Porter’s National Diamond Analysis

Porter’s National Diamond Analysis and Strategy – A Must Read For Business Management Students

Title: Porter’s National Diamond Analysis. Porter has undeniably enhanced understanding of competitive advantage with his published studies in The Competitive Advantage of Nations (1990) and On Competition (1998), among others. His analytical framework, called the ‘diamond’ captures the major determinates of competitive advantage of international business (Porter, 1990). Influencing the major determinates are chance and government.

Although Porter has focused his studies on developing or newly developed nations, the principles may be applied to developing nations, as demonstrated by Ainslie et al (2005). The core question was whether the principles would apply to lesser developed countries such as the island nations in the South Africa and particularly South African food retail industry. In this study we will discuss the Porter’s National Diamond analysis (PND), two key management issues and the market entry strategy in the selected county South African business environment to draw a clear conclusion and future recommendations to the top management of the food retail industry.

In this study Porter’s diamond analysis will discuss, which attempts to identify the sources of international competitive advantage, may be applied to lesser developed island nations of the South Africa. Porter (1990, 675) stated that the Porter’s National Diamond framework may be applied to lesser developed countries (LDC) where they tend to have a competitive advantage in industries. In these countries like South Africa, the basic advantage factors are cheap labour, abundant natural resources, and location advantages which increase their ability for export businesses.

Exports are sensitive to world market prices, leaving LDCs exposed to exchange rate and resource cost swings. This problem is intensified when an LDC faces the protectionist policies of the developed nations. Developed nations place trade restrictions on most of what an LDC does well: textiles and agriculture. By lifting tariff and non-tariff barriers on these sectors through the implementation of regional and multilateral trade agreements lesser developed countries may have the opportunity to develop competitive advantages in certain industries (Ezeala-Harrison 2005).

Porter (1990) has rendered a major service to the global community in identifying many of the explanatory variables of competitive advantage, which has shaped a new assumption to understand why a country’s success, but in some other industries. His analytical framework, known as the “diamond”, shoots the main determinant factors of competitive advantage. This framework includes demand conditions, factor conditions, support and related industries, corporate strategy, structure, and competition. Through a review of literature, the competitive advantage on production was evaluated by investigating the existence of clusters using Porter’s National Diamond theory.

Developing Porter’s National Diamond Framework

Porter (1990) found the answer to why a nation achieves achievement in a specific industry in the course of four broad characteristics a nation possesses. These attributes shape the home business setting by which domestic firms participate to support or obstruct the establishment of competitive advantage. The four broad attributes, or what Porter defined as the determinants of nation advantage, include: demand conditions, factor conditions, support and related industries, company strategy, firm structure, and industry rivalry.

The four determinants work both as a system and individually to create the environment in which a South Africa’s food retail firms are created and compete to gain and sustain competitive advantage. Besides the four attributes of nation advantage, Porter (1990) incorporated the functions performed by the state and probability as issues affecting the proper functioning of the nation attributes.

The complete framework developed by Porter was presented in Figure 1. Porter termed the framework the diamond due to the obvious shape of the four determinants that it is a vibrant arrangement in which all fundamentals interrelate and strengthen every other factor. These systemic surroundings make it difficult to imitate the precise arrangement of the business in a different country. In view of the fact that the diamond is a jointly strengthening scheme, the effect of single determinant is dependent on the condition of the other determinants.

Aiginger (2006) explained that having one favourable determinant in an industry it will not lead to a competitive advantage unless other determinants can be created to respond. Advantages in one determinant may create or have a positive effect on other determinants. Nations are most likely to succeed in an industry where the determinants or the diamond is the most positive. To gain a complete understanding of the functionality of the diamond, each determinant was examined, as well as the factors influencing the determinants and the functioning of the diamond as a system.

Porter’s Diamond Framework

Porter’s National Diamond
Porter’s National Diamond

Source: Wall et al (2008)

Factor conditions: Economists have termed the resources or inputs necessary to produce a product or service as factors of production, which include land, labour, capital, infrastructure, and natural resources. Porter (1990) divided factors of production into two basic distinctions, “the first involved basic and advance factors, where basic factors include natural resources, weather, position, skilled and semi-skilled labour, and capital of debt (p. 89). Porter (1990) examined that advance factors, including contemporary digital data communication infrastructure, such as a university graduate engineers and computer scientists with high academic qualifications, a complex subject and university research institutions (p. 77).

South African food retail is endowed with basic factors or they require very little investment to create. These factors tend to be insignificant to the African national competitive advantage or they prove to be unsustainable. Advanced and sophisticated features are more important for company’s economic benefits in that they are scarcer due to their creation demanding huge and continued investments in human and physical capital.

While advanced factors are often built upon basic factors, innovation requires advanced factors that are imperative to the design and creation of products and processes. The second distinction among factors of production is developed on specificity, which Porter broke down into generalized and specialized factors. Factors such as the thoroughfare system, the supply of debt capital, motivated employees with college education or pool are also included in generalized factors. These factors can be utilized in many different industries. Specialized factors occupy barely skilled workers, road and rail network with precise assets, and information basis in meticulous areas (Porter, 1990, p. 78).

