The Buzzword of Todays Business Environment - Essay Example

The Buzzword of Today’s Business environment Introduction The buzzword of today’s business environment is dynamics or processes of change in organizations and their management. In order to create competitive advantage in a changing environment, organizations have to focus on building core competence and transferring them between various business units. The resources continue to hold the potential to lead to such competitive advantages. Property assets such as land and buildings are a key resource for all types of organizations. In the following section we will see the how the resources in the form of property are strategically managed. Strategic Management Strategy A strategy begins with a concept of how to utilize available resources of the firm most effectively in a changing environment. Glueck (1988) defines strategy as a “unified, comprehensive and integrated plan, relating the strategic advantages of the firm to the challenges of the environment. It is designed to ensure that the basic objectives of the enterprise are achieved.” Johnson & Scholes (1993) effectively summarized all the features of strategy as "the direction and scope of the organization over the long term: ideally which matches its resources to its changing environment and in particular its markets, customers, or clients so as to meet stakeholder expectations." Mintzberg (1983) provides five definitions of strategy: i. Plan- Strategy is a plan, made in advance of the actions to which they apply, and they are developed consciously and purposefully. ii. Ploy- Strategy can be a ploy intended to outwit an opponent or competitor. iii. Pattern- Strategy is a pattern in a stream of actions. iv. Position- Strategy is a position used as a means of locating an organisation in an "environment". v. Perspective- Strategy is a perspective, consisting not just of a chosen position, but of an ingrained way of perceiving the world. The above definitions point out that strategy is a plan that ties all the parts of the enterprise together, covers all major aspects of the enterprise and all parts of the plan are compatible with each other and fit together well. Strategic Management Strategic management is a set of management decisions and actions that determines the long-run performance of a corporation. Wheelen & Hunger (2003) describe strategic management as “that set of managerial decisions and actions that determine the long run performance of a corporation. It includes environmental scanning (both external and internal), strategy formulation (strategic or long-range planning), strategy implementation and evaluation and control.” Strategic management is defined by Chandler (1971) as “the determination of basic long term goals and objectives of an enterprise and adoption of course of action and allocation of resources necessary to carry out these goals.” The evolution of strategic management is shown in the following figure: Figure1- Evolution of strategic management Mintzberg (1998) has located 10 ‘schools’ of strategy research which have developed from the emergence of strategic management as a field of study during the 1960s. The ten schools are as follows: 1. The design school - Strategic management is a process of attaining a fit between the internal capabilities and external possibilities of an organisation. 2. The planning school - This school supports the virtues of formal strategic planning and arms itself with SWOT analysis and checklists. 3. The positioning school - The thoughts were heavily influenced by the ideas of Michael Porter and emphasize that strategy depends on the positioning of the firm in the market and within its industry. 4. The entrepreneurial school- The central role played by the leader is stressed upon in this school of thought. 5. The cognitive school- This school looks inwards into the minds of strategists. 6. The learning school- The school upholds that strategies emerge as people come to learn about a situation as well as their organization’s capability of dealing with it. 7. The power school- This school of thought supports the view that strategy emerges out of power games within the organisation and outside it. 8. The cultural school- According to this school, strategy formation is a process rooted in the social force of culture. 9. The environmental school- The supporters of this school believe that a firm's strategy depends on events in the environment and the company's reaction to them 10. The configuration school- The school opines that strategy is a process of transforming the organisation and describing the relative stability of strategy, interrupted by occasional and dramatic leaps to new ones. The ten schools of thoughts can be, thus, shown as follows: Figure 2- Ten schools of strategic thoughts In the early 1980s, Peters & Waterman (1982) developed the McKinsey 7S framework. The basic premise of the model is that there are seven internal aspects of an organization that need to be aligned if it is to be successful. The 7S model can be used in a wide variety of situations where an alignment perspective is useful, for example to help you: Improve the performance of a company; Examine