Strategy Innovation and Change - Essay Example

Strategy Innovation and Change Introduction Strategy is largely concerned with providing organisations with long-term directions. The decisions with corporate strategy evaluate the extent of organisational activities by centring them on competitive advantages. As it can be observed, the primary aim of strategic management is to establish a strategic fit between the organisations and their business environments (Johnson, Scholes & Whittington, n.d., P. 6-7). Implementation of strategy often calls for changes in organisational resources depending upon the desired transformation. Strategic management is a holistic approach that is adopted by organisations in planning the future course of business and as Mintzberg points is out, “strategies are both plans for the future and patterns from the past” (Mintzberg, 1987, P. 67). Of the various methods that organisations generally adopt in order to manifest strategic success, strategic alliance is very popular, and as Kanter propounds, “business alliances are living systems, evolving progressively in their possibilities” (Kanter, 1994, P. 97). She further suggests that “relationships between companies begin, grow, and develop – or fail – much like relationships between people” (Kanter, 1994, P. 99). This essay will focus on the strategic alliances and their conceptual tenets. This essay will focus on the strategic alliance that was struck between Avebe and Noveon in March 1995, and was terminated in September 1999. It was observed that the alliance was based on shared-supply as they jointly developed a product but marketed it independently (Dussauge & Garrett, n.d., P. 63). Pre-Alliance Analysis When companies wish to enter into a shared-supply alliance, comparative analysis of core competencies is indispensable in evaluating technological and other resources-related compatibility and thus helps in anticipating the outcomes of such alliances. Generally firms also take into consideration the mutual competencies in terms of marketing as well in order to project the future prospects of the novel products, if any, that are focused on developing. While conducting an internal appraisal, organizations should also consider their cultural aspects and try their best to enhance employee-involvement so that they are properly aligned with strategic objectives. Das and Teng suggest that “the first stage in forming alliances is the selection of partner firms” (Das & Teng, 1999, P. 56-57). Prior to formulating any organizational strategy, the management should take into consideration the external business environment as these initiatives are necessary to explain the industrial structure and the impact of anticipated changes in environmental factors on the industry as well as the firm (Mintzberg, Ahlstrand & Lampel, 1998, P. 26). Moreover, an alliance decision may depend on either of the six contingencies, viz. necessity, asymmetry, reciprocity, efficiency, stability and legitimacy (Oliver, 1990, P. 242-246). As per the findings of a detailed market research conducted in 1992, Avebe enjoyed a stupendous position in the segment of printing thickeners. However it was found that the company had not yet explored the opportunities completely in printing that employs reactive dyes. On the other hand, Noveon realised that the synthetic polymer that it produces was substantially expensive while the natural starch produced by Avebe was cheap in comparison. Subsequently it came across a logical idea that their products might be mixed to develop a superior product that might prove to be highly profitable owing to its reasonable cost of production. Simply put, the companies desired to achieve a collaborative advantage by blending their individual core competencies through a shared-supply alliance. The main aspect of shared-supply alliances is that they “bring together companies which join forces to achieve economies of scale on a given component or on an individual stage in the production process” (Dussauge & Garrett, n.d., P. 63). The shared components are integrated in products “that remain specific to each partner company, and that compete directly in the market” (Dussauge & Garrett, n.d., P. 63). It has been observed that most of the companies that strike a strategic alliance are observed to do so on the basis of shared-supply as their decision is largely based on reciprocity – “for the purpose of pursuing common or mutually beneficial goals or interests” (Oliver, 1990, P. 244). However, their success in creating value remains suspect as Doz and Hamel opine “if strategic opportunities are foreclosed, it is difficult to place a value on the alliances that produced these outcomes” (Doz & Hamel, n.d., P. 9-10). The various environmental variables that organisations should look into while formulating strategies are societal changes, governmental changes, economic changes, competitive changes, supplier changes and market changes (Mintzberg, Ahlstrand & Lampel, 1998, P. 29). Avebe had decided upon Noveon to be its strategic ally primarily because Noveon manufactured the best synthetic polymer in the dry form and Avebe was an expert in the dry blending of