Strategic Management for Philips Company - Report Example

Strategic Management Student’s Name: Instructor’s Name: Course Code: Date of Submission: Executive Summary This report discussed the main concepts of strategic management in relation to Phillips Company. To start with, the report discussed the internal and external factors which influence the strategic planning such as megatrends. The report also indicated that the international strategies which are implemented by the company include multi domestic and global strategies and finally the report found out that strategy evaluation is important in determining if the company is achieving the intended goals and objectives. The report further analyzed strategic directions and objectives, including the vision and mission. Key broad business level and international strategies have been analyzed in the report. This has utilized Ansoff matrix model, Miles and Snow’s adaptive strategies and Porter’s competitive business level strategies to undertake the analysis. The report has also analyzed strategic implementation and the key issues in utilizing them. This has deployed The McKinsey 7S Model in that analysis. The report has concluded by giving some recommendations towards the strategy implementation. Table of Contents Table of Contents 3 1.0 Introduction 4 2.0 Strategic Analysis 4 2.1 External environment: PESTEL analysis 4 2.2 Specific Environment 5 2.2.1 Porter’s five forces 5 2.2.2 Turbulence model 6 2.3 Internal analysis 6 2.3.1 Competitive strengths 6 2.3.2 Sustainable competitive advantage 6 3.0 Strategic Directions and Strategic Objectives 7 3.1 Vision Statement 7 3.2 Mission Statement 7 3.3 Strategic Objectives 7 4.0 Key Broad Business Level and International Strategies 9 4.1 Ansoff matrix model 9 4.2 Miles and Snow’s adaptive strategies 9 4.3 Porter’s competitive business level strategies 10 4.4 The international strategies 10 5.0 Strategic Implementation 10 6.0 Key Issues in Strategy Implementation 11 6.1 The McKinsey 7S Model 11 6.1.1 Systems 11 6.1.2 Structure 12 6.1.3 Skills 12 7.0 Strategy Evaluation 12 8.0 Conclusion 13 9.0 References 14 1.0 Introduction Strategic management is the process of setting long term goals which the organisation needs to achieve. Through strategic management, it is possible to achieve the desired goals and the long run since there will be effective utilization of resources to maximize the output while minimizing the input (Hill & Gareth 2012). This report therefore will discuss the strategy analysis which will include the PESTLE analysis focusing on megatrends, porter’s five forces and internal analysis. The report will further discuss the strategic directions and objectives. Finally, the report will discuss the strategy implementation, issues that affect the implementation process and evaluation of the strategy. 2.0 Strategic Analysis 2.1 External environment: PESTEL analysis The megatrends have impacted on the operations of the Philips and which are most relevant to it include changes, volatility and discontinuous change. In this effect, the first megatrend is the rapid changes which occur frequently due to technological developments (Lynch 1999). Moreover, change can be volatile. This implies that the changes can be small or big, but they have great impacts on the performance of organizations (Lynch 1999). In addition, there is discontinues megatrend which implies that future cannot be predicted and that is why organizations are flexible so that they can implement the necessary changes (Lynch 1999). The opportunity for Phillips Company includes opportunity to venture into mobile industry. This is because about 70% of the materials from IC screens are used to make the screens for Nokia phones hence the company has the opportunity to venture into the mobile industry (Hill & Gareth 2012). Due to healthcare changes, the company has opportunity increase its market share due to quality products. The political stability in Middle East affected the purchasing power of the Phillips customers. In addition, the political instability affected the value of the products at the international capital markets influencing the profitability of the company (Hill & Gareth 2012). Due to unexpected changes in the global economy like the global financial stability affects the foreign exchange which led to decline in the company’s profitability. The economic downturn in the year 2008 affected the company’s operations since it lowered the purchasing power of the Phillips customers (Phillips Company Plc 2014). There was 6% increase in the healthcare sector after managing the global financial crisis increasing the company growth. In addition, Phillips Company has experienced changes in social demographic due to increase population growth, increasing the demand for the better healthcare products with low cost increasing the demand for the company’s products (Hill & Gareth 2012). In addition, the partnership with LG Phillips the company lost 61 million Euros due to corporate social responsibility. Technology on the other hand is the trend for the company since it has experienced research and development team concerned with improving technology application particularly to reduce the consumption of energy. 