Business level strategy concentrates on developing a firm specific model that will allow the firm to gain competitive advantage over its rivals in the industry such as in which it operates. Business strategy would focus on improving its competitive position of a company’s or business unit’s products within the specific industry or market segment that the company and/ or its business units serve. The question explored in business level strategy is:
How a company can best be competed in the industry that they are in?
For an example Honda motors, Japan has a domestic market for its products and also it operates internationally. Thus business strategy should be crafted focussing on the ways of how it out beat the domestic competitors who operates both in the domestic market and as well as the in the international market like Mazda, Mitsubishi, Daihatsu, Suzuki, Toyota and Nissan and competitors in the international market like General motors, Chrysler, Ford Motors etc.
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In formulating business level strategies, firm should consider how best it can compete in each of the industries it operates in. Thus business level strategies require crafting the strategy and positioning the firm in each of its business. For an example Honda should formulate a separate business strategy for its motor cycle production section that attempts to add build competitive advantage over rival, motorcycle manufacturers. And there should be another business level strategy for its auto mobile manufacturing division that addresses the ways and means of competing against rival automobile manufacturers and a separate strategy for power products (engines, portable generators, lawnmowers, outbound motors) manufacturing division that attempts to build competitive advantage over power product manufacturers in the industry.
Corporate Level Strategy
Corporate strategy is to a firm’s survival and success and it is largely about the choice of the direction for the firm as a whole. I.e. Corporate level strategy describes company’s overall direction in terms of its general attitude towards growth and the management of its various business and product lines. Corporate strategy is concerned with two key questions,
What business should the company be in to maximize the long term profitability of the organisation?
What strategies should it use to enter into and exist from the business area?
This is true whether the firm is a small, one product company or a large multi national corporation. Corporate strategy in a multinational company is all about managing various product lines and business units for maximum value. In this instance, corporate head quarters must play the role of the organisational ‘Parent’ in that it must deal with various products and business unit ‘Children’. Even though each product line or business unit has its own competitive or corporative strategy that it uses to obtain its competitive advantage in the market place, the corporation must coordinate these different business strategies in order to be succeeded.
For an example Honda Motors, even though there are various competitive or corporative business strategies at various business unit levels, it is the top management that decides the overall direction and goals for the entire organisation. i.e. even though there are several business segments as motor cycle manufacturing, auto mobile manufacturing and power product manufacturing and different competitive or corporative strategies adopted by each of these segments at business level, corporate level strategy for each of these segments all the same.
Critically evaluate the process of ‘reconciling dichotomies’ at Honda Motors with reference to the ‘product-related core competencies versus process -related core capabilities’ dichotomy.
Honda’s underlying innovative strategic management process is described as “reconciling dichotomies” There can be seen number of dichotomies that encompasses management thinking and pass through all the functions and as well as aspects such as buyer supplier relations (e.g. Vertical integration and market relations), work organisation, (efficient and humane), product development processes (simultaneous and sequential development), business strategy (cost and differentiation) etc. These are concerned as paradoxes that should be solved implicitly by the west where as Honda’s way of thinking is very different.
A dichotomy reconciliation approach exemplifies both the philosophy behind the actual product design and the mental process of technology research. When considering about the product related core competencies in Honda, its adherence to the principle of build in quality has brings forth the competitive advantage to Honda. The build-in quality principle focuses on ensuring the effectiveness of the performance outcome of sub transformation activities. The measure of effectiveness is customer defined standards of performance that can be achieved by breaking down the total standard of performance measures as expected by the customers to number of sub activities where value adding can be realized at every stage of the process in a way that it gives a bigger accrued value by the time of operations process reaches its end. This leads to a reduction in costs and as well as exceed expectations of the customers. In that sense build in quality principle highly emphasis regarding product related capabilities which are measured by the customers eventually. The advance internal combustion engines which power the entire range of Honda products is being regarded as a core competency, which is also a successful reconciliation of dichotomies, deliver direct and immediate competitive advantage for Honda.
