Strategic challenges of the 21st Century Essay Example

Definition of Strategy

No universally accepted definition exists for strategy. Various authors, managers, and military leaders have different interpretations and uses of the term. Some include goals and objectives within strategy, while others distinguish them. Initially, strategy referred to the position held by a commanding general in an army.

Later it evolved to mean "the art of the general," encompassing the psychological and behavioral abilities required for the role. During Pericles’ time in 450 B.C., it took on the meaning of managerial expertise, including administration, leadership, oration, and power. By Alexander's era in 330 B.C., it denoted the skill of utilizing forces to surpass opposition and establish a unified global governance system. (The strategy processes, 3rd ed., by Henry Mintzberg 1996, p. 2).

The thoughts and visions of every individual vary from one another. Each person has their own unique perspective and goals in life. They are highly optimistic about achieving these goals and ponder on various strategies to fulfill their aspirations and satisfy their innate desires.

Upon reaching a certain position, he gained superiority over others. This mindset is referred to as planning, where tactics and objectives play a role in formulating a strategy. To illustrate the concept of strategy, I envision a bridge.

This is the starting point and the destination. Both ends of the bridge must be anchored. It is crucial to consider strategy, which serves as the means to cross the bridge from your current location to your desired destination, and ensure that your proposals align with both sides. While this concept may appear insignificant, it holds significant importance.

Having a strategy that aligns with your goal but makes incorrect assumptions about your starting point will not

result in progress. Conversely, having a strategy that understands the current situation and utilizes its opportunities to quickly advance, but does not aim towards your desired destination, may be even worse than having no strategy at all. When evaluating the corporate strategies of global organizations, we can categorize them into three fundamental types: Parenting, Following, and Rule breaking.

The text discusses three strategies employed by different organizations. The first strategy, known as the 'Parenting group' strategy, is utilized by organizations like GM, FORD, IBM, GE, Motorola, NEC, and Philips. These organizations have a tendency to invent new products globally. Their main objective is to retain customers and maintain market share by introducing new and modified products.

The second strategy, referred to as 'Following', involves organizations that aim to replicate the inventions of the 'parenting group' and produce similar goods and services. These organizations, such as Toshiba, Nokia, Sony, and Hitachi, benefit from the successes and failures of the 'parenting group's' products.

On the other hand, the third strategy is called 'Rule Breaking'. It is employed by organizations solely focused on inventions and nothing else.

These organizations primarily focus on innovation and generate revenue by selling their patents to other organizations worldwide. Notable examples include Del Computer, 3M, Depot Chemicals, Philips, and many others. It is challenging to determine the most effective strategy in this context.

But in the global competition every organization should have capacity to be best by all means,

Modern Views on Strategy

"The determinant of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. (Chandler-1962). "The pattern of objectives, purposes, or

goal and the major policies and plans for achieving these goals, stated In such a way to define what business the company is in or to be and the kind of company it is or is to be." (Kenneth Andrews-1969)

The Impact of Globalisation on Business

If developments at the level of the industry are tending to converge on a worldwide basis,
the industry can be said to be globalizing. In other words, from the perspective of competition,
the world needs to be treated as a single market. In this regard,
the global industry "is not merely a collection of domestic industries but a series of linked domestic industries in which rivals compete against each other on a truly worldwide basis" (Porter 1986).

If any Hollywood actor makes a movie, it will only be sold in the USA market and not worldwide. However, "Daylight," which was released in 1996, had success both domestically and internationally. It earned $33m at the box office in the US and an impressive $120m in other countries. For Nolan Archibald, CEO of Black & Decker, this suggests that when examining strategies for the North American power tools market, he should consider not only competitors like Makita and Bosch in North America but also their global strategies. Similarly, for Ken Iverson, chairman of Nucor Steel, when deciding on major capacity expansions such as a new $700m mini-mill, he should think about potential locations not just within the US but also abroad like Brazil. These examples illustrate how our world is becoming increasingly interconnected and unified.

