Strategic management Essay Example for Free

Strategic management Essay Introduction Preparing an effective case analysis In most strategic management courses, cases are used extensively as a teaching tool. 1 A key reason is that cases provide active learners with opportunities to use the strategic management process to identify and solve organisational problems. Thus, by analysing situations that are described in cases and presenting the results, active learners (that is, students) become skilled at effectively using the tools, techniques and concepts that combine to form the strategic management process. The cases that follow are concerned with actual companies. Presented within the cases are problems and situations that managers and those with whom they work must analyse and resolve. As you will see, a strategic management case can focus on an entire industry, a single organisation or a business unit of a large, diversified firm. The strategic management issues facing not-for-profit organisations also can be examined using the case analysis method. Basically, the case analysis method calls for a careful diagnosis of an organization’s current conditions (as manifested by its external and internal environments) so that appropriate strategic actions can be recommended in light of the firm’s strategic intent and strategic mission. Strategic actions are taken to develop and then use a firm’s core competencies to select and implement different strategies, including business-level, corporatelevel, acquisition and restructuring, international and cooperative strategies. Thus, appropriate strategic actions help the firm to survive in the long run as it creates and uses competitive advantages as the foundation for achieving strategic competitiveness and earning above-average returns. The case method that we are recommending to you has a rich heritage as a pedagogical approach to the study and understanding of managerial effectiveness. 2 As an active learner, your preparation is critical to successful use of the case analysis method. Without careful study and analysis, active learners lack the insights required to participate fully in the discussion of a firm’s situation and the strategic actions that are appropriate. Instructors adopt different approaches in their application of the case analysis method. Some require active learners/students to use a specific analytical procedure to examine an organisation; others provide less structure, expecting students to learn by developing their own unique analytical method. Still other instructors believe that a moderately structured framework should be used to analyse a firm’s situation and make appropriate recommendations. Your lecturer or tutor will determine the specific approach you take. The approach we are presenting to you is a moderately structured framework. We divide our discussion of a moderately structured case analysis method framework into four sections. First, we describe the importance of understanding the skills active learners can acquire through effective use of the case analysis method. In the second section, we provide you with a process-oriented framework. This framework can be of value in your efforts to analyse cases and then present the results of your work. Using this framework in a classroom setting yields valuable experiences that can, in turn, help you to successfully complete assignments that you will receive from your employer. The third section is where we describe briefly what you can expect to occur during in-class case discussions. As this description shows, the relationship and interactions between instructors and active learners/students during case discussions are different than they are during lectures. In the final section, we Introduction Preparing an effective case analysis present a moderately structured framework that we believe can help you to prepare effective oral and written presentations. Written and oral communication skills also are valued highly in many organisational settings; hence, their development today can serve you well in the future. Skills gained through use of the case analysis method. The case analysis method is based on a philosophy that combines knowledge acquisition with significant involvement from students as active learners. In the words of Alfred North Whitehead, this philosophy ‘rejects the doctrine that students had first learned passively, and then, having learned should apply knowledge’. 3 In contrast to this philosophy, the case analysis method is based on principles that were elaborated upon by John Dewey: Only by wrestling with the conditions of this problem at hand, seeking and finding his own way out, does [the student] think If he cannot devise his own solution (not, of course, in isolation, but in correspondence with the teacher and other pupils) and find his own way out he will not learn, not even if he can recite some correct answer with a hundred percent accuracy. 