“Ethics is not a mystic fantasy—nor a social convention—nor a dispensable, subjective luxury.
… Ethics is an objective necessity of man’s survival—not by the grace of the supernatural nor of your neighbours nor of your whims, but by the grace of reality and the nature of life.” – Ayn Rand, The Virtue of Selfishness.
Every organization must keep values at the top or pyramid while developing strategies. Even above the vision and mission. As discussed earlier Strategic management is the study of such a set of managerial decisions and actions that determines the long run performance of a firm. The major steps in the strategic management process are environmental analysis, the SWOC (Strengths, Weaknesses, Opportunities and Challenges) analysis, strategy formulation, strategy implementation and strategy evaluation and control.
Environmental analysis with respect to SWOC analysis. It is important to discuss SWOC instead of SWOT analysis. Strength, Weakness, Opportunities and CHALLENGES instead of calling it THREATS. Strategy developers should look at challenges of sustainability more than the threats coming from the environmental factors. Strengths and Weakness come from the internal environment of the firm, which is resource-based view for strategic management. The Opportunities and Challenges come from the external environment for which large number of frameworks have been developed.
Strategy formulation deals with decision making and action plan to determine long run direction and performance of the organization. Strategic management includes understanding the strategic position of an organization, strategic choices for the future and turning strategy into action.
Strategic position is concerned with the impact on strategy of the external environment, internal resources and competences, and the expectations and influence of stakeholders . The strategic choices involve understanding the underlying bases for future strategy at both the corporate and business unit levels and the options for developing strategy in terms of both the directions and methods of development.
Broadly the strategic management process, as suggested by C. K. Prahalad, comprises of five steps. They are:
1. Strategic Intent
2. Environmental Analysis
3. Evaluation of strategic alternatives and choice
4. Strategy Implementation
5. Strategy Evaluation and Control
Strategic intent is the desired future state of aspiration of an organization. Strategic intent is gaining more importance as the business environment is getting more dynamic, sustainability is getting more and more critical. Technological advances, global integration of economies, accelerated cultural shifts are some of the factors contributing to dynamic business environment. Dynamic business environment makes the environmental analysis that much more difficult.
Strategy planners have choice of multiple strategies. Depending upon the goals and objectives, various strategies that can be employed by the organizations are listed below…
The four grand strategic alternatives as suggested by Glueck are Stability, Expansion, Retrenchment, and Combination.
Apart from these four grand strategies, different strategies which are used commonly are as follows:
Modernization, Integration (Vertical integration, horizontal integration), Diversification (Concentric diversification, Conglomerate diversification, Horizontal diversification), Joint Ventures, Strategic Alliance, Mergers, Acquisition, Takeovers, Divestment, Turnaround Strategy
All these strategies are well studied and documented. However, the major problems take place at the time of strategy implementation. One of the reasons why all organizations do not succeed to the same degree despite implementing similar strategies is the implementation process.
This is where we feel the importance of values that the organization holds, “What do we stand for? Ethics, Principles and Beliefs. Organizational values are also critical during strategy evaluation and control phase as well.
Even for an organization, ethics should neither be a mystic fantasy nor a social convention nor a dispensable, subjective luxury.
Ethics
Richard William Paul and Linda Elder define ethics as “a set of concepts and principles that guide us in determining what behaviour helps or harms sentient creatures”.
The Cambridge Dictionary of Philosophy states that the word “ethics” is “commonly used interchangeably with ‘morality’ … and sometimes it is used more narrowly to mean the moral principles of a particular tradition, group or individual.”
Paul and Elder state that most people confuse ethics with behaving in accordance with social conventions, religious beliefs and the law and don’t treat ethics as a stand-alone concept.
These definitions emphasize ethics as a set of concepts and principles that guide individuals which are also applicable to organizations as well.
Wikipedia defines business ethics as a form of applied ethics or professional ethics, that examines ethical principles and moral or ethical problems that can arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations.
