Strategic Management: Dynamic and Transformation of Corporate Strategy

Paper: Strategic Management

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Arranged by: Ali Aman, Dwi Purwnto, Suhadi

Lecturer: Dr. Betti Nuraini, M.M


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Strategies exist at a number of levels in an organization. The top level is corporate-level

strategy, concerned with the overall scope of an organization and how value will be

added to the different parts (business units) of the organization. This could include issues

of geographical coverage, diversity of products/services or business units, and how

resources are to be allocated between the different parts of the organization. In general,

corporate-level strategy is also likely to be concerned with the expectations of owners –

the shareholders and the stock market (Jhonson et.al, 2008:7).

The second level is business-level strategy, which is about how the various businesses

included in the corporate strategy should compete in their particular markets (for this

reason, business-level strategy is sometimes called ‗competitive strategy‘). In the public

sector, the equivalent of business-level strategy is decisions about how units should

provide best value services. This typically concerns issues such as pricing strategy,

innovation or differentiation, for instance by better quality or a distinctive distribution

channel. So, whereas corporate-level strategy involves decisions about the organization

as a whole, strategic decisions relate to particular strategic business units (SBUs) within

the overall organization (Jhonson et.al, 2008:7).

The third level of strategy is at the operating end of an organization. Here there are

operational strategies, which are concerned with how the component parts of an

organization deliver effectively the corporate- and business-level strategies in terms of

resources, processes and people (Jhonson et.al, 2008:7). These three level strategies

are also agreed by Wheelan and Hunger (2012:19) that the typical business firm usually

considers three types of strategy: corporate, business, and functional. Basically the two

division of level strategy are precisely the same, only in the use of the terms of the third

level they have different speech. To make clear the three level strategies, follow is the

figure of the three level strategies:

INTRODUCTION

A corporate-level strategy specifies actions a firm takes to gain a competitive advantage by selecting and

managing a group of different businesses competing in different product markets.


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Exhibit 1: Level of Strategy

Historical studies of organizations have shown a pattern that is represented in Exhibit

bellows:

Exhibit 2: Strategic Drift

(Jhonson et.all, 2008:178) Strategic drift is the tendency for strategies to develop incrementally on the basis of

historical and cultural influences, but fail to keep pace with a changing environment. An

example of strategic drift is given in Illustration bellows:

DISCUSSION

Dynamics and Transformation: Strategic Drift


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Exhibit 3: Example of Strategy Drift

(Jhonson et.all, 2008:180)

The reasons and consequences of strategic drift are important to understand, not only

because it is common, but because it helps explain why organizations often ―run out of

steam‖. It also highlights some significant challenges for managers which, in turn, point to

some important lessons.

Strategies of organizations tend to change gradually. There is a tendency for strategies to

develop on the basis of what the organization has done in the past – especially if that has

been successful1. There are three main reasons for this:

Alignment with environmental change. It could well be that the environment,

particularly the market, is changing gradually and the organization is keeping in line

with those changes by such incremental change. It would make no sense for the

strategy to change dramatically when the market is not doing so.

1 Sainsbury‘s was one of the most successful retailers in the world for decades till the early 1990s, with its

formula of selling food of a higher quality than competitors at reasonable prices. Always under the patriarchal guidance of a Sainsbury family chief executive, it gradually extended its product lines, enlarged its stores and its geographical coverage, but it did not deviate from its tried and tested ways of doing business. This is shown in phase 1 of the exhibit. In most successful businesses there are usually long periods of relative continuity during which established strategy remains largely unchanged or changes very incrementally. (Jhonson, 2008: 179-180).

Strategies change incrementally


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The success of the past. There may be a natural unwillingness by managers to

change a strategy significantly if it has been successful in the past, especially if it is

built on capabilities that have been shown to be the basis of competitive advantage or

of innovation.

Experimentation around a theme. Indeed managers may have learned how to build

variations around their successful formula, in effect experimenting without moving too

far from their capability base.