4 The case analysis method brings reality into the classroom. When developed and presented effectively, with rich and interesting detail, cases keep conceptual discussions grounded in reality. Experience shows that simple fictional accounts of situations and collections of actual organisational data and articles from public sources are not as effective for learning as fully developed cases. A comprehensive case presents you with a partial clinical study of a real-life situation that faced managers as well as other stakeholders, including employees. A case presented in narrative form provides motivation for involvement with and analysis of a specific situation. By framing alternative strategic actions and by confronting the complexity and ambiguity of the practical world, case analysis provides extraordinary power for your involvement with a personal learning experience. Some of the potential consequences of using the case method are summarised in Exhibit 1. As Exhibit 1 suggests, the case analysis method can assist active learners in the development of their analytical and judgement skills. Case analysis also helps you learn how to ask the right questions. By this we mean questions that focus on the core strategic issues that are included in a case. Active learners/students with managerial aspirations can improve their ability to identify underlying problems rather than focusing on superficial symptoms as they develop skills at asking probing yet appropriate questions. The collection of cases your instructor chooses to assign can expose you to a wide variety of organisations and decision situations. This approach vicariously broadens your experience base and provides insights into many types of managerial situations, tasks and responsibilities. Such indirect experience can help you to make a more informed career decision about the industry and managerial situation you believe will prove to be challenging and satisfying. Finally, experience in analysing cases definitely enhances your problemsolving skills, and research indicates that the case method for this class is better than the lecture method. 5 Furthermore, when your instructor requires oral and written presentations, your communication skills will be honed through use of the case method. Of course, these added skills depend on your preparation as C-4 Exhibit 1 | Consequences of student involvement with the case method 1 Case analysis requires students to practise important managerial skills—diagnosing, making decisions, observing, listening and persuading—while preparing for a case discussion. 2 Cases require students to relate analysis and action, to develop realistic and concrete actions despite the complexity and partial knowledge characterising the situation being studied. 3 Students must confront the intractability of reality—complete with absence of needed information, an imbalance between needs and available resources, and conflicts among competing objectives. 4 Students develop a general managerial point of view—where responsibility is sensitive to action in a diverse environmental context. Source: C. C. Lundberg and C. Enz, 1993, ‘A framework for student case preparation’, Case Research Journal, 13 (Summer), p. 134. Introduction Preparing an effective case analysis well as your instructor’s facilitation of learning. However, the primary responsibility for learning is yours. The quality of case discussion is generally acknowledged to require, at a minimum, a thorough mastery of case facts and some independent analysis of them. The case method therefore first requires that you read and think carefully about each case. Additional comments about the preparation you should complete to successfully discuss a case appear in the next section. Student preparation for case discussion If you are inexperienced with the case method, you may need to alter your study habits. A lecture-oriented course may not require you to do intensive preparation for each class period. In such a course, you have the latitude to work through assigned readings and review lecture notes according to your own schedule. However, an assigned case requires significant and conscientious preparation before class. Without it, you will be unable to contribute meaningfully to in-class discussion. Therefore, careful reading and thinking about case facts, as well as reasoned analyses and the development of alternative solutions to case problems, are essential. Recommended alternatives should flow logically from core problems identified through study of the case. Exhibit 2 shows a set of steps that can help you to familiarise yourself with a case, identify problems and propose strategic actions that increase the probability that a firm will achieve strategic competitiveness and earn above-average returns. C-5 Exhibit 2 | An effective case analysis process Step 1: Gaining familiarity a. In general – determine who, what, how, where and when (the critical facts of the case). b. In detail – identify the places, persons, activities and contexts of the situation. c. Step 2: Recognising symptoms Recognise the degree of certainty/uncertainty of acquired information. a. List all indicators (including stated ‘problems’) that something is not as expected or as desired. b. Ensure that symptoms are not assumed to be the problem (symptoms should lead to identification of the problem). Step 3: Identifying goals a. Identify critical statements by major parties (e. g. people, groups, the work unit, etc. ). b. List all goals of the major parties that exist or can be reasonably inferred. Step 4: Conducting the analysis a. Decide which ideas, models and theories seem useful. b. Apply these conceptual tools to the situation. c. Step 5: Making the diagnosis As new information is revealed, cycle back to sub-steps (a) and (b). a. Identify predicaments (goal inconsistencies). b. Identify c. Step 6: Doing the action planning c. problems (discrepancies