Structure and Performance in a Transition Economy - Case Study Example

?Strategic Leadership in Changing World Affiliation INTRODUCTION Paradox strategy supposes that if organization want to win bigit should entrust big, but when it commits big it create the risk of losing big. It holds that the promise of extreme success creates the chances of extreme failure that means higher benefits come at the price of higher risks. The pure strategies described by porters imply not only a high chance that come at the price of higher risks, but also imply a higher chance of bankruptcy (Eldring 2009:16). Thus, the vital factor why so many firms are not committed to one of the generic strategies is risk involved and incapability of managers to change the strategic plans to the most profitable one. The paradox strategy is explained further by the porter’s assumptions about the significant of generic strategies and Raynor assumptions that these strategies have a higher risk of bankruptcy (Eldring 2009:17). Hamel assumes that strategy is a stretch that considers the essential paradox on the leadership that cannot be entirely planned and does not occur in the lack of a clearly spoken and widely shared aspiration. Organizations with hybrid strategies may not be successful in the industry, but they lower risk of running into financial crisis. This is the essence of the strategy paradox and complementation to Porter’s findings, who did not take the risk variable into account. Organizations with hybrid strategies are much less exposed to strategic uncertainty than the organizations with pure strategies. Porter argued that it is an unwillingness to make choice that organization choose for a hybrid strategy, but rather a diverse and risk averse approach can be risk in the organization (Porter, 2008:26). Meanwhile, market based view on the work of Michael porter will be discussed and it assumes that profitability is established mainly by the structure of the industry in which the company operates. The industry structure is evaluated based on the five-force framework. Consequently, the RBV strategy is associated with the works of Hamel that focuses on the competitive advantage in the organization, but use an inside out approach. Meanwhile, it is the starting point for organization’s internal environment and is viewed as the alternative perspective to Porters five forces framework that considered as the industry structure (Delfmann 2005: 226). PORTER (MBV) Porters argue that industry structures within organization are positioned against structure that determines how profitable individual firms should be. In the MBV framework, it is a critical task to analyze the industry structure to establish an ideal positioning and align value chain positioning in the organization (Delfmann 2005: 226). Porter identified three generic strategies that include differentiation, cost leadership and concentration on selected areas to explain its positioning strategy. Thus, the significant critique of the MBV is based on its outside in perspective because it does not consider company internal aspect. Porters point out that the MBV has the significant impact on the strategic business unit level. He argues that this approach provides an efficient model of evaluating the nature of competition within an industry. Based on the MBV perspective, competitive advantage arises from an organizational dominance position within its industry. Thus, organizations can achieve a dominant position by employing a generic strategy (Weigl 2008: 90). The organizations with this dominant position produce monopoly rents since they thrived in restraining productive output. Porter argues that monopoly rents can be produced by intentionally restricting output in respect to competitive levels. Meanwhile, it can include the analysis of behavior and in respect to market position of competitors. The MBV helps the firm to position in its environment, create barriers for competitors, and protects its business. Therefore, the organization can exercise market power and earn monopoly rents. Meanwhile, Porter develops significant framework of the MBV that is explained by his five forces driving industry competition. These include rivalry among existing firms, bargaining power of suppliers, bargaining power of buyers, threat of new entrants and threat of substitute’s products (Fritz 2009: 13). The ability of each of these five forces derives the attractiveness of an industry that lead to a natural productivity level. Although MBV clearly support the bargaining power of buyer’s proposition, Porter views the market environment to some extent as being stable determinant for generation of dominant economic performance. He argues that market structures are also influenced by the actions of organizations. In order to integrate the effect of the strategic positioning in his analysis, Porter classified them into two dimensions that include strategic advantage and strategic target. Within MBV framework, strategic choice is based on both product and response to the expected industry structure that lead to intra industry profit variation despites inter industry variation arising from the structural industry attributes (Fritz 2009: 19). Therefore, cost leaders focus on the effectiveness of their processes so that to attain decreased prices than their competitors with identical products. On the other hand, differentiators focus on creating dominant product quality that generates exceptional value for customers. Thus, this strategy is featured by defining a narrow market segment in respect to customers, type of product, location and mainly focusing on either cost leadership or differentiation. Therefore, the organizations that position themselves in respect to two dimensions are forecast to attain competitive advantage and become superior based on economic performance. For instance, a significant home appliance industry observed heterogeneity of integrated strategies within the industry, yet at the same time group of people were seen pursuing homogeneous strategies. Therefore, Porter describes strategic group as group companies within an industry following strategies that are identical to each other, but heterogeneous with respect to other groups of organizations in the industry. Organization in best-positioned groups will then be able to generate a higher performance level arising from competitive advantages that the group possesses. However, the work of Porter was criticized especially on his five forces model. The model suggested that the analysis framework is static, whereas the actual competitive environment is dynamic. Meanwhile, the model supposes that both buyers and suppliers are threats that are require to be taken seriously. Most of the firms find closer cooperation with their suppliers. Thus, this action cannot be effective if the supplier is regarded as a threat (Enders 2004: 35). Meanwhile, firms are gradually seeking an association with their customers so that to develop a loyalty. Thus, this cannot be effective when customers are regarded as a threat. Thus, Archie Norman might be right to question whether Porter would be able to even run a fish and chip shop. HAMEL (RBV) The RBV focuses on the internal capabilities of firms to employ the strategy that produces a sustainable competitive advantage in the market (Henry 2008: 126). Most of the organization comprises of resources and capabilities that are configured to offer a competitive advantage. Thus, RBV perspective does not indeed consider an inside-out concept. Its internal