This poses challenges for managers, however. For how long and to what extent can they rely on

incremental change building on the past being sufficient? When should they make more

fundamental strategic changes? How are they to detect when this is necessary?

Whilst an organization’s strategy may continue to change incrementally, it may not

change in line with the environment. This does not necessarily mean that there has to

be dramatic environmental changes; phase 2 of 1 shows environmental change

accelerating, but it is not sudden2. From Sainsbury‘s case, there are at least five reasons

for this:

The problem of hindsight. Managers may be understandably wary of changing what

they are likely to see as a winning strategy on the basis of what might only be a fad in the

market, or a temporary downturn in demand. It may be easy to see major changes

with hindsight, but it may not be so easy to see their significance as they are

happening.

Building on the familiar. Managers may see changes in the environment about which they

are uncertain or which they do not entirely understand. In these circumstances they

may try to minimize the extent to which they are faced with such uncertainty by

looking for answers that are familiar, which they understand and which have served

them well in the past. For example, Sainsbury‘s managers clung to the belief that 2 For Sainsbury‘s there was the growing share of its rival, Tesco, accompanied by the growth of larger size

stores, with wider ranges of goods (for example, non-food) and changes in distribution logistics of competitors. These changes, however, had been taking place for many years. The problem that gives rise to strategic drift is that, as with many organizations, Sainsbury‘s strategy was not keeping pace with these changes (Jhonson, 2008: 181-182).

The tendency towards strategic drift


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they had loyal customers who valued the superior quality of Sainsbury‘s goods.

Tesco had been a cheaper retailer with what they saw as inferior goods. Surely the

superior quality of Sainsbury‘s would continue to be recognized.

Core rigidities. Success in the past may well have been based on capabilities that are

unique to an organization and difficult for others to copy. However, the capabilities that

have been bases of advantage can become difficult to change, in effect core

rigidities. There are two reasons. First, over time, the ways of doing things that have

delivered past success may become taken for granted. Second, ways of doing

things develop over time and become more and more embedded in organizational

routines that reinforce and rely on each other and are difficult to unravel.

Relationships become shackles. Success has probably been built on the basis of

excellent relationships with customers, suppliers and employees. Maintaining these may

very likely be seen as fundamental to the long-term health of the organization. Yet

these relationships may make it difficult to make fundamental changes to strategy

that could entail changing routes to market or the customer base, developing

products requiring different suppliers or changing the skill base of the organization

with the risk of disrupting relationships with the workforce.

Lagged performance effects. The effects of such drift may not be easy to see in

terms of the performance of the organization. Financial performance may continue

to hold up in the early stages of strategic drift. Customers may be loyal and the

organization, by becoming more efficient, cutting costs or simply trying harder, may

continue to hold up its performance. So there may not be internal signals of the need

for change or pressures from managers, or indeed external observers to make major

changes. However, over time, if strategic drift continues, there will be symptoms that

become evident: a downturn in financial performance; a loss in market share to

competitors perhaps; a decline in the share price. Indeed such a downturn may happen

quite rapidly once external observers, not least competitors and financial analysts,

have identified that such drift has occurred. Even the most successful companies

may drift in this way. Indeed, there is a tendency for businesses to become victims

of the very success of their past. They become captured by the formula that has

delivered that success.


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The next phase (phase 3) may be a period of flux triggered by the downturn in

performance. Strategies may change but in no very clear direction. There may also be

management changes, often at the very top as the organization comes under pressure to

make changes from its stakeholders, not least shareholders in the case of a public

company. There may be internal rivalry as to which strategy to follow, quite likely based

on differences of opinion as to whether future strategy should be based on historic

capabilities or whether those capabilities are becoming redundant. Indeed, there have

been highly publicized boardroom rows when this has happened. All this may result in a

further deterioration of confidence in the organization: perhaps a further drop in

performance or share price, a difficulty in recruiting high-quality management, or a further

loss of customers‘ loyalty.