The right-the-first principle constitute that the result of any process should be free of errors. An error occurred in a particular task necessitate re-working on it before it passed on to next stage of the production process, which may resulted in delaying the entire production process and as well as increasing the operational costs, costs of lost opportunities of sales earned from customers who prefer not to wait and switch to other brands. As such right- the- first principle adopted by Honda, will enhance its operational efficiency by not wasting time and other resources by increasing productivity. More over its introduction of Just In Time production and logistic system leads to more accurate inventory control that save cost further. It can be pointed out as a dichotomy reconciliation that permits both product variety and productive efficiency.
Western flawed assumption of management thinking was that the right-first time and the build-in quality is only a dichotomy that takes places only if a substitution of getting the benefits from one at the disbursement of the other is assumed as it is viewed only from a manufacturer’s perspective, which has to be at least concentrated from a dual perspective, the manufacturer and the customer. If it should be considered from a multiple perspective, taking all partners in the supply chain in to account.
Doing things right the first time is a cost savings approach as it helps to eliminate waste and reduce the necessity of reworking. Lower operating costs can transform into higher margins, which will be helpful in attracting customers by offering them the products at a reasonable price and it too will avoid customers from switching to rival brands.
Customers not judged a product by concerning only on its quality, but its entire combination that brings forth the benefits and there fore value to them. Thus the features and attributes like delivery time and cost of purchase and ownership are too considered up on. Quality is there fore both process and product dependent. For an example the value of high product quality because of its superior features, characteristics and attributes can be ignored by slow delivery times if things are not done right the first time.
Through its wide array of management strategies Honda has shown that the notice of right- first time and build- in quality is not different in nature and does not exist in isolation but are rather similar and complementary processes if the pull strategy is adopted placing customers ahead of else.
Question Two: Global Mergers and Acquisitions (M&A)
Too much Debt and Risk of Bankruptcy
Mergers and acquisitions have been the focus of corporate strategies over the last few decades, with an increasing number of mergers across the globe, especially in the automobile industry. A merger or acquisition is a combination of two companies where one corporation is completely absorbed by another corporation. The less important company loses its identity and becomes part of the more important corporation, which retains its identity.
Mergers and acquisitions can occur for number of reasons. One such is to overcome too much debt or to avoid bankruptcy situations. Supplier bankruptcies make up the first wave of restructuring and the rate of bankruptcy fillings will continue to accelerate in the near term. As credit becomes more widely available and companies are able to safe and sound liquidity, there will be a wave of Mergers and acquisitions. If a particular company is undergoing enormous debts and finds it difficult to beat competition or even to survive in the industry, management may make a decision to go for a divesture. As a result company may sell out to another corporation or may go for a merger.
If a company is suffering from a bankruptcy situation, perhaps it may come to a decision to move for a sell out strategy. Financially viable competitors in the same industry may interested in merging with or acquiring another corporation in the same industry even with huge debts or under a bankruptcy state if there is any potential advantage of merging or acquiring is witnessed. Some times it may be because of the company’s ability to produce goods efficiently if they combined their efforts and facilities. These efficiency gains may come simply by virtue of the size of the combined company; it may be cheaper to produce goods on a large scale. Collaborating or sharing expertise may achieve gains in efficiency, or a company might have underutilize assets that the other company can better use or else because of the technology or the brand image or any other unique attribute available to the bankrupt company.
Through such merger or an acquisition, the company which suffered from financial difficulties will lessen its burden as it has the ability to overcome its debts as the change in the management may make the company more profitable
Potential Product Synergies
Automotive mergers and acquisitions act as means of increasing market share, improving reach attaining economies of scale and augmenting product ranges. Automotive mergers are turning into a strategic option for companies looking to accelerate growth.
Through mergers or acquisitions companies intended to maximize synergies through their complementary strengths in product line-up, procurement, R&D, marketing and personal training which would result in cost reductions, greater global market penetration and other benefits through corporation. As a result of a merger or an acquisition a corporation would get the access to up to the minute technology, a worldwide network and advanced managerial expertise. In addition substantial cost savings have been achieved through a common purchasing strategy and by setting up a common supplier base. Common platforms will be developed to reduce time for new product introduction.
