New Methods of Business Operations and Strategic Management Style - Research Paper Example

Introduction Modern corporations are progressively changing from the vertically integrated conventional hierarchical structure of organization to embrace a more informal formation within their management. These changes have been enforced due to the inability of the traditional large bureaucratic companies are to conform to the rapid sweeping changes in the emerging new borderless, digitalized, and highly competitive networked international marketplace. Modern management strategies therefore compel companies to focus on their core competencies while evolving strategic alliances from other stakeholders (Johnson et al. 2009). One of the eternal and universal challenges confronting the management of businesses is how to organise or restructure their firms. The challenge of modern business practices has meant that conventional business models have become extinct and modern strategic management models being embraced. At Wrightbus, a bus manufacturing firm based in Ballymena, Northern Ireland, the firm at the threshold of emerging from the traditional line organisational structure to modern decentralised matrix system that would enhance international expansion. Organisational Structure, Management Style and Culture An organizational structure encompasses duties, interactions, tasks, command, and connections of people in every sector (Sexton, 1970, Pg. 23). This is usually depicted by an organisational chart outlining each function in the firm. Organisational either adopts the conventional centralised or modern decentralised structures. Centralised structures are more closely regulated by the management with bureaucratic systems that closely monitor the employees while conversely decentralised structures are less controlled. Having a centralised organisational structure is problematic particularly where geographically diverse regions have to refer critical issues to the home office hence limiting the flexibility and capacity of the regional units (Fleming, 2006). Among the traditional structures are, line structures; line-and-staff structures; and matrix structures. In line structures, an informal system is used whereby all the employees and management interact freely. This has been the system applied at Wrightbus with a communal structure being predominant as all employees are closely interlinked. In line-and-staff structure, a combination of informal line and departmental system is adopted (Boone and Kurtz, 1993, Pg. 259). The matrix system is a more advanced form of line-and-staff structure combining both vertical and horizontal hierarchical systems thus meaning the employees are answerable to both departmental heads and the central authority (Keeling and Kallaus, 1996, Pg. 43). At Wrightbus, the culture of genuine shared selflessness has been cited by their leadership as its greatest asset whereby the faith in the employees extends beyond the workplace hence evoking an enviable sense of loyalty. The close-knit communal structure is however likely to be challenged during its international expansion and the firm must ensure it exports the organisational structure overseas as aptly demonstrated by US based hotel chain firm, Ritz-Carlton. The human resources management (HRM) strategies adopted by Wrightbus must be thorough, a non-bureaucratic appraisal scheme that is scrutinized for veracity; efficiency, equitable remuneration, staff recognition, and education that inspires and therefore sustain employees; involve the ‘common’ employees in decision-making; design a level organisation chart that has logical reporting links and duties (Welch, 2008). Management Strategy A company’s growth variance can been attributed to systematic market influence (over 50 percent), industrial influence (13 percent), and the balance due to the firm’s own performance (Arnold, 2002). Wrightbus has maintained a corporate culture that emphasizes on teamwork and empowering employees for enhanced performance and growth. Similarly the company has made social responsibility a long-standing commitment hence ‘make people feel good about dealing with the company’. The company has also encouraged an entrepreneurial spirit of risk taking from the autonomous regions and division to tap in natural talent through the locally engaged staff. Drucker (1993) argues that, "because the purpose of business is to create a customer, the business enterprise has two and only these two basic functions: marketing and innovation." However, Goffee (2007) stress that for effective management of people in a company; it necessitates a consideration of incentives, work arrangement, recompense schemes, and group demands. As part of strategic planning and managing people, Baldwin (2009) argues that a manager should first ensure that they groom employees to take up other duties other than the accustomed ones. Harrington and Cunningham (2009), argue that modern managerial practices require leaders to go beyond providing ‘planning, leading, organising and controlling’ to become facilitators. Bratton (2003) describes strategic formulation as the process of appraising the interface linking tactical aspects and making deliberate choices that direct management to achieve the organization’s objectives (Pg. 41). This process takes place at the business, trade and definite practical levels. Strategic management therefore aspires at directing, motivating and assisting individuals, both within and outside the organisation. It also requires individuals to make choices between main objectives, the realization of which necessitates specific strategies. Wrightbus has consequently managed to integrate its human resource management policies as espoused by Beer et al (1984) within its business strategy. Bratton describes this stratagem as having HRM ‘strategically integrated’ in the organisation (Pg.12). Beer et al (1984) argues that ‘An