As things get worse it is likely that the outcome (phase 4) will be one of three possibilities:

(i) the organization may die (in the case of a commercial organization it may go into

receivership, for example); (ii) it may get taken over by another organization; or (iii) it may

go through a period of transformational change. Such change could take form in multiple

changes related to the organization’s strategy: for example, a change in products, markets or

market focus, changes of capabilities on which the strategy is based, changes in the top

management of the organization and perhaps the way the organization is structured.

Transformational change does not take place frequently in organizations and is usually

the result of a major downturn in performance. Often it is transformational changes that

are heralded as the success stories of top executives; this is where they most visibly

make a difference. The problem is that, from the point of view of market position,

shareholder wealth and jobs, it may be rather too late. Competitive position may have

been lost, shareholder value has probably already been destroyed and, very likely, many

A period of flux

Transformational change or death


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jobs will have been lost too. The time when ‗making a difference‘ really matters most is in

phase 2 in Exhibit 2, when the organization is beginning to drift3.

The fundamental nature of competition in many of the world‘s industries is changing. The

pace of this change is relentless and is increasing. Even determining the boundaries of

an industry has become challenging. Consider, for example, how advances in interactive

computer networks and telecommunications have blurred the boundaries of the

entertainment industry (Hitt et.al, 2007:5)4. This statement implies that world of industries

deals with the difficulties of determining industry boundaries.

Not only industry boundaries, but it is also about some others‘. Not too long ago, a

business corporation could be successful by focusing only on making and selling goods and

services within its national boundaries. International considerations were minimal. Profits

earned from exporting products to foreign lands were considered frosting on the cake,

but not really essential to corporate success5.

3 However, a study of 215 major UK firms identified just 8 that had effected major transformational change

without performance decline. The problem is that, very likely, such drift is not easy to see before performance suffers. So in understanding the strategic position of an organization so as to avoid the damaging effects of strategic drift, it is vital to take seriously the extent to which historical tendencies in strategy development tend to persist in the cultural fabric of organizations. The rest of this chapter focuses on this. The challenge is, then, how to manage change in such circumstances and this challenge is taken up in Chapter 11 on managing strategic change (Jhonson, 2008:184). 4 Today, networks such as ABC, CBS, Fox, NBC, and HBO compete not only among themselves, but also with AT&T, Microsoft, Sony, and others. Partnerships among firms in different segments of the entertainment industry further blur industry boundaries. For example, MSNBC is co-owned by NBC (which itself is owned by General Electric) and Microsoft. Entertainment giant Walt Disney Company is selling wireless-phone plans to children. That Disney videos can be streamed through phones is yet another example of the difficulty of determining industry boundaries (Hitt et.al, 2007:5-6). 5 During the 1960s, for example, most U.S. companies organized themselves around a number of product

divisions that made and sold goods only in the United States. All manufacturing and sales outside the United States were typically managed through one international division. An international assignment was usually considered a message that the person was no longer promotable and should be looking for another job. Similarly, until the later part of the 20th century, a business firm could be very successful without being environmentally sensitive. Companies dumped their waste products in nearby streams or lakes and freely polluted the air with smoke containing noxious gases. Responding to complaints, governments eventually passed laws restricting the freedom to pollute the environment. Lawsuits forced companies to stop old practices. Nevertheless, until the dawn of the 21st century, most executives considered pollution abatement measures to be a cost of business that should be either minimized or avoided. Rather than clean up a polluting manufacturing site, they often closed the plant and moved manufacturing offshore to a developing nation with fewer environmental restrictions. Sustainability, as a term, was used to describe competitive advantage, not the environment (Wheelen and Hunger, 2012: 7).

External Changes


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Other characteristics of the 21st-century competitive landscape are noteworthy as well.

