Big Is Back The Return of Corporate Giants - Case Study Example

Big is back – the return of corporate giants Introduction Yet again the big corporate giants are back with greater emphasis on hitherto neglected environmental factors. In fact most of the big companies are performing better with efforts on minimizing production costs and gaining competitive advantages compared to smaller companies. There is both theoretical and empirical evidence that indicates this change in the corporate environment. For instance big companies could achieve corporate goals by manipulating environmental factors and their impact on corporate strategy with enhancing particular skills and talents of managers and employees to align its business strategy with the competitive pressures of the time (Hoffman, 2000). This paper investigates the effect of those environmental factors on the business structures and strategy of big corporate entities. Further it examines the strategic tactics available to business entities in the process of corporate planning and policy making and also focuses attention on the strategic importance of the changes that are taking place against the now in vogue phrases like “big can be beautiful”. Analysis The Economist magazine on the 27th of August 2009 carried a lead article eulogizing the hitherto undiscovered merits of corporate giants that were defensive during the past decades and now are staging a comeback because they have a set of advantages associated with their size and the subsequent competitive strategy to survive in a much more competitive environment (www.economist.com). These environmental factors invariably play a very significant role on the corporate structure, strategy and, the policy making environment of the big companies. While modern management theory basically emphasizes the importance of creating manageable structures within the organization, the empirical evidence suggests that complex and big organizational structures are able to withstand the competitive pressures much better than hitherto thought of. The modern corporate entity according to Pearce and Robinson is more focused on developing competitive advantage against rivals and therefore some principal external environmental factors such as those related to the external operational environment of the business organization (Pearce and Robinson, 2002). Though these environmental factors are nothing new in comparison to the PESTLE – political, economic, social, technological, legal and environmental - the authors have successfully suggested a theoretical basis for those significant environmental factors so that the business organization functions in conformance with predefined corporate goals. Despite the fact that organizational theory enables managers to understand the nature and the extent of the effect that environmental factors have on business entities, there is much less emphasis on the practical nature of them. Pearce and Robinson particularly identify five such principal environmental factors. Labor markets Pearce and Robinson argue that labor markets have a very significant impact on the modern business organization because labor is not only provided by humans unlike other factors of production but also is subject to changing demographic trends such as a rise or a fall in the population. Therefore labor markets could affect the business organization’s activities in a number of ways. Unlike other markets labor markets tend to influence corporate decisions in a very strange way. For instance the substitution effect between labor and capital in industry can be far more complex than can be imagined. In other words the authors convincingly argue that this particular external environmental factor influences the size of the organization to a greater extent. The resultant outcome is that given the way in which labor markets operate according to demand and supply forces, the equilibrium level is determined by trade unions to a certain extent (FinlayWilliam Finlay (Author) › Visit Amazons William Finlay Page Find all the books, read about the author, and more. See search results for this author Are you an author? Learn about Author Central & Coverdill, 2002). According to the authors smaller organizations cannot successfully obviate the negative consequences of trade union actions. It’s the big business organization that is able to deal with such labor problems as retraining and job placement rather than the smaller one. In order to set up and maintain well manned skills training & development (T&D) departments within the organization, a lot of resources have to be committed. That’s why small business are beset with such perennial problems like absenteeism, redundancy and lower productivity. Customers Customers are not only the basic source of sustenance for the business organization but also the most important determinant of its business strategy. Therefore customers also have a big impact on the structure of the organization by way of external communication and customer relations programs. Only the big business organizations can afford to devote a significant amount of resources, time and effort to maintain customer satisfaction and retention programs. In fact customer satisfaction could be achieved with proper involvement of internal customers, i.e. employees. Business organizations of all sizes depend on their customers’ critical perception in deciding the corporate strategy and production policy (Stone & Foss, 2001). For example it’s not lost on business owners that the cost of retaining existing customers is less than winning over new customers. Further customers according to Pearce and Robinson are strategically important to the business organization’s product diversification strategy. Thus only big businesses can spend on research and development (R&D) to take better advantage of the e-commerce related benefits. Competitors Competitors not only play a very important role in determining the corporate strategy and policy planning process of the business organization but also influence the organization in a manner that almost forces it to adopt non-scale economies related growth