organization’s HRM policies and practices must fit with its strategy in its competitive environment and with the immediate business conditions that it faces’ (Pg. 25). McLaughlin and Clark (1988) likens the issue of making a strategic choice to a political decision as the firms weighs in how to allocation of power within the company. Schuler and Jackson (2000) assert that the impact of HRM is primarily exhibited in the ‘formulation and implementation of strategy’. This encompasses the planned vision or selection company’s business, objectives, schemes, development and execution, appraising, modifying, and refocusing on the upcoming projects. During the firm’s implementation stage, the classification of strategic business issues (SBIs) and the setting of strategic business objectives (SBOs) is established. Maxwell et al (2004) have linked strategic human resource development (HRSD) to service management as contemporary firms increasingly view the fulfilment of their customers’ needs as their ultimate aim and reason for existence. For an effective strategic organisational structure and HRM, a firm must identify all employees’ competency or capabilities, hence appropriately assign matching tasks, and place them in the best department as per their skill level to enhance the firm’s overall performance (Sempere, 2002). Strategic Options for Wrightbus International Expansion As part of its diversification plans as the current global recession adversely affects international businesses, Wrightbus intends to venture into the lucrative US bus manufacturing market. This is part of its strategic plan to modernise and capture other diverse markets. Custom Technology Solutions (CTS, 2006) describe strategic management as ‘a combination of strategy formulation and strategy implementation’ (P.5). International Business Framework Peng et al (2009) through their unified international business framework model suggest two approaches in understanding international business frameworks. These are the institutional based view whereby the foreign venture firms aims at developing an understanding of the local business environment; and the resource-based view in which the firm utilizes its competitive advantage like superior technology or products to gain a foothold in the local markets. Wrightbus as a moderate bus manufacturer venturing into the US market can therefore utilise the former by initially undertaking feasibility studies of the market to decide on the best entry mode. Lessard (2003) has identified four strategic frameworks that distinguish these international firms: geographic span of the particular industry; the pull of the specific locations including the markets, resources, and the competitive edge; upholding of the international strategy; and the extent of global incorporation including the localized spread. Marketing Options Bothma (2008) argues that even with the advent of globalisation, which has tended to consolidate consumer tastes across the borders; there are still major differences between international markets hence constituting major challenges to the exporting firm. These differences include cultural, political, economic, religion, legal and other social factors between different countries. To establish an operations management support plan for the regional expansion strategy, a marketing strategy is required to incorporate the various factors necessary to establish a market presence in the region. In launching an operations plan for foreign market entry, the four Ps in the marketing mix are considered. These include product, price, placement, and promotion, while a further three Ps are suggested, process, physical evidence and people as the original four Ps were considered limited to internal viewpoint (CIPD, 2009). Market Analysis In setting up the new market segment, a market analysis is required to be including encompassing both qualitative and quantitative regional analysis critically examining the sector. This analysis covers the strategic plans, commercial set-up, strength and weaknesses, potential, and risks envisioned. The critical analysis utilised can include Porter’s Five Forces Model (the competitive environment), PESTLE (Political-Economic-Social-Technological-Legal-Environment) and SWOT (Strength-Weakness-Opportunity-Threat) analysis. This analysis will appraise the market requirements that will assist in formulating a strategic market entry plan. Market Entry Modes Hill (2009) identifies six distinct market entry modes for companies entering a foreign market [See Table 1]. These include exporting, turnkey ventures, and licensing, franchising, joint ventures with local firms, and establishing an auxiliary firm in the vicinity. The ‘timing of entry’ is crucial to a firm’s successful entry in a foreign market. These include any potential benefit of ‘first-mover advantages’ or ability to pre-empt rival firms by capturing demand through early entry (Hill, 2009). Foreign market entry is therefore marked with potential hazards and risks especially in the developing countries but also may be hindered by issues of ‘national pride’ that are marked by latent hostility to foreign firms gobbling up locally established companies. Hill (2009) describes how a firm is able to gain competitive advantage by aptly ‘transferring its core competencies to foreign markets’ thus garnering a niche in the local markets that lack the particular skills. The US bus manufacturers market is distinctive with complex causal producers, conduits and marketing concerns for diverse types. Wrightbus international expansion framework can be twofold: exporting from the firm’s own plants unto the regional hubs of North America; and engaging in joint ventures with local firms through franchises or licensing firms with established networks for distribution purposes only. For the later strategy, the selected firms should not be engaged in similar production but may be engaged