Conventional sources of competitive advantage such as economies of scale and huge

advertising budgets are not as effective as they once were. Moreover, the traditional

managerial mind-set is unlikely to lead a firm to strategic competitiveness. Managers

must adopt a new mind-set that values flexibility, speed, innovation, integration, and the

challenges that evolve from constantly changing conditions. The conditions of the

competitive landscape result in a perilous business world, one where the investments

required to compete on a global scale are enormous and the consequences of failure

are severe (Hitt et.al, 2007:6).

Hyper competition is a term often used to capture the realities of the 21st-century

competitive landscape. Under conditions of hyper competition, ―assumptions of market

stability are replaced by notions of inherent instability and change. Hyper competition results

from the dynamics of strategic maneuvering among global and innovative combatants. It is a

condition of rapidly escalating competition based on price-quality positioning,

competition to create new know-how and establish first-mover advantage, and

competition to protect or invade established product or geographic markets. In a

hypercompetitive market, firms often aggressively challenge their competitors in the

hopes of improving their competitive position and ultimately their performance. Several

factors create hypercompetitive environments and influence the nature of the 21st-

century competitive landscape. The two primary drivers are the emergence of a global

economy and technology, specifically rapid technological change (Hitt et.al, 2007:5-6).

Pearce II and Robinson (2009:94) state a host of external factors influence a firm‘s

choice of direction and action and, ultimately, its organizational structure and internal

process. These factors, which constitute the external environment, can be divided into

three interrelated subcategories: factors in the remote environment, factors in industry

environment and factors in operating environment. Exhibit 4 describes the firm‘s

external environment:


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Exhibit 4: The firm’s External Environment

(Pearce II and Robinson, 2009:94)

Remote Environment, economic, social, political, technological and ecological factors that originate beyond, and usually irrespective of, any single firm‘s operating situation. Industry Environment is the general conditions for competition that influence all business that provide similar product and services. Operating environment is factors in the intermediate competitive situation that affect a firm‘s success in acquiring needed resources.

In terms of the Ansoff matrix, diversification is the most radical strategic direction.

Diversification might be chosen for a variety of reasons, some more value creating than

others. Three potentially value-creating reasons for diversification are as follows

(Jhonson, 2008:262-265).

Efficiency gains can be made by applying the organization‘s existing resources or

capabilities to new markets and products or services. These are often described as

economies of scope, by contrast to economies of scale. If an organization has

underutilized resources or competences that it cannot effectively close or sell to other

potential users, it can make sense to use these resources or competences by

Motivation to Change

Remote Environment: Economic Social Political Technology

Ecology

Industry Environment: Entry barriers Supplier power Buyer power Substitute availability

Competitive rivalry

Operating Environment: Competitor Creditor Customer Labor suppliers

THE FIRM

External environment is the factors beyond the control of the firm that influence its choice of

direction and action and, ultimately, its organizational structure and internal process


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diversification into a new activity. In other words, there are economies to be gained by

extending the scope of the organization‘s activities6.

Stretching corporate parenting capabilities into new markets and products or

services can be another source of gain. In a sense, this extends the point above about

applying existing competences in new areas. However, this point highlights corporate

parenting skills that can otherwise easily be neglected. At the corporate parent level,

managers may develop a competence at managing a range of different products and

services which can be applied even to businesses which do not share resources at

the operational unit level7.

Increasing market power can result from having a diverse range of businesses. With

many businesses, an organization can afford to cross-subsidize one business from

the surpluses earned by another, in a way that competitors may not be able to. This

can give an organization a competitive advantage for the subsidized business, and

the long-run effect may be to drive out other competitors, leaving the organization with

a monopoly from which good profits can then be earned8.