chemicals. Moreover, dry blends enhance production efficiency both in terms of space as well as cost, especially in terms of packaging and transportation. Noveon had zeroed in on Avebe as the ultimate choice for a strategic ally because it found that the technology used by the latter was compatible with the objectives of the former (Wahyuni, 2003, P. 137-138). Moreover, both the companies wanted to make forays into diverse markets. Strategy Generation Strategies are as numerous as the endless business opportunities that entrepreneurs can instinctively sense. The act of formulating strategies is largely a situation-driven function that organisations undertake to plan their futuristic course of business activities to achieve long-term business objectives. Two important factors that influence the process of strategy generation are managerial values and social responsibilities (Mintzberg, Ahlstrand & Lampel, 1998, P. 27). Managerial values represent the element of organisational leadership and comprise “the beliefs and preferences of those who formally lead the organisation” (Mintzberg, Ahlstrand & Lampel, 1998, P. 27). Strategy being an important determinant of business-success should be communicated in the top-down manner and hence managerial values play an important role in aligning the employees as well as organisational operations with the strategic orientation. Social responsibilities of an organisation comprise the value-system and ethics that are prevalent in the society within which organisations exist and thus, the management should realise their importance in organisational success. Hence, this is another vital tenet of strategy generation. According to Andrews, despite the formal structure that characterises the process of strategy generation, it largely remains an intuitive and creative act (Mintzberg, Ahlstrand & Lampel, 1998, P. 27). It often so happens that managements come up with more than one strategic alternative. The more the number of alternatives, the better it is helpful for the decision-making body to form an all-encompassing strategy that best suits the business needs. Strategy Generation: Initial Agreement In the initial stages of the strategic alliance, the two companies, Avebe and Noveon, had established a contract which outlined the course of combined product development. Subsequently a marketing agreement was developed. The agreement pertaining to product development entailed the companies to develop the collaborative product with complete technical support from each of them. The agreement had meticulously mentioned that Avebe would send natural starch to the USA based production facility of Noveon while the latter would in turn send artificial polymers to the European facility of Avebe. The agreement also necessitated each of the companies to exchange knowledge as well as any relevant information associated with natural starch as well as synthetic polymers throughout their alliance. Strategy Generation: Marketing Agreement The marketing strategy for the new product that was jointly developed by Avebe and Noveon was formulated in 1997. The various aspects of the agreement illustrated that the companies aimed at segmenting the global markets while keeping restraint on the sales of partner’s product(s). Avebe being a leader in Russia, Europe and the Asia Pacific, was given the responsibility to market the product in those regions. The locations that were in the kitty of Noveon were the Caribbean and the USA. It was also decided, though not conclusively, that in China and India – both emerging economies – taken together as an extensive region, both the companies would have complete marketing rights. It was mutually agreed upon by both the companies that though they would sell their respective core products along with the jointly developed product, neither of them should sell the products of its partner. It was further decided that the companies would meet semi annually in order to exchange information pertaining to the improvisation of the product as well as the technical expertise. Avebe and Noveon had agreed that they would enjoy a joint ownership in terms of the intellectual property associated with the jointly developed product. Evaluation and Implementation of Strategy After managements determine the various strategic alternatives, the design school necessitates them to evaluate the various alternatives in order to zero in on the best strategy. According to Richard Rumelt (1997), the evaluation process should seek to ensure that certain characteristics are present in the strategy. These characteristics are consistency, consonance, advantage and feasibility (Mintzberg, Ahlstrand & Lampel, 1998, P. 27-28). Consistency ensures that the strategy doesn’t present goals as well as policies that are mutually inconsistent; as such an incidence will lead to opacity of objectives and in turn result in strategic failure. As far as consonance is concerned, strategies should “represent an adaptive response to the external environment and to the critical changes occurring within it” (Mintzberg, Ahlstrand & Lampel, 1998, P. 27). Consonance is immensely important in aligning the organisational operations and