2.2 Specific Environment 2.2.1 Porter’s five forces The first force is the threat of new entrants (Lynch 1999). The entrants to the industry such as Siemens AG and Matsushita Electric Industrial Company have intensified competition influencing the profitability of the company. Availability of substitute products on the other hand influences the operations of the company in terms of profitability (Ghemawat 2002). The competitors such as Matsushita Electric Industrial Company have developed lighter bulbs which are energy saving thus shifting the demand of the customers. The bargaining power of the customers is strong. The main customers of Phillips Company include USA, France and Hungary. USA provides 50% of healthcare market (Phillips Company Plc 2014). In this regard, the customers have strong bargaining power since they are fewer than the suppliers. The same case applies to the strong bargaining power of the suppliers who influence the quality and pricing of the services of the company. The main suppliers of the company include Electronic manufacturing services and Original design manufactures (Phillips Company Plc 2014). Further, the government force analysis should also be considered. For instance, the corporate tax is Netherlands in the year 2008 was 25.5% this affects the operations of the Phillips company by influencing the cost of production which also influence the pricing of the products. Further, the trade policies which are formulated by the government like trade barriers which help to protect domestic companies. However, Phillips Company has been successful in penetrating into markets like Hungry due to favorable government forces like favorable taxation and free trade (Phillips Company Plc 2014). 2.2.2 Turbulence model The turbulence model can be identified and can be analyzed using the framework of complexity, dynamism and unpredictability (Porter 2004). In the first place, it is hard to predict the future trends in the electronic industry and this is because the needs of the customers are volatile. In this way, the company has the opportunity of conducting market research to identify the need of the customers which is important in exploiting the opportunity (Porter 2004). Further, there are changing dynamic in the business environment like changes in technology and this implies that Phillips Company can have the opportunity to apply the most appropriate technology to meet the needs of the customers (Porter 2004). Finally, the future cannot be predicted due to the changing business demands and this can be a threat to the company since it cannot achieve its long term strategies because there are changing dynamics in the business environment. 2.3 Internal analysis 2.3.1 Competitive strengths The first core competency of the company is the ability to use appropriate technology in the provision of the products and services to the customers (Phillips Company Plc 2014). The Phillips Company is technologically oriented and it offers products which are of high quality to meet the needs of the customers (Phillips Company Plc 2014). The company also has strengthened by focusing on product innovation. 2.3.2 Sustainable competitive advantage Phillips Company has significant amount of sales which helps to improve the sustainability of its operations. For instance, it earns 29% from healthcare and 24% from consumer lifestyle and 21% in lighting, thus its brand is growing steadily (Kvint 2009). The company has the opportunity to develop new products especially investing in the mobile industry since it uses about 70% of its materials from IC screens which are commonly used to manufacture Nokia phones. From this discussion, it can be indicated that the company is well positioned in the global market. The company has effective strategies to manage the threats which arise like competitive. Moreover, the company exploits the opportunities through product innovation as compared to competitors like Siemens. 3.0 Strategic Directions and Strategic Objectives 3.1 Vision Statement The vision statement is striving to make the world a healthier place to live in and be more sustainable through innovation (Phillips Company Plc 2014). The company aims to improve the lives of 3 billion people globally by the year 2025 by being creative including its stakeholders as shown in figure 1 (Phillips Company Plc 2014). 3.2 Mission Statement The mission statement of the Phillips Company is to ensure it improves the lives of the people through innovation. In this way, the company encourages innovation throughout its operations to develop effective plans to improve the lives of the people (Phillips Company Plc 2014). 3.3 Strategic Objectives The objectives of the Phillips Company according to the 2012 annual report include driving the co-leadership in imaging systems in the health care and clinical informatics (Phillips Company Plc 2014). Another objective is to expand the healthcare solutions to the people of the world. According to these objectives and vision and mission statements, the company has effective direction to take to ensure it achieves its long terms goals and objectives (Phillips Company Plc 2014). Moreover, the company aims at product development to meet the customer need while equity in remuneration compensates the employees well to ensure their needs are met. Another objective is to communicate the financial reports to the financiers so that they understand the progress of the company and the company engages in CSR to meet the community need. This is towards satisfying all the stakeholders involved. Through the ethics matrix and stakeholder theory, the table below identifies the definitive, dominant and other stakeholders, and their demands. The purpose of stakeholder theory is to create as many stakeholders as possible of which Phillips Company has tried to work on as shown below. Stakeholder Salience Stakeholder demands Strategic objectives to address Shareholders Definitive Value for their investment Improved strategic decisions Customers Dominant Quality products and