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

Ahn, M.J., Adamson, J.S.A. and Dornbusch, D., 2004. From Leaders to Leadership: Change ManagementJournal of Leadership and Organisational Studies, 10(4), pp. 112-123.

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.

Bamford, D.R. and Forrester, P.L., 2003. Managing planned and emergent change within an operations management environment. International Journal of Operations and Production Change Management, 23(5), pp. 546-546.

Banutu, M.B. and Shandra, M.T.B., 2007. Leadership and Organisational Change Management in a Competitive Environment. Business Renaissance Quarterly, 2(2), pp. 69-90.

Bordum, A., 2010. The strategic balance in a change management perspective. Society and Business Review, 5(3), pp. 245-258.

Bovey, W.H. and Hede, A., 2001. Resistance to Organisational Change Management: The role of cognitive and affective processes. Leadership and Organisation Development Journal, 22(7), pp. 372-382.

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

Cooperrider, D.L. and dan Whitney D., 2001. Change Management A positive revolution in change: appreciative inquiry, on Robert T. Golembiewski (ed.), The handbook of organisational behavior.2nd ed., New York: Marcel Decker.

Cummings, T.G. and Vorley, C.G., 2009. Organisation Development and Change Management. 9th ed. Mason: Cengage Learning.

Eisenbach, R. et al., 1999. Transformational leadership in the context of organisational change.Journal of Organisational Change Management, 12(2), pp. 80-88.

Griffin, R.W. and Moorhead, G., 2011. Organisational Behavior: Managing People, Change Management and Organisations. Mason: Cengage Learning.

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.

Kirsch, C., Chelliah, J. and Parry, W., 2012. The impact of cross-cultural dynamics on change management. Cross Cultural Management, 19(2), pp. 166-195.

Raza, S.A. and Standing, C., 2011. A Systemic Model for Managing and Evaluating Conflicts in Organisational Management Change. Systemic Practice and Action Research, 24(3), pp. 187-210.

Schwering, R.E., 2003. Focusing leadership through force field analysis: new variations on a venerable planning tool. Leadership and Organisation Development Journal, 24(7), pp. 361-370.

Sisaye, S., 2005. Management control systems and organisational development: New directions for managing work teams – Change Management. Leadership and Organisation Development Journal, 26(1), pp. 51-61.

Skordoulis, R.T., 2013. Strategic flexibility and change: an aid to strategic thinking or another managerial abstraction? Strategic Change Management, 13(5), pp. 253-258.

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MBA Project Globalization

MBA Project Globalization

Summary

Over the past few decades, the global scenario has changed considerably with increased interdependence amongst nations and economies. This intertwining amongst nations and sharing of ideas and technology has been termed as “Globalization”. Globalization has been a buzzword of late, with heated discussions about its pros and cons. Some consider it to be a blessing for mankind while others take it as a curse. For some it has brought about material prosperity while others have become unemployed due to it. This paper tries to analyse the effect of Increased International Trade and Globalisation on the US economy. The first section discusses the pros and cons of Globalization while the second section discusses how globalization has lead to increased foreign trade. Thereafter, it discusses the effect of globalisation and increased foreign trade on the American economy.

Introduction

Trade is believed to have taken place throughout much of recorded human history, whether as barter or in exchange of currency. Till the 1800’s, trade was limited due to difficulties in transportation, communication and restrictive trade policies. However, in the mid 19th century, with advent of free trade and nation advantage concepts, trade started to pick up (Daniels & Sullivan, International Business and Operation).  Although international trade has been present throughout much of history, for example Silk Route, its economic, social, and political importance have increased in recent centuries, mainly because of Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing. Worldwide, countries are doing away with trade restrictions and lowering trade tariffs, thereby supporting free trade and making the world a global village (Daniels & Sullivan, International Business and Operation).

