Grand Metropolitan - Trends in Corporate Strategy - Case Study Example

Introduction

Corporate strategy is a major determining factor for the success of company because it can enhance customer loyalty as well as enhance sale of product. The fact that companies in industries around the globe compete more vigorously each year since company are innovating techniques to cope with competitors. Therefore, corporate strategy has changed over time as depicted by the case of Grand Metropolitan. Other factors, which have contributed to change of corporate strategy over time include globalization, emergence of electronic business (e-commerce), disruptive technologies, convergence and innovation of industries. Corporate strategy is concerned with strategy and strategic decisions in any type of organisations. For instance, Grand Metropolitan used strategy and strategic decision to reposition itself in the industry.

Corporate strategy has evolved enormously over the last decades, there have been some trends that characterize the type of corporate strategy in a given period of time based on the value added on the organisation. For instance, 1950s and 1960s the focus was on generic management skills; 1970s the focus was based market power and portfolio planning; 1980s the focus was on value-based planning; 1990s the focus was on synergy; and 2000s it was based on core competencies, dominant management , and logic. There are some aspect that triggered changes in corporate strategy over these times in regard to the corporate value added. Corporate strategy is very useful to many companies, hence this paper will describe the case of Grand Metropolitan on corporate strategy, and the assertions will be made using corporate strategy literature. The company is very significant in terms of corporate strategy since it is one of the largest wines and spirit sellers in the world, therefore making it relevant to understand how and why corporate strategy has changed over time.

Grand Metropolitan’s Background on Corporate Strategy

The Grand Metropolitan PLC is one of the world’s largest wine and spirit sellers. However, the company has developed and transformed since it was found in 1940s. Grand Metropolitan success can be attributed on the manner it has changed its corporate strategy over the years in regards to the market forces. Corporate strategy is about strategy and strategic decisions, Grand Metropolitan was main core business when it was formed was hotel business, and most of the corporate strategy that the company engaged was based on hotel business. The company’s main strategy over the time has been on changing of its core business so as to compete effectively in the industry. For instance, in 1988 Grand metropolitan disposed at least 25 business so as to focus on core activities (GM 234). The company changed its strategy from time to time to suit the market, to enhance sales and profitability. All the decisions that the company implemented guaranteed the company success. The corporate strategy decision were fundamental and they were implemented in a timely manner. For instance, when the company changed from hotels as the core business to foods and drinks was timely and inevitable. From a strategic perspective, the company was a major buyer of drinks and making their own drinks was a viable and sound decision (GM 236). Hence, the Grand Metropolitan’s background regarding corporate strategy is very relevant in critically analysing how and why corporate strategy has changed over time.

Trends in the Company’s Corporate Strategy

The concept of corporate strategy has changed tremendously in the last half of the previous decade attributed to the competitiveness and need for diversification to add value to businesses. The changes in corporatize strategy experienced by conglomerates from the 1950 to 2000s can be exemplified by the Grand Metropolitan case study.

1950s to 1960s

During this period, the main focus of corporate governance was characterized by pursuit for competitive advantage by firms to ensure a competitive edge in the industry. Businesses distinguished between business-level and corporate-level strategies (Porter, 1987). In this regard, business-level strategies deals with formulation of the structure of competition while corporate-level strategy deals with formulation of businesses in which firms should compete. Prior to 1950s, firms had previously concentrated on emerging trends resulting from the market beliefs regarding the optimal extent of diversification (Bausch and Schwenker, 2009). However, during the period between 1950s and 1960s, there was a growth in the generic management skills which explained the diversification and corporate growth. This trend led to the rise of many conglomerates. However, in the late 1960s and stretching to early 1970s, there was a general rise in profitability problems and many companies experienced large discounts on the stock market.

During this period, the Grand Metropolitan experienced a rapid growth in competitiveness marked by a series of acquisitions. The first hotel, Mandeville in London was acquired in 1947. The company also made the next acquisition in 1950 despite the high gearing, escalating property values and strong cash flows (GM 236). Among a number of other many acquisitions, the company purchased Mount Royal hotel in one of the most ambitious acquisition. The acquisitions of these hotels was accompanied by active marketing and cost cutting to enhance further acquisitions. The rapid growth rate of the group reduced in the period beginning 1973 due to the oil shock experienced during the recession period that led to destabilization of the British economy (GM 240).

1970s

The 1970s period is referred to as an era of portfolio management tools as it dealt with portfolio planning and portfolio decision making. Corporate portfolios was strategically balanced with cash generating businesses and growth and underperforming businesses were divested strategically to achieve greater performance results. It is however, worth noting that the performance achieved by this approach was short lived due to disregard to the fit between the need for unique business management approaches and the businesses. As such, the performance of declined again (Bausch and Schwenker, 2009).

During this period, the Grand Metropolitan, the major portfolio planning of the company involved balancing between the value of the property assets and the plummeting production. The company was experiencing large debt burden resulting from high interest rates following the intense and expensive Watney Mann acquisition. The low performance of the company during this period was associated with poor portfolio decision making as there was heavy dependence on a single national brand which led to poor sales (GM 240).

1980s

This era of trends in corporate strategy was based on addressing the “fit gap”. Peter and Waterman (1982) advocated for the abstract concept of “sticking to the knitting”. Due to the ambiguity of this advice, there were increasingly many case of elaboration which would later bring about the concept of content and theories, thereby triggering the idea of restructuring and refocusing.

This developmental stage in the Grand Metropolitan can be exemplified in the refocusing of the group due to the financial challenges and the dilemma of a takeover in 1981. In 1984, the group was affected by a sharp drop in the US occupancy rates which cost the group a substantial loss approximated at $8 million. This challenge was also coupled with the decline in US travel to Europe given the increased terrorism, declining value of the dollar and the Chernobyl disaster (GM, 254). The company reacted by capitalizing on brand value, investing in heavier projects and low growth areas to enhance the declining growth. This move led to the acquisition of Children's World, Quality Care, and Pearle Optical (GM 242).

1990s to 2000s

During this period, the competitive advantage of firms focused on synergy, core competences, and dominant management logic as put forward by Prahalad and Hamel (1990). These notions offered extra guidance on evaluation of the “fit” and quality of portfolio decisions. In this respect, firms grew beyond focusing on content and delved more on factors that allowed them to achieve effective processes of strategic decision making. Company began striving to achieve optimal strategies through innovative ideas and diversification.

The changes in the corporate strategy in Grand Metropolitan during this period is demonstrated by the development of the core businesses to achieve the optimal fit for the group and improve its declining performance. The group developed some of the businesses which it had acquired into core businesses including Pillsbury and Watney (GM 247). The group also divested all the brand line that were not perceived to have international branding potential in all its hotels, breweries, food brands, fitness products, beverages, gaming establishments and breweries. Non-core business were sold off to allow the company focus on the core businesses; foods, retailing and drinks (GM 250).

Conclusion

From the analysis of Grand Metropolitan, it is evident that corporate strategy assumes that companies should own and control businesses in a range of products or markets (Johnson, Scholes and Whittington, 2008). The success of the Grand Metropolitan’s corporate strategy since the company was founded can be attributed to be the source of its success at various stages. Implementation of strategy was also done in a timely and a swift manner. Decision making is also a critical aspect of corporate strategy since it helps to cope with competition. As depicted by Grand Metropolitan case, the notion of corporate strategy has changed in the last of the previous decade due to competitiveness, diversification and need to add value to businesses. The corporate strategy devised or used by a particular company should be aimed at ensuring that the company has a competitive advantage in the industry (Barney and Hesterly, 2006).