in transportation business products marketing thus will complement Wrightbus merchandise while not providing direct competition. Beizhong (2009) cites three criterion used by firms intending to venture into foreign markets. These include “the competitive ability in the international market, the competitive advantages and competitive risks” (Pg.2). International expansion allows firms to maintain growth amidst slow domestic sales hence sustain profits through foreign ventures. iii) Recommendations for Consolidating and Developing Export Activity in the US Wrightbus has determined that foreign venture or establishing new overseas markets will enhance the firm’s profit while diversifying from the saturated domestic market. In this regard, the US market offers an attractive lucrative market as the upsurge in fuel prices and the global crisis eroding consumer power have forced them to use public transport to save expenses. This means that the market is ripe for Wrightbus bus manufacturing products with a good marketing plan that must utilise the aggressive American marketing methods. A country’s culture influences the decision of foreign firms to venture in their markets as it inherently affects values in the workplace tradition and methods. Hofstede (1983) In Hill (2009) has described four distinct cultural dimensions. These are ‘power distance, uncertainty avoidance, individualism versus collectivism, and masculinity versus femininity.’ High power distance was prevalent in nations with acute inequalities and vice versa. Individualistic cultures where free and high achievement was greatly valued but in collectivistic societies, the contrary was true. In the high uncertainty avoidance, the society placed premium in avoiding uncertain situations hence valued rules, job security and careers while in low uncertainty avoidance situations the contrary was true. In masculinity versus femininity, Hofstede also examined the role of gender in the workplace across different cultures and nations. Nevertheless, the US, which shares language and Western cultural attributes, will not greatly affect Wrightbus expansion in the region. Competitive Advantage Wrightbus with its enviable reputation of quality products working with UK private firm’s FirstGroup, Arriva, Go-Ahead, Stagecoach and National Express and Swedish bus companies Volvo and Scania can easily be embraced by the North American market. The firm’s innovative products are also uniquely positioned to provide modern coaches for the ever-increasing public transport market. The fact that the firm has been able to withstand the current global recession, with only very limited turnover of staff makes it easier to absorb the expected large orders from the US market. The company has been able produce an average of 1,000 buses annually generating returns of 100 million ($160m) to emerge as the second largest UK bus manufacturer (Wylie (2009)/Case Study). Wrightbus already has introduced its innovative hybrid electric tram-like buses dubbed StreetCars in Las Vegas. Diversification Strategy Although the firm has maintained its strategy of minimal borrowing, there is a need for the firm to emerge from its ‘protective shell’ and make major inroads in international expansions by engaging strategic partnerships thereby injecting funds into the firm. According to Wrightbus MD Mark Nodder, ‘The frugal mentality has kept us right over the years. It means we’re not in a position to consider big acquisitions,” Case Study/Wylie (2009). This partnership can be in form of floating some shares in the local London stock exchange or the US NASDAQ or New York Stock Exchange (NYSE) partially to maintain controlling shareholding. The funds will make the firm more visible and able to articulate its much needed regional expansion programmes. Likewise, the firm can float corporate bonds in either UK or overseas markets that can similarly generate funding for the expansion. A more unlikely strategy would be borrowing from the commercial banking sector that may be counterproductive considering the volatility of the foreign ventures and expected intense competition in the sector. Marketing Promotion Wrightbus foreign ventures should incorporate marketing campaigns aimed at promoting its brand among the US private bus companies and local councils that constitute its target market. Although far-off, foreign ventures are viewed with trepidation due to the cost outlays, the relative conformity to the regions culture may offset these disadvantages as it is deemed critical to the foreign firm’s performance (Schoenberg, 2005); (Very et al., 1997). The nature of the expansive North America market requires a foreign investor to engage local public relations firms for such campaigns. Similarly, the firm should consider entering into partnerships with local municipal councils to provide public transport coaches as already contracted by the London and Singapore municipalities. New Production Units Wrightbus must consider setting up plants in the US, as it is inconceivable for its bus products to be shipped from its plants in Northern Ireland hence erecting local manufacturing plants in the region is the only viable option. This will mean that Wrightbus much vaunted employees relations will be tested in the new region. To ease the injunction of American employees into the Wrightbus ‘family of employees’, the company can transfer its line managers from the UK to introduce the company’s method of operations. This will ensure the firm maintains its core values and standards. The management style adopted by a firm inevitably affects its performance particularly in its cross-border ventures as 45 percent of international investments fail to accomplish their goals due to poor strategic implementation (Schoenberg, 2005). Distribution Network and Franchises To provide a viable distribution network, Wrightbus can contract existing local firms who can be allowed