Strategic Planning through Business Expansion to New Locations - Coursework Example

CMI Introduction In his study, Harrington (1987, p.67) hypothesized that strategic differences among business units are reflected in the units’ geographical structures and in the places in which enterprises locate specific activities1. This hypothesis exemplifies the importance of strategic planning in business management. Considering that business management involves different functions like planning, organising, executing, coordinating and controlling, managing business from different locations becomes extremely challenging to the employers as well as employees. To overcome these challenges, executives had adopted specific approaches and practices, which evolved into strategic management. In order for any organisation to achieve its goals, make profits and sustain competitiveness, it requires innovation, continuous learning and flexibility. In addition, for organisations that aim to operate from different locations nationally and internationally, these challenges are highly complex and organisations have realized the paramount importance of strategic management. However, strategic management in multiple and/or global settings entails more challenges, which organisations need to prudently assess and be prepared to handle. In contemporary times, business management has experienced challenges such as increasing competition, changing customer needs and changing information and technology, all of which have been considered as critical to sustainability of businesses. Hence, almost all businesses adopted strategic management approach. Considering Analoui’s (2002) assertion2, strategic management of business diversifies into three spheres, i.e. strategic sphere, management sphere and operational sphere (Phillips, Doole & Lowe, 1994). While the strategic sphere includes formulation of strategic goals, vision mission etc along with planning of resources, organisational business process and control mechanisms, management level includes objective setting for the goals, planning integration with different functions like operations, human resources, technology etc; and lastly, the third one includes implementation of the so-formed plans along with continuous review. Implications for businesses going to new locations can be in terms of strategic planning, coordination, control, financial and investment aspects. Crossing technological boundaries and fostering collaboration could be a challenge to the native organisation willing to go global for business pursuits, or to even operate from multiple locations within the nation. For instance, coordination function can be effective only when it is accomplished between different units; when these units are situated in different locations, it will have to tackle challenges such as exchange of information in time, movement of goods, allocation of resources, usage of technology and finances in an appropriate manner; these activities could involve units such as logistics, order fulfillment, finance, human resources etc (Karimi & Konsynski, 2003). These activities can be accomplished only through a strong information and technology network within and between different locations. In addition, coordination function impacts the value chain system, which requires specific strategies that facilitate coordination. From control perspective, strategic control of technology, finance and human resources along with administrative functions would be required. In a multinational organisation operating from different locations, the control processes might require frequent changes along with coordination activities, mainly because of challenges brought by changes in demand, environment, customer behaviour etc; these changes could entail organisational structural changes and/or systems changes. In turn, the changes made in one location may or may not work in other locations. With such challenges to be faced, organisations opt for strategic integration of coordination and control mechanisms that provide flexibility of adopting localized approaches and are aligned to organisational goals. The most effective strategic control system in operations is Kaplan and Norton’s (2005) balanced score card approach3. In addition, personal control through organisational culture; output control through performance management; and behaviour control through organisational values are also a part of strategic management (Hill & Jones, 2009). In the financial aspects of a business, as asserted by Harrington (1987), organisational structure and strategy are influenced by its local economic and social characteristics4. This statement can be perfectly related to many organisations in developed and developing economies. For instance, an established organisation that wishes to explore business opportunities in other locations will have to opt for strategies that are different and which suit the local customer needs; if not, it should at least be able to meet the affordability status of local citizens. At the same time, if it wishes to move to up-market regions, then its products and services/quality should be satisfactory to the economically sound customers. A classic example of such business setup is that of IKEA, the furnishing company. IKEA’s business is specifically oriented to cater to the needs of middle-class customers and provide them the experience of good quality furniture; and its low-cost business strategies help IKEA to produce high quality furniture at lower costs. In addition, its lean methods of production also help in achieving this task (Edvardsson & Enquist, 2008). Although IKEA has successfully captured almost the entire world’s retail furniture market, it could not establish itself in India, mainly due to differing Indian norms of foreign investments (Dass, 2009)5. This