Demand conditions. Porter (1990) asserted three significant characteristics of requirements, composition, the dimension and prototype of growth, and the internationalization of home demand, where the latter two are dependent upon composition of home demand. The composition of home demand dictates “how firms perceive, interpret, and respond to buyer needs” (Porter, p. 86). Home demand has important influence on economic benefit, more so than international demand as its proximity, both physical and cultural, makes it easier and quicker to monitor and recognize the buyer’s immediate needs and preferences.

The composition and quality of the domestic demand, relates to a certain extent than amount influential on competitive advantage. More complex and demanding buyers, the greater the pressure, product quality, features and services of local businesses, as well as enterprises able to anticipate the needs of the buyer, in order to meet the high standard terms and conditions. The scale and pattern of growth in domestic demand, with the ingredients, can strengthen its competitive advantage – outlined in Porter’s National Diamond.

Porter (1990) believes that several features of this property include: (a) the size of the domestic demand, it is able to take advantage of economies of scale, and (B) of the independent buyer “stimulus entry and speculation in the business reduce the apparent risk market enterprises will be shut down and limit the bargaining power of the dominant buyer, all profits (94), (c) the growth rate of domestic demand, which will lead to greater investment and technological growth, (d) anticipating buyers needs earlier than foreign rivals, and (e) saturation of the home market to create strong pressures to thrust along prices, bring in new description, develop merchandise presentation, and supply other inducements for buyers to reinstate new versions of old products.

This can happen when African domestic consumers are mobile and travel to other nations to demand the products from their home market, or when home consumers are multinational corporations with operations in other nations. Another mechanism of internationalization is “when domestic needs and desires get transmitted to or inculcated in foreign buyers” (Porter, p. 98). This can occur when foreign travellers use the domestic products or services and take the demand home.

Related and supporting industries

The presence of supplier industries and other related industries in a nation is an important determinant of creation and sustainability of competitive advantage. Porter (1998) stated that internationally competitive domestic suppliers create advantages in other industries in several ways. The competitive related and supporting industries can share common technologies, inputs, distribution channels, skills, customers, and even complementary products, to foster technological spillovers and exchange of information that can spur innovation and upgrading, and ultimately lead to competitive advantage.

According to Ketels (2006), the distribution of business knowledge would to spread between the business companies, human resources because they can be shared educational and research organisations. When internationally successful related industries are present in a nation, they can create demand for a complementary product. Porter referred to this as a “pull through effect” (1990, p. 106).

These complementary products provided by firms in the same nation may be more cost effective since the firms are used to dealing with their own rather than foreign firms. Lastly, firms from related industries may feel threatened by new firms wishing to enter the industry putting pressure on existing firms to improve their own competitive advantage.

Firm strategy, structure, and rivalry

Porter’s fourth determinant of competitive advantage included the strategies and structures in which organisations are created, planned and managed, in addition the environment of home rivalry (1990). Porter insisted that the objectives, planning, and methods of organising industries differ extensively between nations, but distinct patterns emerge within nations. The argument was made that a good fit should exist between an industry’s sources of competitive advantage and its structure, and the strategies, structures, and practices favoured by the national environment.

Government and chance

As shown in Figure 1, the government and chance are added to the diamond to complete the system. They are not determinants of national competitive advantage, but do play a vital role in influencing the four determinants. The government can influence and be influenced by each of the determinants, both positively and negatively, which is represented by the arrows pointing both ways (Porter, 1990). Each of the determinants is affected in different manners. The Government’s education policies and subsidies also affect factors conditions. Set of standards and regulations will affect demand conditions and related supporting industries.

A firm’s strategy, structure, and rivalry can be affected by the government’s involvement in capital market regulations, tax policies, and antitrust laws. Porter (1990) viewed the appropriate role of government as one of reinforcing the determinants of national advantage instead of attempting to create the advantage itself. The role of government is viewed differently as nation’s progress through successive stages of competitive development. During the early stages of development, especially relevant for developing nations, the government has the greatest direct influence on national advantage. Factor creation is a vital role for the government at this stage to encourage savings, accumulation of capital, and develop infrastructure and technology.

As a nation develops, the government must shift to an indirect role, always aware of its influence on the diamond. The tools used in the early stages of development now become counterproductive, so the government’s role is to create an environment where firms are the innovators, and the government is the “facilitator, signaller, and prodder” (Porter, p. 672).

Chance, also lying outside of Porter’s National Diamond, plays an important role in influencing competitive advantage. Some illustrations of chance events include development and innovation, oil shocks, major changes in world financial markets, and wars. Chance events may alter the diamond by creating forces that reshape an industry’s structure and allow for discontinuities that shift an industries competitive advantage.

Contemporary Management Issues

When we start talking about management issues within the South African food retail industry, there are some very basic internal as well as issues which are increasing the impacts of management at internal level. There are a large number of contemporary issues in South African food retail industry; however, here we will discuss the flowing two among them.

Crisis Management as an Internal Issue

Crisis process is a threat for the current situation and future of a business, it is very clear that administrative and organisational structure will require a significant change. During the crises, organisational stress reaches the top level. On the one hand try to find suitable solutions to resolve the crisis, on the other hand, the tension created by uncertainty and running time pressures negatively influence the management structure of enterprises.