Ayn Rand in her book The Virtue of Selfishness has critically analysed why one should be selfish. She says, “It is not a man’s ancestors or relatives or genes or body chemistry that count in a free market, but only one human attribute: productive ability. It is by his own individual ability and ambition that capitalism judges a man and rewards him accordingly”. The same holds true for every organization as well.
Established organizations have failed because they lacked productive ability in terms of delivering products to continuously delight customers. Value is always in the eyes of beholder. Simply addressing, value is benefit to cost ratio. At operational level, value as benefit to cost ratio context is correct. But in the context of corporate level strategy value refers to what do we stand for with respect to ethics, principles and beliefs for all the stake holders.
The Organizations Module has following process.
Organization uses its resources and information.
In the same book, Nathaniel Branden , “Alone on a desert island, bearing sole responsibility for his own survival, no man could permit himself the delusion that tomorrow is not his concern, that he can safely rest on yesterday’s knowledge and skills, and that nature owes him “security.” Organizations need to keep it in mind that yesterday’s knowledge and skills are not enough.
Elaborating on the value in first chapter of the book, The Objectivist Ethics , Ayn Rand writes, “Value is that which one acts to gain and/or keep—virtue is the act by which one gains and/or keeps it. The three cardinal values of the Objectivist ethics—the three values which, together, are the means to and the realization of one’s ultimate value, one’s own life—are: Reason, Purpose, Self-Esteem, with their three corresponding virtues: Rationality, Productiveness, Pride.
The three cardinal values should be guiding principles of the organization. Organization when sets up its ultimate value must pay attention to Reason, Purpose, Self-Esteem with their corresponding virtues: Rationality, Productiveness, and Pride.
Value Virtue
Reason Rationality
Purpose Productiveness
Self-Esteem Pride.
Values associated with resources
Michael Porter developed a five forces framework for analysing the competitive environment, which helps in understanding how forces in the competitive environment shape strategies and affect performance. The five competitive forces framework suggests that there are competitive forces other than direct rivals which shape up the competitive environment. The competitive forces are
1) The rivalry among firms in the industry
2) The threat of new entrants
3) The availability of substitute products
4) The bargaining power of suppliers
5) The bargaining power of buyers
Though there are missing links in the model, which will be discussed later in this book. The model does help in understanding the business environment. All the forces come from the external environment, to which the firms respond. The resources to deal with the external environment of the firm come from its internal environment. To compete firms must look at its internal environment in terms of its strengths and weakness.
When the firm looks at its internal environment it analyses….
• Value system: Choice of business, mission and objectives, business policies and practices.
• Vision, Mission and Objectives
• Management structure and nature
• Internal power relationship
• Human resources
• Company Image and brand equity, Infrastructure, R&D, Marketing resources, Financial factors
For each of these components firm must analyse the Reason, Purpose, Self-Esteem, with their three corresponding virtues: Rationality, Productiveness, Pride.
Value System: While deciding on the choice of business the firm shall be doing; firm must consider inherent strengths.
When Ratan Tata took over as chairman, the Tatas were already the largest and most respected business houses in India – then a century old . It was during his predecessor, JRD Tata, a new thrust was given to the Tata companies: from Tata Steel to Tata Power to Indian Hotels. N. A. Soonawala, Tata stalwart and the then finance director, confirmed that “growth through mergers, amalgamations and acquisitions will be part of our strategy in the 1990s”. At the same time Farokh Kavarana, a director of Tata Sons, said the focus would be on a major international presence, first through trading opportunities and then by setting up manufacturing bases, mainly auto ancillary units. This was the time when government controls were all pervasive, banks and insurance companies were nationalised. The license quota Raj reigned supreme. The socialist-minded government always threatened conversion of loans from government institutions into equity and held the threat of nationalisation over industries like iron ore mining, steel and power.
Vision, Mission and Objectives.
