Strategic Business Management - Assignment Example

Strategic Business Management Name: Course: Institution: Tutor: Question Responses Section I Question 1: Right from the beginning, Redflow had several strengths and distinctive capabilities, which helped ensure that it developed into a competitive and innovative business in the energy industry. One of the strengths was that the business’ founders were well experienced in the fields of engineering, technology and management. This made it possible for them to create a feasible and realistic product solution. The two founders also sought background knowledge in business management by attending workshops and seminars, which helped in strengthening their management styles. Moreover, the two founders had same goals, vision and motivations. Another distinctive capability for the company was that its unique products (Zinc-bromide batteries) were much superior in terms of energy storage capacity than the ordinary lead acid batteries that were already in the market. The new batteries were easy to transport due to their small weight and size and saved on transportation and installation costs. The other strength is that the market did not offer any meaningful competition. In fact, Redflow was a pioneer in developing inc-bromide batteries. This means that the company’s products could readily sell in the market, subject to marketing strategies employed (De Kluyver, 2000). In the early days of business launch, Redflow managed its key strengths and unique capabilities by running the business on family resources. Later on the business acquired a battery developing company that had gone broke a few years early. The acquisition was a strategic move in strengthening the company’s unique strengths in that it offered opportunities for Redflow to gain valuable knowledge and assets at low cost (Besanko, Dranove & Shanley, 2005). In addition, the company was able to secure funding from the government. This added to the company’s expanding strengths and made it possible for the company to expand the scope of production. It is the case that if Redflow did no take the strategic move of acquiring the firm, it could have taken it a considerably long period of time to create an impressive market presence due to lack of adequate skills, knowledge and strategic resources. Question 2 One of the most important risks that Redflow faced when starting its innovating product was the possibility of the new product failing to attract the required attention in the market. According to Ghemawat (2001), developing an innovative product involves risks of whether consumers will accept the new features that have been added to an existing product. Already, the market was saturated with competing products including lead acid batteries, which meant that it could be difficult for Redflow to create a stable market niche for its new innovative product. Another risk was that developing the product was a costly venture because hefty resources were required in the areas of research and development as lots of experiments and test had to be performed initially. The company’s founders had limited financial resources and therefore, it could be difficult for the business to grow into a meaningful size, capable of serving a sizable market share. For this reason, it could be difficult to accurately predict the exact specifications as well as potential sales volumes of the new product. Recent research studies (Ghemawat, 2001) have shown that new products can suffer from notoriously high failure rates. One of the reasons for this failure is vague understanding of customer needs. The company also faced management risks. A new business idea needs to be successful in order to satisfy the ever-changing customer needs, gain a stable market position and take advantage of market opportunities. To ensure survival of a new business both in the short term and long term, managers must achieve a balance among competing resource constraints. Effective management of such a business should include risk assessment modules for identifying and measuring risks. An organization like Redflow that uses an existing idea to develop an innovative product should carefully assess the market to determine the likelihood of its products succeeding. Question 3 There are numerous entry strategies that Redflow can use to enter the US or any other foreign market. However, the appropriateness and success of each of these strategies depend on legal requirements, financial resource requirements and the level of competition in the target market (Sheth & Sisodia, 2001). One of these strategies is direct export. This strategy involves selling and delivering a product directly to customers in the foreign market. The only advantage of this method is that it enables companies to get higher returns on investment because there are no middle men. The strategy allows products to be sold at low prices and hence become more competitive. Redflow can also consider indirect export. This entry strategy involves selling through an intermediary such as an agent or a trading house. Selling through an intermediary is the best way for entering foreign markets that have high competition. Redflow can also enter the US market through partnerships and alliances. Partnering with companies in the US market can help provide the required expertise, capital, technology and market access that Redflow might not be able to provide on its own (De Kluyver, 2000). Allying with US companies whose products complement those of Redflow can be a good cost-reduction strategy through joint marketing efforts and sharing of distribution channels. International trade efforts include other entry strategies such as joint ventures. A joint venture is a contractual agreement between companies that allows joint business undertaking. The parties in a joint venture agree to share profits and losses and management of the business. Forming a joint venture is a good strategy for companies to partner without merging. As an entry strategy, a joint venture enables partnering businesses to acquire competencies and skills that they do not possess and is a good entry strategy, especially when the target market needs to be penetrated easily. This strategy is also ideal when technological change is rapid. The method not only allows for spread