activities with the external business environment so that the former may adapt itself spontaneously with any ripple in the latter. This can be achieved only if the organisation has a strong capital of knowledge, skills and abilities (KSAs), supported by a culture that promotes organisational learning. While evaluating a strategy, it should be carefully analysed whether the strategy helps in creating and/or maintaining the competitive advantage of the firm. Unless this is manifested, the strategy can’t be considered as successful, because competitive advantage is the organisational aspect that helps firm to stay ahead of their rivals. Finally, it is extremely important to ensure that the strategy does “neither overtax available resources nor create unsolvable sub problems” (Mintzberg, Ahlstrand & Lampel, 1998, P. 28). According to Kanter (1990), any strategic alliance needs certain fundamental requisites to be carefully addressed to in order to be successfully integrated with the organisations’ culture as well as objectives. The foremost requirement is that “the alliance or joint venture must be important strategically for both partners” (Thomson & Martin, n.d., P. 592-593). The central problem that may be associated with the Avebe-Noveon strategic alliance is that strategy formulation had been separated from strategy implementation. This in turn had led the companies to subsequent problems and it was observed that a potentially promising alliance came to a premature end. Moreover it was observed that substantial emphasis was on rationality as well as planning based upon quantitative data. In the light of this observation it may be inferred that the process of strategy formulation was imperfect as qualitative data was not taken into consideration. Though strategy is largely conceived as the domain that requires the expertise of senior management and corporate leaders, Mintzberg et al. (1998) have argued that it is deliberately planned by the application of tools such as the SWOT analysis. However, Simon (1959) have contradicted this notion by propounding that the process of formulating strategic decisions is limited by the circumstances, knowledge and experience of the strategists (Johnson et al., 2008). In the context of the Avebe-Noveon alliance, there had been a limited number of participants that was associated with the process of strategy formulation and consequently the flow of information was also limited to a great extent. The fallouts were augmented by the lack of an on-going evaluation and as a result the companies could not produce an evolutionary/ emergent strategy. Consequently, they could not institutionalise the importance of learning and failed to adapt to the changing circumstances. Taking cues from Doz and Kosonen (2008), it may be said that strategic agility could have helped the strategic partners overcome the obstacles that they faced during while implementing the strategy (Doz and Kosonen 2008). It could be further observed that the strategists at Avebe as well as Noveon depended mainly on rationalization which in turn was buttressed by information pertaining to market potential, market position, financial strength, and core competencies. Thus, the decisions were limited by personal understanding of the strategists as well as the market intelligence that was readily available to them. They had not considered the elements of organizational culture and organizational structure while formulating strategies and owing to the fact that this was an instance of cross-border alliance, such opacity had proved detrimental (Schein, 2004). Both the companies made the same mistake by overlooking these aspects and concentrating exclusively on market potential. The decisions pertaining to the Avebe-Noveon alliance had originated from the top managements of the companies, thereby making them primarily corporate level strategies. These had overshadowed the business- as well as operational-level strategies and hence led to dysfunctions related to the interconnections among the different levels of strategies. The major reason behind this outcome was the complete demarcation between strategy formulation and implementation. It may be appreciated that proper alignment can bring about a feedback system that in turn may strike an effective balance between the strategic intent and the strategy. The entire process that comprised strategy formulation followed by research and development (R&D), and product launch was quite time consuming in case of the Avebe-Noveon alliance and as a result it was observed that the jointly developed product that was supposed to add to the strength of the companies became a weakness. Thus the foundation of the alliance became shaky. Again this may be attributed to the fact that the strategists had not taken market dynamics into consideration. Hollensen (2004) had opined that company fit is a precondition for a fruitful alliance (Hollensen, 2004), and this suggests that the organizations that are involved in an alliance must be attuned to each other from the perspectives of objectives, commitment, competencies, technologies, structure, and culture – both organizational as well as national. In