A vision is the desired future state of the organisation. It is an aspiration around which a strategist, perhaps a chief executive, might seek to focus the attention and energies of members of the organization . A vision statement refers to what a firm wish to achieve in the long-run, usually in a time frame of five to ten years, or sometimes even longer. It describes a vision of what the firm will look like in the future and sets a distinct direction for the planning and execution of corporate-level strategies.
A mission is a general expression of the overall purpose of the organization, which, ideally, is in line with the values and expectations of major stakeholders and concerned with the scope and boundaries of the organization. It is sometimes referred to in terms of the apparently simple, but actually challenging question: “What business are we in?” .
Objective is more likely to be quantified, or at least to be a more precise aim in line with the goal. Goal means a general aim in line with the mission . It may well be qualitative in nature.
In 1991, Ratan Tata’s very first challenge was to re-establish the primacy of Tata Sons . He also wanted to ensure that all the Tata companies were attitudinally together. Dr. Manmohan Singh’s reforms had kicked off that year, industrial licensing was abolished, and the capital markets had come alive. The Tata Companies used the first few years to beef up their capital. And with their reputation for integrity and transparency Tata company stocks were amongst those favoured early, by domestic and foreign investors alike. It was this rock-solid reputation that proved invaluable in helping the Tata’s, almost a decade later, fund all the expansions oversea.
Value systems helped Tata group.
Management structure and nature:
A firm develops strategies in line with the organizations values, vision, mission and objectives. A management structure is required to executive these strategies. Companies management structure defines the roles, responsibilities and accountabilities of all towards achieving organizational objectives. It also describes the formal relationship between various departments within the organization. A well-defined management structure not only makes decision making structured it also expedites the decision making.
Internal power relationships are also very crucial in decision making as well as strategy execution. Firms have to continuously monitor internal environment of the firm with respect to human resources, company image and brand equity, infrastructure, R&D, marketing resources, financial factors as they are influenced by the external factors, particularly the macro environment.
In case of the Tata group, though the road map was created by N. A. Soonawala and Farokh Kavarana, much of these overseas plans had to wait for almost a decade . India was in the throes of its worst economic crisis, and foreign exchange reserves were totally depleted. The country was on edge of default. It is therefore not surprising that for many of the first few years Tata’s CEOs continued in the same mould. Tata giants like Darbari Seth, Nani Palkhivala, Tobacowalla were still in key positions. Thus, Ratan Tata’s early phase was focussed on the implementation of retirement policies and consolidation of the business.
As discussed earlier ethics is, “a set of concepts and principles that guide us in determining what behaviour helps”.
Principles are a fundamental truth or proposition that serves as the foundation for a system of beliefs or behaviour or for a chain of reasoning.
Beliefs are an acceptance that something exists or is true especially one without proof. Trust, faith, or confidence. It is a descriptive thought that a person holds about something.
Value is that which one acts to gain and/or keep—virtue is the act by which one gains and/or keeps it. The three cardinal values of the Objectivist ethics—the three values which, together, are the means to and the realization of one’s ultimate value, one’s own life—are: Reason, Purpose, Self-Esteem, with their three corresponding virtues: Rationality, Productiveness, Pride.
When we apply the reason, purpose and self-esteem while employing cost leadership strategy we need to consider how that is going to impact economies of scale, cost reduction through employee experience, tight cost and overhead control and marginal customer account.