Business managers have to try minimizing damages with precaution actions. To do this the first way is to make a series of organisational and administrative structure changes. Crisis requires rapid reactions, for this reason business structure is developed to provide quick decision. Standard decision-making methods are insufficient to resolve the crisis; these force managers for new decision-making methods. The important thing is to adapt personally to new environment (Basuroye t al 2003)

For this adoption instead of keeping current values South African food retail industry has to accept new values. Accurate collection of information, communication, which cannot be easily settled up well, and psycho-social status of employees are changing the organisations atmosphere. The atmosphere which is changed will effect significantly communication, motivation, organisational justice and moral, such as organisational trust and organisational citizenship (Stone & Ranchhod 2006).

Another issue which may increase the negative effects of crisis is an absence of proper plan for dealing with crisis, which has to include customers, competitors, vendors, partners, and credit agencies, various internal and external environmental factors. South African food retail industry must have crisis plan, in case they can face the reduction of mobility and flexibility.

Change in income of Company

There are also some external issues besides the internal issues. Biggest external issue is change in income of company and rapid price changes. The increase in costs will automatically come with preventions such as: reduce the number of employees, reduce the social benefits for employees and loading more work to the existing workers. New law and regulations can also increase effects of it. The new taxes, increasing social security contributions, to collapse of the credit facilities, the new customs legislation can also affect business dramatically (Boatwright et al 2007).

When Business managers or owners fail to follow international business changes and when they cannot keep pace with global developments or the country’s economic situation, it can increase negative impacts. If managers of South African food retail industry would not establish an early warning system by making the internal and external business environment analysis, they can face it as an another issue in their industry (Siggel 2006).

Market Entry Strategy using Porter’s National Diamond Strategy

A sound international market entry strategy is becoming gradually more important to the success of new products. The time interval between the launch of the two important issues of related to international market entry strategy are undeveloped international launch window of time (the focus of the country’s national launch of the product) and the sequence.

An important decision relating to international market entry strategy is the decision on the timing of entry into international markets. Two international entry timing strategies are commonly practiced (Chandrasekaran, Deepa, and Gerard, 2008). A waterfall or sequential release strategy is one in which the new product enters multiple countries sequentially. A sprinkler or simultaneous strategy, in contrast, involves almost simultaneous entry into multiple countries- Porter’s National Diamond.

Duan, Bin and Andrew (2008) use a competitive game theory framework to examine simultaneous and sequential strategies and show that sequential entry strategy is appropriate if (1) the product has a very long life cycle, (2) the foreign market is small, not innovative, and characterized by a slow growth rate, and (3) competitors in the foreign market are week.

However, empirical evidence for the success of each of these strategies is mixed. For example, Chandrasekaran, Deepa, and Gerard (2008) find that the takeoff of a new product category in one country increases the probability of takeoffs in other countries, suggesting a sequential release strategy is preferable to a simultaneous release strategy. Duan, Bin and Andrew, (2008) examine international market entry strategies in terms of market scope and the speed of rollout. They find that late mover brands that sequentially enter many large international markets show greater marketing spending efficacy through marketing spillover effect.

Foreign market entry is one of the most important strategic decisions for firms. Managers should consider cross-country spillover effect when they decide country sequence. Firms can increase overall performance in foreign countries, so enhance return on investment by taking advantage of these spillover effects. A firm should launch its products first into countries that are culturally closer to its home country and countries that are more open. Managers also need to consider factors such as potential adopters’ familiarity with the new product and cultural fit of the product with the country when deciding the order of country in the international launch sequence. They need to carefully consider the determinants of country sequence because they affect product performance in foreign countries (World Economic Forum, 2008).

Conclusion of Porter’s National Diamond

To conclude we can say that international business strategy is critical to the success of some products in several industries. Departing from Porter’s approach allowed focusing on the possible affects the regional trade agreement had on clustering. Porter’s (1990) viewing of international competitiveness of industries through the diamond framework seems to hold for the lesser developed nations like South African nations.

References

Aiginger, K. 2006. ‘Competitiveness: from a dangerous obsession to a welfare creating ability with positive externalities’, Journal of Industrial Trade and Competition, 6: 63–66.

Ainslie, A., Xavier D., and Fred Z., (2005), Modeling Movie Lifecycles and Market Share, Marketing Science, 24 (3), 508–517.

Basuroy, S., Chatterjee S., and S. Abraham R., (2003), How Critical Are Critical Reviews? The Box-Office Effects of Film Critics, Star Power, and Budgets, Journal of Marketing, 67 (4), 103–117.

Boatwright, P., Suman B., and Wagner K., (2007), Reviewing the Reviewers: The Impact of Individual Film Critics on Box-Office Performance, Quantitative Marketing and Economics 5 (4), 401–425.

Chandrasekaran, D., and Gerard J. T., (2008), Global Takeoff of New Products: Culture, Wealth or Vanishing Differences? Marketing Science, 27 (5), 844-860.

Duan, W., Bin Gu, and Andrew B. W., (2008), ―The Dynamics of Online Word-of-Mouth and Product Sales: An Empirical Investigation of the Movie Industry, “Journal of Retailing, 84 (2), 233-242.

Ezeala-Harrison, F. 2005. On the competing notions of international competitiveness’, Advances in Competitiveness Research, 13(1): 80.

