Extracto
Table of Contents
1 Introduction
1.1 Problem Statement
1.2 Hypothesis and Goal
1.3 Structure
2 Fundamental Theory
2.1 Strategy
2.2 Strategic Management
2.3 Strategic Position Identification
2.3.1 SWOT Analysis
2.3.2 Stakeholder-Approach
2.4 Strategic Choices
2.4.1 Generic Strategic Choices
2.4.2 Focus Strategies
2.4.3 Hidden Champions
3 Preparation of a Merger
3.1 Identifying the Strategic Position
3.1.1 Compiling a SWOT-Analysis
3.1.2 Defining Stakeholders
3.2 Continuing the Focussed Differentiation
4 Discussion
5 Conclusion
6 List of Figures
7 References
1 Introduction
1.1 Problem Statement
Being a young field of management theory, strategic management has become increasingly important over the last 20 years. While originally being handled by external consultant agencies, nowadays every - even small - company must consider its strategic and competitive approach. This is a result of the increasing competition due to globalization and digitalization and their impact on whole industries. Additionally, customers and suppliers have changing demands and expectations, creating an ever-changing environment the business has to adapt to if they want to stay competitive. To be able to adapt to these changing requirements and to be successful in the long-term, strategic management offers a set of tools. Due to their vast complexity and quantity, it is necessary for the leadership team to know which of these tools and approaches fits their strategic needs and their intended strategic process. Still, ongoing reviews and adjustments need to be done, as “Strategic success cannot be reduced to a formula, nor can anyone become a strategic thinker merely by reading a book” (Ōmae, 1982, p. 277).
1.2 Hypothesis and Goal
Taking a closer look at two fictional companies, Natura corporation and Wasserspiel GmbH & Co. KG, strategic options will be discussed which need to be considered for a possible merger of those companies by conducting a SWOT (Strengths, Weaknesses, Opportunities, Threats)-Analysis for both.
To identify their position in the competitive environment, a Stakeholder-Analysis will be developed and discussed. In a final step, Wasserspiel’s role as a hidden champion will be analysed along with a proposal, if it is of any benefit to continue a focussed strategy.
1.3 Structure
Chapter 2 will explain ground theories of strategic management, including a brief definition of what strategy is, followed by an overview of strategic management. As it is necessary for comprehending the subject of this paper, a detailed look on the strategic position analysis will be done by explaining the concepts of SWOT-Analyses and the Stakeholder-Approach. To conclude the theoretical fundamentals, an explanation of strategic choices will be given, followed by a detailed look on the benefits and risks of following a focussed differentiation approach.
Chapter 3 will conduct the SWOT approaches for both fictional companies, followed by a Stakeholder-analysis and their implications on both companies. Furthermore, Wasserspiel’s strategic choices towards a niche strategy will be discussed and conclude the chapter.
Chapter 4 will discuss all learnings whilst chapter 5 will close the paper with some personal remarks.
2 Fundamental Theory
In this chapter, both strategy and strategic management will be defined before having a closer look at the SWOT-Analysis and Stakeholder-Analysis as parts of a company’s strategic position analysis. This is followed by a definition of what a focussed differentiation is as a part of a company’s strategic choices.
2.1 Strategy
“Every firm competing in an industry has a competitive strategy, whether explicit or implicit” (Porter, 2004, p. xxi). This quote by Michael Porter, one of the leading experts on business strategy, might seem overwhelming at first, but gives one clear message. Every company has a strategy, whether consciously or not, and it exists to win over the company’s competitors. This, however, is not by focussing on reducing costs and increase operational effectiveness (cf. Review, Porter, Kim, & Mauborgne, 2011, pp. 1–3). Instead, Strategy is a sustainable long-term approach, which defines the goals of a company and its stakeholders. It determines the necessary activities to gain competitive advantages in a continuously changing environment by leveraging the best use of a company’s resources and competencies (cf. Johnson, Scholes, & Whittington, 2011, p. 22).
To drive strategy, a company must apply its actions to fit the strategy, which branded they term “strategic management”, which will be explained in the next chapter.
2.2 Strategic Management
Strategic management describes, according to Johnson, Scholes et al., the human part of each strategy. Managers who are tasked with developing and executing a strategy need to develop a high-level view on all aspects of a company, which is difficult as every manager originates in a well separated department where she or he will only have to make decisions for this specific entity of the business. It will define the strategic position of a company by analysing its environment, its capabilities, purpose and culture (Strategic Position). Furthermore, it evaluates their business areas, innovations, markets and organizational possibilities (Strategic Choices) and finally, it will ensure implementation through processes, reorganization, change management and resource management (Strategic Action) (cf. Johnson et al., 2011, p. 34). Strategic managers need to continuously drive and adjust the company onto the identified strategic goal and leverage strategic tools to review and initiate relevant changes, always having the whole company in mind along with including material, human and financial resources and other restrictions (cf. Hecker, 2012, p. 137). It is explicitly not to initiate single actions but to show existing market potential (cf. Hungenberg, 2014, p. 5).