the likely effects of future changes within a company; Align departments and processes during a merger or acquisition; or Determine how best to implement a proposed strategy Figure 3- McKinsey 7S framework New Paradigm: Resource-Based Theory The currently dominant view of business strategy is “resource-based theory”. It highlights the need for a fit between the external market context in which a company operates and its internal capabilities. According to this view, a company's competitive advantage derives from its ability to assemble and exploit an appropriate combination of resources. The most important milestone in competitive advantage studies is related to Porter’s idea of value chain’ proposed in the 1980s (Porter, 1980). According to his approach, the study of strategy must rely on three elements: the external environment, the firm’s behaviour, and the market results that the firm obtains in implementing its strategy. The successful market position that firms can gain is the result of two factors: the industrial environment and the position assumed by the firm inside the market. Porter’s model is as follows: Figure 4- Porters 5- Force Model Strategic leadership The organizations can achieve their strategic objectives only through efficient strategic leadership. Strategic leadership provides the vision, direction, the purpose for growth, and context for the success of the corporation. It implies responsibility for achieving the right balance between the whole, i.e. organizational needs, and the parts. Adair (2003) maintains a “high doctrine of strategic leadership,” which, he argues, is the legitimate leadership “role” discharged by the individual leader. This role contains a set of core functions, and the leader must possess or develop the ability to discharge them. The following figure shows the three core functions of the strategic leader. Figure 5- Core functions of the strategic leader According to Adair, the functions of a strategic leader are given below: 1. Purpose / Vision: to provide direction for the organization as a whole 2. Strategic Thinking and Planning: to get strategy and policy right 3. Operational / Administration: making it happen (overall executive responsibility) 4. Organization Fitness to Situational Requirement: organizing or reorganizing (balance of whole and parts) 5. Energy, Morale, Confidence, Espirit de corps: releasing the corporate spirit 6. Allies and Partners, Stakeholders, Political: relating the organization to other organizations and society as a whole 7. Teaching and Leading the Learning by Example: choosing today's leaders and developing tomorrow's leaders Property as a strategic asset Kay (1993) refers to four types of general competence that an organization may possess: architecture (the ability to be creative and manage change), reputation, innovation and control of strategic assets. Among these, control of strategic assets is always ignored. Assets are perceived to be strategic if they are grounds for establishing a firm's competitive advantage. The search for and creation of competitive advantage is a prerequisite for a company to be confident in delivering sufficient value to its stakeholders. A strategic asset is defined as “something that is available for the firm at some place(s), and may be tangible as well as intangible” (Sanchez, Heene & Thomas, 1996). The strategic assets are of two types, namely: Tangible resources such as physical assets (land, buildings, raw materials, facilities, etc.) that can be easily accounted for in financial plans. Intangible resources like know-how, brand name, and the firm’s reputation. Property- a strategic asset Property is, according to Edward & Ellison (2004), any asset held as: An investment- The property is expected to earn a rate of return on capital employed for the holder and, particularly in the case of free-hold or long term ownership (such as long leasehold), appreciate in capital value. An operational asset- This property, also known as corporate property, supports of the business occupying the property. Property is a strategic asset that has been increasingly recognized as a key resource which, if well managed, contributes to an organization's success. The business derives value from property in the following two can come from two main scenarios: i. Alternative use- The organization own property with higher alternative use value. This may greatly exceed the value that it is gaining from the operation of the core business on the site. For example, many long established manufacturing companies may find their sites, often near city centres, becoming more valuable for other uses such as retail and residential. In these scenarios, if the facility is still required, developers will often provide alternative (more modern, better) facilities for the occupier, and limit operational down-time, as part of the deal. ii. Property disposal- Provided the business does not require the advantages that freehold ownership can offer, and then it may be worthwhile considering a sale. The need for additional cash, as well as the effects on financial statements and key ratios, may determine the best way forward. Some of the options include traditional sale