Recent Post

June 24, 2014

Business Organization and Policy

In order to answer the question it is necessary to first discuss the strategic level planning and tactical / operational level planning and identifying the differences at different levels of corporate planning.
            Strategic management is to define the main directions of the company on a time horizon of medium or long term (over three years). It is first of all to the general management of the company (or the manager of an SME) prioritize the key objectives (growth, profitability, security ...), taking into account the specific characteristics of the company and those of its environment (Chakravarthy & White, 2002). The study of the environment and resources (available or missing) of the company leads to external and internal diagnostic highlighting the strengths and weaknesses of the company. It assesses the competitive intensity of the industry in which the company operates and to identify the specific skills of the firm which can be converted into competitive advantages. Strategic management has the purpose of making important decisions aimed at achieving the objectives. These decisions affect all players in the business are readily reversible and commit the firm over a time horizon longer than three years. The relevance of these decisions is often crucial to the success or failure of the company. Thus, the strategic orientations can be conducted on the basis of identified internal core competencies (Hamel & Prahalad, 1989) and organizational capabilities and their effective implementation. Strategic management should allow to develop these skills by transforming it into competitive advantages. Strategic management is to plan action preserving flexibility in case of unexpected and ensure good coupling between the external environment and internal organization of the company.
            Operational management, on the other hand, is the implementation of the guidelines set by the strategic management based on many decisions and actions that are the heart of operational management (Christensen, Johnson & Rigby, 2003). This is driving the business by ensuring optimal utilization of available resources and to coordinate the various members of the organization towards its objectives. The main actors responsible for operational management are functional (production, personal, business ...) and middle management (department heads, foremen ...). The action part of operational actors is in a limited time frame (a few days to three years) and does not bind the company irreversibly.
            Well- managed small businesses usually start their planning by defining mission and vision statements. Although the starting point is both necessary and admirable, it is not usually become usable by management until the mission translates into a strategic plan that is then used to guide operations. Managers gain an understanding of the difference between strategic and operational objectives because this distinction plays a major role in the transformation of a global vision into concrete, specific and benchmarks tasks and objectives. Daily, weekly or monthly operations are implementing using major strategic objectives. Operational or tactical objectives are set out strategic objectives in mind and provide a way for managers and staff to decompose a large strategic goal into manageable tasks. For example, the realization of the strategic goal of a 25 percent increase in sales requires achieving the operational objective to develop and implement an advertising strategy effectively with other operational objectives.
            As the strategic objectives, operational objectives should be specific and measurable, even if their objective is narrower. The most important difference between a strategic plan and an operational objective is its timing; operational objectives are short-term goals, while strategic goals are long term goals. Strategic and operational objectives also work differently in practice that the strategic objectives are often too large to make sense as a specific set of tasks of daily or weekly projects. Operational objectives, on the other hand, are specific and short-term enough to be considered usable every time in a day. Even if the strategic and operational objectives are significantly different, it is important to recognize that they are closely linked.
            An organization is unlikely to achieve a strategic objective if it fails to effectively translate realistic business goals. At the same time, the operational objectives lack cohesion with each other and with the overall mission of the organization if they are not designed to affect the achievement of strategic objectives. In other words, the strategic objectives become useful when they are translated into operational objectives and operational objectives are only effective if they are designed to serve a strategic plan objective (Johnson, Melin & Whittington, 2003).
Decision-making at different levels of corporate planning is also one of the most discussed topics in the research strategy. Rationality and analysis is often directly associated with the concept of a strategic decision making. The analysis of the decision-making process is the origin of the work on the strategy formation. The analysis of the environment and resources is primarily the strategic reflection phase. Once this phase is completed and proposed various solutions and opportunities, the decision phase is characterized by a specific time and place (management committee meeting, board of directors, etc.). Once the decision is made, it is assumed to be implemented, theoretically exactly as it was intended.
Action is often disconnected from a prior decision and is then rationalized by reflection and decision ex post. So there can be action without a prior decision, and this action is the result of micro organizational procedures, which, added to the organization, create all sense. The second dimension of this link between decision and action is the existence of strict action after a decision. Business leaders, faced with many contradictions, placed at the heart of the agency relationships, organized hypocrisy in making decisions that will reassure and satisfy stakeholders, without organizational action of changes. Finally, the link between decision and action is further weakened in the case of "emergent strategies". In this case, there is indeed a decision and action, causing a result, other concomitant decisions, changing organizational or environmental conditions which will profoundly alter the expected outcome from the action initiated by the decision (Jarzabkowski, 2003). More specifically, the action is transformed by these emergent phenomena and corresponds more to what had been decided beforehand.