Achieving of synergies is the ideal sought in corporate mergers and acquisitions. Synergy refers to an increase in the level of performance of a combined enterprise that will exceed the previous individual performance when it was operated separately. For an example managerial economies such as the increased opportunity of managerial specialisation, technical economies such as technical know how, purchasing economies due to increased order size and associated bulk buying discounts. In automobile industry there are several synergies that can be achieved through mergers and acquisitions. For an example in 1990 Honda entered in to an agreement with Rover under which Honda acquired minority shareholding in Rover in order to begin European production of Honda Accord.
And also once Honda rewind its formal relationships had with Rover, BMW acquired Rover Company from its parent company with the expectation of expanding its capacity from 600,000 to 800,000 by 1999 with 150,000 of these vehicles exported.
Access to New Technologies and Emerging Markets
Mergers and acquisitions bring forth several technology and platform sharing agreements, enabling companies to reduce product development time and costs. Further it will be helpful in stepping in to new markets
Through mergers and acquisitions corporations will be able to obtain technology economies. I.e. Mergers and acquisitions will result in enhancing the level of technology sharing and utilisation than earlier. As such in automobile industry there can be seen major acquisitions or mergers. For an example in 1979 Honda Motor company signed technical collaboration with British Leyland (Now Rover Group), covering British Leyland production of Triumph Acclaim cars in the United Kingdom. It was a step taken to enter in to the European market and also to obtain the technology of Rover Group.
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As mentioned earlier, mergers and acquisitions can be seen as a way of entering into strange, emerging markets. Some countries in the emerging markets such as India, China, and Thailand are growing at a spectacular rate. Thus this amazing growth rates are attracting global automotive majors to these markets in increasing numbers. Companies are resorting to acquisitions or mergers to gain foothold in these markets due to certain cultural reasons or to accommodate differences in two cultures.
Question Three: Corporate Social responsibilities & Competitiveness
Using information from relevant literature on ‘Corporate Social Responsibility (CSR)’ and appropriate examples from global automotive makers and suppliers; explain the impact of CSR on organisational performance in both financial and non-financial areas
Corporate Social Responsibility (CSR) has permeated management practice and theory up to a point where CSR can be referred to as the latest management fad (Guthey, Langer & Morsing, 2006). However, so far CSR integration in to business processes has been very uneven. (Hockerts, 2008)
CSR is also known as Corporate Citizenship, Responsible Business, Sustainable Responsible Business (SRB), or Corporate Social Performance. The concept of social responsibility proposes that a private corporation has responsibilities to society and also to the environment that extended beyond making a profit. It is a form of corporate self regulation integrated in to a business model that functions as a built-in, self-regulating mechanism whereby business would monitor and ensure its support to law, ethical standards, and international norms.
Further more, CSR focused business would proactively uphold the public interest by heartening community growth and development, and voluntarily eliminating practices that harm the public sphere, regardless of legality. Essentially, CSR is the deliberate inclusion of public interest in to corporate decision making and the honouring of a triple bottom line; People, Planet, Profit. Where as People and Planet in the triple bottom line concept represents the non financial aspects that a firm should concentrates on when carrying out its business in addition to the financial aspect of making profits.
The automobile industry at present faces challenges that extend beyond the framework of automotive technology, such as the prevention of global warming by committing to zero emissions as part of a concentrated effort toward issues concerning the global environment, eradication of wasted resources and environmental degradation through mass production, sales and disposal and the realization of fail safe transportation system. It is necessary for an organization, specially an automobile maker to be focused on preventing environmental destruction and damage when establishing its plants and as well as carrying out its manufacturing activities. A new evolution is required, where lean production can be implemented beyond the sphere of technological innovation to contribute to reforming distribution, logistics, recycling and as well as social systems.
As such consumers expect automotive corporations to take an active role in the economic and social development of their country. Consumers across the world are very likely to accept or reject a corporation based on its reputation for social and environmental responsibility. CSR surveys indicate that consumers are more likely to purchase a product or a service from a corporation with responsible business practices and they would refrain from purchasing a product or service if the corporation failed to follow environmentally friendly or ethical business practices.
