Cap Gemini - recommended global strategy for 2012 2016 - Research Paper Example

? Cap Gemini - recommended global strategy for – Table of Contents 3 Introduction 3 2. Company Overview 4 3. Formulation of international strategy for 2012-2016 4 3.1 Market trends 5 3.2 Strategic analysis of Cap Gemini 6 3.2.1 Distance Analysis – CAGE Framework 6 3.2.2 The AAA Triangle Framework 7 3.3 Recommended global strategy for Cap Gemini for 2012-2016 8 4. Conclusion 11 References 12 Appendix 13 Abstract The criteria for the establishment of a firm’s global strategy are reviewed in this paper. Reference is made to a particular firm, Cap Gemini, which provides consulting and outsourcing support to firms operating in various industrial sectors. Cap Gemini is known for the quality of its services worldwide. However, the ability of the firm to handle the risks of the international market is doubted, taking into consideration the following two facts: the pressures in the global market are continuously increased revealing the risk of another recession; also, the criteria of the firm’s current global strategy are not clear; a detailed framework of action should be set regarding the firm’s internationalization. Such framework is recommended in this paper using relevant theories and models published in the literature. 1. Introduction The success of the organization in the global market is depended on its ability to identify an effective international strategy. Such strategy would allow the firm to increase its competitiveness towards its rivals and secure its position as a major competitor in its industry. In case that the entry in a particular market is attempted, it is necessary that all this market’s characteristics and risks are carefully reviewed in advance, i.e. before developing the firm’s strategy for entering the particular market (Hitt et al. 2008). Cap Gemini is a major competitor in the consulting, outsourcing and IT services industry worldwide. The firm is already member of the international market; however, the stabilization of its performance requires the change of the firm’s existing global strategy under the terms that markets worldwide suffer from strong economic and political/ social turbulences. Such perspective is made clear through the following example: in 2002 the performance of firm was reduced under the influence of the events of September the 11th (Selva 2002); the above fact revealed the lack of inability of the firm’s global strategy to face strong market turbulences. Cap Gemini, like all other international firms, needs to re-evaluate its global strategy in order to avoid the risk of unexpected organizational failures, a phenomenon that could result to severe losses. In order to understand the needs of Cap Gemini in terms of its global strategy it would be necessary to understand the context of this strategy, in its most common form. In accordance with Peng (2008) the global strategy should be described as ‘a strategy around the globe and not as the strategy of a particular multinational enterprise’ (Peng 2008, p.21). A potential international strategy for Cap Gemini for the years 2012-2016, i.e. for a four-years period, is described below. Primarily, reference is made to the market trends, meaning the industry in which the firm operates. Also, the firm’s existing position and potentials in the global market is analyzed using appropriate methods of strategic analysis. 2. Company Overview Cap Gemini provides consulting, outsourcing, IT and general professional services to firms worldwide. The firm is already well established in the global market employing 115,000 people in its units internationally. The firm is established in France but it has developed an extended network of units in most countries, including those of the Asia Pacific region and America. Among the firm’s services, those most developed are: systems integration (42%) and outsourcing (36%), see Figure 1, Appendix. On the other hand, particular emphasis is given on public sector (at a percentage of 27%), rather than on other industrial sectors, such as financial services (19%) and manufacturing (18%), see Figure 1, Appendix. In terms of geography, a centralization of the firm’s activities can be identified; indeed, a significant part of its activities is developed in France, at a percentage of 22%. In general the presence of the firm in Europe is significant, while the US market seems to be of a low importance for the firm’s growth (Figure 1, Appendix). It is clear that the firm’s existing global strategy would be reviewed aiming to reduce the excessive exposure of the organization to specific markets, meaning especially the European market, which is characterized by continuous and strong economic turbulences. The above need is further revealed through the following fact: in 2010, the firm’s profits reached the 280 million euros, compared to 451 million euros in 2008 (Figure 2, Appendix). It is clear that measures need to be taken for supporting the firm’s stabilization in the global market. 3. Formulation of international strategy for 2012-2016 3.1 Market trends The global market is characterized by economic instability and political conflicts. Global firms are likely to use strategies that are flexible so that they would be able to protect the interests of organizations in case of a new recession, which seems to be near. Firms that operate in various markets seem to face fewer risks regarding their performance; indeed, when risk is distributed among many markets, then the chances for severe organizational losses are minimized (Inkpen et al. 2006). On the other hand, outsourcing has become a common practice for most firms globally; at the same time, IT services are vital for the operation of firms in all industries (Hitt et al. 2008). In 2009, the value of the global outsourcing industry was estimated to 24,7 billion, increased at a percentage of 8% compared to 2008 (Butcher 2010). This means that the attractiveness of the firm’s services worldwide is not threatened. However, in case of severe economic turbulences the level of customer demands would be reduced. Cap Gemini needs to develop a global strategy, which will be characterized by the effective management of risk and flexibility, as suggested in section 3.3 below. 