Ketels, C.H.M. 2006. Michael Porter’s competitiveness framework: Porter’s National Diamond recent learnings and new research priorities, Journal of Industrial Trade and Competition, 6: 63–66.

Porter, M. E. (1992, June). The competitive advantage of European nations: The impact of national culture – A missing element in Porter’s analysis? A note on culture and competitive advantage: Response to van den Bosch and van Prooijen. European Management Journal, 10, 178.

Porter, M. E. (1998). Clusters and the new economics of competition. Harvard Business Review, 76, 77-90.

Porter, M. E. (2003). The economic performance of regions. Regional Studies, 37, 549-578.

Porter, M. E. (1990). The competitive advantage of nations. (Porter’s National Diamond) New York: The Free Press.

Porter, M. E. (1994). Comment on “Interaction between regional and industrial policies: Evidence from four countries,” by Markusen. The World Bank Research Observer, Cary, 303-308. Retrieved June 8, 2004, from ProQuest database.

Porter, M. E. (1998). On competition. Boston: The Harvard Business Review.

Siggel, E. (2006), International competitiveness and comparative advantage: a survey and a proposal for measurement, Journal of Industrial Trade and Competition, 6: 63–66

Stone, H.B.J. & Ranchhod, A. 2006. Competitive advantage of a nation in the global arena: a quantitative advancement to Porter’s diamond applied to the UK, USA and BRIC nations, Strategic Change, 15: 283–294.

R.S. Wall, M.J. Burger and G.A. van der Knaap, (2008), National Competitiveness as a Determinant of the Geography of Global Corporate Networks, GaWC Research Bulletin 285.

World Economic Forum, 2008. Global Competitiveness Report (2006–2007). Geneva: Switzerland.

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MBA Program – Advantages of Online MBA Programs

To be honest, I like options, flexibility, and ability to work under minimum supervision. As a result, I understood at an early age that the best field that could fit with my desires and aspirations is to enroll in an online MBA program. I work full-time and online studying is convenient for my schedule.  My current work task is to review many business documents. 

Getting an MBA will help me understand these documents.  I am also thinking about moving careers to government contractual work.  I believe getting my MBA will give me an opportunity get my foot in the door to a significant government contracting company. Working in the business industry has been one of my dream jobs since my childhood. Working in a business environment helps me to undertake what I desired to do in my entire life. This is the reason why I should focus on improving my skill set and expertise by enrolling in a flexible MBA program.

Besides, gaining both academic skills as well as work experience will open other avenues through which my career could effectively grow to greater heights. I was able to get a GPA of 2.45 which is slightly below your online MBA program requirements of 2.5. Despite, my current grade, I believe that my interest and aspiration goes beyond my past performance and would like you to reconsider my application based on my capabilities as well.

MBA experience helping your future organization

After almost three-year experience working at a large firm in the litigation department, I am seeking to expand my career to greater heights. My professional experience together with the MBA education will introduce me entirely to the future work environment and increased my interest in working fully in the business industry. Considering my business foundation and experience, I will be able to adequately adapt to the future organization without encountering a lot of challenges.

At this stage in my career, I consider MBA to be the most appropriate career field that will adequately give me the right path that I desire to undertake in my future. The foundation that I have established over the past has helped me to make decisions that are significant in my future career. Through the course, I will be able to develop technical, analytical skills necessary in the future organization to challenging technical problems. Besides, my global business perspectives will be able to improve the skills attained from the course to a greater height.

MBA experience helping MBA classmates

I am more ambitious and motivated to take up technical problems and ensure that I deliver my best. This is one characteristic that has shaped me to be what I am today. Without accepting challenges, it becomes hard for you to succeed effectively in a particular field. Working in a team is a critical component that has given me the ability to work with others. The group is a key source of information top any given firm, and its success depends upon the support provided by the company at any given moment.

With my MBA experience, I will be able to work together with my classmates’ ass a team having a common organizational goal. As a senior member of the team with adequate information, I will be able to understand the needs of the people at various levels and ensure that there is constant output among the group members. This step will aid in ensuring the firm attains the best outcome due to the efforts and coordination made by the group members.

MBA Online
MBA Online

Contribution of MBA program in solving real world problems

Currently, as a family law litigation paralegal, I finalize Income and Expense reports and Schedule of Assets and Debts for our clients.  I also review and index any discovery response which includes vast amounts of financial documents. Having more knowledge in the business field will help me to understand better and review financial document reports and discovery for cases where the parties own multiple businesses. Besides, the MBA program will adequately equip me with technical knowledge which is necessary to difficult real-life situations through informed decision making. I will be able to give appropriate accounts for various undertakings that take place in particular situations and ensure that alternative solutions have been established.

Organizations you have worked and work experiences that you have had

I have been able to work as a successful paralegal at a large business firm in the litigation department. This work has been able to give me technical experience that has helped me to realize the best career path that I should undertake. Having more knowledge in the business field will help me to understand better financial documents, which I review for clients who own multiple businesses.

The decision to undertake the MBA program came as a result of my passion and desire to expand my career to greater heights. I will be able to adequately understand the basic principles that are necessary for the business field through the educational skills that I seek. Despite the poor grades in the past, I am still determined to change everything and gain more experience in the business field.