and leaseback, structured sale and leaseback, and debt finance. Strategic property management Managing property involve establishing goals, objectives and policies and implementation of strategies to achieve those goals and objectives. According to Singh (1994, 1996) property management is “an activity that seeks to control interests in property taking into consideration the short and long term objectives of the property owner and particular purpose for which the property is held.” From practical perspective Wong (1999) considers property management as “the work carried out to manage and maintain the development including its facilities at the level that will retain or enhance the value of the development, create a safe, functional and conducive living environment for occupants, keep or restore every facility in efficient working order and in good state of repair, and project a good appearance or image for the development.” Avis, Gibson & Watts (1989) identified a number of fundamental issues which needed to be addressed, in their study of operational property assets for all sectors which are as follows: Do objectives for operational property exist and how are they linked to overall organizational objectives? How are these property objectives put into action? What monitoring is being undertaken to ensure that objectives are being achieved? What information is available to support both the management of the operational property and the required monitoring? It is also important to note that the goals of real property asset management in the business organization and government are somewhat different. Strategic property management in business organizations Ansoff (1987) has characterized a business as being an economically or 'money' motivated purposive social organisation, having a set of objectives or purposes which are identified explicitly in a firms business plan or implicitly through the past history of the organisation and the individual motivations of the key personnel. The result of the endeavours of the business is commonly profit, which is the excess of returns to the firm over the costs incurred, this being, in Ansoff's view, the measure which distinguishes a business from other forms of social organisation such as the government, the church, the armed forces, non-profitmaking foundations etc. The differences between these two organizations, adapted from Rowe et al. (1993) are given below. Figure 6- Contrasts between Profit-Seeking and Not-for-Profit Organizations Functions Business organization Not- for-profit organization 1. Mission setting responsibility 2. Measures of performance 3. Need for change 4. Control systems 5. Life cycle 6. Government regulations CEO/ Main Board Return on investment, Market shares Adaptation to market forces Budget Organizational changes Response to regulatory agencies and legislation Legislation/ Committee Improvement in quality life Consumer pressure requirements, Legislation Stakeholders Reaction to social needs Response to political direction To achieve higher corporate performance - whether measured in terms of shareholder value, revenue growth, profitability or customer satisfaction - companies are doing the following: Companies are more focused on managing the interdependencies between the different types of assets that drive their operations and were previously viewed as functioning separately and independent from one another. Companies are recognizing the need to manage assets from a strategic perspective across the entire organization, rather than purely from a maintenance perspective. Exactly which assets are considered strategic differs by company and industry; however, managing critical assets to optimize their value is universally important. Accomplishing this by integrating and synchronizing management practices, both at a strategic and tactical level, across multiple types of assets and across the entire enterprise is the essence of Strategic Asset Management. Strategic property management process Innovative companies know what they want from property in terms of location, operating environment and financial returns. They recognize the role that the right property can play in improving operational performance and shareholder value, attracting the right staff, encouraging business change and even fending off unwanted predators. Every firm should challenge how well their own property contributes towards, and helps underpin, these business goals. The property asset management process delivers through the following key stages: 1. Strategy – setting out the strategic framework by identifying the corporate and service aims, objectives, standards and constraints. 2. Evaluation – understanding the supply and demand models for land and property and prioritizing within the strategic framework. 3. Planning – taking the priorities and carrying out option appraisals to identify and plan actions and the procurement of project resources. 4. Delivery – carrying out the investment and disposal plans. 