to operate on franchise basis or joint ventures. The firm can later set up its own supply chain network after establishing a marked market presence. Most US firms have a penchant for franchise business and according to the International Franchise Association, by 2006, 52 percent had established franchise units abroad (Aliouche and Schlentrich, 2009). This therefore makes it prudent for Wrightbus to adopt such methods that cut on undue expenses while extending networks and associations. Sturgeon (2002), through his production network paradigm acknowledges the shift in focus from the inevitable development of the internal configuration of contemporary firms to the external economies through ongoing exchanges among organizations. However, franchise or network strategies necessitate tactical grouping among competitors and concerted interactions amongst suppliers, manufacturers, and marketing firms that to enhance the firms’ networks. Flexible Organisational Structures In instances where the management culture of a company does not conform to its organisational culture, the result is a mediocre efficient productivity (Ward and Duray, 2000). Performance therefore improves when the management style is structured in way to fit the organisational structure of the firm rather than vice versa (Bozarth and McDermott, 1997). Nevertheless, a flexible organisational structure has been found to enhance performance including having less rigid hierarchical structures. An organisational structure that improves the communication, involvement of non-managerial staff in decision-making and other informal mechanism is more productive. A firm should identify its own organisational culture, objectives and leadership style that are unique to its business ethics (Martinez and Poole, 2004). A firm’s performance is heavily dependent on its organisational structure being aligned to its corporate culture in conjunction with appropriate HRM strategies (Charvatova and Veer, 2006).A firm that is willing to take risks in challenging conventional management styles is able to assimilate diverse organisational structures and cultures particularly when it ventures into cross-border acquisitions (Schoenberg, 2005). A traditionally rigidly structured firm like Wrightbus has already revealed a willingness to embrace change as the family owners have ceded control and are already applying modern management methods. This will assist the firm navigate the international waters as the conventional centrally controlled hierarchical organisational structure are rapidly been discarded to evolve into less rigid structures (Alwi, 2009). The notion of company directors controlling the factors of production as advocated by classical economists has gradually been discarded as professional mangers assume the reigns of the organisations and the owners merely played a background role (Littek and Charles 1995, Pg. 5). At Wrightbus, the founder has relinquished the leadership to his managing director. Corporate Culture Advantage The predominant tolerant and familial almost communal culture practised at Wrightbus has ensured the loyalty of employees is guaranteed however, international expansion will challenge these norms as they engage workers from diverse cultures who may not be as loyal. Begley et al. (2009) have advocated for the application of intellectual capital (IC) which is the identification of the value of intangible resources in a firm. These include human capital, which embodies approach, potential, skill and originality; structural capital (machines, software, procedures, cerebral possessions, administration style, and organisational structure) and Relationship Capital (client relations, dealers and representation). Alstyne (1997) stress the need for expansionist corporations to have a sense of synergy to deal the divergent specializations, control, integration, stability, the decentralization and centralization among other factors. Collaboration and close coordination is therefore crucial to ensure continued success in the organisation. For Wrightbus, the firm should evolve competent staff from different departments and companies to coordinate the areas of cooperation to minimize any vestige of mistrust. However, within the large US market, Wrightbus will be viewed, as a medium-sized firm hence should seek partnership with moderate sized firms for distribution purpose as enjoining with the huge conglomerates may lead it being alienated from its core competencies (Jones, 2004). Conclusion An international expansion though strenuous and sometimes risky on the venture firm has proved to be rewarding to firms with positive strategies as it reaps from the overseas markets. The factors that encourage firms to expand into overseas markets are the rapidly evolving changes in technology, short-lived commodity life cycles, and consumer segmentation, and borderless markets promoted by globalization and internet marketing. Wrightbus as a bus-manufacturing firm has chosen the most opportune moment to venture into the US market due to the current relatively high demand for public transport. The firm’s ability to develop its group culture within its ranks has enabled it to forge formidable employee loyalty that can be replicated in the overseas markets by having standardised HRM programs and exporting its domestic mangers. Apart from the advantage of diversification, the firm will be able to learn new methods of business operations, gain new partnerships, enlarge its customer base and enhance its returns. Wrightbus organisational structure and culture therefore can ensure successful ventures internationally by also maintaining its strategic management style shrewdly integrated with modern innovative corporate expansion methods. References Aaker, D. A. (2007). Strategic Market Management, 8th Edition. Hoboken, NJ. John Wiley and Sons Inc. Alwi, N. B. (2009). 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