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Business Strategy

Business Strategy King Digital Entertainment Company

King Digital Entertainment is the company that developed Candy Crush, which is a globally popular mobile game (Wilhelm). The company has registered rapid growth in the past few years, particularly during the years between 2011 and 2014; the company’s revenue generation grew from USD 63.9 million in 2011 to USD 1.88 billion in 2013. During the same period, the company’s active user count increased from 30 million to 408 million, as of the last quarter of 2013 (Wilhelm). About three-quarters of the revenues of the company accrue from the mobile channel, which demonstrates the centrality of the mobile channel to the company’s business strategy (Chapman). The company employed a very unique strategy in the already saturated games market; it developed and concentrated on a handful of games, which were well received in the market (NBC News). The positive reception and popularity of the games can be attributed to the company’s competitive pricing of its products.

Business Level Generic Strategies

The main business level generic strategies used by King Digital Entertainment include cultivating more competitive advantage over competing companies, through maximizing the value offered to its customers (Kozami). The company does this through increasing the benefits enjoyed by their customers and also offering more service areas, which justify their pricing. In this area, the actions of the company include the development of games with a solidly social nature, the use of cross-platform technology infrastructure during the development process, the utilization of viral channels, and offering highly effective social features. Relevant to this generic business strategy, there is also game longevity and the cross-promotion of new games to the audience, which offers higher value to gaming customers.

The second business level generic strategy used by the company is that of differentiation, where the company has maintained the leadership position in the offering of games with distinctive qualities, which are customer-driven (Kozami). Towards putting this strategy into action, the company maintains a massive layer network, which informs product development and product purchases. The strategy is also informed by the fact that the company spreads the news about the social features of their products through viral channels, which ensure a wide scope of coverage. Additionally, the wide-reaching time-based campaigns help the company to develop products that are reflective of the needs of their customers, which also improves the experience of the customer.

The ways in which functional level strategies support generic strategies

Functional level strategies are the approaches used by the functional centers of a company, towards the realization of business and corporate unit objectives and strategies, through the maximization of productivity and the utilization of resources (Kozami). These strategies support generic strategies by streamlining the resources of a company and its productive capacity towards the generic strategies. For example, towards increasing differentiation, the resources and the productive capacity of the company is channeled towards research into new game designs and incorporating the changing needs of customers (Wilhelm).

Identification and discussion of business-level growth strategies

The business-level growth strategies of the company revolve around the exploitation of the differences of the target customers from the industry-wide balance (Kozami). The company realizes this through isolating a specific buyer classification, isolating their segment, and concentrating on the group to find its niche. In the real world case of King Digital entertainment, it has included diversifying into the mobile game portfolio and broadening the game portfolio through capitalizing on the mobile channel, which yielded 75 percent of the company’s revenues (Wilhelm).

Business Strategy Dissertations
Business Strategy Dissertations

The mission statement of the company revolves around the provision of highly engaging content to the different customer groups, in a way that matches their mobile needs at any time, place and on different devices. This mission statement is encapsulated in the growth strategy of the company, which revolves around increasing app-usage during different times and customer groups (Wilhelm).

The strategic plan of King Digital entertainment revolves around capitalizing on successful brands to foster the growth of newer ones, which increases the uptake of the company’s products within the market (Chapman).

SWOT Analysis

Strengths

  • Capacity to change strategy; for example, the capitalization on the three leading titles: Candy crush saga, farm heroes saga, and Pet rescue saga to grow other game brands.
  • Focus on research and development, incorporating discrete campaigns.
  • The popularity of their games, particularly Candy crush saga.

Weaknesses

  • Dependence on the success of the current game brands to foster growth
  • A streamlined niche market: more than 75% of revenues came from the mobile channel
  • Stagnant global sales

Opportunities

  • Developments in mobile gaming
  • Increased uptake of online and mobile gaming
  • Changing customer needs

Threats

  • Issues related to consoles
  • Increases in software copying and piracy
  • Strategic game release dates, to avoid the slowdowns of holidays among other events (Wilhelm).

References

Chapman, Llizette. IPO-Minded Gaming Co. Kabam Buys Phoenix Age; Largest Buy Yet. Business Strategy – The Wall Street Journal. 10 Mar. 2014. Web. 17 Mar. 2014.

Kozami, Azhar. Business Policy and Business Strategy Management. Second Edition. New Dellhi: Tata Mc-Graw-hill Publishing Company, 2006.

Wilhelm, Alex. Inside The IPO of Candy Crush Maker King Digital. Business Strategy Techcrunch, 13 Mar. 2014. Web. 17 Mar. 2014.

NBC News. Candy Crush Game Maker Aims to Hit $7.6 Billion IPO Sweet Spot. 2014. Web. Business Strategy Snapshot. 18 Mar. 2014.

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Project Management Standardization

Standardization of Project Management

View This Dissertation Here

Poor project performance has led to industry calling for Standardized Project Management tools, yet it is the organizations themselves who have chosen to overlook or ignore the tools while implementing organization strategy that exists for their assistance. This paper investigates the implications change management practices have on individuals as a result of strategy change, whilst challenging the poor Project Management knowledge and understanding of individuals within project based organizations. It also identifies the currently poor application of Project Management theory including the alarming levels of academic qualifications many practicing Project Managers currently hold. The purpose of the dissertation was to explore this call for standardization by conducting a review of the knowledge, understanding and opinions of individuals regarding: change management implications of organization strategy implementation; and organizations? application of Project Management theory.