Among the global automotive corporations BMW, Honda, Toyota and Volvo trucks ranked highest for corporate social responsibility. BMW rated highest in the Spain and as well as in Italy; Honda for United States, United Kingdom and Indonesia, Toyota for Japan, Korea and Thailand and Volvo trucks for Sweden and Netherlands.
Remy Pothet, Global Director TNS Automotive, comments that “Large corporations are increasingly aware that their social responsibility directly affects their image and brand equity and consequently, their business success. As such heavy investments in CSR can be seen in the markets where they are focusing on expansion. The result of our study highlights the publics growing interest in the field of CSR, and makes a direct link between this and their purchasing behaviour.”
Bonsi concludes, “The general public is a very important stake holder for the automotive industry as a corporation’s reputation is often judged in the court of public opinion. Corporations that fail to engage society often suffer serious consequences when there is a crisis. However corporations that develop a strong public goodwill can use it as a social insurance to tide them over during difficult periods. The CSR champions identified by this study are already seeing the value in their investment; now other companies need to take notice.”
b) Compare and Contrast Japanese and Western strategic leadership models by reference to table 5 in the Honda case study. Explain which of the two models you prefer, and why?
According to the management literature, there is a grand distinction between the western management style and Japanese management style in terms of overall description work processes, production organisation and logistic management techniques, organisation and labour relations etc.
When concerning about the overall description western management model, Ford system of mass production which leads to standardisation and mass marketing is the fundamental paradigm for production systems in western countries that pays high attention on large lot , just in case production. Where as Japanese developed a different production system called Japanese production system or Just In Time (JIT), which is a flexible manufacturing system. A further development of this is also known as lean manufacturing. They adhered to the Pull strategy of marketing their products as oppose to the Push strategy of marketing adopted by the western countries.
The significance of the Japanese manufacturing is it identified the ill effects of mass production with high volume of manufacturing that focuses sole attention towards economy of scale rather than cost reduction through elimination of wasted resources through streamlined production. JIT production and synchronized manufacturing that manufactured what, when, and how much was necessary and eliminated wasteful processes and stock. This was resulted in ending up of cycle of stockpiles and dissolved the rigidity of production where only existing products continued to be manufactured with existing technology.
When concentrating the peculiarities between western and Japanese work processes, most of the western work processes were builds upon taylorism theory which emphasis the necessity of breaking down of every action, job or task in to small and simple segments that can be easily analyzed and taught. Accordingly western employees are deemed to be ‘ Do workers’ and most of them are unskilled thus they are expected to be performed in a way they thought, and merely the jobs or tasks assigned to them. But Japanese employees are deemed to be ‘Think workers’ where they are expected to be innovative, polyvalent and flexible rather than merely executing an assigned job or a task. As such Japanese management model is more appropriate and suitable to today’s’ complex business context due to above mentioned grounds.
First and fore mostly the report discussed about the business level strategy and the corporate level strategy in the global business context. It was compared and contrasted the business level strategies and the corporate strategies in the global automobile industry. Then it evaluated the process of ‘reconciling dichotomies’ at Honda Motors with reference to the ‘product-related core competencies versus process -related core capabilities’ dichotomy.
Secondly it evaluated critically the impact of certain factors such as too much debt and risk of bankruptcy, potential product synergies, access to new technologies and emerging markets on Mergers and Acquisitions (M&A) in the global automobile industry, using appropriate illustrations from the global automotive industry.
In current business context Corporate Social Responsibility bears an important place. As such latter part of this report focuses on the corporate social responsibility and the competitiveness, using information from relevant literature on ‘Corporate Social Responsibility (CSR)’ and appropriate examples from global automotive makers and suppliers. Further it discussed the impact of CSR on organisational performance in both financial and non-financial areas.
Finally it was compared and contrasted the Japanese and Western strategic leadership models and suggested the Japanese strategic leadership model as the most appropriate model owing to the unique features and strengths identified in it with compared to Western strategic leadership model.
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