Globalization – Boon or Bane

The global economy is no longer an individual event and USA no longer plays the dominating role. This is apparent from the fact that ten years ago the World Trade Organization had only 80 members whereas now it has 153 members (WTO Data, 2010). Also countries like China and India are getting more bargaining power day by day. Globalization is the deepening relationship and broadening interdependence amongst the different countries of the world. The World Bank defines globalization as “the growing integration of economies and societies around the world.” This integration of regional economies into a global village has lead to increased international trade, investment, capital flows and technological advancements. Technological advancements such as the internet and cell phones have literally reduced the world to a Global village. Globalization has both its critics and it supporters. Some interpret it as a way of countries losing their cultural identities and becoming “Americanized.” Others see it as a way to reduce costs and to increase profits and efficiency. The debate over globalization is perceptible in demonstrations against the WTO in Seattle in the fall of 1999, against the Summit meetings in Quebec and Genoa and against several annual meetings of the IMF and World Bank. While on the other hand, supporters of globalisation look forward to a global village, linked together by the Internet, and enjoy the ever-increasing material well being (Daniels & Sullivan, International Business and Operation). The United States is seen by much of the world as the strongest supporter of globalization – in fact, as pushing it on everyone else. Over the years, globalization has resulted in increased foreign trade and capital flows, thereby contributing immensely to the domestic economy. In the 1990s, globalization and free trade, resulted in integration of China and the former Soviet bloc into the trading system thereby lowering inflation and opening new markets. However, as the emerging markets got stronger, the prices of commodities started rising immensely and competition from foreign workers lowered the average US wage rates. Jeffrey Garten, professor of international trade and finance at the Yale School of Management, points out that in 2000, the world’s wealthiest countries accounted for about 70 percent of the global economy, compared with 30 percent for developing economies. These rates are slowly but surely reversing. Thus, USA has seen both the positives and the negatives of globalization.

International Trade

One important effect of globalization is the increased interdependence among nations which has demanded increased liberalization of markets, the dismantling of almost all trade barriers (Lee, 2005; Czinkota and Ronkainen, 2007). As a result, the forces of globalization have necessitated trade liberalization (Martin, 1993), leading to increased international trade, not only in good and services but also currency and capital. Ever since independence, America has been a supporter of Free Trade. In 1988, USA signed a Free Trade Agreement with Canada that progressively eliminated tariffs over a ten‐year period, thereby making Canada USA’s premier trading partner. Further, in 1994 the Mexican Government, in pursuit of market reforms, signed the North American Free Trade Agreement (NAFTA). The passage of the NAFTA agreement signalled the continuing support of U.S. policy‐makers for the worldwide march toward free markets and further economic globalization (Paul. S Boyer, 2001). The above agreements lead to immense increase in trade and greater market efficiency. However, by 1999 USA had a huge trade deficit of around USD 200 billion (Paul. S Boyer, 2001). The trade boom of the 1990’s had ended in a recession marked by serious job losses and the nations policy of “free trade” was being questioned. President George W. Bush insisted that America’s economic future lay with the global economy, but early in 2002 political pressures led him to slap import duties on cheap foreign steel. However, he was forced to withdraw it in 2003 due to retaliation against US exports and WTO sanctions (Paul. S Boyer, 2001)

Globalization MBA
Globalization MBA

Competition and Business Restructuring

International competition goes hand-in-hand with globalization. A company that has been very successful in the domestic market may suddenly find itself facing competition from a yet unheard of company from the other end of the globe. Survival in this new business environment calls for improved productivity, reduction in costs, up gradation in technology and advancements in supply chain management (O’Reilly, E., & Alfred, Diane., 1998). For example, In the 1980s American automobile manufacturers began losing market share to Japanese competitors who offered American consumers higher quality cars at lower prices (Brewer, G., Managerial Accounting). However, from the consumer’s point of view, increased competition promises greater quality, reduced prices and a greater variety of goods and services. China’s entrance into the global marketplace has proved that globalisation leads to competition and changes the business environment. For example, from 2000 to 2003, China’s wooden bedroom furniture exports to the United States increased by more than 233% to a total of $1.2 billion. During this same time, the number of workers employed by U.S. furniture manufacturers dropped by about a third, or a total of 35,000 workers (Fishman, T., 2005).