5. Performance – measurement of both the product (assets) and processes for internal and external benchmarking. Who Manages Property? The role of property management is very much a matter of perspective, as any good property administrator will quickly confirm. Within private industry, the property folks may (depending on the company) report to the finance, materials, contracts, facilities, or operations directorates. Again, depending on the company, they may report directly to the vice president or director level or they may be parked in an obscure corner of the organization’s hierarchical chart. Companies that realize the benefits and value of managing the asset have property managers at the director level and in their corporate offices. Their primary mission is to coordinate the property management activities across the company’s divisions, in much the same way that a corporate human resources director or finance controller interacts with the divisions now. Strategic Property Asset Management – Links to Other Assets Property assets have relationships to other assets. These relationships are external and internal. These relationships need to be understood, since whilst there are clear positive outcomes from harnessing the links, there are negative interactions affecting other assets which can compromise wider performance improvement. Decision makers need to be able to consider the wider organizational implications of options and choices. Given the move to more partnership and collaboration this is increasing complexity and choice. The external relationships are principally about how they relate to assets held by other organizations, the understanding of which may expose (say) opportunities for rationalization, cost sharing and service improvement. This is particularly relevant with the increasing emphasis on collaboration and partnership and multi-agency working. Also, in organizations where property has been customarily “held” by departments, it may be helpful to approach opportunities from an external perspective. This is to acknowledge the complicated relationships between assets and users - whilst it may be self evident that property is corporately owned, it is often helpful to set this in the context of a wider public realm. The internal relationships are about the relationship of property assets to other organizational assets. Some of these relationships are well understood by most, but it is rare for the significance of all relationships to be identified in the planning process. It is as much about risk management as it is about asset management. These property asset relationships are to: People - staff who work in/use the property; Finances - cost and opportunity cost; Reputation – negative and positive contribution. Strategic property management - is it worth doing? Property management today has evolved from control and accountability of assets to a much more complex and technically challenging field. Many companies today are viewing themselves from their stock investors’ perspective along with the more traditional methods. Property has a direct impact on these calculations. Companies employing a value based management measurement process usually have senior management bonuses tied to an economic index. Inadequate attention to property has a direct, decidedly negative—and often masked—double impact on this index. Excessive capital and/or ownership costs adversely impact the index and therefore the bonuses. To gain a competitive advantage in the new global marketplace, companies have downsized, right sized, merged, partnered, and outsourced. They’ve implemented process and quality improvement programs to support their strategic and operating goals: total quality management, just-in-time inventory control processes, lean manufacturing, theory of constraints, Kanban, six sigma process improvement schemas, value based management. All of these, and the many other improvement programs not mentioned here, are specifically focused on the capital and human resources. Until now property has remained essentially unexplored. The strengths of the concept of strategic management are as follows: 1. releasing capital funds for re-investment or debt reduction 2. improving the range of services 3. increasing civic pride 4. empowerment of communities and citizens 5. increasing service delivery through co-location of services 6. improving the quality of property 7. reducing the annual running costs 8. aligning assets and with locally agreed objectives 9. reducing the required level of maintenance 10. leverage for private sector funding. The weaknesses or rather the inconveniences related to the management of property are the extensive and diverse legal and statutory obligations. For example, environmental legislation continues to tighten. And the simple mantra is that ‘the polluter pays’ for contamination costs. The organization could be liable for expensive clean-up costs, if its causes contamination of the surrounding environment. There are already acts and regulations which need to be complied with respect to the physical fabric of the building are already broad in scope- ranging across issues as diverse as asbestos, disability discrimination, fire prevention, glazing, health & safety, lighting – and many impose immediate obligations and actions on occupiers. Zeckhauser & Silverman (1983), in an extensive study of United States