between goals and performance). Prioritise predicaments/problems regarding timing, importance, etc. a. Specify and prioritise the criteria used to choose action alternatives. b. Discover or invent feasible action alternatives. Examine the probable consequences of action alternatives. d. Select a course of action. e. Design an implementation plan/schedule. f. Create a plan for assessing the action to be implemented. Source: C. C. Lundberg and C. Enz, 1993, ‘A framework for student case preparation’, Case Research Journal, 13 (Summer), p. 144. Introduction Preparing an effective case analysis Gaining familiarity Identifying goals The third step of effective case analysis calls for you to identify the goals of the major organisations, business units and/or individuals in a case. As appropriate, you should also identify each firm’s strategic intent and strategic mission. Typically, these direction-setting statements (goals, strategic intents and strategic missions) are derived from comments made by central characters in the organisation, business unit or top management team as described in the case and/or from public documents (for example, an annual report). Completing this step successfully can sometimes be difficult. Nonetheless, the outcomes you attain from this step are essential to an effective case analysis because identifying goals, intent and mission helps you to clarify the major problems featured in a case and to evaluate alternative solutions to those problems. Directionsetting statements are not always stated publicly or prepared in written format. When this occurs, you must infer goals from other available factual data and information. C-6 The first step of an effective case analysis process calls for you to become familiar with the facts featured in the case and the focal firm’s situation. Initially, you should become familiar with the focal firm’s general situation (for example, who, what, how, where and when). Thorough familiarisation demands appreciation of the nuances, as well as the major issues, in the case. Gaining familiarity with a situation requires you to study several situational levels, including interactions between and among individuals within groups, business units, the corporate office, the local community and the society at large. Recognising relationships within and among levels facilitates a more thorough understanding of the specific case situation. It is also important that you evaluate information on a continuum of certainty. Information that is verifiable by several sources and judged along similar dimensions can be classified as a fact. Information representing someone’s perceptual judgement of a particular situation is referred to as an inference. Information gleaned from a situation that is not verifiable is classified as speculation. Finally, information that is independent of verifiable sources and arises through individual or group discussion is an assumption. Obviously, case analysts and organisational decision makers prefer having access to facts over inferences, speculations and assumptions. Personal feelings, judgements and opinions evolve when you  are analysing a case. It is important to be aware of your own feelings about the case and to evaluate the accuracy of perceived ‘facts’ to ensure that the objectivity of your work is maximised. Conducting the analysis The fourth step of effective case analysis is concerned with acquiring a systematic understanding of a situation. Occasionally cases are analysed in a less-thanthorough manner. Such analyses may be a product of a busy schedule or of the difficulty and complexity of the issues described in a particular case. Sometimes you will face pressures on your limited amounts of time and may believe that you can understand the situation described in a case without systematic analysis of all the facts. However, experience shows that familiarity with a case’s facts is a necessary, but insufficient, step in the development of effective solutions – solutions that can enhance a firm’s strategic competitiveness. In fact, a lessthan-thorough analysis typically results in an emphasis on symptoms, rather than on problems and their causes. To analyse a case effectively, you should be sceptical of quick or easy approaches and answers. A systematic analysis helps you to understand a situation and determine what can work and probably what will not work. Key linkages and underlying causal networks based on the history of the firm become apparent. In this way, you can separate causal networks from symptoms. Also, because the quality of a case analysis depends on applying appropriate tools, it is important that you use the ideas, models and theories that seem to be useful for evaluating and solving individual and unique situations. As you consider facts and symptoms, a useful Recognising symptoms. Recognition of symptoms is the second step of an effective case analysis process. A symptom is an indication that something is not as you or someone else thinks it should be. You may be tempted to correct the symptoms instead of searching for true problems. True problems are the conditions or situations requiring solution before the performance of an organisation, business unit or individual can improve. Identifying and listing symptoms early in the case analysis process tends to reduce the temptation to label symptoms as problems. The focus of your analysis should be on the actual  causes of a