strategies such as mergers with and acquisitions of strategically critical businesses like suppliers. The constantly changing competitive environment forces the organization to adopt strategically significant tactics that would give it an edge over rivals. The competitive advantage acquired through such mergers and acquisitions facilitates the business organization to stay ahead of present or potential competitors in the market. Thus the evolving uncertainty of the market environment compels small organizations to expand or altogether to stop operations. The corporate strategy and structure of the big corporate entity is more likely to withstand successfully the changing competitive environment. The authors have suggested that the dichotomy of the policy framework as decided by the nature of competition and the need to expand has better helped the big organizations to face competition while the small organization is at a clear disadvantage because of its internal organizational structure’s inadequacy and inefficacy. Suppliers According to Pearce and Robinson supplier networks have a significant impact on the corporate strategy and structure. The directional thrust of supplier networks might determine the very nature of the organizational strategy and related policies. For instance supplier networks would help business organizations to implement business strategies and therefore suppliers as a group of stakeholders tend to influence and impose conditions on corporate entities up to some extent. Big businesses have to procure supplies from suppliers in the open markets where rules of competition might threaten businesses’ own strategic objectives as well as others. Supply chain management processes have become much more complex and diverse since the days of Michael Porter. According to the authors simple models aren’t appropriate any more. Supply chain management processes now require not only strategic planning and accurate execution but they also require proper coordination with other departments to implement the overall corporate strategy with a clear focus on goals. Thus it’s obvious that only big corporations are able to undertake such large scale supply chain management activities Big business organizations have much more power to influence suppliers’ activities and it is better to review supplier performance in regular intervals. Thus suppliers tend to change their business strategy with respect to particular demand levels coming from the firms and subsequently suppliers would assert power in relation to the organization’s growing demand for their products. In other words the more the organization depends on suppliers the more powerful the latter become and thus only the big business organizations have the capacity to survive in extreme circumstances. Creditors Big business organizations can raise credit with much less hassle than smaller firms. Institutional and the non institutional creditors both prefer to lend to big organizations because of the security perception. In spite of the diversity and the complexity of sources of credit that are available to the average business organization this trend can be noticed concerning both the direction and the amount of credit flow. Many big businesses depend on institutional creditors such as commercial banks, building societies, employees’ provident funds and so on to a considerable extent due to the fact that the former are unable to initiate big changes without fund commitments stretched and planned for a longer period ahead. Institutional lenders have the expertise and capacity to commit themselves to such sustained lending programs while at the same time they look cortically at the ability of repayment. Only big businesses can do so. PESTEL analysis The PESTEL environment of big business organizations so far has been characterized by predominantly political, economic, technological, regulatory and environmental influences (Bennett, 1996). Analysis of external environmental influences on big business organizations is important in determining its corporate strategies and policies. The following study of PESTLE factors in the macro environment of the business organization would show how they affect the decision making process of the management of big business entities. The growing body of modern opinion suggests that only big business organizations can benefit from these PESTLE factors. Political factors Big business organizations have been exposed to a very high level of political outcomes in the world. Its strategic external environment is subject to a series of ups and downs and global markets have exerted a lot of political pressure on management of the big businesses. For instance political developments including degree of government intervention, economic policies, political decisions on workforce and infrastructure changes can have an impact on corporate strategy and structure of the business organization. Thus the outcomes can be examined with a reference to the current internal management structures because they are becoming flatter in order to meet the challenges forced by political pressures. The European political landscape has changed with respect to attitudes towards big business. The corporate entity is no more a burden on the government’s policy planning task because every business organization has a very strong desire to continue operations though the severity of external environmental influences would heavily impact on the organization’s ability to survive. In this respect the internal corporate structure matters as much as the strategy related capabilities matter. For example the privatization programs of the successive British governments have transformed loss incurring government corporations in to modern public limited companies. The organizational structures of these corporate entities have been transformed over time in the process and it is much flatter horizontal hierarchies with much less number of layers from top to bottom. In fact both the management structure and the policy decision making hierarchy have become shorter. The external political pressures have ceased on the internal management