Responding to market decline is one common but doubtful reason for

diversification. It is arguable that Microsoft‘s diversification into electronic games such

as the Xbox – whose launch cost $500m (£280m; a415m) in marketing alone – is a

response to slowing growth in its core software businesses. Shareholders might have

preferred the Xbox money to have been handed back to shareholders, leaving Sony

6 For example, many universities have large resources in terms of halls of residence, which they must have

for their students but which are underutilized out of term-time. These halls of residence are more efficiently used if the universities expand the scope of their activities into conferencing and tourism during vacation periods. Economies of scope may apply to both tangible resources, such as halls of residence, and intangible resources and competences, such as brands or staff skills. 7 C.K. Prahalad and R. Bettis have described this set of corporate parenting skills as the ‗dominant general

management logic‘, or ‗dominant logic‘ for short.7 Thus the French conglomerate LVMH includes a wide range of businesses – from champagne, through fashion and perfumes, to financial media – that share very few operational resources or competences. LVMH creates value for these specialized companies by adding parenting skills – for instance, the support of classic brands and the nurturing of highly creative people – that are relevant to all these individual businesses 8 This was the fear behind the European Commission‘s refusal to allow General Electric‘s $43bn (£24bn;

a37bn) bid for electronic controls company Honeywell in 2001. General Electric might have bundled its jet engines with Honeywell‘s aviation electronics in a cheaper package than rival jet engine manufacturers could possibly match. As aircraft manufacturers and airlines increasingly chose the cheaper overall package, rivals could have been driven out of business. General Electric would then have the market power to put up its prices without threat from competition. There are several other reasons that are often given for diversification, but which are less obviously value creating and sometimes serve managerial interests more than shareholders‘ interests:


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and Nintendo to make games, while Microsoft gracefully declined. Microsoft itself

defends its various diversifications as a necessary response to convergence in

electronic and computer media.

Spreading risk across a range of businesses is another common justification for

diversification. However, conventional finance theory is very skeptical about risk

spreading by business diversification. It argues that investors can diversify more

effectively themselves by investing in a diverse portfolio of quite different companies.

Whilst managers might like the security of a diverse range of businesses, investors do

not need each of the companies they invest in to be diversified as well – they would

prefer managers to concentrate on managing their core business as well as they can.

On the other hand, for private businesses, where the owners have a large proportion

of their assets tied up in the business, it can make sense to diversify risk across a

number of distinct activities, so that if one part is in trouble, the whole business is not

pulled down.

The expectations of powerful stakeholders, including top managers, can

sometimes drive inappropriate diversification9.

Should the organization be very focused on just a few products and markets? Or should it

be much broader in scope, perhaps very diversified in terms of both products (or

services) and markets? Many organizations do choose to enter many new product and

market areas10.

9 Under pressure from Wall Street analysts to deliver continued revenue growth, in the late 1990s the US

energy company Enron diversified beyond its original interest in energy trading into trading commodities such as petrochemicals, aluminium and even bandwidth. By satisfying the analysts in the short term, this strategy boosted the share price and allowed top management to stay in place. However, it soon transpired that very little of this diversification had been profitable, and in 2001 Enron collapsed in the largest bankruptcy in history. In order to decide whether or not such reasons make sense and help organizational performance, it is important to be clear about different forms of diversification, in particular the degree of relatedness (or unrelatedness) of business units in a portfolio. 10 For example, the Virgin Group started out in the music business, but is now highly diverse, operating in the

holiday, cinema, retail, air travel and rail markets. Sony began by making small radios, but now produces games, music and movies, as well as a host of electronic products. As organizations add new units, their strategies are no longer concerned just with the business-level but with the corporate-level choices involved in having many different businesses or markets (Jhonson, 2008:256).

Directions to Change


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This part begins by introducing Ansoff‘s matrix, which generates an initial set of

alternative strategic directions. The four basic directions are increased penetration of

existing markets; market development, which includes building new markets, perhaps

overseas or in new customer segments; product development, referring to product

improvement and innovation; and diversification, involving a significant broadening of an

organization‘s scope in terms of both markets and products.

Exhibit 5: Strategic Direction

Market penetration is where an organization gains market share. Consolidation is where organizations focus defensively on their current markets with current products. Product development is where organizations deliver modified or new products to existing markets. Market development is where existing products are offered in new markets. Diversification is defined as a strategy that takes an organization away from both its existing markets and its existing products. The Ansoff product/market growth matrix provides a simple way of generating four basic

alternative directions for strategic development (see Exhibit 5). An organization typically

starts in box A, the top left-hand one, with its existing products and existing markets.