Project Management Standardization
Project Management Standardization

However, while conducting the review, offering discussion points or arguments, it is important to recognize when talking about Project Management Standardization, it is not an exact science and there are several fundamental floors such as the theory is relatively abstract and many parameters are difficult to be measured as they are usually based upon the opinion of industry personnel with predetermined beliefs. The aim of the dissertation was to identify and understand evolving management theory and how it aligns with organization strategy as it was believed that with such a large amount of capital being spent on projects, organizations did not place a high enough level of priority on Project Management processes or academic qualifications. Whether this is a result of ignorance, or just a pure lack of understanding of the implications on the behalf of executive level management, was the basis for discussion throughout the dissertation. Finally projects are aimed solely at either increasing profit in line with organizational mission requirements or increasing efficiency through productivity. So the dissertation is written with the intention of raising awareness to improve project performance and not just to highlight organizational short comings. The dissertation aim is to investigate how evolving Project Management theory, organizational strategy and change management implementation and Project Management academic levels influence individual’s perceptions and actions within project based organizations.

Project Management Standardization Dissertation Objectives

  • To identify and introduce evolving management theory
  • To analyze the role that Project Management has within organizations strategic management processes
  • To investigate the level of understanding individuals within organizations have of Project Management processes
  • To investigate the academic levels of individuals within project based positions
  • Conduct a questionnaire based on the aims, objectives, and literature review formulating a strategic set of questions to challenge senior managers with an interview in relation to the concerning trends

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Organizational Change Management

Organizational Change Management

The purpose of this report is to analyse the case study on D2 which is an auto-components manufacturer undergoing major structural changes to minimize costs and implement innovation and technology. While managing the change, the organisation had to face different kinds of issues. Thus, the report would be identifying the issues and proposing relevant solutions and their implementation to manage change effectively, by using the 5D-Framework which comprises of definition, discovery, dream, design and destiny.

Definition

When a company undergoes change, there are a series of opportunities and challenges that it has to face. Change is not a onetime occurrence but rather could take years to be implemented. When an organisation is undergoing strategic change, it needs to re-formulate its mission and strategies and thereafter align all its business operations with the overall strategy (Cummings and Vorley, 2009). While managing strategic change, implementation is more challenging than just designing the change.

Lack of Communication Alignment

Therefore, one of the primary issues witnessed in the D2 case was that the management would have difficulty in implementing the change due to improper communication channel used for communicating the strategy to the rest of the employees. Apart from this, having a balanced strategic change is also a significant challenge since in order to achieve the balance, the organisation needs to assure that its internal management and resources are aligned with each other and with the external opportunities (Bordum, 2010).

Environmental Pressures

Apart from this, environmental pressures are another reason why organisations undergo change. In order to be aligned with the environment, there is a certain organisational structure and a strategic positioning required. One of the key issues in the case was that there has been an outpaced growth of technology over the years and in order to meet that pace it needed to undergo significant innovation and get rid of the obsolete technology. This required greater strategic flexibility which then bore a cost to the organisation since the employees resisted the change and job insecurity arose (Skordoulis, 2013). Moreover, owing to the environmental pressures, it was significantly cutting costs and thus, had to face a trade-off between lowering costs and smooth flow of work. The smooth flow of work would be disrupted since to lower costs, it would have to shut down some of its manufacturing facilities that are not producing enough and would have to redeploy staff to other geographic regions which would require a lot of planning and control. According to Alessa and Kliskey (2012), responses to environmental change management is required which can be done through change agents. These agents can be of three types: the initiators, the supporters and the opportunists. These environmental change agents would assure that the company’s strategy is in correspondence with the changes in the external environment. In the case of D2, the changes in technology were an environmental pressure which required a change agent to manage it effectively and efficiently.

Leadership Issues and Resistance to Change Management

Change management can be of many types, varying from a change in structure to a change in culture, leadership style, operations, systems and strategy. At times one change may lead to another change and while doing so, organisations encounter a number of issues. Another key issue evident in the case was the autocratic leadership style and a centralized management as a result. In identifying the change management areas, the management itself first made decisions and formulated the strategy, and then later informed the employees. As the case stated that the decision was yet to be announced and the workers in UK might be shock to hear it since the firm had made heavy investments in the manufacturing plants. Moreover, while redeploying the employees from one geographic region to another, cultural issues might also be faced which would require heavy investments in training. Thus, a greater resistance might be expected from the employees since they were not part of the decision making process and the organisation’s interests might then be in conflict with the interest of the employees (Banutu and Shandra, 2007).

Trade-off between managing change management and maintaining core competency

Lastly, and most importantly, since the company’s operations are dispersed geographically and one of its core competencies is the pace and quality of its product development, in change management , the company might lose out its current strategic position or the core competency it has, thus, assuring that the pace and quality product development remains the same while re-structuring its manufacturing operations, would be very challenging for the company. Furthermore, change management is not following a planned approach. This might cause D2 to lose out its competitive position in the market which would then be difficult to re-obtain since by focusing on cost reduction rather than value addition, maintaining the sustainability of operations is less likely to happen.

