying of the relationship between Business Level Strategy, Corporate Level Strategy and Network Level Strategy and later part of the paper presents a case study on the strategic management of the organization Mark and Spencer. 2.0 Business Level Strategy: Rindova & Fomburn (1999) define a Business level strategy is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets. The business level strategies may relate to cost leadership, product differentiation, focused cost leadership, focused product differentiation and integrated cost leadership and product differentiation. Successful business level strategies depend on sound customer base. Identification of the groups of customers, the needs and preferences of those customer groups and the core competencies that the firm will be using to satisfy the customer needs form the basis of the business level strategies. Thus the key issues the firm should address while deciding on the business level strategies are the nature of goods and services the firm wants to offer the customers, how to produce such goods and services and how the goods and services can be efficiently be distributed. Once formed the business level strategy reflects where and how the firm has an advantage over its rivals. (Slater and Olsen 2000) 3.0 Corporate Level Strategy: Corporate Level Strategy specifies actions the firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in several industries and product markets. Markides (1997) describes that a corporate level strategy is expected to help the firm earn above-average returns by creating values just as with the diversified firm's business level strategies. A corporate level strategy value is determined by the degree to which the different segments of businesses will prove worth to continue under the same management of the company than they would be under any other form of organization or ownership. Thus an effective corporate level strategy creates across all the business units of the firm cumulative returns that will exceed those returns which the company would earn without the corporate strategy. It also contributes to the strategic competitiveness of the firm. The firm's ability to earn above-average returns would also be improved. 4.0 Network level Strategy: The Network level strategy defines inter-organizational relationships. Having access to multiple collaborations increases the likely-hood that additional competitive advantages will be formed as the set of resources and capabilities being shared expand. (Rudberg & Olihager 2003) One of the primary benefits of a network level strategy is the firm's opportunity to gain access to a multitude of firms' resources and capabilities. When this happens the probability greatly increases, that partners will find unique ways to uniquely share their resources and capabilities to form competitive advantages. In mature industries, network strategies are used to extend competitive advantages to new areas. In rapidly changing environments where product innovations are frequent dynamic network strategies are used as tools of innovation. 5.0 Relationship between Business Level, Corporate Level and Network Level Strategies: While business level strategies concentrate on firm's competing in a single industry product or market, corporate level strategies take effect when a firm chooses to diversify beyond a single industry and to operate businesses in several industries Thus both business level strategies and corporate level strategies are conceptually the same. A corporate level strategy of diversification allows the firm to use its core competencies to pursue opportunities in the external environments. Hence a diversified company has two levels of strategy; business or competitive strategy and corporate or company-wide strategy (M.E. Porter 1987) Transferring core competencies involves transferring core competencies developed in one business to the other one. It may also involve transferring competencies between the corporate office and a business unit and this explains the strong relationship between the business level strategies and corporate level strategies. The network level strategies are an extension of the corporate level strategies in which the firm's competitive advantages are enhanced with the co-operation among different firms by pooling their resources and capabilities. With several forms of relational arrangements the like contractual, non-contractual and equity based offered by network level strategies, the corporate level and strategies and business level strategies are greatly facilitated in attaining an increased competitive advantage as the three forms of strategies have the common objective of increasing the competitiveness of the firm at different planes of operational levels. While corporate level strategies usually involve sharing tangible resources between businesses, network level strategies attempt to do this in between different firms acting together with a common objective. Sharing activities, competencies and capabilities among different firms form the basis for the relationship between corporate level strategies and network level strategies. 