{"id":118,"date":"2015-07-29T22:11:33","date_gmt":"2015-07-29T22:11:33","guid":{"rendered":"https:\/\/courses.candelalearning.com\/intlbusx1xmaster\/?post_type=chapter&p=118"},"modified":"2017-01-09T19:17:19","modified_gmt":"2017-01-09T19:17:19","slug":"business-and-corporate-strategy","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/chapter\/business-and-corporate-strategy\/","title":{"raw":"Reading: Business and Corporate Strategy","rendered":"Reading: Business and Corporate Strategy"},"content":{"raw":"
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Learning Objectives<\/h3>\r\n
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  1. Understand the difference between strategy formulation and strategy implementation.<\/li>\r\n\t
  2. Comprehend the relationships among business, corporate, and international strategy.<\/li>\r\n\t
  3. Know the inputs into a SWOT analysis.<\/li>\r\n<\/ol>\r\n<\/div>\r\n
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    What Is Strategy?<\/h2>\r\nA strategy is the central, integrated, externally oriented concept of how a firm will achieve its objectives. Strategy formulation<\/span><\/span> (or simply strategizing<\/em>) is the process of deciding what to do; strategy implementation<\/span><\/span> is the process of performing all the activities necessary to do what has been planned. Neither can succeed without the other; the two processes are interdependent from the standpoint that implementation should provide information that is used to periodically modify the strategy. However, it\u2019s important to distinguish between the two because, typically, different people are involved in each process. In general, the leaders of the organization formulate strategy, while everyone is responsible for strategy implementation.\r\n
    \r\n\r\n[caption id=\"\" align=\"aligncenter\" width=\"500\"]\"strategizing<\/a> Figure 10.1 Corporate and Business Strategy[\/caption]\r\n\r\n<\/div>\r\nFigure 10.1 \"Corporate and Business Strategy\" summarizes the distinction between business and corporate strategy. The general distinction is that business strategy addresses how we should compete<\/em>, while corporate strategy is concerned with in which businesses we should compete<\/em>. Specifically, business strategy<\/span><\/span> refers to the ways in which a firm plans to achieve its objectives within a particular business. In other words, one of Splash Corporation\u2019s business strategies would address its objectives within the nutraceuticals business. This strategy may focus on such things as how it competes against multinationals, including Unilever and Procter & Gamble. Similarly, Walmart managers are engaged in business strategy when they decide how to compete with Sears for consumer dollars.\r\n\r\nCorporate strategy<\/span><\/span> addresses issues related to three fundamental questions:\r\n
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    1. In what businesses will we compete?<\/strong> The Hortalezas, for instance, say that they are in the wellness business; but from the opening case, you can see that they\u2019re talking about specific niche markets related to wellness.<\/li>\r\n\t
    2. How can we, as a corporate parent, add value to our various lines of business (often called subsidiaries)?<\/strong> For example, Splash\u2019s senior management might be able to orchestrate synergies and learning by using new products coming out of the Splash Research Institute. It can also glean market intelligence through health and beauty care retail outlets. Market intelligence can give Splash information on which brands are selling well, and some of those brands might be good targets for Splash to acquire, such as it did with the Hygienix brand line. Hygienix is a brand line of antibacterial skin-care products. Corporate strategy deals with finding ways to create value by having two or more owned businesses cooperate and share resources.<\/li>\r\n\t
    3. How can diversifying our business or entering a new industry, help us compete in our other industries?<\/strong> The Hortalezas\u2019 experience with the HBC retailers can provide valuable insights into which new products to develop through the Splash Research Institute; in addition, Splash can sell more of its own products through HBC outlets.<\/li>\r\n<\/ol>\r\nInternational strategy<\/span><\/span> is specialized in the sense that corporate strategy guides the choice of which markets, including different countries, a firm competes in. The different types of international strategy are reviewed in the section\u00a0\"International Strategy.\" Even when a firm doesn\u2019t sell products or services outside its home country, its international strategy can include importing, international outsourcing, or offshoring. Importing<\/span><\/span> involves the sale of products or services in one country that are sourced in another country. Penzeys Spices, for instance, sells herbs and spices that it buys from all over the world, yet it has retail outlets in only twenty-three states. However, such activity is not limited to small companies like Penzeys. Kohl\u2019s Corporation, one of the largest discount retailers in the country, has stores exclusively in the United States but most of its products are sourced overseas. In outsourcing<\/span><\/span>, the company delegates an entire process (e.g., accounts payable) to the outsource vendor. The vendor takes control of the operation and runs the operation as it sees fit. The company pays the outsource vendor for the end result; how the vendor achieves those end results is up to the vendor. The outsourcer may do the work within the same country or may take it to another country (also known as offshoring). In offshoring<\/span><\/span>, the company takes a function out of its home country and places the function in another country, generally at a lower cost. International outsourcing<\/span><\/span> refers to work that is contracted to a nondomestic third party.\r\n\r\n<\/div>\r\n
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      The Strategizing Process<\/h2>\r\nFrom where does strategy originate? Strategy formulation typically comes from the top managers or owners of an organization, while the responsibility for strategy implementation resides with all organizational members. This entire set of activities is called the strategizing process, as summarized in Figure 10.2.\r\n\r\nAs you can see with the opening case on Splash Corporation, the strategizing process starts with an organization\u2019s mission and vision. A mission statement<\/span><\/span> is the organization\u2019s statement of purpose and describes who the company is and what it does. Customers, employees, and investors are the stakeholders most often emphasized, but others like government or communities (i.e., in the form of social or environmental impact) can also be impacted.[footnote]Mason Carpenter, Talya Bauer, and Berrin Erdogan, Principles of Management<\/em> (Nyack, NY: Unnamed Publisher<\/a>, 2009), accessed January 5, 2011, http:\/\/www.gone.2012books.lardbucket.org\/printed-book\/127834<\/a>.[\/footnote]<\/span> Mission statements are often longer than vision statements. Sometimes mission statements include a summation of the firm\u2019s values. Organizational values<\/span><\/span> are those shared principles, standards, and goals.\r\n