of risks over the partnering firms but also facilitates fast entry and payback. The only drawback of this market entry method is that partnering firms do not retain full control of the business. Section II Question 4: The move by Facebook to acquire Instagram is a unique growth and survival strategy that will see Facebook strengthen its market share, customer base and growth in the long run. According to Besanko, Dranove and Shanley (2005) acquisition is a good strategy that provides the acquiring company the strategic financial and client base necessary for rapid growth and expansion. In addition to eliminating competition, acquisition also projects the acquiring firm as a prominent industry player. The primary motive for Facebook’s decision to acquire Instagram can be described as the need to eliminate or reduce competition. Instagram was kind of a threat to Facebook but not a significant one. However, Instagram’s business offered potential areas for Facebook to grow user base and engagement. This is because Instagram was already developing into a unique social site where users share photos and other information, much as is the case in Facebook. In addition, the acquisition stands to offer Facebook essential synergies that allows for enhanced cost-effectiveness and efficiency. This synergy will be through revenue enhancement and cost saving. Facebook also stands to acquire new technologies and business skills. To remain competitive, businesses need to maintain pace with technological developments. By acquiring a small company with unique technologies and business processes, Facebook can develop and maintain a competitive edge in the industry (De Kluyver, 2000). There are, however, some potential risks in Facebook’s decision to acquire Instagram. One such risk is that differences in organizational cultures may make it difficult for Facebook to exercise effective control and management over the new business entity. For instance, the employees of Instagram may be accustomed to flexible working conditions and easy access to top management. But if these aspects are not provided by Facebook, the result can be shrinking productivity for Facebook (Scherer, 2003). With the acquisition, Facebook’s management span spreads over a wide area, which imposes new restraints. Coping with an acquisition during the initial stages can make managers spread their time and commitment thinly and neglect the core business. Section III Question 5 In the article, Creating Shared Value, Porter and Kramer have discussed that drastic shift in business processes can create new opportunities for competitive advantages, social impact and increased corporate profitability. The two authors have called for business leaders to recognize that shared value is not a social responsibility or sustainability issue but a way of achieving economic success. The perspective of shared value can be integrated in Australia’s mining industry to propel long term business growth and expansion. In particular, shared value can help create economic value for corporations in the mining industry through innovations that address social needs and challenges. These innovations can be created in various ways, which include: reinventing business processes and products; developing local business clusters and redefining productivity in the logistics process (Oster, 1994). Most companies in the mining industry lacks an innovative framework for guiding business efforts and most of them remain stuck in social responsibility mindsets where societal issues are at the periphery. The solution to this problem lies in creating shared value, a concept that involves creating economic value by addressing the needs and challenges of the society. To create shared value, companies in Australia’s mining industry should engage collaboration with other economic players such as suppliers and other partners that will help bring necessary business expertise and relationships (Scherer, 2003). However, the opportunity for collaboration does not mean that the traditional perspective of industry structure becomes unimportant. The traditional forces that drive profitability will always be present. As such, efforts by companies in the mining industry to create shared value must recognize the realities of stiff-market competition or else the idea of shared value will not be fruitful. Owing to the value ad size of the mining industry in Australia, the idea of shared value will help companies to focus attention on the unmet needs of the society. This means that companies smut embrace corporate social responsibility and make it an integral part of their strategic objectives. Failure by business to embrace social responsibility can lead to legitimacy of businesses falling, which may in turn cause a company’s business to be trapped in a vicious cycle. Essentially, companies in the mining industry must take initiatives in bringing society and business together in order to remain competitive. Question 6: Industry structure refers to the size, distribution and number of firms in an industry. Ideally, the number of firms in an industry may run to hundreds or even thousands. The presence of a large number of firms in an industry reduces opportunities for coordination between firms in the industry (Sheth & Sisodia, 2001). As such, the level of coordination increases with the increase in the number of firms in the industry and this can significantly impact on a firm’s strategic thinking and decision making process. According to (Oster, 1994) distribution of firms within an industry is a critical factor in a firm’s strategic thinking from the perspectives of business policy and public policy. If all firms in a particular industry are small size, then the industry is said to be fragmented. On the other hand, if a small number of firms command a significant share in the industry, the industry is said to be consolidated. Generally, the type of competition in fragmented industries is different from that in consolidated industries and each industry affects a firm’s strategic thinking in different ways. In the article, How Strategy Shapes Structure, Kim and Mauborge have argued that industry strategy influences business policy and strategy. By studying the structure of an industry, one can learn a lot about the extent of competition, entry