services Product development to meet the customer needs Employees Dominant Better remuneration Equity in remuneration Suppliers Dominant Reliability and trust the company Implement MIS to improve communication Financiers Dominant Increased value for their money Constant communication on company progress Environment Dominant Environmental preservation Upholding environmental standards through csr Advisors Discretionary Better decisions Constantly engaging them in decision making Government Dominant Uphold government policies Upholding government regulations and Acts Unions Discretionary Employee engagement Freedom of association for the employees to join unions of their own choice. Community Discretionary Expect good relationship with the company Engaging in corporate social responsibility Table 1. showing stakeholder analysis 4.0 Key Broad Business Level and International Strategies 4.1 Ansoff matrix model In the first place, there is the market penetration strategy where the Phillips Company increased its market by entering into the Hungary market as a way of maintaining the competitive advantage (Rumelt 2011). The second one is the product development strategy whereby the Phillips company developed the initial bulbs so that they can last for more than 1000 hours which is long enough for the customers to buy them (Rumelt 2011). The company also engages in a divestment strategy whereby the company sold Set Top Boxes and sale of the brand license to North America television hence improving the sustainability of the business. There is also a market development strategy whereby the company identified the opportunities in Hungary market, then developed effective products and services which meet the needs of the customers in that particular market (Rumelt 2011). Finally, there is a diversification strategy whereby Phillips Company has innovated a variety of products like the lighting products such as mood lighting, Disney and car light as well as electronics such as televisions and headphones. 4.2 Miles and Snow’s adaptive strategies Phillips Company in its product innovation strategy, it engages consumers as co-creators and users, which enabled the company to innovate products to meet the needs of the consumers and this helped to improve the experience of the consumers (Mckeown 2012). The administrative strategy whereby there is online strategy for tracking the consumers and user communities helps the company to coordinate the operations of the company effectively in introducing the new product to the new markets. In this way, the company is able to improve its adaptability in the new business environment (Mckeown 2012). 4.3 Porter’s competitive business level strategies The first strategy is the differentiation strategy whereby, the Phillips Company’s products can be easily identified by the customers due to high quality, thus strengthening the brand name of the company (Mckeown 2012). There is also the cost leadership strategy whereby the Phillips Company ensures that it maintains the cost of production low as possible. The Phillips Company conducts a process evaluation to determine the processes which do not add any value to the company and eliminate them. On the other hand, the focus strategy for instance can be utilized where the Phillips focuses on developing economies where there is still high demand for LED light like the African countries. 4.4 The international strategies The first international strategy is the multi domestic strategy. Due to political differences in the global business context, the Phillips Company decentralized its services like licensing agreement with North America television to manufacture and sale its products (Scott &Kesten 2007). This improves the responsiveness and minimizing the political risks in other economies. There is also global strategy. The Phillips Company has also implemented the partnerships to enter into new markets. The company has more than 30 alliances and partnerships. The company has made strategic alliances with Nivea for men lotion and ActiveCrystals as well as Swrovski crystals to enter into the global market (Scott &Kesten 2007). In concluding, this section discussed the main stakeholders of the company who include employees, customers, top management and government and also discussed the ansoff matrix model which has enabled Phillips Company to expand its growth. These strategies include market development, product development, market penetration and diversification. The strategies implemented by the company as discussed in this section include multi domestic strategy and global strategies while defensive strategies include development strategies. 5.0 Strategic Implementation Considering the strategies which are implemented by the company, it is clear that its positioning can explain that the strategies are well implemented (Worrell 1998). For instance, the company has managed to implement the innovation strategy and developed new products like light bulbs which are preferred by the consumers. In addition, the strategy of expanding the business growth has been achieved successfully and that is why it is better positioned (Mulcaster 2009). In addition, the multi domestic strategy has been implemented successfully since the management of the company has effective leadership (Mulcaster 2009). The company has competent leadership and management team which has been able to develop the skills of the employees as well as identifying opportunities and exploiting them (Mulcaster 2009). Therefore, the global and multi domestic strategies have been implemented successfully by managing the issues which affect the implementation process. 