problem, rather than on its symptoms. Thus, it is important to remember that symptoms are indicators of problems; subsequent work facilitates discovery of critical causes of problems that your case recommendations must address. Introduction Preparing an effective case analysis theory may become apparent. Of course, having familiarity with conceptual models may be important in the effective analysis of a situation. Successful students and successful organisational strategists add to their intellectual tool kits on a continual basis. What to expect from in-class case discussions Classroom discussions of cases differ significantly from lectures. The case method calls for instructors to guide the discussion, encourage student participation and solicit alternative views. When alternative views are not forthcoming, instructors typically adopt one view so that students can be challenged to respond to it thoughtfully. Often students’ work is evaluated in terms of both the quantity and the quality of their contributions to in-class case discussions. Students benefit by having their views judged against those of their peers and by responding to challenges by other class members and/or the instructor. During case discussions, instructors listen, question and probe to extend the analysis of case issues. In the course of these actions, peers or the instructor may challenge an individual’s views and the validity of alternative perspectives that have been expressed. These challenges are offered in a constructive manner; their intent is to help students develop their analytical and communication skills. Instructors should encourage students to be innovative and original in the development and presentation of their ideas. Over the course of an individual discussion, students can develop a more complex view of the case, benefiting from the diverse inputs of their peers and instructor. Among other benefits, experience with multiple-case discussions should help students to increase their knowledge of the advantages and disadvantages of group decision-making processes. Student peers as well as the instructor value comments that contribute to the discussion. To offer relevant contributions, you are  encouraged to use independent thought and, through discussions with your peers outside of class, to refine your thinking. We also encourage you to avoid using ‘I think’, ‘I believe’ and ‘I feel’ to discuss your inputs to a case analysis process. Instead, consider using a less emotion-laden phrase, such as ‘My analysis shows’. This highlights the logical nature of the approach you have taken to complete the six steps of an effective case analysis process. When preparing for an in-class case discussion, you should plan to use the case data to explain your assessment of the situation. Assume that your peers and instructor know the case facts. In addition, it is good practice to prepare notes before class discussions and use them as you explain your view. Effective notes signal to classmates and the instructor that you are prepared to engage in a thorough discussion of a case. Moreover, C-7 Making the diagnosis The fifth step of effective case analysis – diagnosis – is the process of identifying and clarifying the roots of the problems by comparing goals with facts. In this step, it is useful to search for predicaments. Predicaments are situations in which goals do not fit with known facts. When you evaluate the actual performance of an organisation, business unit or individual, you may identify over- or underachievement (relative to established goals). Of course, single-problem situations are rare. Accordingly, you should recognise that the case situations you study probably will be complex in nature. Effective diagnosis requires you to determine the problems affecting longer-term performance and those requiring immediate handling. Understanding these issues will aid your efforts to prioritise problems and predicaments, given available resources and existing constraints. Doing the action planning The final step of an effective case analysis process is called action planning. Action planning is the process of identifying appropriate alternative actions. In the action planning step, you select the criteria you will use to evaluate the identified alternatives. You may derive these criteria from the analyses; typically, they are related to key strategic situations facing the focal organisation. Furthermore, it is important that you prioritise these criteria to ensure a rational and effective evaluation of alternative courses of action. Typically, managers ‘satisfice’ when selecting courses of action; that is, they find acceptable courses of action that meet most of the chosen evaluation criteria. A rule of thumb that has proved valuable to strategic decision makers is to select an alternative that leaves other plausible alternatives available if the one selected fails. Once you have selected the best alternative, you must specify an implementation plan. Developing an implementation plan serves as a reality check on the feasibility of your alternatives. Thus, it is important that you give thoughtful consideration to all issues associated with the implementation of the selected alternatives. Introduction Preparing an effective case analysis Exhibit 3 | Types of thinking in case preparation: Analysis and synthesis C-8 125 000 Sources: Income figures are approximate and based on A. Chatterjee, 