Strategic Risk of the Company and the Developing a Strategic Plan - Research Paper Example

Introduction: In today’s competitive environment, every company has an action plan. Even then for most companies, the processes used to design those plans don’t work. In a survey of management attitudes about such processes, respondents said their company’s corporate planning was unsatisfactory. These plans are just like a document prepare for the company and later forget to implement, is common in all the firms. But it does not mean that companies don’t even try to implement those plans. Yes, they do. Many companies have been refining their planning processes for 10 to 20 years; frequently adopt benchmarking practices from other corporations known to be outstanding planners in the respective industry. Certainly, something must be wrong with the way managers think about planning if so many corporate planning processes still generate such discontent. The problem may be on the common practises to benchmark. Here companies are taking ideas from other companies can be valuable, but it can also mislead and distract. It can prevent managers from focusing on what is unique to their situation. The result will be a planning process that is a model of professional planning techniques but that fails to add value to the company. So instead of chasing best-in-class models, the chief executive should have been asking, what value am I trying to add? And is my corporate planning process specifically designed to help me achieve that goal? Corporate Planning Process: The corporate planning process includes the following steps: 1. Every year, the planning process starts when the corporate center distributes a schedule and guidelines to the individual business units. 2. The units then draw up strategic plans for some future period, may be five years or more, 3. Discussion with the corporate center about the strategic plan. 4. Final step is convertin their planning efforts into operating decisions. A good planning process is unique to its company and even to the individual units within the company. It is not a generic process, but a serious process involving the active discussion of all the senior managers in different departments and application of both analytic techniques and organizational processes designed for that business. A mature automobile business, for example, has different planning needs than a fast-growing electrical business or a highly cyclical chemicals business. Designing a Planning Process: Designing a planning process is more an art than a science. There are different ways to design the strategy. Yet although good planning processes are individualized, they share common features. All good planning processes should be clear about the value they are trying to add to the existing structure. So, first of all the company should set up defined objectives built around the insights and skills of senior corporate managers. Result of a wrong plan: Bad planning actively destroys value of a company’s operations. It is wasting of time and money for both managers and workforce. For the corporate centre to add value, it has to be able to coordinate the operation of individual units to achieve a common objective. Contingency-based research: Contingency-based research has approached the study of MCS assuming that managers act with an intent to adapt their organizations to changes in contingencies in order to attain fit and enhanced performance. The basic framework and potential strength of the method provide a basis to persist with contingency-based research to uncover generalizable findings that can enhance desired organizational outcomes. (Chenhall). Analysis- strategy- Control system, Measurements and Risk elements: The company I am choosing for analysis is General Motors. General Motors Corporation has been in business for 100 years, has produced nearly 450 million vehicles globally, and operates in virtually every country in the world. While GM has recently enjoyed rapidly growing sales and revenues outside the United States, the U.S. remains the company‘s largest single market. General Motor’s Corporate Strategy: General motors business strategy includes the mapping of business opportunities from potential to profitability and the points in between. In this method, it visually shows how marketing, finance and operational strategies relate to each other and need to fit together in order to optimize the results of all the strategies. Business Strategy Mapping assists managers in better understanding of how to generate and deliver value to both the customers and the companies. Strategy formation: Strategic formation is a combination of three main processes which are as follows: 1. Performing of a Situation Analysis: 2. Self-evaluation and competitor analysis: It includes two types of analysis. Internal and External Analysis. Micro-environmental and Macro-environmental Analysis. 