Strategic and operational dimensions of management are complementary in nature. Operational management and planning falls within a framework defined by the strategic management and the decisions of operational decisions must take into account the opportunities and constraints of the business environment, the objectives set by senior management. However, in large companies, it is not always easy to ensure effective link between strategic and operational management. Strategic decisions which, by nature, upset the habits of field are sometimes misunderstood and criticized (e.g. closure of a production site). This is why it is important to integrate in the culture of the company, its values ​​and its history in the choice achieved by strategic management. Internal communication also plays an essential role (Liedtka, 2001): it is necessary to explain the strategic coherence to not demobilize actors of operational business. In this regard, two pitfalls must be avoided:
·         Strategic management should not lead to the definition of a framework too strict or too ambitious, in which the operational management could not find way to express themselves;
·         Operational management practices should not be rigid (otherwise hinder strategic changes needed) or lose sight of the strategic directions pursued
In small businesses, strategic management and operational management are often provided by the same people and their consistency does not pose a problem but the corporate structure becomes more complex. In a nutshell, Strategic planning is a developmental process of influencing the external world or adapting programs and ongoing activities so that they lead to more favorable outcomes in the external environment while the tactical / operational planning focuses on decision making in the short and medium term (days, weeks to months) that will be implemented to identify and deploy the strategy adopted by the company. Decisions at this level are taken by managers. They focus on issues related to the management of company resources, in particular the planning of activities on these resources. At this level, the company translates its strategic action programs implemented by all services to manage resources based controls to meet day to day.
      All this discussion is sufficient enough to answer the question asked in the beginning of the paper that why the student failed who in response to the topic of adaptation of strategic change with a significant innovation based his response on the introduction of self-scanner checkout terminal in a British supermarket. The student failed in his assignment because the change he mentioned was a tactical and operational change and not a strategic change or innovation.
Impact of Innovation on Growth Strategies
Definition of innovation varies from one person to another depending on their interests. The first confusion surrounding the definition of innovation is that it is used in place of creativity or invention. While creativity is the ability of the individual to create, produce new ideas and feasible to combine and rearrange items, innovation is the result of creativity and added value to action (execution). In the broadest sense, innovation can be likened to any changes introduced into the economy by any agent who results in a more efficient use of resources. This definition is derived from the economic approach to innovation. And this is due to the fact that innovation is primarily an economic term that was imposed because of the evolution of capitalism.
Two decades ago, the attention of the company is focused on reducing costs and control of production chains around standardized products. In the 1990s, the impact of globalization has ruined the benefits gained. It has therefore become necessary for firms to innovate in order to survive. Innovation is seen as a condition essential for survival and development for many companies. Although innovation is a key driver of growth for the company, it causes many failures and show that the innovation process is complex and full of uncertainties (Schlegelmilch, Diamantopoulos & Kreuz, 2003). Hence, it is important for the company to create a conducive climate for innovation process.
This leads us to the question: To what extent, innovation is the key factor in the success of the business? In a competitive and constantly changing face of business environment, companies do reflect on the innovation that is essential to ensure their growth and development. Indeed, companies can go through innovation to develop sustainable competitiveness. Thus, companies are looking to develop innovations taking into account the risks associated with it (Kim & Mauborgne, 1999). Innovation enables companies to enhance their competitive position in the markets. Indeed, the innovation enables companies to increase their productivity, improve the quality of their products or services and to develop key skills. Innovation enables companies to improve especially their non-price competitiveness.
Innovation is a key factor in the competitiveness and profitability of companies and is therefore an essential element of business strategy. Thus, innovation allows the company to have a competitive advantage in terms of cost or product supply. When innovation is in the production process, it gives the company an advantage in terms of cost. In this case, the company may either apply a strategy of lower prices or a strategy to increase margins. When innovation focuses on products, the company differentiates itself from its competitors (Johnson, Christensen & Kagermann, 2008). Differentiation strategy is often adopted by innovative organizations which can coexist alongside the large MNCs. While innovation provides a competitive advantage, profitability is uncertain; it may hinder the development of the company.