It is important to attach value to resources and information. Based on what has been discussed in the internal environment of the firm strategy formulators can make a check list on the following lines……
| Element | Reason (Value) | Rationality (Virtue) |
| Value system: Choice of business, mission and objectives, business policies and practices. | ||
| Vision, Mission and Objectives | ||
| Management structure and nature | ||
| Internal power relationship | ||
| Human resources | ||
| Company Image and brand equity, Infrastructure, R&D, Marketing resources, Financial factors |
Same evaluation needs to be done for
| Element | Purpose (Value) | Productiveness (Virtue) |
| Value system: Choice of business, mission and objectives, business policies and practices. | ||
| Vision, Mission and Objectives | ||
| Management structure and nature | ||
| Internal power relationship | ||
| Human resources | ||
| Company Image and brand equity, Infrastructure, R&D, Marketing resources, Financial factors |
And finally
| Element | Self Esteem (Value) | Pride (Virtue) |
| Value system: Choice of business, mission and objectives, business policies and practices. | ||
| Vision, Mission and Objectives | ||
| Management structure and nature | ||
| Internal power relationship | ||
| Human resources | ||
| Company Image and brand equity, Infrastructure, R&D, Marketing resources, Financial factors |
As is widely accepted, top line is vanity, bottom line is sanity and cash flow is reality. If reason for economies of scale is to be competitive, rationality should look at potential demand.
Every organization develops strategies to respond to the environment. As discussed in the earlier chapter an organization can choose from multiple strategies. However, Michael Porter gave three generic strategies.
The three generic strategies suggested by Michael Porter are
1. Cost leadership
2. Differentiation and
3. Focus
Generic strategies are business level strategies. To achieve cost leadership, the organization has to develop efficient economies of scale; has to rely on cost reduction from experience of its employees; the process should ensure tight cost and overhead control; on customer front organization should avoid marginal customer accounts; should also ensure cost minimization on all fronts viz. inventory control with the help of suppliers and receivables from customers.
All organizations to achieve cost leadership are employing / working on employing these factors. For competitive advantage organizations values in terms of ethics, principles and beliefs should be employed.
Differentiation is another generic strategy, which like overall cost leadership aims at industry wide strategic target, or broad strategic target. Overall cost leadership strategy aims for price competitiveness as strategic advantage; differentiation aims at achieving strategic advantage in terms of uniqueness perceived by customers. While overall cost leadership is a production oriented strategy, differentiation is positioning strategy. Positioning is always in the mind of customers. Organizations can go for tangible or intangible differentiation. Design, Packaging, Style, Composition, are tangible for which there are less barriers to followership from competitors. Whereas Quality, Image, Brand, Company reputation, and Customer preferences are intangible components of differentiation and for high barrier to followership from competitors.
A firm with healthy internal environment can employ differentiation strategy even where tangible differentiation is difficult. For instance, cement. Large buyers of cement depend on delivery schedule. Storage costs of bulky products like cement are quite high. Institutional buyers benefit more by reducing the storage cost of bulky products. If an organization by virtue of its logistics excellence reduce storage costs of buyers, buyers have every reason not to bargain on price for products which are like commodity.
Components of internal environment can help organization differentiate its output from competitors. Human resources, Company Image and brand equity, Infrastructure, R&D, Marketing resources, Financial factors are major internal components are powerful differentiators.
Differentiation allows firm some protection from low cost competitors. Because of the differentiation brand loyalty is higher and the competitive advantage is sustainable. On the other hand, differentiation has its own limitations as well. There is a possibility of uniqueness not valued by the target market. There is also possibility of loss due to differentiation.
Third generic strategy focus has a niche or narrow target scope. What makes focus strategy attractive to planners is its nature by virtue of which it helps firm defend against competitive forces identified by Porter. Since firms create a niche of its own, threat of substitute products and new entrants are less. Focus also reduced bargaining power of customers. Focus strategy has two dimensions namely focus cost leadership and focus differentiation. The risks that organizations run while employing focus strategy are the niche may not be big enough and time to come the segment may become less distinct because of macro factors.
Focus promotional strategy has created a distinct image for Burnol. Burnol Cream is a combination medicine used for the treatment of burns. It provides immediate relief in burns, prevents infection and helps in quick healing . This medicine is used for the treatment of minor burns by preventing infections and promoting the process of healing. Though the active ingredients [Aminacrine (0.1 %w/w) + Cetrimide (0.5 %w/w)] are antiseptic, focused promotion of the Burnol for minor burn injuries has given the brand a distinct position.