corporations, concluded that the majority of commercial organizations’, and therefore by inference a greater majority of NFP organizations, did not actively manage their property assets, considering them to be an unavoidable overhead. These bodies justified their inattention to property as "we're not in the real estate business" but by default were obliged to accept needless costs. Conclusion The property resource, in the same way as human, financial and information resources contribute to the success of these organizations and need to be effectively and efficiently managed. These property assets have to be professionally managed to ensure that the asset value is maintained. If the property function is to be significant in the strategic management process the following need to be in place: 1. an appreciation of the direct influence of property upon standards of operational delivery 2. an awareness of the significance of property as a capital asset and as a cost centre which ultimately precludes some alternative expenditure on operational activities 3. an acceptance that effective property management requires the application of professional skills at an appropriate level of seniority and influence within the organisation 4. an understanding that as the operational objectives and activities evolve and change so must the property resource be adaptable to meet changing needs. 5. an acknowledgement that property can be a restraining force as well as a positive agent of high standards of service delivery as the rigidity of the physical form of property and the prolonged nature of the transaction process may impede operational change and development The core of property management may thus involve the management of the physical asset, which include maintenance; organizational user management, which include space management or user requirements; and financial management, which include property valuation, acquisition and disposal, property investment management and tenancy management. Property is frequently one of the major resources and assets of these organizations and requires to be integrated into the strategic management process if it is to have a positive effect upon performance and the realization of key objectives. With the pressure on organizations, to deliver ever higher quality services at an even lower cost, property must be considered as a significant element on both sides of the formula, quality and cost. Bibliography 1. Adair, J. (2003) Effective Strategic Leadership- America’s Best-Run Companies. HarperCollins Publishers, London. 2. Ansoff, I. (1987) Corporate Strategy. Revised Edition, Penguin Business Books. 3. Avis, M., Gibson, V. & Watts, J. (1989) Managing Operational Property Assets. Department of Land Management, University of Reading. 4. Bootle, R. & Kalyan, S. (2002) Property in business; A waste of space. RICS, London. 5. Chandler, A.D. Jr. (1971) Chapters in the history of industrial enterprises. p.13 6. Edwards, V. & Ellison, L. (2004) Corporate Property Management: Aligning Real Estate with Business Strategy. Blackwell Publishing. 7. Glueck, W.F. (1988) Business Policy and Strategic Management. Mc-Graw Hill International Edition, p.5. 8. High Performing Property, Office of Government Commerce (OGC) publication, published in November 2006 (HPP). Available from http://www.ogc.gov.uk/ [Accessed 14 October, 2008]. 9. Johnson, G. & Scholes, K. (2002) Exploring Corporate Strategy: Text and Cases, Sixth Edition, FT Prentice Hall. 10. Kay, J. (1993) Foundations of Corporate Success. Oxford University Press Mastering Strategy, University of Chicago, INSEAD, University of Michigan. 11. Mintzberg, H. (1983) Structure in 5's: Designing Effective Organizations. New York, Prentice Hall. 12. Mintzberg, H, Ahlstrand, B. & Lampel, J. (1998) Strategy Safari, FT/Prentice Hall, p.3. 13. Strategic Asset Management Guidance: Improvement through efficiency. November 2007 [Accessed 15 October 2008]. 14. Peters, T. & Waterman, R. (1982) In Search of Excellence, HarperCollins, New York. 15. Porter, M.E, (1980) Competitive Strategy, New York, Free Press, p.3. 16. Rowe, A.J, Mason, R.O, Dickel, K.E, Mann, R.B. & Mockler, R.J. (1993) Strategic Management, A Methodological Approach. 4th. Edition, Addison Wesley. 17. Sanchez, R., Heene, A. & Thomas, H. (1996) Dynamics of Competence-based Competition. Oxford, p. 1 – 35. 18. Singh, G. (1994) Re-engineering Property Management: Sustaining Asset Value Through Effective Property Management. Conference Property Maintenance and Management in the 90's 30 - 31 May 1994 Kuala Lumpur Malaysia. 19. Singh, G. (1996) Property Management in Malaysia. Federal Publications, Malaysia, p. 4. 20. Wheelen, T.L. & Hunger, J.D. (2003) Concepts in Strategic Management and Business Policy. 8th edition, Pearson Education, p.3. 21. Wong, K.S. (1999) Property Management in Private Practice. unpublished lecture notes, Kurus Pengurusan Hartanah dan Faciliti 20 - 23 September INSPEN, Malaysia. 22. Property for business An essential guide for senior executives. Available from [Accessed 16 October, 2008]. 23. Zeckhauser, S. & Silverman, R. (1983) Rediscover your company's real estate Harvard Business Review Jan- Feb, p.111-117. Read More