2 The Industry Context, the Organisational Context and the International Context- A Case Study: Mark and Spencer The late 1990s witnesses a series of setbacks for Marks and Spencer (M&S), the renowned British retailer. The company which had period of remarkable success in the past saw its market position and profitability deteriorating rapidly causing high turnover in the chief executives. Between the years 1998 and 2001 the company adopted several changed strategies to rebuild the lost business. It involved several strategic decisions in the industrial, organizational and international context to restructure itself to get back the competitive advantage and customer loyalty which it was enjoying once. The following is a general description of the strategic management moves taken by M&S on the three different contexts. 1.0 Marks & Spencer - A Background Marks & Spencer Plc (from now on M&S) is an international retailer with 718 locations across 34 countries. The group sells clothing, footwear, gifts, home furnishings and foods under the St. Michael trademark in its chain of 294 stores in the United Kingdom. Approximately half of the group's overseas stores are franchised to local partners. The group also owned the clothing retailer Brooks Brothers and the Kings Super Markets chain in the United States of America. Direct mail helps M&S meet the core objective of providing customers with wider, easier access to their products such as home furnishings, flowers, hampers and wine. The financial services comprised of operations of the groups financial services companies providing account cards, personal loans, unit trust management, life assurance and pensions. Retailing accounted for 96% of fiscal 2000 revenues and financial services, 4%. (Marks & Spencer plc) 2.0 Industry Context: The industry context basically deals with the development of the firm vis--vis the development of the industry. For a sustained development the firm has to consider the various dimensions of industry development which looks into the possibilities of expanding the firm's operations by using techniques of integration for consolidating the resources. The firm would do well to do this when there are favourable circumstances exist for the firm both internally and externally. In planning the development the firm has to take into account the paths and the various drivers that are responsible for development. When the firm is convinced that under prevailing circumstances carrying out any developmental plans would become detrimental to its progress it has to either stop developing or attempt to shrink itself within the industry. In this context M&S took the following strategic decisions during the year 2001 to recapture its position: 2.1 Industry Context as applied to Marks & Spencer: The industry context as applied to M&S is discussed below: Total Focus on UK Retailing: As a first measure of strategic review, the company decided to return to selling only own brand products and brands exclusive to M&S that can guarantee the customers the quality, value and service that M&S was confident of offering to the customers. Rebuilding the relationships with core customers by making significant improvements in product appeal, and adequate availability was the main strategy apart from developing into other business segments like food where the company is entering new. Recovery Plan for Clothing Line: "The Company has plans to regain the confidence of its customers in the quality and fit of its clothing. It will sharpen pricing by rebalancing the price architecture, extending the range of entry-price merchandise and communicating this clearly to customers."(Marks & Spencer plc) Expansion in Other Product Areas: The company considered the new product areas like Food, Home and Beauty products as the key platform for the future growth of the company. The company was also looking for new locations and channels of distribution for these products. 3.0 Organisational Context: As defined by De Wit and Meyer (2005) the issue of organizational development is defined as the theory and practice of brining planned changes to organizations. The organizational development requires a careful alignment of the leadership sources, levers and platforms of development for bringing up an efficient organisation. The power with which the leaders of the firm can perform is enriched by a coercive and reward based approach. At the same time unless the leader show their excellence in the field it may not be possible for them to bring about the organizational changes as may be required to turn the organization a successful venture. Moreover legitimacy adds to the strength of the leadership. Better organizational developments can be brought by monitoring the performance of the organization through effective control mechanisms. While deciding on the organizational developments a consideration of the political, cultural and psychological issues connected therewith should be considered. 