and strategy. However according to modern management gurus business organizations grow with time and space mostly disregarding a political environment due to the competition related requirements. Economic factors Economic implications have telling impact on big business operations. However its growth trajectory can be influenced by the macro-economic policy mixture of particular government. For example monetary policy measures were adopted to curtail money supply and similarly national minimum wage policy would impact on operations. According to the big can be beautiful concept most of the corporate giants are back to the market and becoming more popular because their survival is directly related with new mergers and larger proportion of deals rather than the other factors. Thus small to medium business organizations have been identified as economically unproductive in times of economic recessions due to their excessive dependence on internal organizational capabilities leads to poor decisions. Only big business organizations can overcome these challenges. Social factors Social changes resulting from the admission of many East European countries in to the EU membership also have had an impact on its operations of big businesses. These macro level societal changes inevitably impact on the organization’s corporate strategy and structure. Big organizations have been well known to accommodate cultural influences into the organizational setting without much strain on resources and operations while small organizations have been grappling with the EU expansion related realties. As the Economist points out there is much less capacity in smaller organizations to adapt to this mega event. Technological factors However it is the technological environmental influences that have impacted heavily on the organizational goals and outcomes of the modern business organization. Particularly the operations need to be updated in keeping with competitors’ moves. Modern equipment costs dearly when innovative approaches are put in place. The big organization has the resources to meet these new challenges. Maintaining a separate department would cost dearly and thus the organization’s capabilities would be decided primarily by the technological innovations that the management is able to put in place. Legal or Regulatory factors Legal/regulatory environment has been perhaps one of the most significant factors that impacted on big businesses strategic corporate environment – strategic competitive and strategic operational environments – to such an extent to bring about what could be described as a virtual war of strategic response to regulatory regimes. Regulatory environment has had a telling impact on business operations though such regulations often have the desirable effect of quality improvement and cost reduction too. Regulatory regimes sometimes act as catalysts of positive change. For example regulations related to the quality of service could be considered as one of the best opportunities to establish critical success factors. Big corporations have the resource capability to meet these new regulatory challenges. Environmental factors Business environment of big businesses are also characterized by a greater degree of involvement in promoting corporate sustainability programs outside its day to day operations (Esty & Winston, 2009). For example corporate giants have been influenced by its stakeholders to interact on environment related problems such as climate change and greenhouse effects. Therefore big businesses so far have successfully avoided controversy by focusing on environment related issues as one of their corporate sustainability programs. These costly programs cannot be adequately designed and implemented by small organizations. Conclusion Big business organizations are equipped to face the transient nature of the corporate environment better than smaller firms. The corporate strategy and structure of the big organization are well suited to overcome the difficulties that are naturally associated with the modern business environment. External environmental influences as demonstrated by Pearce and Robinson thus favor the corporate giant more than the small organizations. From customers to competitors and suppliers to labor markets all favor the big company. Similarly the PESTLE related outcomes favor the big organization more than the small ones. Political and economic developments as are now seen in a recession-hit competitive environment have been severely negative on small businesses while big business organizations have been able to overcome them at least to a certain extent by adopting the type of strategic decisions and polcies that adequately identify the nature of the problem and develop solutions against the evolving backdrop of corporate failures. . REFERENCES 1 ‘Big is back, the return of the corporate giant’, the economist, viewed November 19, 2009 www.economist.com. 2 Bennett, R 1996, International Business: Economic, Political, Legal & Cultural Influences, Trans-Atlantic Publications, Philadelphia. 3 Esty, D & Winston, A 2009, Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Wiley, New Jersey. 4 FinlayWilliam Finlay (Author) › Visit Amazons William Finlay Page Find all the books, read about the author, and more. See search results for this author Are you an author? Learn about Author Central , W & Coverdill, JE 2002, Headhunters: Matchmaking in the Labor Market, ILR Press, New York. 5 Hoffman, AJ 2000, Competitive Environmental Strategy: A Guide To The Changing Business Landscape, Andrew J. Hoffman (Author) › Visit Amazons Andrew J. Hoffman Page Find all the books, read about the author, and more. See search results for this author Are you an author? Learn about Author Central Island Press, Washington. 6 Pearce› Visit Amazons John A. Pearce Page Find all the books, read about the author, and more. See search results for this author Are you an author? Learn about Author Central , JA & Robinson, RB 2002, Strategic Management, McGraw-Hill Education, New York. 7 Stone, M & Foss, B 2001, Successful Customer Relationship Marketing, Kogan Page, London. Read More