barriers, rivalry and other elements of competitive dynamics. The authors have also opined that industry analysis impacts on an industry’s economic performance as well as the stability of individuals firms in the industry. In this view, some firms become attractive than others firms because of the underlying industry structure. From the Industrial Organization Economics perspective, industry structure affects performance of new venture businesses. It is, therefore, important for new ventures to specialize by industry and to time market entry. To a great extent, a firm’s economic performance depends on the structure of industry in which it operates and how the different competitive forces in the industry are aligned. Although industry structure can be relatively stable for a considerably long period of time, the prospects of the industry can be influenced by changes in technology, government regulations or buyer needs. Question 7: Global economic developing has entered a phase in which entrepreneurships will play an increasingly more important role. In many countries, the traditional economic systems characterised by over-reliance on mass production by big businesses has paved way to entrepreneurial economy (Scherer, 2003). In the entrepreneurial economy, knowledge driven products can be flexibly provided by smaller firms. In emerging markets such as Brazil, South Africa and China, impressive economic growth has been driven by veritable entrepreneurial revolutions. For this reason, the need for emerging economies to maintain steady economic growth through sustainable access to market, resources and knowledge calls for innovative entrepreneurship. The article titled The High-Intensity Entrepreneur by Habiby and Deirdre presents the case of entrepreneurship in economic development in developing countries and what role entrepreneurship stands to play in moving sluggish economies forward. The article has articulated that entrepreneurs can create real economic value with relatively little capital. Through entrepreneurship, barriers to entry have increasingly come down and the process presents vast investment opportunities for small businesses. These developments are particularly important in emerging markets or developing economies. The article has also argued for the need of entrepreneurs solutions to address persistent global challenges such as climate change. Research studies have consistently shown that economies with high rate of entrepreneurship show high rates of economic growth and innovation. Consequently, majority of emerging economies, having realized the potentials of entrepreneurship are introducing policy measures to strengthen entrepreneurship capital in various sectors of the economy. Moreover, aid dependency is relatively persistent in some of the emerging countries. However, donors (developed countries) have in the recent years shifted emphasis in cooperation towards private sector development. Promoting entrepreneurship has accordingly become a vital strategic policy for many development organizations. In order for developed economies to contribute meaningfully to the development of entrepreneurship in the emerging economies, the states must play a strong role as the regulator and gatekeeper of entrepreneurs (Oster, 1994). In the absence of appropriate regulations and rules, support from developed countries may result in undesired social outcomes including financial crises and corruption. Section IV Question 8 The primary purpose of strategic management is to enable businesses achieve competitive advantages over their rivals. In today’s dynamic markets, strategic management struggles to develop a future direction for an organization to take. Strategic management becomes fruitful when managers are able to organize, plan, lead and control an organization’s activities and resources for the purpose of maintaining competitive advantages. The elements of various functions which enhance a business manager’s success in cultivating an environment of strategic management is the ability to determine how needs can be accomplished. Application of the right skills and resources reinforces new business ideas, strategies and practices for successful management. There is always a threat that without strategies, a business may become static and hence fail to deliver on its objectives. Thus, businesses should understand the direction in which they must go so as to obtain optimum potentials. When the scope of a business’ operations is wide, managers may face some challenges. One such challenge relates to difficulties in creating working relationships between a business and it subsidiaries, more especially when the subsidiaries are located in another country. This challenge arises because of cultural differences, leadership styles and management styles. Another challenge is that first line managers may find it difficult to monitor offsite personnel effectively and hence find it difficulty to measure performance outcomes. Companies can, however, mitigate these challenges by building strategies focusing on cultivating communication and relationship building. There are many ways in which an individual can use the knowledge about strategic management in a professional context. Besides helping set detailed goals for developing an innovative product, knowledge on strategic management will help in analyzing internal and external resource requirements for developing new businesses and products. This knowledge will also be of crucial importance in analyzing external business environment. Knowledge on strategic management can help individuals cope with change whether minor or significant and other uncertainties in the external business environment. References Besanko, D., Dranove, D., Shanley, M 2005, Economics of Strategy, John Willey & Sons, New York. De Kluyver, C. 2000, Strategic thinking: An executive perspective, Upper Saddle River, NJ:  Prentice Hall. Ghemawat, P 2001, Commitment. The Dynamic of Strategy, Free Press, New York. Oster, S 1994, Modern competitive analysis, New York, NY: Oxford University Press. Scherer, F 2003, Industry structure, strategy, and public polic,. Reading, MA: Addison- Wesley. Sheth, J., & Sisodia, R. (2001). The Rule of three: Surviving and thriving in competitive markets. New York, NY: The Free Press. Read More