Leadership Issues and Employee Resistance to Change

Discovery

The underlying problem chosen for in-depth discussion is the employee resistance to change and the leadership issues in bringing about the change. As stated in the case, D2 required an urgent need for change management therefore it cannot go slow in bringing about the change and would require major transformations in its structure and human resource. While deciding which operations to shut down and which ones to expand, it has been taking into account the external environment and the returns it would get out of it. However, in doing so, it has neglected the reaction that might be expected from the employees, and which could majorly impact and hinder any change management process that happens in the organisation. Resistance to change usually occurs when employee needs are not addressed; their goals and organisational goals are not aligned; there is communication gap between the different hierarchical levels as well as in horizontal communication; when there is downsizing and mistrust is created among employees; when there are major cultural issues to be faced as a result of change management ; and when employee participation in decision making is lacking (Bovey and Hede, 2001).

5D-Cycle Organizational Change Management
5D-Cycle Organizational Change Management

Furthermore, when the leader fails to apply a transformational leadership style where he articulates the vision and re-defines the strategy, the resistance increases further as employees are unclear about the goals and objectives they need to achieve as individuals as well as collectively (Eisenbach et al., 1999). The management needs to keep a balance between the organisational needs and the human needs since ultimately it is the human resource that needs to implement the change (Griffin and Moorhead, 2011). The key issue in the case of D2 was that a feeling of mistrust and insecurity was occurring not only in the U.K. region where it plans to close its facilities but also among the employees working in other subsidiaries located in Spain since the change management process is not communicated effectively and the decision making authority is vested in the hands of a few senior managers indicating that bureaucratic leadership style is more evident in the organisation which means that the increased level of formality between the management and the employees and the lack of communication would result in a decrease in employee morale, and hence, a decline in performance.

In order to address the issues, the leadership styles need to be changed. According to Bamford and Forrester (2003), using a middle-out approach would be of significant advantage in addressing the issue. This would involve giving the middle management the authority to lead the change under the supervision of the top management. In doing so, employee needs would be addressed in a better form since the line managers are more closely linked with the operational level staff and thus would be able to provide adequate feedback to the top management of how to create a link between the overall strategy and the needs addressed. Greater teamwork and participation of the workers would also be required to increase their motivational level and making the flow of communication more efficient. Leadership issues are also one of the reasons why organisations fail in managing the change. Uncertainty often accompanies change and as a leader, one needs to minimize the uncertainty levels and create an environment of greater employee commitment and trust. According to Ahn et al. (2004), globalization and change of technology at an accelerating pace requires that effectiveness in leadership has become immensely important, which is demonstrated through the leader’s adaptability to different management styles that involve greater coordination and engagement among all members of the organisation. According to Ashman (2012), ‘redundancies have become an unwelcome necessity across all sectors of the economy’, and while strategy and procedure in change management are important, the third element, psychology, is not given much attention which focuses on how employee emotions need to be dealt with to prevent any resistance to change management. Thus, this requires that to avoid such issues the message is communicated accurately while the sensitivity of such messages is taken into account adequately (Ashman, 2012).

Dream

One of the ways in managing the issues is to adopt a planned change management approach. The 3 step model of Lewin is applicable here which suggests that the organisation needs to plan change management in three stages: unfreezing, moving, and re-freezing (Burnes, 2013). In the case of D2, a sense of urgency was created and the change was seen more as an emergent one rather than a planned one. However, to make the change more sustainable, carrying out the planned approach would decrease employee resistance, since the unfreezing stage would first help in abandoning the old ways of doing work and preparing the employees for change. For instance, D2 could have addressed the issue of mistrust among its employees in other regions as well as in U.K. by defining the need for change and how it would benefit the organisation as a whole. It should then also point out the alternative employment opportunities available and how these would be a better platform for their growth. The moving stage then would involve applying the change process such as re-structuring, changing leadership styles, re-articulating the vision or changing the strategic position. This is when D2 should start shutting down its facilities and redeploying the staff where expansion is happening. The moving stage would then be followed by the re-freezing stage where the new practices would be adopted in a more permanent basis by providing training and aligning the new behaviors with the organisational strategy and culture (Bamford and Forrester, 2003).

Another potential solution of managing organisational change would be to conduct training programs and adopt situational leadership style. The situational leadership theory states that there is no one best style of management and the leader would have to either adopt a relationship-oriented style or a task-oriented style depending on the situation being faced (Griffin and Moorhead, 2011). Similarly, motivational levels of employees would also have to be taken into account and the purpose of the chosen leadership style would be to boost employee morale and assure that they have a positive attitude towards the change.

Also team building should be the ultimate focus of the organisation. This should involve self-managing teams, cross-regional/cross-cultural teams and cross-functional teams (Sisaye, 2005). The purpose of having such teams would mean greater diversity and flexibility among employees as well as greater coordination between different divisions and manufacturing facilities. By having cross-cultural teams, the employees would be more familiar with the cultural differences between Spain, France and U.K., thus, any issues arising as a result of change in culture could be better handled through cross-functional teams. The team performance model suggests that in order to create a team there needs to be orientation, trust building, goal clarification and commitment; and in order to sustain that team there needs to be implementation, high performance and renewal (Cooperrider and Dan Whitney, 2001).Therefore, the employees and the management should get involved in formulating the teams before the change management process and since this change is more about implementing new technology while cutting down the costs, the teams may focus on how the technology can be implemented. This would also be accompanied with extensive training to avoid any ambiguity among the employees.