As stated in the introduction, there is no universal formula which will guarantee either strategic or any success, but a consistency can be seen when looking at the proposed steps to approach a project strategically. Five steps which are common across different authors include (cf. Hermanni, 2016, p. 223 f.):
1. Target, company and company culture definition
2. Company- and environmental analysis including financial- and human-resource planning, market and competitive analyses and projections.
3. Definition of quantitative and qualitative targets and execution approach
4. Execution and review of implementation
5. Reviews and adjustment of the overall strategy
It should be noted that a strategic project always aims at a period of approximately two to five years.
To further be able to understand both Natura ’s and Wasserspiel ’s strategic positions and apply both the SWOT-Analysis and Stakeholder-Approach to them, the next chapter will focus on these two instruments and their classification within the strategic management toolset.
2.3 Strategic Position Identification
One of the key aspects of continuous competitive advantage is knowledge on the company’s environment to foresee and timely adapt to changes within it. One example brought up by Westermann, Bonnet et al. is the French version of the Yellow Pages, who saw their ad revenues going down due to Google and other web directories and initiated a strategic change to their business to survive (cf. Westerman, Bonnet, & McAfee, 2014, pp. 97–99). A commonly used tool to determine the environment is the PESTEL (Political, Economic, Social, Technological, Ecological, Legal)-Analysis (cf. Johnson et al., 2011, p. 80). It will help identify key influences from i.e. governmental instances or jurisdictions.
Reducing the level of sight will highlight the industrial environment, which ultimately shows the company’s standing versus its competitors. The “Five Forces” approach developed by Porter can help narrowing down the industry the company is in by analysing not only industry competitors (and their rivalry between each other), but also suppliers (bargaining power), buyers (bargaining power), potential entrants and substitutes (cf. Porter, 2004, p. 4). The key message is that an industry is less attractive to enter if those five forces are strong. Both analyses on the broader environment and the industry itself will identify threats and opportunities, which presents half of the pieces necessary for a SWOT-Analysis. After determining the company’s position within the industrial environment, the strategic capabilities of the company must be identified accordingly. Whilst Yahoo, Google and Bing all share the same environment, Google is the most successful of those three, which can be traced back to their strategic capabilities. One fundamental instrument to help analysing this capability is the generic value chain model according to Porter (cf. Porter, 1998, pp. 36–53). The outcomes of this step are both the Strengths and Weaknesses of the company, completing the necessary matrix for the SWOT-Analysis.
Once the position is identified, a company’s strategic targets and culture need to be addressed as well to complete the strategic position. One approach which is influencing all these steps of strategic positioning is the stakeholder analysis, which will be further explained later this chapter.
“To define where to play and how to win, you’ll need to understand and reflect on your context. To do so, you have scores of tools at your disposal – from simple analyses like SWOT […] to purpose-built tools like the Boston Consulting Group growth matrix and General Electric-McKinsey nine-box matrix to detailed frameworks […]” (Lafley & Martin, 2013, Chapter 7, 3rd Paragraph). Looking at the previous quote it should be noted that there are far more tools and approaches which will help with strategy definition and implementation, which will be ignored to focus on this paper’s goals.
2.3.1 SWOT Analysis
Being one of the most well-known tools of strategic management, SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats in context of a business and its surrounding environment. As described in the introduction to strategic position analysis, strengths and weaknesses are being evaluated during an internal review, benchmarking the operational effectiveness, ability to change and adapt and innovative capacity with competitors. The goal for a successful strategy then is to conduct the right fit between the external and internal results.
The origins of the SWOT-Analysis can be found within Harvard Business School, which developed the concept (cf. Bea & Haas, 2013, p. 128) and figured that both opportunities and risks can only be identified properly in combination with including a company’s strengths and weaknesses. On the other hand, opportunities and risks reflect the external influences on the business. Combining these 4 results in a 2x2 matrix will help to answer basic strategic questions as shown in Figure 1.
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Figure 1: SWOT-Analysis (own presentation based on Hungenberg (2014), p. 86)
The first item which must be identified for a SWOT-Analysis is the environment and the business itself. Afterwards, those two are divided into a positive and negative section, which resemble the strengths and weaknesses of the business and the opportunities and risks from the businesses’ environment (cf. Müller-Stewens & Lechner, 2003, p. 225). Now, all four sections need to be filled in with the biggest influences for each from the business and environment analysis.
The intersection of Strengths and Opportunities (SO) leverages the companies’ strengths to tackle opportunities within the market. This typically results in expansion strategies or developing new services.