In a 2002 speech, the Economic counsellor to the US Embassy, Mr Lee Brudvig, said, “We have not resisted the free flow of money, goods, services, and ideas. Rather, we have subjected our companies to market competition and limited the role of government on the whole to that of facilitator, regulator and, when necessary, safety net provider. As a result, we have seen a massive reorganization of business structures. Whereas in 1960 manufacturing accounted for 27 percent of GNP, by 2001 it had dropped to below 15 percent.” The changes brought about by technology and productivity is causing both markets as well as organisations to undergo restructuring.

Labour Market Developments

An important trend in labour markets in the advanced economies has been a steady shift in demand away from the less skilled toward the more skilled (Slaughter, M., & Swagel, Philip., 1997). Studies have shown, for the advanced economies as a whole, that trade with developing countries has led to about a 20 percent decline in the demand for labour in manufacturing, with the decline concentrated among unskilled workers (Swagel, Philip., 1997). This trend has produced dramatic rises in wage and income inequality between the more and the less skilled. In the United   states, wages of less-skilled workers have fallen steeply since the late 1970s relative to those of the more skilled (Slaughter, M., & Swagel, Philip., 1997). According to a study conducted in 2007, the impact of trade flows in 2006 increased the inequality of earnings by roughly 7% (Bivens,J., 2007). The study goes on to prove that although “liberalized trade” is a win-win proposition for nations, it reduces the income of most workers. Workers employed in industries directly in competition with low-cost imports from abroad can expect to see immediate job dislocation and/or downward wage pressures.

The rise of labour abundant nations, like China and India, has increased the global labour pool. The price of labour-intensive commodities falls as a result of this increase in the global labour pool, and these falling prices harms the labour in professional-abundant nations like the United States. DVD Players, clothing and call centre operations, all provide examples of reduction in prices due to expansion in the global labour pool (Slaughter, M., & Swagel, Philip., 1997). Outsourcing and offshoring, has further increased unemployment and decreased national earnings. 22-29% of the U.S. workforce has been rated as potentially offshorable over the next one or two decades (Blinder, 2006). The implied loss due to offshoring would push these wages well below the 1979 levels, completely undoing the entire increase in these wages over the past three decades. The trade adjustment assistance (TAA) program has been formed as a way to compensate globalization’s victims in the United States. In 2006 TAA allocated $655 million in income supports for workers harmed by globalization, and, another $200 million for training. As quoted by Bradford, Grieco, and Hufbauer in their study, “While the gains from increased trade generate a permanent rise in income, the associated losses are temporary. Nevertheless, they are very real, and are concentrated on a small fraction of Americans”.

Financial Market Globalisation

Financial globalization has been one of the most important trends in the world economy in recent decades. Financial globalization has been one of the most important trends in the world economy in recent decades (Lane and Milesi-Ferretti 2003). International financial liberalization was also accompanied, in a

somewhat chicken-and-egg causal relationship, by the abandonment of the Bretton Woods system of adjustable exchange rate pegs and the shift to floating exchange rates among the major currencies or regional currency blocs (Eatwell 1996). When currency fluctuations are considered, it is the exchange rate between the US dollar and the euro that gets the most attention. This not only reflects the size of the respective economies using these two currencies, but also the fact that the US dollar is the most widely traded currency today. That’s because it effectively serves multiple roles: as an investment currency; as a reserve currency for many central banks. According to an IFSL research conducted in April 2007, the US dollar was involved in 86% of foreign exchange transactions, followed by the euro (37%), which proves its importance (Safar, L., 2008). The report further states that foreign currency trading increased by 70% in 2008 compared to 2004. This increase in currency trading makes it imperative for companies to learn to deal with exchange fluctuations and how to benefit from all situations. The US dollar has fallen since January 2004 against the euro as well as against most major European and Asian currencies. This has caused many companies to introduce a “fluctuation clause” in their contracts to protect themselves from losses due to exchange rate fluctuations and has also lead to the development of many financial instruments to help companies hedge their currency risks. However, times such as these when the dollar becomes weaker often works well for US producers with a larger proportion of their costs being in dollars but selling worldwide. International revenues not only translate to higher US-denominated revenues, but they also contribute to higher margins which can be achieved globally (Safar, L., 2008). For example, Q1 2008 for instance marked a milestone for Google, whose international revenues exceeded US revenues for the first time. Revenues from outside of the United States represented 51% of total revenues in the period, compared to 47% in the first quarter of 2007 and 48% in the fourth quarter of 2007. In Q2 2008, this had increased further to 52%. According to Google, “Had foreign exchange rates remained constant from the second quarter of 2007 through the second quarter of 2008, our revenues in the second quarter of 2008 would have been $249 million lower.” (Safar, L., 2008). Nothing can be predicted with 100% accuracy when it comes to exchange rates, and the only thing that can be safely said is that there will be no “business as usual” when it comes to currencies.