The example of the invention of nylon by Dupont and the development process of instant photo by Polaroid have provided to these companies substantial annuity. However, the profitability of innovation is uncertain because of its anti-competitive effects. The innovation has an impact on the structure (number of competitors) and nature (Non-price competition) competition and can therefore lead to distortions from the traditional competitive model (perfect competition). Aiming at an optimal allocation of resources, the authorities may design a policy to monitor anti-competitive effects of innovation, thus remove the extra profits tied to innovation (Govindarajan & Kopalle, 2004). This occurred in a case involving the world's leading manufacturer of computer software Microsoft and European authorities. Enjoying the beginning of a technological advantage, Microsoft had a hand succeeded in imposing on microcomputers manufacturers its operating systems (MS-DOS and Windows) and other signed contracts with them on the basis of a so-called "per processor" which required manufacturers to equip their devices with Microsoft software. The firm of Bill Gates built over 80 years a virtual monopoly on market application software by "killing the competition." This ended in July 1994 through the combined action of the Ministry of Justice and the U.S. Commission in Brussels.
To acquire new technologies companies can proceed in several ways. In-house research is in the field of large businesses because it is long and requires significant funding. The partnership is also a way for some companies to reduce the costs of research. This is particularly the case with the automotive supplier Valeo. Indeed, Valeo to meet the costs of research of important development and embedded computing had established numerous partnerships with specialists in electronics as Raytheon, Iteris and Pioneer.
The Austrian economist Joseph Schumpeter presented an analysis of the innovation to explain the evolution of capitalist economies. According to him, innovation is the introduction of new process technology, new products, new sources of raw materials and new forms of industrial organization. Innovation is precisely the source of the dynamics of change in the capitalist economy. For Schumpeter, there can be no capitalism at steady state. Economic development is marked by a series of revolutions and the alternating phases of growth and stagnation (long cycles). In this dynamic economic innovations play a major role. Technical progress is Schumpeter engine of economic growth. Not only capitalism is never stationary, but it could never be. It is constantly evolving but this evolution is met: the successive phases of prosperity downturns (Baumol, 2002).
When the amplitude and frequency of these phases appear more or less regularly, it becomes possible to interpret them as cycles. Schumpeter distinguished three cycles that attempts to combine to explain the overall trend: the longer the Kondratieff cycle (the name of a Russian statistician), extends about half a century and includes six cycles of Juglar (American economist), since they last a little more than three years each. The long cycle is the manifestation of structural changes, the Juglar cycle is the business cycle, which usually refers the forecasters, the Kitchin cycle is explained by changes in inventories. The cycle analysis raises important methodological problems to extract a cycle from statistical data, but in general, we can decompose a cycle of four phases:
·         Prosperity is characterized by the increase of credit, money, prices, interest rates, production, employment ... so this is a phase of expansion;
·         The recession is characterized by the reversal of these trends, especially with the decline in production and employment ... and the crisis is the turning point above, it suddenly stops and prosperity phase precipitates in the economy recession;
·         Depression is characterized by the reversal of these trends, including mass unemployment and deflation and can be interpreted as a phase reversal of previous imbalances that prepares recovery;
·         The recovery is, as its name suggests, the economic recovery, it is also the turning point and the low point in the cycle the more difficult to explain
            Schumpeter takes up the case of Clement Juglar and said that we must seek the causes of the recession in the period of prosperity that preceded it. If recessions and depressions are phases of "consolidation" of resolving imbalances and tensions created by the booms that precede them, then it is actually the last to be explained (Schumpeter, 1976).
When a set of innovations is widespread, it feeds a phase of prosperity, until it became a routine from which no further significant progress, and new entrepreneurs are thus encouraged to open new paths, the boldest example of paving the way for the following (innovation clusters). But this destabilizes the economy ruining producers’ inadequate competition, deflation resulting from the repayment of the credit for innovation. A phase of "creative destruction" necessarily accompanies the diffusion of change and uncertainty in this period temporarily stops the emergence of new entrepreneurs. Note however that for Schumpeter, the dynamics of capitalism is the twilight of the entrepreneur: the bureaucratization and routine of companies jeopardize the ability to produce new innovations. Ultimately, it is the very existence of capitalism is questioned: it is a victim of its success.
Innovation is now seen as a process of collective creation. It is not a simple initiative of isolated individuals. The large size of companies and the concentration can thus foster innovation (economies of scale in research and development, financing easier especially when research is expensive and random ...). However, small businesses can find their place in innovation processes especially when integrated in networks (e.g. Silicon Valley).
The notion of long business cycles has been widely criticized because it is difficult to identify empirically the existence. However, economies have become more cyclical and unpredictable they were particularly during the "Thirty Glorious Years". Schumpeterian vision remains valid. In addition, contemporary theories of growth (endogenous growth) helped rehabilitate the role of technical progress in growth. Technical progress is essential for growth and results from its own business, so it is endogenous to economic activity, as well as the resulting growth.


Post a Comment