According to the matrix, the organization basically has a choice between penetrating still

further within its existing sphere (staying in box A); moving rightwards by developing new

products for its existing markets (box B); moving downwards by bringing its existing

products into new markets (box C); or taking the most radical step of full diversification,

with altogether new markets and new products (box D) (Jhonson, 2008: 256-257).


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The strategic-management process is based on the belief that organizations should

continually monitor internal and external events and trends so that timely changes can be

made as needed. The rate and magnitude of changes that affect organizations are

increasing dramatically as evidenced how the global economic recession has caught so

many firms by surprise. Firms, like organisms, must be ―adept at adapting‖ or they will not

survive (Hitt, 2007)11.

To survive, all organizations must astutely identify and adapt to change. The strategic

management process is aimed at allowing organizations to adapt effectively to change

over the long run. As Waterman has noted:

In today‘s business environment, more than in any preceding era, the only constant is change. Successful organizations effectively manage change, continuously adapting their bureaucracies, strategies, systems, products, and cultures to survive the shocks and prosper from the forces that decimate the competition. E-commerce and globalization are external changes that are transforming business and

society today. On a political map, the boundaries between countries may be clear, but on

a competitive map showing the real flow of financial and industrial activity, the boundaries

have largely disappeared. The speedy flow of information has eaten away at national

boundaries so that people worldwide readily see for themselves how other people live

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Corporate bankruptcies and defaults more than doubled in 2009 from an already bad 2008 year. All

industries were hit hard, especially retail, chemicals, autos, and financial. As lenders tightened restrictions on borrowers, thousands of firms could not avoid bankruptcy. Even the economies of China, Japan, and South Korea stalled as demand for their goods from the United States and Europe dried up. China‘s annual growth slowed from 13 percent in 2007 to 9 percent in 2008 and then 5 percent for 2009. Consumer confidence indexes were falling all over the world as were housing prices. Nine of 10 stocks in the S&P 1500 lost value in 2008. The Nasdaq composite index fell 40.5 percent in 2008, its worst year ever. S&P 500 stocks lost 38.5 percent of their value in 2008, the worst year since 1937. The Dow Jones Industrial Average lost 33.8 percent of its value in 2008, the worst loss since 1931 as shareholders lost $6.8 trillion in wealth. Only three S&P 500 stocks rose in 2008: Family Dollar up 38 percent, making it the best performer in the S&P 500; Wal-Mart Stores up 18 percent; and McDonald‘s up nearly 6 percent. The biggest decliner on the Dow in 2008 was GM, whose stock fell 87 percent. Citigroup lost 77 percent of its stock value in 2008. Even General Electric lost 56 percent of its value. Fannie Mae and Freddie Mac each slid 98 percent as did Fleetwood Enterprises, which makes recreational vehicles. And losses were also extensive worldwide. For example, Vanguard‘s Europe/Pacific Index, composed of stocks firms based on those continents, fell 43 percent in 2008 (David, 2011:8).

Organizational Change


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and work. We have become a borderless world with global citizens, global competitors,

global customers, global suppliers, and global distributors! U.S. firms are challenged by

large rival companies in many industries. To say U.S. firms are being challenged in the

automobile industry is an understatement. But this situation is true in many industries.

The particular feature of OD is the notion of process and of organizational learning. OD is

‗An effort planned organization wide and managed from the top to increase organization

effectives and health through planned interventions in the organization process using

behavioral science knowledge‘, suggesting a long-range focus. Change involves not just

alteration to the formal aspects of the organization but also to informal human aspects.

Brunsson and Olsen suggest that reforms are easier to initiate than to decide on and

easier to decide on than to implement, but employees on the receiving end of the reforms

do not support them because they recognize that they are based on faulty premises, are

self-contradictory or destructive. Consequently, one underlying assumption is that people

are most productive when they have a high-quality working life.