Political and Institutional Changes

According to CIA Global Trends 2015, 2000,” The rising tide of the global economy will create many economic winners, but it will not lift all boat. It will spawn conflicts at home and abroad, ensuring an even wider gap between regional winners and losers than exists today. Regions, countries and groups left behind will face deepening economic stagnation, political instability and cultural alienation. They will foster political, ethnic, ideological, and religious extremism, along with the violence that often accompanies it.” One of the most important and necessary features of the current process of globalization is the proliferation of international organizations. Scholars point to the emergence of expanding web of international treaties and institutions, which regulate and adjudicate on matters of interstate behaviour. The number of international organizations rose from 61 in 1940 to 260 by 1996 (Barnett 2002:110). Since 1995, when the World Trade Organization (WTO) was formed, transnational corporations have increasingly influenced political leaders to push international trade laws in the same direction of liberalization and deregulation. In addition, existing international organizations like the IMF, the World Bank and the GATT/WTO have transformed their roles substantively, gaining further powers and responsibilities (Camillery and Falk 1992:94-7; O’Brien et al. 2000). The United States has enjoyed a position of power among the world powers, in part because of its strong and wealthy economy. Due to this reason, the United States enjoys considerable bargaining powers in the WTO and World Bank. With the influence of globalization and with the help of The United States’ own economy, the People’s Republic of China has experienced some tremendous growth within the past decade, and now enjoys as much bargaining power, if not more, as USA. If China continues to grow at the rate projected by the trends, then it is very likely that in the next twenty years, there will be a major reallocation of power among the world leaders. China will have enough wealth, industry, and technology to rival the United   States for the position of leading world power (Fishman, T., 2005).

Crime and Terrorism

At the end of the 20th century, a new phenomenon appeared—the simultaneous globalization of crime, terror, and corruption, an “unholy trinity” that manifests itself all over the world. This unholy trinity is more complex, however, than terrorists simply turning to crime to support their activities or merely the increased flow of illicit goods internationally. Rather, it is a distinct phenomenon in which globalized crime networks work with terrorists and both are able to carry out their activities successfully, aided by endemic corruption. Crime groups and terrorists have exploited the enormous decline in regulations, the lessened border controls, and the resultant greater freedom, to expand their activities across borders and to new regions of the world. The United States has been one of the worst sufferers of this new “global” terrorism. Since September 11, 2001, numerous resources have been shifted in the United States and elsewhere from addressing trans-national crime to fighting terrorism. It has increasingly become clear, that for a nation to advance, it has to keep its crime and terror activities in check.

Cultural and Other Issues

The growth of cross-cultural contacts has helped the United States participate in a new World Culture. It has helped Hollywood reach remote corners of the world while at the same time Bollywood has reached out to the Americans. Globalization has also lead to greater international travel and tourism thus greatly benefiting the tourism industry. WHO estimates that up to 500,000 people are on planes at any one time. (WHO Data, 2009). In 2008, there were over 922 million international tourist arrivals, with a growth of 1.9% as compared to 2007 (UNTWO Data, 2009). Globalization has also increased the number of illegal immigrants entering USA. The Rockridge Institute argues that globalization and trade agreements affected international migration, as laborers moved to where they could find jobs. The Mexican government failed to make promised investments of billions of dollars in roads, schooling, sanitation, housing, and other infrastructure to accommodate the new maquiladoras (border factories) envisioned under NAFTA. The 1994 economic crisis in Mexico, which occurred the year NAFTA came into effect, resulted in a devaluation of the Mexican peso, decreasing the wages of Mexican workers relative to those in the United States. Unemployment, corruption, low wages and few opportunities cause Mexican laborers to look for greener pastures and migrate illegally to the United States.