the case of the alliance under survey, relevant audits were not undertaken and hence the phase of product development suffered from mismatches that ensued from differences in American and Dutch work ethics. On being introduced to the market, the alliance had experienced a kind of reality shock and consequently failed to endure the pressure as the underlying strategy lacked the soundness pertaining to organizational fit, market fit, cultural fit, flexibility and above all functions dedicated to the alliance. Organisations generally opt for strategic alliances in order to achieve any of the four objectives, viz. making foray into new markets, defining emerging standards for the industry, learning as well as applying latest technology, and filling the product lines (Pitts & Lei, 1996, P. 216-220). According to Kanter (1990), any strategic alliance needs certain fundamental requisites to be carefully addressed to in order to be successfully integrated with the organisations’ culture as well as objectives. The foremost requirement is that “the alliance or joint venture must be important strategically for both partners” (Thomson & Martin, n.d., P. 592-593). The partners should contribute complementary competencies in order to materialise the strategic objective and they should also openly share information. It can be observed that while both the companies took a long time to develop the product owing to a lack of pre alliance planning, Avebe incurred high costs of switching from natural starch based products to a synthetic blend and additionally the company did not have relevant specialisation in sales. The situation was aggravated due to other factors such as lack of synchronization among marketing and sales departments. The company also lacked customer focus. Noveon, on the other hand could not create a definite value proposition that in turn diluted the strategic objective and focus. It did not focus efficiently on its customers and their needs. Finally the reorganisation initiative taken by the companies proved to be detrimental for their commitment towards the joint project. Kanter had further suggested that mutual trust plays an important role behind the success of strategic alliances (Thomson & Martin, n.d., P. 592-593). Leadership plays a vital role during the foundation as well as the expansion of an organisation. Voluntary engagement of the management escalates employee motivation and enhances integrity manifold. It is also necessary that the employees have direct access to the management in order to share their views and ideas. In case of strategic alliances, wherein the employees of the partner firms experience a cultural shift of sorts, the engagement of the respective management paves the way for a smooth alliance. They should listen to the employees during the formative phases as well as the post-alliance stages of an alliance to rout problems that might prove to be potentially threatening for the overall harmony. Under such circumstances it is highly necessary for managements to decentralise some amount of decision making power through enrichment of key personnel. Simultaneously, an organisational culture that nurtures enhanced learning as well as knowledge sharing should be promoted. Generally a participative leadership style is preferable under such circumstances as it helps in spontaneous flow of information as well as collaborative problem solving (Anonymous, n.d.). As Badaracco (1991) had said, organisational knowledge can be differentiated into migratory knowledge, i.e. the technical skills that may be easily transferred between strategic partners, and embedded knowledge, i.e. the core competencies of each partner (Thomson & Martin, n.d., P. 593). It was the product manager of Avebe who had taken the initiative and had enthusiastically shared with the marketing manager of Noveon, information about marketing issues and he had also discussed the strategy pertaining to the launch of the jointly developed product. However, the shared communication got slowly reduced during product launch. The primary reasons behind such a surprising turn of activities were quite serious. Both Avebe as well as Noveon encountered several problems while launching the new product and yet the sales were far from being materialised. This was obviously quite demotivating given that both the companies had toiled enthusiastically to manifest their organisational goals through the new product. Moreover, during the crucial stage of product launch, the cross organisational team that was formed through the dynamics of the alliance was dismantled. It was observed that though the managements of both the companies underwent reorganisation, Noveon went on enriching its managers with higher designations as well as broader spectrum of responsibilities. Quite clearly, the Noveon succession plan was much planned and rational. In comparison to its American partner, Avebe stood out as an example of mismanagement as the reorganisation was largely incongruent with the business needs. It was observed that the Noveon managers were more focussed on spreading their business network into other areas as well, while the managers at Avebe were burdened