1998, ‘Marketing to the superrich’, Business Today (Living Media India Ltd), 22 April; W. Berryman and J. McManus, 1998, ‘India: Turning the elephant economy’, Independent Business Weekly, 24 June. offered spicier sauces, such as McMasala and McImli (made from tamarind). Other elements of the menu, such as chicken nuggets, fillet fish sandwiches, fries, sodas and milkshakes, were in common with the rest of the McDonald’s system. In 1998, McDonald’s India set up a menu development team to collect consumer feedback. Subsequently, the team came up with its menu vision, and new products since then have been based on this vision. The adaptation of the strategy went well beyond the menu, encompassing many aspects of the restaurant management system. Two different menu boards were displayed in  each restaurant – green for vegetarian products and purple for non-vegetarian products. Behind the counter, restaurant kitchens had separate, dedicated preparation areas for the meat and non-meat products. The kitchen crew (in charge of cooking) had different uniforms to distinguish their roles and did not work at the vegetarian and non-vegetarian stations on the same day, thus ensuring clear segregation. The wrapping of vegetarian and non-vegetarian food took place separately. These extra steps were taken to assure Indian customers of the wholesomeness of both products and their preparation. To convince Indian customers that the company would not serve beef and would respect the culinary habits of its clientele, McDonald’s printed brochures explaining all these steps and took customers on kitchen tours. McDonald’s positioned itself as a family restaurant. The average price of a ‘Combo’ meal, which included burger, fries and Coke, varied from Rs 76 for a vegetarian meal to Rs 88 for a Maharaja Mac meal. This could be compared with KFC meal prices at Rs 59 (Crispy Burger, regular fries and large Pepsi) and Rs 79 (KFC Chicken, Colonel Burger and regular Pepsi). McDonald’s Happy Meal, which included a complimentary toy, was priced at Rs 46. The prices in India were lower than in Sri Lanka or Pakistan, and even the price of the Maharaja Mac was 50 per cent less than an equivalent product in the United States. To fight its premium image among the public, the company undertook selective price cutting and ran some periodic promotions. In February 1999, the company was offering ‘economeals’ for as low as Rs 29. The company reduced the price of vegetable nuggets from Rs 29 to Rs 19 and that of its soft-serve ice-cream cone from Rs 16 to Rs 7. Apparently, this still afforded McDonald’s a healthy margin (40 per cent for cones). As Vikram Bakshi, explained, ‘I will never become unaffordable, as I will not then be able to build up volumes. ’ The lower price could be attributed to two factors: the pricing strategies of MNC rivals as well as mid-range local restaurants, and the development of a local (low-cost) supply chain. McDonald’s pricing strategies, as well as special promotions, were influenced by rivals. In February 1999, several competitors were running special promotions, with KFC offering a meal inclusive of chicken, rice and gravy for Rs 39. For Rs 350, Pizza Hut was offering a whole family meal, including two medium pizzas, bread and Pepsi. Wimpy’s was offering Case 8 McDonald’s expansion strategies in India mega meals at Rs 35. A typical vegetarian ‘set meal’, or ‘thali’ (which included Indian breads, rice, vegetables and yogurt) at a mid-range restaurant cost around Rs 50, which was considerably lower than a McDonald’s meal. Some analysts believed that that by introducing loss leaders (for example, cones), McDonald’s wanted to highlight good value for all its products. Whether customers attracted by special promotions pay repeat visits to McDonald’s remains to be seen. In October 2000, the company introduced two new Indianised products to its menu – the Chicken McGrill and the Veg Pizza McPuff. At that point in time, 75 per cent of the menu in India was unique – that is, different from the rest of the McDonald’s system. The Chicken McGrill had a grilled chicken patty topped with onions and mint sauce, to give it an Indian flavour. The Veg Pizza was a takeoff on the popular Indian samosa (potato-based curry puff) with differences in shape (rectangular) and stuffing (capsicum, onions and Mozarella cheese with tomato sauce). In keeping with the low pricing strategy in India, these items were priced at Rs 25 and Rs 16, respectively. With its value pricing and localised menu, McDonald’s had attracted some loyal customers. One such customer said, ‘A normal kebab, with all the trimmings, at a regular restaurant would cost more than Rs 25 and if the new McGrill is giving us a similar satisfaction with its mint chutney (sauce), then we’d rather eat in a lively McDonald’s outlet than sitting in a cramped car on the road. ’ Some elements of the promotional strategy remained the same as in other parts of the world. One instance of this included the emphasis on attracting children. A Happy Meal film was consistently shown on the Cartoon Network and the Zee (a local channel) Disney Hour. McDonald’s also teamed up with Delhi Traffic Police and the Delhi Fire Service to highlight safety issues, again trying to create goodwill among schoolchildren. In October 1999, in conjunction with The Walt Disney Company and UNESCO, McDonald’s launched a search for Millennium Dreamers. The program would bring together 