Conclusion

Globalization leads to increased international trade and reduction in trade barriers, which is beneficial for all the trading nations. Increased globalizartion has increased competition in the global economy, making it tougher for organisations to survive, and leading to greater productivity, efficiency and quality. This has in turn lead to the rise of countries like China and India, which are rich in labour. Due to the rise of labour abundant nations, the US labour market has suffered with fewer jobs being available for unskilled workers and lowering of wages. Further, outsourcing and offshoring have lead to loss of jobs and unemployment. In order to establish a set of trade rules and monitor the trading nations, institutions like WTO, IMF and World Bank have gained in importance. The United States hold a very important place in all these institutes, due to its strong economy and political power. Thus, it has a huge bargaining power when it comes to trade regulations. Overall, globalisation has affected America both positively as well as negatively but it is primarily due to globalisation and increased trade that America has a strong economy today.

References

Bivens, J., 2007, Globalisation and American Wages: Today and Tomorrow,

The author examines the effect of globalisation on wages and predicts what the future is going to be, based on mathematical models.

Blinder, Alan. 2006. Off-shoring: The next Industrial Revolution. Foreign Affairs magazine.

Boyer, P., Foreign Trade, U.S., The Oxford Companion to United States History.2001.Encyclopedia.com.

Boyer, P., Global Economy, America and the., The Oxford Companion to United States History. 2001. Encyclopedia.com. Accessed on 22 Apr. 2010 at

Daniels & Sullivan, International Business and Operation, 11th Ed, Pearson Education

Eatwell, John. 1996, International Financial Liberalization: The Impact on World

Development, Office of Development Studies, Discussion Paper Series (September). New   York: United Nations Development Programme.

Fishman, T., 2005, How China Will Change Your Business, Inc. magazine,

O’Reilly, E., & Alfred, Diane., 1998, Innovations in Technology and Globalization,

Slaughter, M., & Swagel, Philip., 1997, Does Globalization lower wages and export jobs?, IMF Report,

UNWTO World Tourism Barometer (World Tourism Organization) 7 (2)

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Competitive Priorities

Employing Competitive Priorities in Business: The Case of FedEx

The courier industry is one of the most integral parts in the American economy. It is involved in the transportation of a variety of products like drugs, packages, bulk materials and documents to businesses within USA and outside its borders without which the whole economy would come to a standstill. The same day delivery service is also a vital part of the just in time nature of the economy of the US. This multi billion industry has more than seven thousand businesses in it in direct competition with the big four courier firms, (DHL, UPS, FedEx and USPS) and with each other.

In the recent past, competition between FedEx and UPS, two of the largest courier a company, has intensified as their core business increasingly overlap. UPS traditionally dominated the overnight delivery market while FedEx dominated ground delivery. With each moving to its rival opponent’s domain, the need to create competitive priories is even stronger because this is the only way for the companies to retain their businesses and deliver value to their shareholders. FedEx’ relies on technology to drive its competitive strategies and maintain their business operations. FedEx business model is highly dependent on data between the businesses and its customers. FedEx thus invests more than $1 billion each year to maintain its technology and building a wireless infrastructure to relay timely information on possible problems in the delivery route, enhance efficiency and cut business costs. I will use FedEx as a study case to analyse how a business can gain competitive advantage using competitive priorities.

Company Background

FedEx Corporation, NYSE:FDX is a Memphis based logistics services company which offers courier services, logistics solutions. FedEx is one of the largest logistics companies in   the world delivering small packages to the US and to more than 220 companies in the world. FDX Corporation was founded in 1998 after, FedEx Corporation, which had been incorporated the previous year acquired Caliber systems Inc and its subsidiaries  like RPS,  a small package ground transportation company, Roberts Express which offered expedited shipping, Viking Freight, a less than truck load freight courier  and Caliber Technology, provider of logistics and technology solutions (FedEx, 2012).