The OD approach believes that people at all levels must be individually and collectively

supportive in the engineering of change. Its success is to engender a means of improving

organizational capacity to change, to permanently improve an organization‘s problem-

solving and renewal processes, and so it has special emphasis in work teams and

intergroup culture. It involves the organization as a system as well as its parts. It is

participative, drawing on the theory and practices of the behavioral sciences. It has top

management support and involvement, and involves a facilitator who takes on the role of

change agent. It follows that if one wishes to create change there is no point in

concentrating upon individuals in isolation as they will be experiencing group pressure to

conform, therefore the focus should be on influencing and trying to change group norms,

roles and values. Pettigrew (1985), Pettigrew and Whipp (1991) do not reject the

participative approach of OD but rather they argue that it provides only a partial analysis

of the circumstances and contexts of organizational change. The principal question is:

Organizations Development


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which of the three methodologies would be most successful in achieving successful

change? (Ritson, 2013:80).

Exhibit 7: Organizational Development

Strategists should strive to preserve, emphasize, and build upon aspects of an existing

culture that support proposed new strategies. Aspects of an existing culture that are

antagonistic to a proposed strategy should be identified and changed. Substantial

research indicates that new strategies are often market-driven and dictated by

competitive forces. For this reason, changing a firm’s culture to fit a new strategy is

usually more effective than changing a strategy to fit an existing culture. Numerous

techniques are available to alter an organization‘s culture, including recruitment, training,

transfer, promotion, restructure of an organization‘s design, role modeling, positive

reinforcement, and mentoring.

Schein indicated that the following elements are most useful in linking culture to strategy:

1. Formal statements of organizational philosophy, charters, creeds, materials used for

recruitment and selection, and socialization

Change in Work Culture


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2. Designing of physical spaces, facades, buildings

3. Deliberate role modeling, teaching, and coaching by leaders

4. Explicit reward and status system, promotion criteria

5. Stories, legends, myths, and parables about key people and events

6. What leaders pay attention to, measure, and control

7. Leader reactions to critical incidents and organizational crises

8. How the organization is designed and structured

9. Organizational systems and procedures

10. Criteria used for recruitment, selection, promotion, leveling off, retirement, and

―excommunication‖ of people

What Is the Best Way to Manage Product Diversification at GE? General Electric (GE) is a diversified technology, media, manufacturing, and financial

services company. The firm feels that by providing ―Imagination at Work,‖ it is able to

produce goods and provide services that help its customers solve some of the world‘s

most difficult problems. In 2004, GE‘s revenue reached $154 billion while its earnings

exceeded $16.5 billion. An indicator of the firm‘s stature is that it topped Fortune

magazine‘s ―Global Most Admired Corporation‖ list in 2005. Jeffrey Immelt, the firm‘s

CEO, believes that becoming more of a high-technology company and strengthening

GE‘s positions in emerging markets such as China, India, and some Middle East

countries are key to his firm‘s efforts to increase revenue and profitability.

Using the related linked corporate-level strategy, GE was organized into 11 core

businesses in 2004.As called for by the related linked strategy, very few resources and

activities were shared between or among these 11 businesses. While there was little

sharing between what were rather independent businesses, activities were shared

between divisions housed within each business while corporate headquarters personnel

worked to transfer corporate-level core competencies between or among the businesses.

Case Analysis: GENERAL ELECTRICS


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In 2005, things changed in terms of the businesses in GE‘s portfolio as well as how those

businesses were managed. In mid-2005, Immelt announced that he was reorganizing GE

into six, rather than 11, core businesses: Infrastructure, Industrial,Commercial Financial

Services, NBC Universal, Healthcare,and Consumer Finance.According to Immelt,

―These changes will accelerate GE‘s growth in key industries.‖ In addition, the

reorganization is expected to help GE become a more ―customer-focused‖organization—

one capable of delivering increasingly effective solutions to problems that customers

want to solve.