The concept of an increasingly interconnected global economy raises several related inquiries: what is globalisation, what is propelling globalisation, and

what are the implications of these trends for companies and managers. (By Vijay Govindaran Amos Tuck School OF Business Admin. 15 Feb 1999) Following the downfall of the former USSR, the pace of 'Globalisation' picked up as its major obstacle 'Communism' ceased to exist. It entails removing borders and creating a unified 'One world'.

Advancements in technology, satellite communications, and global crises have led to a shrinking world. Globalization has always existed in different forms throughout history and offers opportunities for organizations to grow. However, new competitors can emerge unexpectedly from anywhere at any time. Managers who do not closely monitor global changes or cannot respond promptly risk jeopardizing their organization's survival.

Globalisation will significantly impact Branding & Marketing. As companies face global competition, they must now market their products to a worldwide audience. I am particularly interested in studying how different companies are tackling this global marketing challenge. Heinz believes that in the future, there will be a rise in global consumers.

Heinz has responded to the challenge by standardizing all its tomato ketchup bottles, while re-branding the product, through a 31m advertising campaign, to reflect its "distinctive, laconic, cool personality". However, not all companies view the global market in the same way. Amway argues that consumers in different countries have different needs. This makes global marketing extremely high-risk. Finding the right marketing mix requires finding common ground between geographical differences and a detailed understanding of individual marketplaces. A study of companies at the start of the third millennium would be incomplete without considering e-commerce.

According to the guide, Microsoft is predicting that e-commerce will replace traditional retail methods and cause significant changes in the business landscape. It

forecasts that the annual value of online transactions will exceed $3500 billion within five years. These successful organizations from the past century serve as examples for other managers, providing insight into their cognitive strategies.

(The Time) To succeed in the international operating environment of the 21st century, global managers must prepare their strategies in a more dynamic and broad manner. They need to consider the following framework on global forces. (The strategy processes, 3rd. ed., by Henry Mintzberg 1996, p.739).

Strategic Challenge for the 21st Century

In light of the aforementioned framework and the impact of globalization, managers may confront the subsequent strategic challenges in the upcoming century.

Managing across borders

The international operating environment has undergone recent changes, forcing companies to simultaneously optimize efficiency, responsiveness, and learning in their global operations (Bartlett and Ghoshal, 1987). In the past, companies focused on developing and managing one of these capabilities, but this new challenge requires a complete strategic reorientation and a significant change in organizational capability. Balancing these three objectives is a complex task for any organization, and they may face even more complicated tasks in global business. Efficacy in tasks not directly involved in product or service delivery, as well as internal perspectives, is crucial for the administration to effectively increase effectiveness and efficiency. The parent company can potentially maintain and improve these efficiencies in their domestic product-market.

Counterbalancing all these efficiencies in another unit located in a different part of the world will not be an easy task. The challenges posed by environmental, cultural, distance, and language differences can complicate the achievement of these objectives. However, by applying the Learning and Cognitive school of strategy

(Mintzberg), which incorporates psychology into the field of strategy, we can mitigate and overcome this complexity. The cognitive school of strategy involves the use of concepts, maps, schemas, and frames to shape how individuals handle information from the environment. Strategic management focuses on carrying out specific tasks that are unlikely to endanger the organization's future.

Is the competency of strategic management sufficient to handle challenges? Administration primarily deals with managing change, not just concepts or ideas, but people. According to Tom Peters, effective managers are those who take action. On the other hand, Michael Porter believes that they are thinkers. However, Abraham Zalezinzik and Warren Bennis disagree and argue that good managers are actually leaders.

Throughout the better part of this century, classical writers like Henri Fayol and Lyndell Urwick have consistently emphasized that good managers are essentially controllers. However, Gary Hamel and C. K. Prahalad argue that the challenge of global leadership is to embed the aspirations for such leadership company-wide and foster an "obsession with winning" that will inspire all employees to take collective action. The role is based on the ambition of helping individuals build faith in their own ability to achieve challenging goals, motivating them to do so, and guiding their efforts in a gradual progression analogous to "running the marathon in 400-meter sprints."