capabilities determine the strategic choices, which create competing in its external environment. In most cases, organization’s capabilities are able to change existing markets by adding value for the consumer products like Apple’s inputs. Wit and Meyer (2010: 262) indicate that the organization’s capabilities are viewed to be dominant in creating competitive advantages and pays attention to the configuration of its value chain activities. This happen because organization needs to discover the capabilities within its value chain activities that offer firm a competitive advantage. The RBV supposes that the organizational competitive advantage is established mainly on internal resources. Thus, resources are described as the firms’ strategic technical, physical, people related, technical, and financial and its asset that comprises tangible and intangible resources. The RBV framework assumes essential traits of the firm’s strategic resources so that to create the foundation for competitive advantage (McIvor 2005:45). It suggests that firms are differently equipped with strategic resources, and they are at least partly inelastic in supply and impossible for competitors to cope. This causes a significant criticism of the RBV in that the resource idea has remained impossible to define in operational terms. From the concept of resource heterogeneity, it is ascertained that firms are not completely equipped with all essential resources and access to further resources could promote competitiveness (Delfmann 2009: 227). Thus, integration allows firms to make a joint use of their resources that help in overcoming resource related constraints. Cooperation agreement focus on preferred areas that allows firms to limit exchange processes to certain resources (Khalid 2009: 25). On the other hand, the outstanding competitive relationship between cooperation associates can be a barrier to learning and be aware of the transfer. CHANGING WORLD AND ORGANIZATIONAL CIRCUMSTANCES The advantages of the frameworks are based on competition on the resources and capabilities within the organization that produces a sustainable competitive advantage. Resources may be described as inputs that facilitate firm to undertake its activities by utilizing their resources (Henry 2008: 127). Meanwhile, the efficient configuration of resources provides an organization with competencies. Competencies are the attribute that organizations need so that to compete in the market place that means all organization posses competencies. Meanwhile, Hamel argue that the significant function of management is to create an effective organization that produces products that meet customer demand that other organizations have not discovered. Organizational should operate across the boundaries and focus on separate person strategic business activities that will enhance its performance. Thus, a core competence should ensure it produces high quality of the products that meet customer’s needs in the market. For instance, BMW has unique capabilities in construction that produce high valued cars that sell at a premium (Henry 2008:128). A core competence is promoted as it is applied and shared across the organization. Competencies are the glue that binds business together and stimulate new business development. For instance, Toyota’s core competencies are derived from its ability to blend core competencies across the whole organization. Toyota implements manufacturing systems that manage inbound logistics in the form of good material and inventory control systems. This ensures that inventory levels are adequate to meet customer demand by having parts delivered before their assembly. Meanwhile, other primary activities in the value chain as operations have automatic and proficient equipment that are integrated in the quality control systems (Henry 2008: 127). This is supported by the sales and marketing of the company that uses advertising and dealership networks, and service by using warranties. Toyota’s outflow and inflows of its suppliers are implemented in the manner that they have a competitive advantage over car industry in Japan with respect to its core competence. This provides it with a competitive advantage, which its competitors are unable to match. Toyota is also able to manage the benefit that is obtained from these activities; thus, it makes more profit compared to other largest automobile companies in the United States. The resource based view of strategy does not focus on industry structure, but to the unique cluster of resources and capabilities that each organization posses. Thus, for supporters of the resource-based view, the reason for industry to experience diverse levels of performance although being in the same industry is established by critically analyzing internal aspect of the organization. Hamel approach can be viewed as a complement to the positioning strategy. CONCLUSION The RBV was incoherent with unrelated diversification strategies while offering support for competence based strategies related with these diversification strategies. Meanwhile, it concept of resource was not founded given that resource idea has remained impossible to define in equipped terms. In the RBV framework, some level of critical planning was required to identify and create company wide core competencies and to overcome strategic business unit. Thus, Porter observed much of RBV arguments to have introvert inclination. According to Porter, a company should be the best in what it is doing and should employ technological innovation to promote competitiveness. Porter’s argument on the paradox is based on pure strategies that imply not only a high chance that comes at the price of higher risks, but also imply a higher chance of bankruptcy. Although, they same to be true at the same time, Hamel’s framework focused on the resources paradox while Porters strategic analysis ignores the resource aspect of a strategy. Porter’s work has offered a critical analysis on various strategic that explains the market structure that creates competitive advantage of the firms. Bothe MBV and RBV frameworks are essential in different perspectives. Bibliography Delfmann, W 2005, Strategic management in the aviation industry, Cologne: Ko?lner Wissenschaftsverlag Press. Eldring, J 2009, Porter's (1980) generic strategies, performance and risk an empirical investigation with German data, Hamburg: Diplomica-Ver Press. Enders, A 2004, Management competence: resource-based management and plant performance, Heidelberg: Physica-Verlag. Fritz, T 2008, The competitive advantage period and the industry advantage period assessing the sustainability and determinants of superior economic performance, Wiesbaden: Gabler Verlag. Henry, A 2008, Understanding strategic management, Oxford: Oxford University Press. Khalid, S 2009, Exploring firm level market knowledge competence and its implications for the speed and success of export expansion: a mixed methodology study from the software industry, Vaasa: Universities Wasaensis. McIvor, R 2005, The outsourcing process: strategies for evaluation and management, Cambridge: Cambridge University Press. Porter, M 2008 On competition (Updated and expanded ed.), Boston, MA: Harvard Business School Pub. Weigl, T 2008, Strategy, Structure and Performance in a Transition Economy an Institutional Perspective on Configurations in Russia, New York: Cambridge University Press. Wit, B & Meyer, R 2010, Strategy process, content, context; an international perspective (4th ed.), Hampshire: Cengage Learning. Read More