Changes in how GE would manage its portfolio of businesses followed decisions about

what businesses would be in the portfolio. The changes in GE‘s portfolio that have taken

place under Immelt‘s leadership demonstrate his intention of making GE even more of a

high-technology company rather than an industrial firm. In only four years under Immelt‘s

leadership, GE spent over $60 billion to acquire technology-based assets and divested

approximately $15 billion of non-technology assets. The newly acquired assets were

coupled with GE‘s remaining assets to batch the firm‘s operations into six major,

technology-oriented businesses. Immelt and his top management team will help to

manage these six businesses from the corporate headquarters office.The focus of these

managerial efforts will be on transferring core competencies in different types of

technologies from one business to one or more of the remaining five businesses. As in all

firms, at GE the skills of top-level managers influence the degree to which the transfers of

corporate-level core competencies create value.

In general, analysts responded positively to GE‘s new mix of businesses and its

reorganization, agreeing that it was occurring at a time when the firm was strong and had

opportunities to strengthen its standing in international markets. In addition, analysts

responded positively to the announcement that GE would report key financial data for

significant units in each of the six businesses, increasing the overall transparency of the

firm‘s operations (Hitt, 2007:172).


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Conclusion:

1. A corporate-level strategy specifies actions a firm takes to gain a competitive

advantage by selecting and managing a group of different businesses competing in

different product markets.

2. Strategic drift is the tendency for strategies to develop incrementally on the basis of

historical and cultural influences, but fail to keep pace with a changing environment.

One of the best ways to keep with the rapid change is to do transformation. One of the

most widely strategy in order not running out of the change is diversification as GE

passes.

3. The fundamental nature of competition in many of the world‘s industries is changing.

The two primary drivers are the emergence of a global economy and technology,

specifically rapid technological change.

4. Diversification is the most radical strategic direction. Diversification might be chosen

for a variety of reasons, some more value creating than others. Three potentially

value-creating reasons for diversification are efficiency gains, stretching corporate

parenting capabilities, increasing market power, responding to market decline,

spreading risk and the expectations of powerful stakeholders.

5. The change directions of strategy are market penetration, consolidation, product

development, market development and diversification.

6. To survive, all organizations must astutely identify and adapt to change. E-commerce

and globalization are external changes that are transforming business and society

today. The particular feature of organizational change is the notion of process and of

organizational learning.

7. Changing a firm‘s culture to fit a new strategy is usually more effective than changing

a strategy to fit an existing culture.

8. General Electric (GE) is one of the examples that run technology, media,

manufacturing, and financial services company desertification.

CONCLUSION AND RECOMENDATION


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Recommendations:

There are no permanently excellent companies, just as there are no permanently

excellent industries. This makes sense that competing in overcrowded industries is no

way to sustain high performance. The real opportunity is to create blue oceans of

uncontested market space. In blue oceans, demand is created rather than fought over.

There is ample opportunity for growth that is both profitable and rapid. Blue ocean

strategy challenges companies to break out of the red ocean of bloody competition by

creating uncontested market space that makes the competition irrelevant (Kim and

Mauborgne, 2005).


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REFFERENCES

David, Fred R, 2011. Strategic Management: Concept and Cases. New Jersey: Pearson Education Inc.

Hitt, Michael A et.al. 2007. Strategic Management: Competitiveness and Globalization.

Texas: Thomson Learning Inc. Johnson, Gerry et.al. 2008. Exploring Corporate Strategy. New Jersey: Prentice Hall Pearce II, John A and Robinson Richard B, 2009. Strategic Management: Formulation,

Implementation and Control. New York: McGraw Hill. Wheelen, Thomas L and Hunger, David J. 2012. Strategic Management and Business

Policy. New Jersey: Pearson Education Inc.

Strategic Management: Dynamic and Transformation of Corporate Strategy

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