3.2 Strategic analysis of Cap Gemini As explained above, the internationalization of a firm needs to be carefully planned and monitored. The identification of the demands of the specific project is achieved by using appropriate frameworks of strategic analysis, such as the CAGE Framework (Distance analysis) or the AAA Triangle Framework, as presented below. After identifying the key elements and needs of the organizational environment, the development of an effective global strategy is made feasible, as in the case of Cap Gemini below. 3.2.1 Distance Analysis – CAGE Framework In the context of CAGE Framework, the following elements of a firm’s environment are examined: the cultural, administrative, geographic and economic distance; the term ‘distance’ is used in this case in order to show the differences between countries worldwide, as these differences can affect the performance of firms operating in the local markets. The above framework is presented in the study of Ghemawat (2010) and it can be used for assessing the potential performance of a firm that aims to enter the global market or of a firm, which is already member of this market. For Cap Gemini, the CAGE Framework could be developed as follows: CAGE Framework for Cap Gemini Culture distance Different ethics are held in societies worldwide; different approaches should be used for understanding the needs of local populations. Different role of genders is identified in the development of social and economic life in countries internationally. Administrative distance Legislation is not standardized worldwide; laws are likely to change continuously for meeting current market needs and challenges The role of bureaucracy in the development of business activity is different in each country; different standards are likely to exist in each market for the entrance of foreign firms. Geographic distance The different geographic position of countries gives them different potentials to influence the global market. Urbanization is not equally developed in countries internationally; this fact needs to be taken into consideration when having to evaluate the position of the firm’s branches within a particular country. In each country, the attractiveness of each industry is different (Porter 1987 in Lessard 2003, p.3). Economic distance Each country is influenced at a different level from the global recession. Each country does not face the same threat of a recession. The potentials of a country to support business activities is not similar worldwide being influenced by the adequacy of capital, the willingness of the government to support these efforts and the local culture/ ethics. It should be noted that for the needs of this paper, the CAGE Framework is not used for showing the potential differences in the firm’s performance in different countries but to highlight the issues that the firm’s strategic planners should take into consideration when developing the global strategy of the organization. 3.2.2 The AAA Triangle Framework The AAA Triangle Framework is based on the following rule: the global strategy of a firm needs to focus on one or more of these three options: Adaptation, Aggregation and Arbitrage (Ghemawat 2007). In Cap Gemini the role of Adaptation seems to be quite important for the development of the firm’s presence globally. Aggregation, which is related to the establishment of business units worldwide, is also used, as a strategic option, but at a lower level than adaptation. This fact reveals the centralization of the firm, which can be characterized as a country-centered organization, being based on the European rules of organizational development (as it is based in Paris), i.e. slow but continuous expansion rather than high exposure to risky and profitable business decisions. As for Arbitrage, this is another strategic option, which is not developed in Cap Gemini; indeed, the firm seems to emphasize on collaboration and communication among customers, employees and suppliers rather than on the balance between supply and demand, a key characteristic of arbitrage (Ghemawat 2007). The Triangle Framework for Cap Gemini, as reflected in the firm’s current practices, could be described as follows: The principles of Aggregation and Arbitrage are available, as elements of the AAA Triangle framework, but they don’t seem to influence the firm’s strategic priorities. 3.3 Recommended global strategy for Cap Gemini for 2012-2016 In accordance with Ungson et al. (2008) global strategic management commonly incorporates five phases: ‘understanding antecedents, analysis, choice of strategy, process and implementation’ (Ungson et al 2008, p.32). It is explained that before choosing its global strategy a firm needs to analyze its internal and external environment ensuring that all risks related to the firm’s internationalization are clear and that the chosen global strategy is the most appropriate, taking into consideration the firm’s characteristics and the resources available. On the other hand, Stonehouse et al. (2004) argue that, by its nature, the business environment is likely to be quite complex. The information available for this environment is often wide, not clear or complete. In this way, the strategies based on such