I would like to suggest that businesses should consider starting global operations. Management needs to formulate a strategy and assess whether our HR skills can effectively maintain the balance. I also agree with Bartlett and Ghoshal's viewpoint that management should prioritize increasing efficiencies.

Generating Investment

For global operations, organizations require significant funding.

Fundraising is not a difficult

task, but the difficulty arises when the time comes to repay the funds. More than 60% of profits are consumed by interest rates, taxes, and government policies. Changes in exchange rates also impact profits. Many organizations secure their funds through centralization. This complexity can be connected to Mintzberg's school of strategy, specifically the design and planning schools. The design school involves a deliberate process of conscious thoughts, considering factors such as control level, simplicity, and formality while addressing potential risks. The planning school entails a conscious and controlled process of formal planning, breaking it down into distinct steps and executing operations in detail.

In designing a school, the end result of strategic decisions may seem simple, but it involves selecting a combination of products and markets for the firm. This combination is determined by adding new products and markets, getting rid of some old ones, and expanding the current position (Ansoff model 1965:12 from the book "The Rise & Fall of Strategy Planning" by Mintzberg 1994 p# 43). The Ans. & Sterner model for designing a new strategy also emphasizes the importance of the organization's current position. The strategy should be clearly defined and broken down into small steps.

The SWOT model, initially discovered by Philip Selznick in 1957, evaluates the analysis of a strategy. This model stands for strengths, weaknesses, opportunities, and threats analysis of a design or planning strategy. Additionally, the aforementioned global strategy framework (part 1) also indicates the position and resources of both the business and the parent company. In this challenge, I would like to provide some suggestions.

to the learning and designing/planning school of strategy. In this school, we break down the process into small steps and evaluate it using SWOT analysis. However, we must also establish targets and objectives. The audit stage of strategy is illustrated in the following figure (The rise; fall of strategy by Mintzberg 1994, p.55).

Future Goals Current Strategy

• Currently, how the business is being managed at all levels
• And how it competes in multiple dimensions

Competitor's Response Profile

• Is the competitor satisfied with its current position?
• What likely moves or strategy shifts will the competitor make?
• Where is the competitor vulnerable?
• What will provoke the greatest and most effective retaliation by the competitor?

This planning model presents checklists of factors to consider in the external audit, often categorized as economic, social, political, and technological. The internal audit once again focuses on the strengths and weaknesses of the company.

In the figure above, competitors are at the center, while the other factors pertain to the company's environment. After evaluating these factors, the product improvement strategy is planned. The 'value added method' is typically used to design the process of increasing productivity. This method provides numeric data on the amount of additional funds required to add new value and the potential profit that can be generated from this value. This may involve introducing new processes, automation, and improved facilities.

When discussing the global business challenge, the focus on enhancing products becomes even more crucial. In the upcoming century, the only companies that can survive are those that are able to introduce innovative and modified products before their competitors. It is essential for companies to develop strategies and plans for improving their productivity. However, this improvement should be based on

accurate calculations of future demand and supply. Many companies have failed or gone bankrupt as a result of miscalculations. To succeed in the presence of globalization, proper forecasting and the utilization of market mix is necessary. Managers should consider employing the strategy of combining cognitive and learning schools if it is feasible.

Therefore, Amway has already implemented the cognitive strategy through product standardization.

Knowledge of Competition

It is a fundamental and wide-ranging concept in the business world. The phenomenon of globalization has eliminated boundaries between nations, forcing companies to now contend with internal competitors in their own country.

The biggest challenge for every company in the next century is to face global competition and have knowledge of competition. Consequently, every company now needs to develop a global strategy. Michael Porter argues that competitive strategy can be achieved through one of three ways: cost leadership, differentiation, or focus-based strategies. Porter emphasizes the importance of not being "stuck in the middle" and instead following one of these strategies. In the clothing industry, Mcnamee and Mchugh's evaluation of Porter's concepts focuses on "low price" strategies instead of cost leadership.