case brings for the argument that even government regulations that are not inline with business strategies hinder its expansion to new locations. Secondly, research has indicated that foreign investment in business tended to flow to countries or locations which had advanced technologies and developed expertise. A classic example of this would be the Silicon Valley, which attracted high numbers of foreign firms in software industry. Cantwell’s studies established a new paradigm to multinational business settings that innovative centres attracted direct investments in business at costs that were much higher compared to the locations with lower labour and resource costs (Kogut, 2006). Other aspects that organisations consider during setting up operations in multiple locations include resource availability, transportation/travel costs, maintenance and administrative costs, technological investments etc. Yet, organisations have continued and are continuing to expand and/or set up businesses in multiple locations owing to myriad of benefits this process provides in turn, for a variety of reasons such as opportunity for innovation; sustain competitiveness; as an impact of globalization; and making profits. Although innovation has received much attention since a very long time in industrial age, either in the form of invention or discovery, contemporary organisations have a developed a different view of innovation; this view focuses on enhancing overall business and organisational growth. From this perspective, innovation is not limited to new products, but extended to newer ways of marketing, new methods that satisfy a wide range of customers, new ways of doing business that enhance profits and/or lower costs to the company, new ways to motivate employees to perform better etc. To achieve these objectives, organisations are investing in a variety of technological, human and material resources in different locations. In one of its researches, AIM refers to the example of Boeing, which produced the 787 airplane consisting of the passenger doors and landing gear manufactured in France, cargo doors and crew escape doors made in Sweden; and many other parts and technology produced in other countries such as Japan, India, Italy etc6. Secondly, some organisations have adopted the ‘Corporate Social Responsibility’ approach to foster innovation, sustain competitiveness, enhance visibility and create brand value. A business-oriented CSR initiative followed by Whole Foods in promotion of organic foods focused on working closely with its suppliers helped in achieving huge returns, which further helped the organisation to tie up with 2400 independent suppliers from different farms in the country. This pioneering approach challenged other giants like Safeway and was later adopted (Idowu & Filho, 2008). Competition has been a major challenge since trade began in this world. Current evidences suggest that multinational organisations have managed to capture major industries in most of the regions of the world. For example, Sony is a major player in electronic goods all over the world; likewise is Microsoft to software products; Google to internet search engine; McDonald’s to fast food industry, and so on. This indicates that competition is extremely high, and in order to sustain competitiveness, businesses have to sustain their presence in the market by creating maximum market share. Although competitors do exist for all these and many other businesses, their presence has become almost unbeatable. Nevertheless, organisations expand in regions where they can expect higher rates of return. Hymer 7 argued that organisations decide to invest in other countries not only for higher rates of return, but also other reasons such as acquiring control in international markets, availability of diverse human and material resources, favourable sociopolitical factors and environmental conduciveness (Hood, N and Young, S, 1999). All or some of these could be of great advantage to the entire or part of the business (Applegate, Austin & McFarlan, 2007). Automotive industry exemplifies all of these aspects of operating from different locations. Best known examples in this sector include Ford, General Motors, Toyota, Honda and Hyundai; however, studies have also indicated that not all operations have been successful in achieving business objectives and growth. Moavenzadeh (2008) pointed out that organisations that focused on improving profits or reducing costs in this sector have either not made good progress or have utterly failed, unlike those that focused on value, like Toyota. Therefore, it becomes necessary for organisations to anticipate the end results, rather than short-term gains such as saving costs by cutting expenses on labour, technology or administration. Globalization has had a profound impact on organisations, businesses and individuals. As businesses make profits and want to grow, they have to explore newer opportunities in terms of products, services and/or locations. For all of these, knowledgeable resources are the common requirement. Considering resource diversity as one of the key factors, Intel’s story provides substantial evidence for the same. Intel is known for its technological breakthrough ever since its inception and progressive advancements into semiconductor memory chips and microprocessors through absolute innovation. With businesses expanding, Intel decided to move some of its core functions such as design and planning functions, to different locations. This decision of movement was based upon its requirement of abundant talent and expertise, which Intel got from Phoenix region; by then Phoenix already housed good number of resources with the required knowledge, who were working with other companies such as Motorola, General Instrument, Medtronics etc (Harrington, 