information face the risk of failure, either in the short or the long term. This risk is significantly reduced if these strategies are flexible enough so that they can be changed if necessary in order to respond to the existing business environment. At the same time, Inkpen et al. (2006) emphasize on the importance of strategic alliances for the success of a firm’s internationalization. For example, Embraer, a firm operating in the civil and military aircraft industry, has effectively improved its position in the global market by developing a strategic alliance with a French consortium (Peng 2010, p.133). Hill et al. (2007) note that global strategic alliances are often the most effective way for foreign firms to enter a particular market; however, it is made clear that such plans have to be carefully reviewed especially because the characteristics of the firms involved can be highly differentiated so that their efforts for developing an effective business alliance are condemned to fail. In any case, it would be preferable for the organization’s internationalization to be based on one strategy, i.e. to avoid targeting different parts of the global market (either geographically or economically); in this way, the chances for success of the firm’s global strategy are increased. The above view is based on Porter’s generic strategies framework; this framework promotes the idea that when referring to an organization’s strategic planning, ‘behavior should be directed toward only one strategy, in order to avoid becoming ‘stuck in the middle’’ (Porter 1980, in Rugman et al. 2005, p.4). At the same time, the competitive scope, i.e. the targets of the organization as a member of the global market, need to be clearly defined in advance, before developing the firm’s global strategy. Different approaches are likely to be adopted for achieving specific strategic targets; for instance, when global consistence is set as the priority of a firm’s global strategy, then a Global Customer Management plan could be established for improving the communication between the firm and its customers in the international market (Yip et al. 2007). It is also necessary that the chosen global strategy is consistent, so that risks for major organizational failures are minimized (Yip et al. 2007). Taking into consideration the above issues and the findings of the firm’s strategic analysis, as developed above, it is concluded that the firm’s global strategy would be structured as follows: Recommended Global Strategy for Cap Gemini 1 2 3 4 5 6 7 4. Conclusion The development of firms in the international market is a challenging task; usually, the global strategies involved are proved to have gaps and weaknesses, which negatively influence the efforts of the firms to stabilize their position worldwide. In the case of Cap Gemini the following problem seems to exist: the firm is proved to be unable to face the global economic pressures, as revealed through the significant reduction of its profits in 2010 – compared to 2008. The introduction of a dynamic and flexible, as the one suggested above, would offer to the firm the following benefits: its global strategy would not be standardized; in this way it could be periodically changed for meeting the market needs but also for adopting innovative practices. At the next level, such strategy would allow the firm to increase its competitiveness and make its brand name more popular, as new markets will be reached. Finally, the particular strategy would offer to the firm the following advantage: the resistance of the firm towards the market pressures would be increased. At the same time, the firm’s customer base would be expanded, a fact that could benefit significantly the organization’s profitability. References Butcher, D. (2010) 2010 Global Outsourcing Trends. Thomas Net News, online, available from < http://news.thomasnet.com/IMT/archives/2010/02/2010-global-outsourcing-trends.html> Ghemawat, P. (2007) Redefining Global Strategy. Boston: Harvard Business School Press. Ghemawat, P. (2007) Managing Differences. The Central Challenge of Global Strategy. Harvard Business Review, pp.1-13 Ghoshal, S. (1987) Global Strategy: An organizing framework. Strategic Management Journal, vol. 8, pp.425-440 Hill, C., Jones, G. (2007). Strategic Management: An Integrated Approach. Belmont: Cengage Learning. Hitt, M., Ireland, D., Hoskisson, R. (2008). Strategic management: competitiveness and globalization: concepts & cases. Belmont: Cengage Learning. Inkpen, A., Ramaswamy, K. (2006). Global strategy: creating and sustaining advantage across borders. New York: Oxford University Press. Lessard, D. (2003) Frameworks for Global Strategic Analysis. Journal of Strategic Management Education. 1(1): pp.1-12 Peng, M. (2010). Global Business. Belmont: Cengage Learning. Peng, M. (2008). Global Strategy. Belmont: Cengage Learning. Rugman, A., Verbeke, A. (2005). Analysis of multinational strategic management: the selected scientific papers of Alan M. Rugman and Alain Verbeke. Cheltenham: Edward Elgar Publishing. Selva, M. (2002) Global markets - Europe: Cap Gemini starves in technology drought. Citywire, online, available from < http://citywire.co.uk/money/global-markets-europe-cap-gemini-starves-in-technology-drought/a234794> Stonehouse, G., Campbell, D. (2004). Global and transnational business: strategy and management. Hoboken: John Wiley and Sons. Ungson, G., Wong, Y. (2008). Global strategic management. New York: M.E. Sharpe. Yip, G., Bink, A. (2007). Managing Global Customers: An Integrated Approach. New York: Oxford University Press. Appendix Figure 1 – Revenues in Cap Gemini (source: Cap Gemini, 2011, Investors) Figure 2 – Cap Gemini, 3 – years performance (source: Cap Gemini , 2011, Investors) Read More