      \r\n\r\n[caption id=\"\" align=\"aligncenter\" width=\"500\"]\"strategy<\/a> Figure 10.2<\/b> Source: M. Carpenter, 2010[\/caption]\r\n\r\n<\/div>\r\nA vision statement<\/span><\/span>, in contrast, is a future-oriented declaration of the organization\u2019s purpose. In many ways, the mission statement lays out the organization\u2019s \u201cpurpose for being,\u201d and the vision statement then says, \u201con the basis of that purpose, this is what we want to become.\u201d The strategy should flow directly from the vision, since the strategy is intended to achieve the vision and satisfy the organization\u2019s mission. Along with some form of internal and organizational analysis using SWOT<\/span><\/span> (or the firm\u2019s strengths, weaknesses, opportunities, and threats), a strategy is formulated into a strategic plan. This plan should allow for the achievement of the mission and vision. Taking SWOT analysis into consideration, the firm\u2019s management then determines how the strategy will be implemented in regard to organization, leadership, and controls. Strategic planning, together with organizing, leading, and controlling, is sometimes referred to by the acronym P-O-L-C<\/span><\/span>. This is the framework managers use to understand and communicate the relationship between strategy formulation and strategy implementation.\r\n
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      Did You Know?<\/h3>\r\n
      Research suggests that companies from different countries approach strategy from different perspectives of social responsibility. Central to the distinctiveness of the Indian business model is the sense of mission, a social goal for the business that goes beyond making money and helps employees see a purpose in their work. Every company we [the researchers] saw articulated a clear social mission for their business. ITC, a leading conglomerate, echoed the views of the companies we interviewed with this statement, describing the company\u2019s purpose: \u201cEnvisioning a larger societal purpose has always been a hallmark of ITC. The company sees no conflict between the twin goals of shareholder value enhancement and societal value creation.\u201d Contrast this Indian model, where a company\u2019s business goal is seen as bettering society, with the US model, where we try to motivate employees around the corporate goal of making shareholders rich. The US approach is at a sizable disadvantage, because it is difficult for most people to see making money for shareholders as a goal that is personally meaningful. While it is possible to tie pay to shareholder value, it is extremely expensive to pay the average employee enough in share-based incentives to get him or her to focus on shareholder value.[footnote]Peter Cappelli, Harbir Singh, Jitendra Singh, and Michael Useem, \u201cThe India Way: Lessons for the U.S.,\u201d Academy of Management Perspectives<\/em> 24, no. 2 (2010): 6\u201324.[\/footnote]<\/span><\/blockquote>\r\n<\/div>\r\n<\/div>\r\n
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      The Fundamentals of SWOT Analysis<\/h2>\r\nSWOT analysis was developed by Ken Andrews in the early 1970s.[footnote]Kenneth R. Andrews, The Concept of Corporate Strategy<\/em> (Homewood, IL: Richard D. Irwin, 1971).[\/footnote]<\/span> It is the assessment of a company\u2019s strengths and weaknesses\u2014the S and W\u2014which occur as part of organizational analysis; this organizational analysis of S and W is an audit of a company\u2019s internal workings. Conversely, examining the opportunities and threats is a part of environmental analysis\u2014the company must look outside the organization to determine the opportunities and threats, over which it has less control. When conducting a SWOT analysis, a firm asks four basic questions about itself and its environment:\r\n
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      1. What can we do?<\/li>\r\n\t
      2. What do we want to do?<\/li>\r\n\t
      3. What might we do?<\/li>\r\n\t
      4. What do others expect us to do?<\/li>\r\n<\/ol>\r\n
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        Strengths and Weaknesses<\/h2>\r\nA good starting point for strategizing is an assessment of what an organization does well and what it does less well.[footnote]Mason Carpenter, Talya Bauer, and Berrin Erdogan, Principles of Management<\/em> (Nyack, NY: Unnamed Publisher<\/a>, 2009), accessed January 5, 2011, http:\/\/www.gone.2012books.lardbucket.org\/printed-book\/127834<\/a>.[\/footnote]<\/span> The general idea is that good strategies take advantage of strengths<\/em> and minimize the disadvantages posed by any weaknesses<\/em>. Michael Jordan, for instance, is an excellent all-around athlete; he excels in baseball and golf, but his athletic skills show best in basketball. As with Jordan\u2019s athleticism, when you can identify certain strengths that set an organization apart from actual and potential competitors, that strength is considered a source of competitive advantage. The hardest but most important thing for an organization to do is to develop its competitive advantage into a sustainable competitive advantage<\/span><\/span>\u2014that is, using the organization\u2019s strengths in way a that can\u2019t be easily duplicated by other firms or made less valuable by changes in the external environment.\r\n\r\n<\/div>\r\n
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        Opportunities and Threats<\/h2>\r\nAfter considering what you just learned about competitive advantage and sustainable competitive advantage, it\u2019s easy to see why the external environment is a critical input into strategy. Opportunities<\/em> assess the external attractive factors that represent the reason for a business to exist and prosper. What opportunities exist in the market or the environment from which the organization can benefit? Threats<\/em> include factors beyond your control that could place the strategy or even the business itself at risk. Threats are also external\u2014managers typically have no control over them, but it can be beneficial to have contingency plans in place to address them.\r\n\r\nIn summary, SWOT analysis helps you identify strategic alternatives that address the following questions:\r\n