In addition, the intersection between Strengths and Threats (ST) leverages the companies’ strengths to neutralize risks the business could be facing from the market. Some well-known strategic outcomes from this are acquisitions of other companies (inorganic growth) or an increase in marketing activity.
Third, Weaknesses and Opportunity strategies (WO) try to reduce weaknesses by taking chances. This could relate in a joint venture with a foreign partner to reach new customers across borders.
Last, Weaknesses and Threats strategies (WT) aim to reduce weaknesses within the business to reduce risks from outside threats. Usually, those are of highest priority for the risk they are presenting (cf. Müller-Stewens & Lechner, 2003, ibid.).
SWOT-Analyses however are not without criticism. Conducting a study across 20 UK companies, Hill and Westbrook found that the SWOT-Analyses which have been created in those companies have been merely just ordered lists where no subsequent action has evolved (cf. Hill & Westbrook, 1997, p. 51). Furthermore, SWOT does not assist in choosing the right items for the analysis as well as no option to assess influencing factors or strategic options (cf. Müller-Stewens & Lechner, 2003, p. 226).
2.3.2 Stakeholder-Approach
Before being able to comprehend the theory behind the stakeholder-approach it is necessary to define what a stakeholder is. The simplest explanation for stakeholders is anyone with a far interested in a specific business. This would include i.e. customers, associates, banks, suppliers or regional governments. Every one of these groups has a stake in the business. Associates for example want to continue to work for the business and ensure its success whilst banks expect returns on their investments and suppliers are interested in continuously doing business with the company (cf. Breuer, 2018). Like the business itself, also stakeholders can be divided into an internal and external group.
The stakeholder-approach is acquiring knowledge about all the protagonists in the business’ environment – specifically, how they behave, what their intentions are, the relationships and their interests and how exactly this is influencing the business’ decision making need to be identified and made actionable (cf. Varvasovszky & Brugha, 2000, p. 338). It is both a different approach as well as a direct response to the Shareholder-Approach (cf. Müller-Stewens & Lechner, 2003, p. 245).
The stakeholder-approach, originally created by R. Edward Freeman in 1984 (cf. Freeman, 2010), can be divided into four steps:
Step number one is to identify the key stakeholders, followed by an evaluation of their relevance to the business. The third step is to group their expectations and their risk for the company. Finally, results of the four previous steps are analysed and conducted into a strategy draft or if possible, even concrete actions (cf. Müller-Stewens & Lechner, 2003, pp. 177–184).
Identifying the stakeholders can be supported by answering five questions. Does the stakeholder have a significant influence on the business’s performance? Is there a valid potential with the stakeholder? Should the concluded business growth long-term? Will the business continue to perform without the stakeholder or can it be replaced by a substitute? Has the stakeholder been included in another context?
Whilst the answers to the first three questions should be “Yes”, questions four and five need to be answered with a “No”. Only then the evaluated stakeholder qualifies as such (cf. Kenny, 2014).
For the second step, the identified stakeholders are now being sorted in order of their relevance to the business. Müller-Stewens and Lechner categorize stakeholders as four different types which need to be treated individually by the business (cf. Müller-Stewens & Lechner, 2003, pp. 179–180).
Key players can heavily influence the business which makes it dependent on them and vice versa. This results in businesses’ creating specific strategies for key stakeholders, sometimes even by offering a direct point of contact (Key Account Managers).
Jokers also perform heavy influence on the business but, different from the key players, can barely be influenced themselves at all. They have the upper hand and are able to threat the business, which will always react to anything the joker does or communicates.
Seeds1 are inferior to the business. They are dependent on the business and only can influence the business when cooperating with other stakeholders. Suppliers or OEM manufacturers are a prominent example for this type of stakeholders.
Lastly, Background Actors are recognized by the business but only play a minor role. They are not a threat to the business and cannot influence it at all. This does not mean that they won’t grow in importance in the future and therefore need to be kept informed and managed.
In the third step, all identified stakeholders will now be matched with their expectations towards the business on a “best guess” approach, which then will later be verified by conducting interviews with them. Afterwards, the benefits for the business are added as well. Figure 2 gives an example without claiming to be a comprehensive overview.
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Figure 2: Expectations and Benefits from Stakeholders (own presentation extending Müller-Stewens and Lechner (2003), p. 181)
The fourth and last step results in a first draft of possible strategies, actions and targets evolving from the stakeholder analysis, which needs to be reviewed over and over to refine a strategy.
The stakeholder-approach often reveals large differences in expectations and benefits a business gets from their stakeholders. It could also reveal that stakeholder management is in place, but the priorities set are wrong (cf. Müller-Stewens & Lechner, 2003, p. 183).
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1 The German source by Müller-Stewens and Lechner refers to “Gesetzte”, which cannot be translated literally.