3.1 Organisational Context as applied to Marks & Spencer: The organizational context as applied strategically by Marks & Spencer is embedded in the following actions by the company: Refurbishment of Stores: The company decided to accelerate the Store Renewal Programme, whereby it attended to a refurbishment of its stores to give a new look to the retail areas. It planned to remodel at least two thirds of the total retailing space by the end of 2001. This was part of the programme towards the organizational development planned by the then chief executive of the company. Reallocation of Selling Space: The company made plans to reallocate more selling space to higher growth product areas which would provide maximum returns to the company. In total the company planned to reallocate more than 60,000 sq ft area within the year 2001. Enhanced Customer Service: With a view to providing an enhanced service to the customer and as a part of the organizational development, the company decided to open the shops in some of the big cities for 24 hours. Moreover as an improvement plan, the company was to embark on the modernization of 125 stores in UK to provide an attractive and easy - to - shop atmosphere to the customers. Cost Cutting Measures: The company proposed to reduce its supply sources in UK (which represented 70 percent of its suppliers at that time) and enhance the supply sources from foreign sources, which would get the products at cheaper cost. The company thought it would enable it to decrease its sales price and increase the profit margin. 4.0 International Context: The international context in the strategic management of a firm has various dimensions and levels. In the international context the firm has to consider its level among the other companies, businesses and the economies of the different countries involved. The management of the firm in an international context involves a standardized and centralized approach. The firm would do well to align its position in the international context by a careful evaluation of its market positioning with respect to its overseas customers and competitors as well. There should be considerations of the advantages resulting from scales and location of the firm's facilities. The company has also should make a careful allocation of its resources towards its international operations. It is also necessary to consider the differences in the market structure, customer needs, distribution channels and other infrastructural facilities between the domestic and international contexts. 4.1 International Context as applied to Marks & Spencer: The strategic decisions taken by Marks & Spencer in the international context is discussed below: Sale of Businesses in the United States: As a strategic move in the international context, M&S decided to dispose off two businesses in the USA, though profitable, since the company felt that those businesses did not offer the necessary platform for the future expansion of the company's business in the US. Selling of Own Stores in Hong Kong: As another strategic move the company proposed to sell all the 10 stores it owned in Hong Kong to franchisees. Since the franchisee business in more than 30 countries proved successful for the company, the company took this bold step. Closure of Continental European Subsidiaries: The Company intended to close its loss-making business in Continental Europe - France, Germany, Belgium, The Netherlands, Luxembourg and Spain, cutting down almost 3,350 jobs as the company realized that that business in that part was not successful at all. In the last three years the company lost nearly 100 million, with a clear loss of 34 in the last 12 months prior to the year 2001. However the company decided to retain and continue its business in Ireland, where it was proved very successful. Closure of Direct Catalogue Business in UK: Since the direct catalogue business incurred a loss of 38.6 million in the year 2000, M&S decided to close this loss making business at a cost of 35.5 million cutting down about 690 jobs including a dedicated call centre. In the international context globalization and localization concepts are mostly used intermittently by the firms to take advantage of the economies of scale and lower costs of production in the different locations. Although the international diversity implies a global convergence, the firm could exploit the opportunities available in the different countries for innovations and improvement in the firm's working. Similarly the organization should consider the options of various forms of integration as an approach in the industry level context which will add to the resources and capabilities of the firm. It enables the firm to have more competitive strength than what it had originally before such integration. In the organizational context the efficiency of the organization depend the experience, expertise, knowledge base and other resourcefulness of the managers who act as the business leaders of the company. Since the organizational leadership effectively controls the strategy process, the effectiveness of the strategic decisions depends on the styles of leadership and the organizational structure. References: 1.Markides, C.C (1997) To diversify or Not to Diversify Harvard Business Review Vol. 75 No. 6 pp 93-99 2.Marks & Spencer plc http://www.econ.upf.es/docs/case_studies/16.doc. 3.M.E. Porter (1987) From Competitive Advantage to Corporate Strategy Harvard Business Review Vol. 65 No. 3 pp 43-59 4.Rindova, P& Fomburn, C.J (1999) Constructing Competitive Advantage: The Role of Firm-Constituent Interactions Strategic Management Journal Vol. 20 pp 691-710 5. Rudberg, M & Olihager, J (2003) Manufacturing Networks and Supply Chains: An Operation Strategy Perspective Omega Vol. 31 No. 1 pp 29-39 6. Slater, S.F and Olsen, E.M (2000) Strategy Type and Performance: The Influence of Sales Force Management Strategic Management Journal Vol. 21 pp 813-829 Read More