According to Karnani, cost leadership requires competition on price. Govindarajan, citing Porter, agrees and adds that a low-cost strategy involves selling an undifferentiated product below the market average price. However, Donald Schon argues that managerial thought and action should not be seen as separate entities. Schon proposes that management is characterized by "reflection in action," meaning that managers develop a contextual understanding and interpretation over time, which they apply to various situations. This aligns with the ideas presented in the book "The challenge of strategic Management" by David Faulkner and Gerry Johnson

(p. 181). Therefore, Schon's view on managerial thought holds true.

Managers in this century must adhere to the arguments of Michael Porter in order to retain their market share. One example of Porter's argument is the concept of 'Cost leadership', which refers to being the lowest cost option for customers (i.e.)

Some companies interpret Porter's model as aiming to be the lowest cost producer in their industry, such as supermarkets and chain stores. However, others find it difficult to pursue this strategy. It is believed by some that Porter's model is only applicable in the manufacturing industry and cannot be applied to the service industry.

Mintzberg is associated with this model solely in relation to the designing school of strategy. The growing significance of effective utilization of entrepreneur and cognitive strategy has been amplified by global competition. In my country, despite my banking background, a majority of our customers were won over by foreign banks, primarily due to their superior internal branch environment. I attempted to highlight the shortcomings of our bank, but my management responded quite negatively. Nonetheless, we continue to conduct our business in the most optimal manner.

We do not require suggestions as they adhere strictly to traditional policies. Consequently, I concur with Donald Schon's statement. As a future manager, I intend to implement the strategies employed by ABB and Scandivea Bank of Sweden. These organizations are gaining a competitive advantage by utilizing the decentralization and ABC (activity-based cost/budget) approach.

Expand Product Line

It is argued that expanding the product or service line involves the addition of more varieties to the existing base. The main focus of this strategy is to offer a wider range of products or

services in order to retain customers and clients. The process of globalisation has greatly influenced the product line and its lifespan. Furthermore, the introduction of new products by our competitors has resulted in increased customer choices and a greater emphasis on product standardisation. As a result, the market has become increasingly complex.

According to the Mintzberg schools of strategy, there are two schools that can be associated with it: 'The positioning school' and 'The cultural School'. The positioning school is similar to the design and planning school in terms of being prescriptive. However, the positioning school gives more importance to the external environment, often neglecting the resources, competencies, and capabilities of individual firms. On the other hand, the cultural school focuses on aligning an organization's activities with its environment. It also deals with the significant allocation and reallocation of resources in the long term. Additionally, some organizations have a culture of introducing new and modified products after a specific time period.

Organisations are employing this strategy to maintain their position in the business environment. If we consider the most successful companies of this century, such as Ford Motors, McDonald's burgers, and Citizen Watch co., their success is based on the limited lifespan of their products. They introduce new products after a certain time period. For example, a Burger at McDonald's is only available for 48 weeks, a Citizen Watch is only relevant for six months, and Ford Motors change their models every six months. The introduction of new products and services in the market has altered customers' perception. Therefore, I believe that in this century, every organisation should place emphasis on the short lifespan of their products

and also focus on constantly modifying and inventing new products and services. Failing to do so will result in competitors launching new products or services, which will significantly impact their market share.

The learning school of strategy will be applied here. The aforementioned 'Global strategy framework' also emphasizes this strategy in its third part. It is crucial for every organization to embrace this strategy to remain competitive in the global market. They must integrate this strategy into their culture.

Otherwise, organizations will face significant challenges in retaining their customers with their existing products in a changing business environment.

The Change in Business Environment

The business environment of any country is influenced by several environmental factors, as shown in the figure below. These factors have an impact on organizations, particularly when they expand globally.

In contrast, the situation will be completely different. They must adhere to the country's regulatory framework and adjust their strategy to align with the demographic shifts in that country. Numerous companies adopt a strategic planning cycle of five years. The chief executive officers (CEOs) at the top employ the cognitive school of strategy to facilitate this long-term planning process.