6.0 Key Issues in Strategy Implementation 6.1 The McKinsey 7S Model Source. Warner 2010 6.1.1 Systems The traditional systems management reports can be a stumbling block to the success of the strategy implementation (Warner 2010). Due to strategic alliances that the company has entered as a global strategy, the agreement between the partners is challenging in implementing its strategies. For instance, the alliance with Swrovski crystals was not successful due to disagreement that led to break of the agreement. This is because there was no management balance between the two partners (Warner 2010). 6.1.2 Structure The management structure on the other hand can hinder the successful implementation of the strategic plan. Due to multi domestic strategy, the company practiced decentralized organizational structure (De & Meyer 2009). This hindered the implementation of the strategies of the company like cost leadership strategy due to decentralized decision making which led to varying prioritizing and strategies hence the overall strategy could not be implemented (Whittington 2000). 6.1.3 Skills Since Phillips Company implemented the global and multi domestic strategies, the company was entitled to comply with the local needs which led to recruiting employees from the domestic market (De & Meyer 2009). The local managers and engineers had no competent skills in conducting the research and development and this affected product development and design (De & Meyer 2009). Therefore lack of competent skills among the domestic employees led to improper implementation of the cost leadership strategies. In conclusion, considering these issues, it is the responsibility of the management of the company to ensure that it has put the necessary measures in place to manage the effects of these issues. The impact of these issues is that it can lead to lack of effective achievement of goals of the strategy being implemented. 7.0 Strategy Evaluation The success of the strategies being implemented by the company is effective due to innovation and development strategy which enables the company to utilize the resources effectively (De & Meyer 2009). Due to product development and innovation, Philips Company will be able to reduce the cost of operations due to economic strategy which improves the profitability of the company. The company has stable financial resources which help to conduct research thus improving the product development and innovation leading to effective implementation of the strategies. On the other hand, the Phillips company engages in corporate social responsibility which is related in preserving the environment (De & Meyer 2009. For instance, through recycling programs, the company will be able to implement its strategies effectively since there will be less resistance from the stakeholders like the community. Therefore, the environmental strategy will enable the company to implement its strategies appropriately because it has its objectives right (Warner 2010). Finally, the company engages in social justice by upholding labor law. This considers the working conditions by considering the cultural concerns of the domestic market. For instance, the company hired local employees in Hungary who understand the cultural issues of the people (Warner 2010). This is one of the objectives of the company since it aims to satisfy the customer needs. In this way, the company is able to implement its strategies effectively. 8.0 Conclusion In conclusion, strategic management has played a key role in the success and survival of Phillips Company. Strategic management is an important aspect in the success of any organisation. It enables the management to set long term goals which are SMART to provide guideline to the performance of the company. The factors which influence the strategic plans of an organisation include external and internal factors. External factors include PESTEL and Porter’s 5 forces. In improving the competitive advantage of the company, there are various strategies which should be implemented. In the first place, the company should effectively implement the differentiation strategy so that its products and services will be unique from those of the competitors. The company should also formulate and implement the effective training programs to improve the skills of the employees so that they can be motivated to improve their productivity. In implementing the strategic plan effectively, the management of the company should be able to involve the employees in decision making so that they can avoid resisting the change implementation. There should be an effective communication strategy to inform the employees the need for implementing the change. 9.0 References De, W & Meyer, S. (2009). Strategy Process, Content and Context. London: Thomson Learning. Ghemawat, P. (2002). "Competition and Business Strategy in Historical Perspective". Business History Review (Harvard Business Review). Hill, C. W & Gareth, R. J. (2012). Strategic Management Theory: An Integrated Approach. New York: Cengage Learning. Kvint, V. (2009). The Global Emerging Market: Strategic Management and Economics, London Routeledge. Lynch, R. (1999). ‘Corporate Strategy’, Pearson Education. Middleton, J. (2003). The ultimate strategy library: the 50 most influential strategic ideas of all time. Oxford: Capstone. Mulcaster, W.R. (2009). "Three Strategic Frameworks," Business Strategy Series, 10(1), 68–75. Mckeown, M. (2012). The Strategy Book. London: FT Prentice Hall. Rumelt, R. P. (2011). Good Strategy/Bad Strategy. London: Crown Business. Scott, J. 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