Strategic Management Analysis of the strategies Introduction Strategies are a combination of actions or deeds taken in order to exploit company’s core resources and competences to gain profitability and competitive advantage (Hitt, Ireland and Hoskisson, 2009, p. 4). A good strategy should entail planning that evaluate the current position of a company and determine the course the company takes, and process management where measures are laid out to deal with unpredictable environmental factors that might affect the company in future (Dobson, Starkey and Richards, 2004, p. 2). External environment and internal strategic capabilities Strategic capability can be defined as the resources and competences an organization needs for it to survive and prosper (Helfat, 2007, p. 1).
The elements in strategic capability are threshold resources, threshold competences, unique resources, and Core competences. Threshold resources are the minimum resources needed to meet the needs of a customer; that is, they are the minimum activities and processes required to meet needs of customers. On the other hand, unique resources are the resources that give a company an edge over its competitors - usually these resources are difficult to imitate; and finally, core competences are activities that support competitive advantage over competitors (Sadler and Craig, 2003, p. 12).
The main objective of Suez taking over SGB was logical creation of individual corporate programmes whilst improving the company’s ability to find and exploit new areas of activity. This objective was to be met through making changes in the financial and organizational fields and developing a human resource committee from SGB. There are several strengths associated with SGB. First, it had a good reputation which is essential to the marketing of its products in Europe and also a large network of business; second, it was compromised of an amalgamation of financial and non-financial companies.
In addition, it owned shares directly or indirectly in companies in other sectors like energy, engineering, mineral mining and transportation. The corporation had an established brand in Belgium and beyond, hence the interest from France Suez Company. Moreover, the Suez identified the potential of SGB returning to profitability if some fundamental structures were laid down. Indeed, SGB has had strategic assets as the government supported the company. One factor (weakness) that would affect the restructuring of the company is its size; SGB was a large company and comprised of other companies.
To effect any change in SGB, it would require much longer duration compared to if it were smaller. In addition, the government of Belgium had a great influence in the running of the affairs of the company while the public interest in the company was great. However, some of the holdings the company held were unprofitable, Due to the SGB’s diversity in financial interests, the company has a large pool of capital resources to pull from.
In addition, the diversity shields the company from over reliance on one sector, hence making it secure if one sector faces difficulty. In terms of threats, the company is threatened with possibility of being broken down and sold to available buyers; and the take over bid brings about changes in the culture and tradition of the company. In this case, the company’s competitors would have an upper hand as SGB was undergoing restructuring or due to inefficiency caused by poor management. Strategies used The strategy used by SGB to return to profitability was restructuring through acquisition; for instance, Suez Company acquired SGB in 1988.
Restructuring involves reorganizing of legal ownership, business strategy, operations organisation function, and other structure to make a company profitable and to increase its competitiveness (Crum, Goldberg, 1998, p. 340). Primarily, restructuring was used because SGB required radical changes in most of its strategies, namely business and operation strategies. In addition, Suez was to bring in new models of operation while benefiting from the capital wealth the company had. To improve the company’s value, it had to liquidate or consolidate some of its holding and operations (Crum, Goldberg, 1998, p. 340).
It was essential to liquidate some share holdings SGB held in none promising industries and the minor share holding it held. In addition, SGB consolidated its holdings into ten major sectors for easier management. Change in the operational structure and management was essential as the management board was stagnant and narrow minded. In order to continue having the support of the population, the former CEO was made the chairman of the SGB board.
Moreover, the reason of using restructuring was that, SGB had outgrown the current management and the company had been failing in the attempts of diversification of their practice. The Suez Company had a wide range of resources that they would use to channel the company to profitability direction. In this case, SGB had to take an active stake in its subsidiaries management. By Suez Company taking over SGB, they were able to open up the company to the European market. The Ansoff matrix strategic tool was used to evaluate the future direction the company should take (Luck, 2008, p. 346).