After this acquisition, FDX started offering other courier services apart from express shipping. FDX, later rebranded as FedEx Corporation was formed to oversee the operation of all the acquired subsidiaries including Federal express, its air division. It also rebranded the subsidiaries to have the FedEx brand in all divisions with federal express being renamed FedEx Express, RPS renamed FedEx ground, and Roberts Express renamed FedEx Custom critical, Caliber Logistics and technology were combined to make up FedEx Global Logistics.

In 2012, the company’s annual revenue was 40 billion which a 13% increase from the revenues was for the previous year. The earnings per share on the other hand for 2011 grew 20%. In the same year, the company increased its fleet of electric and hybrid electric vehicles by 20% to 408 to curb air pollution (FedEx, 2012).

During the first quarter of 2010, the company spent an estimated %4.9 million in campaigns lobbying against the government’s move to sign the Federal Aviation Administration reauthorisation bill which would make it easier for some of its employees to unionise terming it a bailout on UPS, FedEx’s main competitor in the US market (FedEx, 2012). To survive in these kinds of competitive markets, companies have to adopt strategies to survive. Managers can only take advantage of the changes in the wider environment by using appropriate strategies. Effective strategies allow the firms to use their resources for the best outcomes. The next part of the paper looks at what strategy is.

What is Strategy?

Strategy is an outline of how an organisation intends to achieve its goals. The goals of an organisation are the objectives the owners set for the business while the strategy sets out the route to achieve these objectives. In the early years of the businesses, the strategy taken by the business is fairly simple: to survive and achieve growth targets. However, as the firm increases in size, it must select narrower set of strategies referred to as competitive strategies to survive in the face of strong competitors. According to Porter (1996), competitive strategy is about being different. It refers to choosing a different set of activities to deliver the company’s mix of value to the customers. Markides (1999) argues that the essence of developing a strategy for the organisation is to select one strategic position that a company can claim as its own and pursue it. A strategic position represents a company’s answer to the following three questions: who should the company target as its customer? What products/services should the company offer to the target customers? And, how can the company deliver these products efficiently? These three questions help a company to choose a success strategy that is different from that of its competitors (Henry, 2008).

Another view of strategy is that given by Kay (1993). According to Kay (1993), strategy is a match between the organisation’s internal capabilities and the relationship with stakeholders. Strategy is therefore concerned with the firm’s use of analytical techniques to understand and hence influence its position in the market.

Since the environment within which the company operates is constantly changing and the needs of its customers shifting, a company must ensure that its internal resources and capabilities are more than sufficient to meet these needs since companies do not exist to survive but to grow and prosper in the competitive environment (Henry, 2008).

An effective strategy gives a firm three benefits. The first benefit is a strategy as a source of economic gains. Secondly, it provides the firm with a basis for resource allocation. And thirdly, guides the firm’s decisions regarding management and organisation. One main strategy that companies use is the development of consistent set of objectives which are known as Competitive priorities. These priorities are: Cost, Quality, Time and Flexibility.

Competitive Priorities

The first competitive priority that a company can choose is cost leadership. This is a strategy whereby the cost of a given product in a company is relatively low compared to that of competing products from other companies. This strategy does not jeopardize the quality of products. It rather focuses on high profit margin based on competitive price (Chard, Jacobs and Aquilas, 2004, p.35). In order to ensure effectiveness of cost as a competitive priority, companies operations should be guided by economies of scale. They should also minimise all other operational costs, which include cost of labour and materials. The employees should also be well trained so as to maximise their productivity.

The second priority is quality. Customers always intend to purchase products which they consider being of high quality. For this reason, companies should ensure that they avail high quality goods and services to customers. Care should be taken in pursuing quality as a competitive priority because there are differences in what customers term as high quality. For instance, there are customers who search for products that possess superior features.

There are two dimensions of quality; namely, high performance design and goods and services consistency (Chard, Jacobs and Aquilas, 2004, p.35). High quality design involves the production of goods which address the quality demands of the customers. On the other hand, consistency involves building confidence among clients by ensuring availability of goods and services upon demand.

The third competitive advantage is differentiation as regards to time in delivery speed and reliability. As much as a company pursues production of high quality products, production should not take too long. This is because delays in production and delivery upset customers. Chard, Jacobs and Aquilas (2004) outlined two dimensions of effective delivery. These are rapid delivery and on- time delivery. Rapid delivery involves quick reception of customers’ orders while delivery on- time involves high frequency of on-time delivery of goods and services. In order to utilize time as a competitive priority, companies should make use of technology and employ effective work force.