The firm’s strategy of achieving cost leadership while maintaining the pace and quality of product development requires that it should, it focuses on value addition. This would mean cutting down costs by minimizing any wastage of resources and streamlining processes. At the same time, it would also be adding value through the innovative tools and technology used. This strategy would have to be defined by the leader after taking employee opinion and feedback using the bottom-up approach and would then have to be implemented across the organisation.

Design

In order to implement the proposed solutions, careful planning and formulation would be required. The use the planned change model can be implemented by having a leader who first identifies the potential areas that require change in terms of employee attitude and behavior Also, while addressing the need for change, the leaders should first conduct a field force analysis to identify the factors that are for and against the change (Schwering, 2003). The leader could then use the forces that can help in driving change as an advantage. This would include the consumer demand for more innovative auto components, availability of technology, upgraded technology in the other two manufacturing facilities and the identification of a new strategy. The drivers against change management would include employee resistance due to increased mistrust, decrease in morale in case of deployment and fear of exploring the new methods of working. Thus, once the forces are identified, in order to overcome any barriers, training programs should be conducted throughout the change process, that is, the unfreezing, moving and re-freezing stage. These training programs should involve two way communications which would mean delivering the new company strategy to the employees and also taking their feedback on what concerns they have and how they think it can be improved further (Hoag et al., 2002).

Apart from this, in helping leaders being aware of different leadership styles, leadership workshops should also be conducted. These might include assessment centres and activities where the management can be given different scenarios and asked to adopt an appropriate leadership style (Cummings and Vorley, 2009). The workshops would then be concluded with feedback and suggestions. Also while change management is being implemented, the performance should be monitored and measured more frequently in order to understand employee behavior and their progress. In case of teamwork as well, the leader would have to assure that there is no group think that could result in in-group conflicts, and the goals of the team are aligned with that of the organisation (Raza and Standing, 2011). The management would have to be more decentralized in its approach by practicing open door policies and being on the floor to address employee needs. The alternative employment opportunities available for the employees need to be clearly identified before the change process in order to conduct the implementation smoothly. Similarly, while communicating the new strategy to the employees, the opportunities available to them should be delivered first, which could act as a buffer to the disappointment they might have on hearing the shutting down of operations.

In order to cut down costs while maintaining the core competency, the organisation should align its operations with the new strategy. This would mean implementing change management simultaneously. The firm should first start expanding its operations in France by investing in new technology and setting up the production design, it should then plan out staffing requirements and communicate the strategy to the employees in the U.K. as well as Spain regarding how the expansion could help organisation grow and how the operations in U.K. might decline the overall progress of the organisation. Online video conferencing or virtual teams can also be formed where there could be cross-regional communication to assure that all its units are at the same pace and the goals of the organisation are communicated clearly across. Also by using internet as a platform for communication, organisation would be further saving on its time and costs in coordinating the teams.

Destiny

In implementing the proposed solutions, the possible limitations that might be faced include the heavy investment costs associated with training. This would conflict with the overall strategy of the firm of cutting down the costs. Therefore, in order to minimize the training costs, the management can focus on more informal ways of training such as in-house training where the costs of additional trainers and location can be saved. Similarly, the organisation could identify change agents who are trained and competent enough before the change takes place and then these agents could help other employees in carrying out the change (Griffin and Moorhead, 2011).

Furthermore, in identifying leadership styles, one of the factors that have been ignored is the number of cultural issues. For example, the effectiveness of relationship-oriented style is not only dependent upon the organisational situation but also on the culture where it is operational. There might be differences in terms of collectivism and individualism, and power distances (Kirsch et al., 2012). To overcome this limitation, the leader can identify the similarities in culture that can help employees adjust in the other two regions and make them aware of the differences to avoid any cultural shock.

While implementing the solutions, another possible limitation is the effectiveness of the feedback. Employees might be reluctant to speak up any negative feelings regarding the process or the feedback might be unstructured and more intuitive rather than formulized. To overcome this limitation, the management can take anonymous written feedbacks and then re-evaluate performance after the feedback is taken into account, in order to measure its effectiveness.

Thus, by strategizing the change process and aligning the structure, the culture and the processes with the overall strategy, implementing the change process would be more effective, reducing any potential resistance of the employees through greater involvement and empowerment in decision-making. Also by applying the three-step planned approach to change, the employee attitudes would be more positive towards change, removing any ambiguities that might exist regarding the strategic change.

References

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Alessa, L. and Kliskey, A., 2012. The Role of Agent Types in Detecting and Responding to Environmental Change ManagementHuman organisation, 71(1), pp. 1-10.

Ashman, I., 2012. A New Role Emerges in Downsizing: Special Envoy. People Management and Change Management, pp. 32-35.

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Burnes, B., 2013. Kurt Lewin and the Planned Approach to Change: A Re-appraisal. Journal of Change Management Studies, 53(8), pp. 111-134.

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Hoag, B.G., Ritschard, H.V. and Cooper, C.L., 2002. Obstacles to effective organisational change: The underlying reasons. Leadership and Organisation Development Journal, 23(1), pp. 6-15.

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