The matrix evaluates both the viability of vertical and horizontal integration strategies. By using horizontal integration to identify companies to compete with SGB can be a position to increase its profitability (Swayne, Duncan, Ginter, 2006, p. 240). Moreover, using capital available in SGB, the company was in a position to invest in buying assets of industry competitors and hence increase profitability. To counter the increasing global competition and Europe’s divided market, SGB had to create an edge of competitiveness using its wide range of resources.
Generally, vertical integration is corporate-level strategy used to improve a company’s competitiveness in the market. The strategy entails that a company enters into new business to support its core business (Porter, 2009, p. 302). The company can use either backward or forward industry entry mode. Primarily, backwards industries are industries that provide raw materials for the core business while forward businesses are businesses that use, distribute or sell products of key business. In market selection, the CAGE framework evaluates the viability of attaining market share in a country by assessing its culture, administration, geographic and economy (Ghemawat, 2007, p. 40). Evaluation of the Strategies implemented The company attained a new CEO who would be in charge of implementing the restructuring of the company.
The appointment of the CEO created public tension and suspicion that Suez had intentions of dominating and absorbing SGB. This strategy was successful as it brought a natural party to be in charge of the company without the influence of government. In addition, restructuring allowed SGB to liquidate its non promising shareholding, hence retaining a manageable amount.
Moreover, consolidation of the holdings enabled the company to follow up the running of the different sectors. Vertical integration approach yields results as it lowers cost structure, increases product differentiation, reduces rivalry from other companies, and increases bargaining power over suppliers and buyers (Hill, Jones, 2009, p. 286). Nevertheless, lower cost structures give a company the benefit of economies of scale. By use of CAGE framework, SGB was able to evaluate the regions in which to expand its market share in Europe. References Crum, R., Goldberg, I. (1998). Restructuring and Managing Enterprise in Transition.
Washington: World Bank Publication. Retrieved December 4, 2010, from http: //books. google. co. ke/books? id=3K0K409T6A4C&pg=PA340&dq=what+is+restructuring&hl=en&ei=8M_5TJvVIYfc4Aaey8S0Bw&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCUQ6AEwAA#v=onepage&q&f=false. Dobson, P., Starkey, K. & Richards, J. (2004). Strategic Management: cases and issues. NY: Wiley-Blackwell Publishers. Retrieved December 4, 2010, from http: //books. google. co. ke/books? id=oh-OJMLEuMwC&printsec=frontcover&dq=what+is+Strategic+Management&hl=en&ei=nbz5TJyyHoKe4Abr2czPBw&sa=X&oi=book_result&ct=result&resnum=4&ved=0CEAQ6AEwAw#v=onepage&q&f=false. Ghemawat, P. (2007). Redefining global strategy: crossing borders where differences still matter. NY: Harvard Business Press. Retrieved December 4, 2010, from http: //books. google. co. ke/books? id=8iPXgr7oJ9MC&pg=PA40&dq=cage+framework&hl=en&ei=jvf5TK2HB4i74AaUmdSZBw&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCgQ6AEwAA#v=onepage&q=cage%20framework&f=false. Helfat, C. (2007). Dynamic Capabilities: Understanding strategic change in organizations. Sydney: Wiley-Blackwell Publisher. Retrieved December 4, 2010, from http: //books. google. co. ke/books? id=k7APPmf5AqcC&printsec=frontcover&dq=Strategic+capability+in+strategic+management&hl=en&ei=MQP6TMyHH4f64Aa4m6DPBw&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCsQ6AEwAA#v=onepage&q=Strategic%20capability%20in%20strategic%20management&f=false. Hill, J. (2009). Strategic Management Theory: an integrated approach. OH: Cengage Publishing. Retrieved December 4, 2010, from http: //books. google. co. ke/books? id=CzIK9ELsyYwC&pg=PA288&dq=horizontal+integration&hl=en&ei=HOP5TMK2KtX-4Abug9iiBw&sa=X&oi=book_result&ct=result&resnum=2&ved=0CCsQ6AEwAQ#v=onepage&q=horizontal%20integration&f=false. Hitt, M., Ireland, R. & Hoskisson, R.
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