When considering and evaluating different factors, one must predict the future. The Michael Porter model is often used for this purpose. This model identifies five forces that impact industry profitability: competitive rivalry, barriers to entry, threat of substitutes, power of buyers, and power of suppliers. However, in some cases, making accurate predictions may not be possible. For instance, the aerospace industry prices its products in US dollars as the global currency. Therefore, this industry determines its pricing strategy based on predictions of future movements of domestic currencies

against the US dollar.

The economic and social dimensions are impacted by political changes. The recent failure of the WTO in Seattle is a significant setback for global trade liberalization. This setback will greatly impact the five-year strategy cycle. Technological development is directly influenced by social trends.

The increasing adoption of technology could speed up the overall push to shorten working hours, making it harder for organizations to attract skilled employees. In recent years, environmental concerns, also known as 'green' factors, have had a significant impact on the manufacturing industry. This trend is expected to intensify in the next century. Additionally, social changes are another area of consideration.

The population rate is significantly reasonable in developed countries, but it has surpassed the limit in third world countries. The increase in population in these countries could be the greatest challenge of the next century. The migration of this population to developed countries is also a major issue. By 2050, the world's population will be twice as big as it was in 1990. Creating positive strategies is a skill that requires consideration of environmental factors.

The widely accepted method of making strategy, known as 'Implicitly or explicitly', is based on the belief that one market is inherently more profitable than another. Business experts caution that companies relying on these assumptions are treading on precarious ground. In the intensely competitive global business landscape, every industry must embrace this approach. Sticking to the same business or product will not lead to progress.

In order to establish a strong position in the market, like the school, businesses should consider adopting a new type of business that is gaining popularity. It is important to understand

that there are four stages in the product life cycle: introduction, growth, maturity, and decline. If your business has reached the maturity stage, it is advisable to explore other businesses that are in the growth stage. Adapting to environmental changes requires an appropriate strategy and long-term planning. Failure to adopt fundamental rules and strategic approaches can make it challenging for industries to compete in the global environment.

Price Policy ; Terms/Conditions of Billing

The sale of a product is greatly influenced by its price strategy. When an industry offers more favorable terms and conditions to stimulate market demand for specific services, it can have a significant impact. Price policy is closely linked to the positioning school, which prioritizes the external environment over the resources, competencies, and capabilities of individual firms. Strategies within this school are generic, identifiable positions in the market that are based on analytical calculation. These strategies can also be described as aiming and firing at specific targets.

The fundamental principle of positioning school is the ability to move from one position to another and, through analysis, anticipate and maintain that position. The position strategy of any industry is developed using Michael Porter's model.

• Potential Entrants
• Threat of entrants
• Suppliers Buyers
• Bargaining power Bargaining power
• Threat of substitutes Substitutes

To illustrate this model, let's take the example of 'Heineken', the world leader in

the brewing industry. The first force is the threat of competition from other entrants. Heineken faces competition from 14 major competitors in the market.

There are no specific laws preventing new entrants in the open market, although some individuals claim that the Heineken firms have a monopoly in this industry. The suppliers play a crucial role in the next step, as they have a significant market presence and numerous buyers. However, Heineken primarily focuses on suppliers rather than buyers, as they are responsible for providing the industry's raw materials.

Every year, Heineken updates and adjusts its terms and conditions with suppliers to enhance flexibility. This aims to provide suppliers with low-cost and high-quality raw materials. As for buyer power, it is the dominant force in the market. Businesses strive to enter markets where consumer buying power is strong. Heineken employs a pricing strategy that primarily targets the middle class. Furthermore, Heineken distributes its beer to over 170 countries worldwide.

In order to lower costs and maintain price control, the company has implemented partnership projects worldwide. This strategy allows them to expand market share and enter different regions globally. The threat of substitutes in the market is the final step in Poter's model. Products such as soft drinks, energy drinks, juices, and wine can impact this market. However, those who are accustomed to drinking beer cannot do without it.

The example of Heineken illustrates a focus on two main aspects: price and supplier relationships. The purpose of initiating various partnership projects worldwide is to lower product costs. By effectively managing costs and overheads, industries can achieve this objective.