The Ansoff Matrix is a strategic planning tool that provides a framework to help executives, senior managers, and marketers devise strategies for future growth. It is named after Russian American Igor Ansoff, an applied mathematician and business manager, who created the concept. Ansoff, in his 1957 paper, provided a definition for product-market strategy as “a joint statement of a product line and the corresponding set of missions which the products are designed to fulfil”. He describes four growth alternatives for growing an organization in existing or new markets, with existing or new products.
|
|
Existing Market | New Market |
| Existing
Product |
Market
Penetration |
Market
Development |
| New
Product |
Product
Development |
Diversification |
Market penetration
In market penetration strategy, the organization tries to grow using its existing offerings (products and services) in existing markets. In other words, it tries to increase its market share in current market scenario. This involves increasing market share within existing market segments. This can be achieved by selling more products or services to established customers or by finding new customers within existing markets. Here, the company seeks increased sales for its present products in its present markets through more aggressive promotion and distribution.
As the awareness about maintaining the personal hygiene increased Dettol introduced more products to cater to the market. Bar soaps, liquid handwash, hand sanitizer, antiseptic liquid, disinfectant liquids, plaster, body wash, kitchen gel, shaving cream . Having products suited for customer needs the company not only got excellent market penetration but created unique value for the brand.
Market development
In market development strategy, a firm tries to expand into new markets (geographies, countries etc.) using its existing offerings and also, with minimal product/services development. Once a firm establishes itself in a particular geography, for growth the firm identifies other markets where the demographic profile of the customers is similar.
Similar demographic profile may include economic conditions, favourable political and social cultural factors, technological factors, regulatory conditions etc.
Product development
In product development strategy, a company tries to create new products and services targeted at its existing markets to achieve growth. This involves extending the product range available to the firm’s existing markets. Dettol did increase the product range to cater to personal hygiene market.
Diversification
In diversification an organization tries to grow its market share by introducing new offerings in new markets. It is the riskiest strategy because both product and market development is required. However, a due diligence with respect to attractiveness of the market and company’s strengths the risk can be minimized.
Related Diversification— there is relationship and, therefore, potential synergy, between the firms in existing business and the new product/market space. Concentric diversification, and Vertical integration.
Unrelated Diversification: This is otherwise termed conglomerate growth because the resulting corporation is a conglomerate, i.e. a collection of businesses without any relationship to one another. A strategy for company growth by starting up or acquiring businesses outside the company’s current products and markets.
Diversification consists of two quadrant moves so is deemed the riskiest growth option. Both integration strategies add value to the organization as it reduces dependence on suppliers or distributors in case of vertical integration. Strategists, however, must remember that you cannot run two businesses at the margin of one!
As discussed earlier Glueck , listed four grand strategic alternatives…
• Stability
• Expansion
• Retrenchment
• Combination
These are together known as stability strategies/ basic strategies.
In stability strategy, the company continues to do what it is doing. Company neither introduces new products nor serves new market nor adopts new technologies. This strategy is good when environment is relatively stable. Company may only go for market penetration strategy.
Expansion strategy is adopted when environment demands increase in pace of activity. Company broadens its customer groups, customer functions and the technology. These may be broadened either singly or jointly. This kind of a strategy has a substantial impact on internal functioning of the organization.
Retrenchment: If the organization is going for this strategy, then it has to reduce its scope in terms of customer group, customer function or alternative technology. It involves partial or total withdrawal from three things. The objective varies from company to company.
Combination: When all the three strategies are taken together, this is known as combination strategy. This kind of strategy is possible for organizations with large number of portfolios.
Joint Ventures: In joint ventures, two or more companies form a temporary partnership. Companies opt for joint venture for synergistic advantages to share risk, to diversify and expand, to bring distinctive competences, to manage political and cultural difficulty, to take technological advantage and to explore unexplored market.