Therefore, in the process of delivery, companies should ensure that deliveries are “in accordance with the promises made to customers”. This is referred to as dependability (Hayes and Wheelwright, 1984, p. 24).

Employing Competitive Priorities
Employing Competitive Priorities

The fourth priority is flexibility of product mix and adaptation to changing markets. Competition always leads to change of products in the market by different companies. Therefore, as the market changes and customers’ needs and expectations shift, the company should device ways of accommodating these changes. This should be geared towards winning the confident of customers. Chard, Jacobs and Aquilas (2004) categorises flexibility into product and volume flexibility (p. 36). Product flexibility is the ability of the company to offer goods and service that suits the customers’ needs. With this, a product may be dropped out or introduced to the market depending on the market trend. Volume flexibility is the strategy of increasing or decreasing the production of a given product in order to accommodate changes in its demand.

Hayes and Wheelwright (1984) expound aspects of flexibility as the ability to change volume of production, time taken to produce, mix of different products or services produced. Flexibility also involves the ability to innovate and introduce new products and services (p.24).

Flexibility enhances healthy competition as competition is not based on speed of production but customized products. In addition, it helps to reduce competition based on cost. This is so because production of customized products may require extra resources for production. Companies which employ this strategy ensure that its products are varied, and its workers are skilled and competent enough.

Scholars hold divergent views regarding the criteria for utilization of the four competitive priorities. For instance, Hayes and Wheelwright (1984) companies cannot simultaneously succeed when they pursue all the priorities simultaneously. This is because there is the likelihood that such companies have to allow different operators to implement priorities at different times. The resultant lack of coordination leads to inability to achieve objects. The two, therefore, advocate for trade-offs whereby companies pursue one competitive priority to greater levels than the other priorities. On the other hand, there are other scholars who argue that companies can still succeed while pursue the four competitive priorities simultaneously (p. 25). In the next part of the paper, an analysis of FedEx competitive priorities will be done.

FedEx Competitive Priorities

The environment in which FedEx operates is quickly changing due to the financial crisis and globalisation which has resulted into an increase in the number of competitors in the courier business. During the crisis, the quantity of global trade was severely affected which in turn affected the revenues of logistics companies, including FedEx. Although the financial position of the company for last year looked promising, the future is too vague to predict for FedEx. This means that the company must look for ways to strengthen its position in the market. One of the ways that company can do this is by exploiting competitive priorities (Porter, 1998).

The main competitive priority for FedEx is time. In the same day delivery business, delivery on schedule is a vital component in winning customers trust. According to Chase, Jacobs, et al 2006, a company can differentiate itself using time as its competitive priority in two ways: First, is through speed delivery speed and secondary through reliability and ability to deliver the goods when promised. Some of the packages that FedEx is in charge of delivering like medical supplies are extremely time sensitive and hence the businesses is always on the lookout for ways to reduce delays in the supply chain to ensure that packages arrive on time. One of the ways that FedEx achieves this is by controlling every part of the delivery chain. The company owns aircrafts, delivery vans and sorting facilities to ensure reliable on time delivery.

As early as 1980 during the initial years of the company, FedEx had a fully integrated system to monitor the location of vans, track packages and communicate with customers to ensure that all packages were picked and delivered on time. In the last few years, the company has been replacing the old wireless system with Wi-Fi, Bluetooth and cellular networks, GPS which enables customers to track their packages in real time using their WAP enabled phones and PDAs. In addition to this, the company has over the years build a seamless international and domestic network linked by air and ground delivery channels which ensures that customers needs are well met (Berger, 2011).

The second competitive priority for the company is flexibility. According to Chase, Jacobs, et al 2006, flexibility involves the ability to provide a wide range of products or services without delay to meet the needs of the client. The company has always been a leader in adaptation of new technology to better meet the expectations of its clients. For instance, the company was the first to start offering delivery at 10.30 am after identifying a need within the market to have their goods delivered early so that they have enough time during the day to work on them. The company also formed a strategic alliance with U.S. Postal Service to offer its customers more flexibility in drop-off points for their parcels (Porter, 1998).