1987; p.69). On the other side, increasingly sophisticated and improved technologies have accelerated the process and impact of globalization and have brought people closer by time and space. This trend has had a profound impact on certain key industries such as telecommunications, pharmaceuticals and semiconductors, thereby causing the products to change rapidly according to customer demands and product competitiveness; this is further questioning their sustainability in the market. These factors continuously demand innovative approaches to business and product development, which is possible only by exploring newer opportunities in different regions and by involving different people with a variety of knowledge and experience. To increase profits, outsourcing has been an effective method of conducting businesses from any location in the world. This method has opened up many avenues for firms to earn profits by reducing labour, production and maintenance costs, improving customer satisfaction by reducing product/service delivery time, improving quality, increasing opportunity for innovation, and using wider expertise and knowledge. The best quotable examples in this sphere of business are the software and IT industries that have boomed over last two decades. For example, banking giants like HSBC, Barclays, J.P Morgan Chase and others have outsourced most of their non-banking functions like back-office work, customer service operations, research and development, training etc to countries like India, Philippines, Malaysia, Sri Lanka, China etc, which gave them the advantage of low labour costs, technology costs, infrastructure and administrative costs (Applegate, Austin & McFarlan, 2007)8. Therefore, availability of good technology and resources along with a significant advantage of labour has been extremely beneficial for this sector. Most evidently, advantages for businesses moving to new locations include potential for innovation; cost effectiveness; varied expertise and knowledge; technological advantage; environmental and sociopolitical support; internationalization of business/organisation and creation of brand value; opportunity for improvisation and control. However, these are achievable only if the organisation’s/business strategies are aligned with these objectives. The challenging factors in such business pursuits include establishment of effective coordination and control between different functions of the organisation operating from different locations; achieving coordination and collaboration between individuals working at different locations; promoting effective leadership and management of people belonging to different sociocultural background and locations; ability to align corporate strategies with local human resource and operational strategies; performance management and measurement of various functions operating from different locations; investment of time, resources and capital in training and setting up operations; and adjusting to the sociopolitical and environmental conditions of new locations. In conclusion, organisational strategic planning and decision making with respect to business expansion/movement to new locations is driven by various factors mainly related to exploration of newer opportunities; to gain and sustain competitive advantage in the market; to reap positive consequences of globalization; and to enhance profits by adopting strategies like reducing costs of production and maintenance. These can be possible only through effective strategic integration of different business strategies with functional objectives and performance for which strategic coordination and collaboration between different functions in multiple locations is of utmost importance. This is achievable when functional activities are appropriately aligned to business strategies at all levels. References Applegate, L.M, Austin, R.D and McFarlan, F.W. (2007). Corporate Information Strategy. India: Tata McGraw-Hill. pp.577. AIM Research. The Changing Nature of Organisational Innovation. At the Edge of Innovation: Why shifts in the boundaries of innovation matter. AIM Research. pp.23. Dass, P. (2009). IKEA drops investment plans in India worth $1bn. The Times of India. Posted June 11, 2009. Accessed June 10, 2010 from, http://timesofindia.indiatimes.com/business/ikea-drops-india-plans-worth-1bn/articleshow/4642011.cms Edvardsson, B and Enquist, B. (2008). Values-based Service for Sustainable Business: Lessons from IKEA. Oxon: Taylor & Francis. pp:98-111. Harrington, J.W, Jr. (1987). Strategy formulation, Organisational learning, and Location. In New technology and regional development. Oxon: Routledge. Ch.4, pp:63-74 Hill, C and Jones, G. 2009. 9th ed. Strategic Management Theory: An Integrated Approach. OH, U.S.A: Cengage Learning., pp: 378-420. Hood, N and Young, S. (1999). The Globalisation of Multinational Enterprise Activity. London: MacMillan. pp: 21-54. Idowu, S.O and Filho, W.L. (2008). Global Practices of Corporate Social Responsibility. Springer: United Kingdom. pp.262 Karimi, J and Konsynski, B.R. (2003). The Information Technology and Management Infrastructure Strategy. In Galliers, R and Leidner, D.E’s Strategic information management: challenges and strategies in managing information systems. Oxford: Butterworth-Heinemann. pp.89-112. Kogut, B. (2006). International Management and Strategy. Pettigrew, A.M, Thomas, H and Whittington, R. Handbook of strategy and management. London: SAGE. pp.270. Moavenzadeh, J. (2008). Changing nature of Engineering in the Automotive Industry. In The offshoring of engineering: facts, unknowns, and potential implications. Washington. D.C.: National Academies Press. pp.101. Phillips, C, Doole, I and Lowe, R. 1994. International marketing strategy: analysis, development, and implementation. NY: Routledge. pp: 181-220. Read More