with multiple roles and a serious lack of vision. Post reorganisation Noveon was more interested in diversifying its business interests and mutual commitment between the two companies started taking a backseat. Finally, Noveon acquired Diamalt which happened to be a rival of Avebe. Following this March 1998 move by Noveon, the feeling of mutual trust that had existed between the two partners was badly affected. Diamalt being a rival of Avebe, they were barred from sharing market information as well as pricing among themselves. This in turn posed a serious problem to Noveon because both its Dutch partner as well as Diamalt was selling natural starches in Asia and Europe. Owing to fact that this problem seriously impeded the achievement of alliance goals, the strategic alliance between Avebe and Noveon was finally called off. Finally, it is worth noting that organisational culture should be able to sustain the ripples that are created by a strategic alliance. As a matter of fact, organisational leadership and organisational culture go hand in hand, i.e. they complement each other as tenets of organisational alignment with business objectives. It is the organisational culture that helps employees to withstand culture shocks and subsequently adapt to the changed environment created by an alliance (Palmer & Hardy, n.d., P. 119). Conclusion It was observed through the sections of this essay that potential alliances between companies may be successfully forged through a sequential approach wherein the prospective strategic partners conduct internal as well as external appraisals and comprehensively evaluate their respective positions both in terms of internal environment (comprising employees and operations) as well as external environment (comprising the socio-economic structure, politico-legal instruments and technological advancements). Following the appraisals strategy is generated and in this step the companies generate as many feasible strategic alternatives as possible. Herein, the companies compare their core competencies and in view of shared-resources, plan out futuristic strategies that will be feasible for all the partners. Strategy generation should ideally be a holistic approach to ensure its successful alignment with all business activities of a firm. After managements determine the various strategic alternatives, the design school necessitates them to evaluate the various alternatives in order to zero in on the best strategy that ensures the presence of certain characteristics, viz. consistency, consonance, advantage and feasibility. Organisational leadership plays an integral role in formulations of strategies and hence in strategic alliances. The top management that is generally vested with the responsibility of formally leading an organisation towards its business goals should align organisational culture, processes, operations and above all the employees with the long term goals through efficient communications. Hence, managements should be able to sense such ripples and adopt holistic approaches in order to align internal resources with them. In case of strategic alliances, organisational communications, along with the cultural and structural contexts, play a vital role in shaping the outcomes of strategic alliances. In case of inter-firm partnerships, efficient communications help level out employee-dissatisfactions. This is crucial given that most employees suffer from culture shocks in post-alliance work-environments. Moreover, the organisational culture should also be developed in such a manner that it can successfully sustain any alliance. This means, managements should infuse a culture that promotes organisational learning (OL) and helps employees to learn continually. This in turn enhances their capabilities to adapt spontaneously to the changes in external business environment. Instances wherein the leadership and culture are not properly aligned, strategic alliances do not succeed in manifesting synergistic goals as the strategic partners fail to identify with the common objectives. This often leads to serious loss of internal harmonisation and paves the way to chaos. Therefore, taking cues from the design school, it may be concluded that the fundamental tenets, viz. leadership, culture, structure and communication, together help in creating a strategic vision and subsequently align the organisational resources with the long-term business goals. These functions become incrementally critical in the case of strategic alliances wherein cross-cultural dynamics in terms of core competencies of the partners as well as the value systems of their respective employee base have to be carefully factored in. References 1. Anonymous. No Date. A Case of Initiator-Leadership and Follower-Leadership. Leadership and Organizational Culture. 2. Das, K. T. & Teng, B. 1999. Managing Risks in Strategic Alliances. Academy of Management Review. Vol. 13. No. 4. 3. Doz, L. Y. & Hamel, G. No Date. The New Alliance Game. 4. Doz, Y. & Kosonen, M. 2008. The Dynamics of Strategic Agility – Nokia’s Rollercoaster Experience. California Management Review Vol. 50. No. 3. 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