The third competitive strategy that FedEx pursue is cost leadership. According to Porter (1998), cost leadership is concerned with producing high volumes of standardised products to take advantage of economies of scale. FedEx offers its customers a range of flat rate fees and delivery options to ensure that all customers well satisfied. To reduce costs, FedEx uses technology to gather data and through outsourcing some of its operations such as delivery.

The fourth competitive strategy for FedEx is quality. According to Porter (1998), quality is concerned with excellence in operations, product based quality and value based quality where the organisation offers excellence at an acceptable price. To maintain quality, FedEx trains all its employees the importance of correcting a mistake before it goes further on since the mistake becomes more costly to fix once it is allowed to go on. For instance, sorting goods before shipping helps the company avoid wrong shipping. The company also maintains its quality by offering timely delivery which has earned it more satisfaction among its customers than its rival UPS. Quality at FedEx is also maintained by the use of information technology, such as Wi-Fi and iPhone apps, at every point of its delivery channel which enables the company to gain important information about picking up its customers’ parcels and relying information to the customers about where the package is at every step of delivery. The use of technology helps to communicate with the customers in case of delays to maintain their loyalty.

In conclusion, a company should seek to exploit its competitive priorities to ensure survival in times of competition. Competition is normal in every industry and so is the case in US courier industry in which FedEx operates. In the recent years, intense competition over the US market has increased for FedEx both from its main rival UPS and also smaller courier companies which fill the gaps that larger courier companies like UPS, FedEx and DHL are unable to fill due to their large size. In such competitive markets, a company has to come up with a strategy not only to survive but grow in the face of competition. Formation of a competitive strategy involves matching the internal capabilities of the firm with needs of its stakeholders to tap into the changing needs of the market. One of the best strategies that a firm can use is called competitive priority.

 Competitive priorities that affirm can utilise to gain competitive advantage are cost leadership, flexibility, quality of products and timely delivery. The first competitive priority, cost leadership, is concerned with producing a high volume of standardised products to gain economies of scale. FedEx offers to its customers a wide range of services at acceptable prices due to its large market size which has enabled the company from a distribution network in the US and other countries which allows it to pick and deliver parcels more conveniently and cheaply. It has also reduced its operating cost by use of technology to gather data which is vital in logistics.

The second competitive priority that a firm can utilise is quality. This is concerned with a company attaining excellence in its products and offering these products at a competitive price. One of the ways that FedEx maintains its quality is through the use of IT to ensure that its customer’s packages are delivered on time. Timely delivery is enhanced by its already established efficient delivery channel which allows it to collect and deliver packages as per customer’s demands. The other competitive priority a firm can pursue to gain a competitive advantage is flexibility in the mix of products and in offering new products. FedEx achieves this by observing the changes in demands for customers to offer new services like late night delivery and linking up with online sellers, like Amazon, to provide online shoppers with convenient transport of their shopping. The last competitive priority is timely delivery and reliability which FedEx does by ensuring that customers receive all their packages in time by integrating IT in their delivery system to rely information about possible delays to help take corrective action and help customers track their packages to avoid uncertainty.

Bibliography

Berger, A. (2011). Case Study – FedEx Corporation: Strategic Management. New York: Grin Verlag.

Chard, R., Jacobs, F., & Aquilas, N. J. (2004). Operations Management for Competitive Advantage. New York: McGraw- Hill.

Davis, M. M., Aquilano, N. J., Balakrishnan, J., & Chase, R. B. (2005). Fundamentals of Operations Management. New York: McGraw-Hill Ryerson.

FedEx. (2012). About FedEx. Retrieved May 21, 2012, from http://about.van.fedex.com/

Hayes, R. H., & Wheelwright, S. C. (1984). Restoring Our Competitive Edge: Competing Through Manufacturing. John Wiley: New York. .

Henry, A. (2008). Understanding Strategic Management. New York: Oxford University Press.

Porter, M. E. (1998). Competitive Strategy: Techniques for Analyzing Industries and Competitors. Free Press.

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