3. Setting up of objectives: Crafting vision statements (long term view of a possible future) Mission statements (the role that the organization gives itself in society) The key objectives set for GM are: Brand Re-Structuring. Increase dealer count. Fuel Efficiency . Cost Cutting. Strategy evaluation GM through SWOT analysis STRENGTHS WEAKNESSES Large scale company operations, including over 21,000 GM dealerships worldwide Negative publication and press [ Growing business, specifically in Asia Pacific & Latin America regions Decreasing market share, with sales down more than 23% from 2007 Quality/cost improvement through outsourcing – in 2006, about 25% of parts used in vehicles assembled in US came from overseas Pension debt (shortfall of $19B in 2005) Association with Cerberus Resale value due to fleets, rental companies and government or corporation usage Value pricing policy eliminating frequent incentive program Incentive program depressed perceived value Radical product development organization - $8.1B spent in 2007 for research, manufacturing engineering, product engineering, design and development activities Increasing health care cost that reached 5.6B in 2005; Over $77B in unfunded obligations for healthcare benefits for retirees Highest annual productivity improvement among all automakers from 1999-2004 Poor relationship with UAW OnStar communications (automotive industry‘s leading telematics provider) and electronic stability control Ageing workforce OPPORTUNITIES THREATS Increasing demand for electric/hybrid/hydrogen celled vehicles – estimated reach of 4.5M units in 2013 Rising raw material (increase of 1.8% over 2007) and transportation costs Increasing technological gain over competition [ Declining demand for light vehicles Efficiency on GMNA chains Declining infrastructure of USA economy Utilization of global design and engineering talents will result in shorter lifecycles, lower costs, and higher quality Growth in currency valuation vs. US dollar relating to high export costs Individual brand positioning to distinguish eight unique brands Foreign firms manufacturing in US and Canada Opportunities in emerging markets/global expansion Younger employee base of foreign manufacturers creating lower pension and health care costs Strategic alliances to integrate additional technology with On-Star system, such as Apple or Google Competitors (primarily Toyota & Honda) have a higher level of perceived value with a solid reputation for better product quality Building consumer confidence and brand reputation Chinese lack of intellectual property rights from government and competitors New model types and styles – incurring a capital expenditure of $7.5B in 2007 Declining value of foreign currencies currently (such as the Japanese yen) (Cadillac SRX Earns Top Safety Pick from IIHS). Nature of GM’s Management Control System and company’s strategy In corporate strategy, General Motors is using the following model to evaluate the company’s performance. a) Suitability (would it work?) b) Feasibility (can it be made to work?) c) Acceptability (will they work it?) Each of these strategies are briefly discussed below: a) Suitability: Suitability deals with the overall rationale of the strategy. The key point to consider here is whether the control system would address the key strategic issues underlined by the organisation's strategic position. Tools that can be used to evaluate suitability include: Ranking strategic options Decision trees b) Feasibility Feasibility is measures the availability of the resources to the implementation of the strategy. It checks whether the resources required to implement the strategy are available, can be developed or obtained. Resources include funding, people, time and information. Tools that can be used to evaluate feasibility include: Break-even Analysis Cash flow analysis and Forecasting Resource deployment Analysis c) Acceptability Acceptability is concerned with the reasonable expectations of the identified stakeholders (mainly shareholders, employees and customers) with the expected performance outcomes, which can be return, risk and stakeholder reactions. This can be regarding new vehicles or new showroom of GM etc. Tools that can be used to evaluate acceptability include: What-if Analysis Stakeholder Mapping So the strategy includes measuring each and every cost elements against the above criteria and final strategy should lead GM to gain profit out of it. Performance Measurements in General Motors and how they help the company achieve its strategic goals In the 1970s, General Motors used a system of performance measures that included non-financial indicators, considered a precursor of the Balanced Scorecard as measurement tool as introduced in 1992. General Motors uses sophisticated budgeting and management accounting techniques Standard Costing, Variance Analysis, Flexible Budgets, Return On Investment Key Management Ratios including Debt-Equity Ratio, Debt to Capital Ratio, The technique developed was focuses on the following aspects: Financial: In GM, the use of above technique was primarily aim to encourage the identification of a few relevant high-level financial measures. In particular, designers were encouraged to choose measures that helped inform the answer to the question "How do we look to shareholders? Customer: It encourages the identification of measures that answer the question "How do customers see us?" Internal Business Processes: In GM, business is global. So a better organisational strategy encourages the identification of measures that answer the question "What must we excel at?" Learning and Growth: It encourages the identification of measures that answer the question "Can we continue to