Strategic Alliance: When two or more companies unite to pursue a set agreed upon goals but remain independent it is known as strategic alliance. The firms share the benefits of the alliance and control the performance of assigned tasks. The pooling of resources, investment and risks occur for mutual gain.
Mergers: It is an external approach to expansion involving two or more than two organizations. Companies go for merger to become larger, to gain competitive advantage, to overcome weaknesses and sometimes to get tax benefits. Merger takes place with mutual consent and common goals.
Acquisition: For the organization which acquires another, it is acquisition and for organization which is acquired, it is merger.
Takeovers: In takeovers, there is a strong motive to acquire others for quick growth and diversification.
Divestment: In divestment, the company which is divesting has no ownership and control in that business and is engaged in complete selling of a unit. It is referred to the disposing off a part of the business.
Turnaround Strategy: When the company is sick and continuously making losses, it goes for turnaround strategy. It is the efforts in reversing a negative trend and it is the efforts to keep an organization alive.
All these alternatives are available to an organization and according to its objectives. However, on the basis of the values that the organization stands for they choose among these strategies. All the strategies, and other strategies that the organization may employ are discussed and evaluated for their relevance and limitations later in the book.
Value is that which one acts to gain and/or keep—virtue is the act by which one gains and/or keeps it. The three cardinal values of the Objectivist ethics—the three values which, together, are the means to and the realization of one’s ultimate value, one’s own life—are: Reason, Purpose, Self-Esteem, with their three corresponding virtues: Rationality, Productiveness, Pride.
The three cardinal values should be guiding principles of the organization. Organization when sets up its ultimate value must pay attention to Reason, Purpose, Self-Esteem with their corresponding virtues: Rationality, Productiveness, and Pride.
Value Virtue
Reason Rationality
Purpose Productiveness
Self-Esteem Pride.
For growth organization can employ multiple strategies. Some of these strategies are discussed in this chapter with respect to organizational values. Before implementing, these strategies need to be evaluated from multiple perspectives and the environment in which the firm operates, for their relevance and limitations.
References:
Johnson, Gerry; Scholes, Kevan (2001). Exploring Corporate Strategy, Text and Cases Sixth Edition, Pearson Education
ibid
Paul, Richard; Elder, Linda (2006). The Miniature Guide to Understanding the Foundations of Ethical Reasoning. United States: Foundation for Critical Thinking Free Press. p. NP. ISBN 978-0-944583-17-3.
John Deigh in Robert Audi (ed), The Cambridge Dictionary of Philosophy, 1995.
Paul, Richard; Elder, Linda (2006). The Miniature Guide to Understanding the Foundations of Ethical Reasoning. United States: Foundation for Critical Thinking Free Press. p. np. ISBN 978-0-944583-17-3.
The Virtue of Selfishness, Chapter 17, Racism pp 150
The Virtue of Selfishness, Chapter 16, The Divine Right of Stagnation, Nathaniel Branden pp 144
The Virtue of Selfishness, Chapter 1, The Objectivist Ethics, Ayn Rand pp 27
The Legacy, Business India, January 6, 2013
Johnson, Gerry; Scholes, Kevan (2001). Exploring Corporate Strategy, Text and Cases Sixth Edition, Pearson Education pp 51
ibid
ibid
The Legacy, Business India, January 6, 2013
ibid
Three Generic Competitive Strategies Source: Adapted from Porter, E. Michael (1985). Competitive Advantage – Creating and Sustaining Superior Performance.
https://www.practo.com/medicine-info/burnol-cream-53297, March 17, 2020, 1035 am
Ansoff, I.: Strategies for Diversification, Harvard Business Review, Vol. 35 Issue 5, Sep-Oct 1957, pp. 113-124
https://www.dettol.co.in/en/products/disinfectant-liquids/, March 17, 2020, 1055 am
Glueck, W.F. and Iavch, L.R. (1984). “Business Ploicy and Strategic Management” Mc graw Hill, New York.