2 000 young people from around the globe who had made a positive and significant impact on their communities. Based on the number of its outlets, India was allocated two representatives. By June 2000, the company had started rolling out its first national campaign, as it was expanding beyond Mumbai and New Delhi. The campaign, budgeted at Rs 100 million, was expected to highlight (in phased order) the brand (the experience that there is something special about McDonald’s), food quality and variety. The company also ran special promotions during festivals, and ‘vegetarian’ days, and was even developing garlicfree sauces to bring in ‘hard-core’ vegetarian traffic. In terms of the selection of cities, McDonald’s followed the same strategy in India as in the rest of the world. Its initial focus on Mumbai and Delhi was driven by the following factors: they were the two largest cities in India; their citizens enjoyed relatively high income levels compared to the rest of the country; and they were exposed to foreign food and culture. After establishing a presence in the leading cities, McDonald’s then moved to smaller satellite towns near the metropolitan cities (for example, from Delhi to Gurgaon and Noida, both suburbs of Delhi, and from Mumbai to Pune). McDonald’s often found that there were positive spillover effects, in terms of its reputation, from the metropolitan cities to the satellite towns. In Jaipur, the company was hoping to attract foreign tourists. C-125 Developing the supply chain McDonald’s search for Indian suppliers started as early as 1991. Its initial challenge was to develop local suppliers who could deliver quality raw materials, regularly and on schedule. In the five-and-a-half years until start-up, McDonald’s spent as much as Rs 500 million (US$12. 8 million) to set up a supply network, distribution centres and logistics support. By mid-2000, some estimates placed the total investment in the supply chain at almost Rs 3 billion. Local suppliers, Exhibit 6 | McDonald’s supply chain in India Phillaur (sauces) Dehradun (lettuce) Nainital (lettuce) Taloja (veg. nuggets) Thane Pune (lettuce) Oo’ty (lettuce) Baramati (cheese) Hyderabad (mutton patties) Venkatapur (pickles) Cochin Supplier locations Distribution centres Case 8 McDonald’s expansion strategies in India distributors and joint venture partners and employees had to match the restaurant chain’s quality and hygiene standards before they became part of its system. McDonald’s experience in identifying and cultivating the supplier of lettuce provided an excellent illustration of the difficulties involved. In 1991, hardly any iceberg lettuce was grown in India, except for a small quantity grown around Delhi during the winter months. McDonald’s identified a lettuce supplier (Mangesh Kumar from Ootacamund in Tamilnadu, a southern state) and helped him in a broad range of activities, from seed selection to advice on farming practices. In the case of several other suppliers, such as Cremica Industries which supplied the sesame seed buns, McDonald’s helped them to gain access to foreign technology. In another instance, it encouraged Dynamix, the supplier of cheese, to establish a program for milk procurement by investing in bulk milk collection and chilling centres. This, in turn, led to higher milk yields and overall collections, as well as to an improvement in milk quality. McDonald’s ended up with a geographically diverse sourcing network, with buns coming from northern India, chicken and cheese from western India, and lettuce and pickles from southern India. There were as many as 40 suppliers in the company’s supply chain. (See Exhibit 6 for McDonald’s supply chain. ) A dedicated distribution system was established to match the suppliers’ production and delivery schedules with the restaurant’s needs. The first two centralised distribution centres were set up near Mumbai and at Cochin (in the southernmost part of India) in joint ventures with two local retailers, both of whom had to learn from international distributors of McDonald’s products how the restaurant chain handled distribution worldwide and, especially, how to enhance the quality of storage operations. The company estimated that each distribution centre could service about 25 outlets. McDonald’s strove to keep the storage volumes of products high in order to exploit all possible economies of scale. The distribution centres were also expected to maintain inventory records and to interact with suppliers and the logistics firm to ensure that their freezers were well stocked. Said Amit Jatia, ‘The most important part of our operations was the development of a cold chain [the process of procurement, warehousing, transportation and retailing of food products under controlled temperatures]. There is practically no need for a knife in any restaurant. All the chopping and food processing is done in the plants. Only the actual cooking takes place in the restaurants. ’ Even with the suppliers and distribution system in place, McDonald’s needed a distribution link to move raw materials to its restaurants. Logistics management was contracted out to AFL Logistics – itself a 50:50 joint venture between Air Freight (a Mumbai-based firm) and FX Coughlin of the United States, McDonald’s international logistics provider. AFL logistics was responsible for the temperature-controlled movement of all products (by rail, road or air, as appropriate) from individ.