improve and create value?" Corporate planning Techniques Portfolio planning Product Planning’s role is to combine a deep understanding of customer needs and desires, anticipated market and industry trends, and a vision for new possibilities to create an exciting an innovative plan for the future portfolio of vehicles around the globe. The Global Product Planning organization is divided into three areas of responsibility: Global Portfolio Planning, Global Long-Term forecasting, and Global Product Research. Global Portfolio Planning: The primary responsibility of GM’s Portfolio Planning team is to define and shape the future vehicle and power train portfolios for General Motor’s globally. Working collaboratively with Design, Marketing, Engineering, Manufacturing and Finance, GM create plans for products that delight our customers, deliver strong financial returns, and meet or exceed all regulatory requirements. Global Product Research: The Global Product Research function is responsible for conducting all market research in support of GM’s goal to infuse deep customer understanding into its brand and product development activities. Major risk elements in GM: Company has large scale operations in different parts of the world. Despite the large scale operations of the company, GM has multiple areas of concern that need to be addressed in order to sustain long term value for both stakeholders and shareholders. GM incurred a net loss of $38.7 million in FY 2007; in comparison with a net loss of $2 million in 2005.This loss is the result of poor product quality, lack of consumer appeal, lag in alternative fuel technologies, inefficient plant production, and a saturation of similar car models amongst their brands. These factors lead to poor consumer perception about company’s products and lead to reduced company‘s sales, resulting in a steady decrease in market share across all platforms. Recommendations: In order to overcome poor quality perception and realities GM must continue to improve upon product reliability and plant oversights. Due to the consistent underperformance of certain brands, there is a need for restructuring in GM‘s portfolio. This will allow GM to again raise fund into making existing brands stronger. Also, a modern car need sophisticated communication systems and electronic components for the smooth and secure travelling. Here arise a strategic joint venture with technological leaders like Apple Inc. would enhance GM‘s leading telemetric system by blending computer and wireless technologies and appealing to a growing market segment. Finally, GM must optimize production by closing inefficient plants and increasing the remaining plants to maximum capacity. Levers of Control Framework as a Tool to analyse Strategic risks and Uncertainties Kaplan and Norton discuss five levers of control. The five control levers include: 1. Belief systems, 2. Boundary systems, 3. Internal control systems, 4. Diagnostic systems, and 5. Interactive systems. Belief systems relate to the fundamental values of the organization. It include developing mission statements and vision statements for GM. It helps the workforce to hold its values while working for the firm. It gives an idea of where the company is going in the long term. Business Boundary systems describe constraints in terms of employee behaviour, i.e., forbidden actions. It provides an insight of dos and don’ts in an organisational set up. It includes details of organizational code of conduct. Internal control systems are related to protecting assets, while diagnostic systems theoretically provide information indicating whether a system is in control or out of control. Interactive systems focus on communicating and implementing the organization's strategy. This includes a regular interaction between the corporate and the business units to promote the organization's strategy and ultimately to promote learning and growth. Conclusion Strategic risk of the company can be analysed by defining levers of control in the company like GM. If a problem arises in any of the areas, the particular system dealing with that area should be cross checked with the problem and the appropriate action plan can be formed. It promotes easy diagnosis of the issue and better planning for the upcoming operations of the business. For developing a strategic plan, benchmarking is not a suitable option. Plan should be company specific. As Andrew Campbell’s mentioned, we company should analyse their business first and implement a plan which should be a value addition to the firm and a guideline, that leads to the organizational goal ultimately. Works Cited Brian J. O’Connor of The Detroit News Explains VEBA.VEBA Healthcare, 2010. Web. 8 Dec. 2010. Cadillac SRX Earns Top Safety Pick from IIHS. General Motors Company, 2010. Web. 8 Dec. 2010. < http://www.gm.com/corporate/> Chenhall, R.H. Contemporary Issues in Management Accounting. Oxford University Press, 2006. Print General Motors. ConsumerAffairs.Com, 2010. Web. 8 Dec. 2010. Grassley Slams GM, Administration Over Loans Repaid With Bailout Money. Fox News.Com, 2010. Web. 8 Dec. 2010. GM Beats the Market. Fortune, 2010. Web. 8 Dec. 2010. GM Gains, But Weaknesses Remain. Bloomberg, 2010. Web. 8 Dec. 2010. Wagoner puts a happy face on GM’s Troubles. FORTUNE, 2010. Web. 8 Dec. 2010. Read More