Introduction
Strategic management is arguably one of the basic components of a successful business across the screen. What is it? How does it enhance good performance? This essay discusses the concept of strategic management by describing what it is, with regard to business management.
Additionally, the analysis will give a brief explanation of diversification and why it is necessary in business. Besides these introductory segments, the synthesis will explain the strategies of VIVA Company in the Kingdom of Bahrain and their success foundation. Importantly, strategies for entering new business will be covered, with a special reference to Sony and General Electric companies.
Strategic management
A strategy is conventionally described as a long-term business plan or action formulated solely for the realization of business goals and objectives. On the other hand, strategic management refers to a compilation of managerial decisions and actions, aimed at determining the long-term performance of an organization (Thompson, Strickland & Gamble, 2009).
It encompasses a wide range of concepts including but not limited to environmental scanning, formulation of strategies, implantation, evaluation and control. Similarly, the study of strategic management focuses on evaluation and assessment of an organization’s opportunities and threats in relation to its strengths and weaknesses.
Notably, strategic management has continuously evolved to become a core value, which plays a significant role in helping organizations to thrive in a multifaceted and dynamic business environment. As a result, companies are forced to become more flexible and less bureaucratic to attain competitive advantage in the market place.
This has moved from traditional ways of defining a strategy where companies were mainly concerned with defending their competitive positions. Because of changing technology and the ease of products being replaced by others, most organizations are putting a lot of emphasis on competitive advantage. It is therefore essential for organizations to have the ability to exercise strategic flexibility in to move from a dominant strategy to another (Thompson, Strickland & Gamble, 2009).
Diversification
Risks exist in any business idea. As a result, there is need for organizations to establish corporate strategies to reduce these risks as much as possible. It therefore denotes an approach that allows an organization to concentrate on several investments within a single business portfolio (Thompson, Strickland & Gamble, 2009). This is based on the fact that a portfolio, which mixes numerous investments, is likely to be more profitable than that which concentrates on a single investment.
Besides higher returns, it is also believed that business diversification exposes an organization to lower financial risks as compared to businesses with single investment entities. In its practical application, diversification eliminates sources of risks in a given portfolio to allow quick neutralization of negative performance by positive ones within the portfolio (Sadler & Craig, 2003). Nevertheless, this can only be realized if there is no perfect correlation between securities within the organization.
It is worth noting that excess diversification may equally undermine the rate at which an organization experiences diversification benefits. Some schools of thought argue that foreign securities are good in managing business risks, since they are usually disjoint from local investments. For instance, an economic meltdown in Greece may not be realized in Japan, thus a Greek investor with Japanese securities would receive some protective cushion against the crisis in his or her home country.
VIVA Company
VIVA is a telecommunication company in the Kingdom of Bahrain, owned by Saudi Telecom Company (STC) and has been in operation since March 2010. In understanding the strategies of VIVA Company, it is essential to underscore the success story of STC, which has become a role model in the telecommunications industry in the Arab World and across borders (VIVA, 2011). STC enjoys a wide range of advantages in the market.
For instance, it is the largest telecommunications company with regard to revenue, market capitalization and the size of workforce. It has the widest coverage and offers varying products and services. The company has been ranked highest in the market for its quality in service delivery, including A+ and A1 rating, an achievement that no other company had ever attained in the region. Globally, the company is rated among the first five best performing companies in the world.
STC acquired an operating license in the Kingdom of Bahrain in the year 2009, which was followed by the launch of VIVA in March 2010. Since its inception, VIVA has emerged to be among the leading telecommunications Company in the Kingdom of Bahrain and it is believed that the company has an array of strategies, which have propelled it to amazing performance in the market (VIVA, 2011). Of great significance has been the company’s investment in customer satisfaction and building of strong ties.
Founded in its mission, VIVA aims at becoming the leading service provider in the country by improving the lives of its customers in a competitive business world. This is achieved through innovative communication services and products, which satisfy the needs of customers beyond their expectations. Additionally, the company is committed to equipping Bahrain communities with relevant knowledge by engaging in development programs.
Lastly, the company believes in transparency and honesty even as it is involved in the development of Bahrain’s telecommunications infrastructure. The success of these strategies is based on the company’s mission and vision, and the commitment of its leadership to perform outstandingly (VIVA, 2011).
Strategies for entering new business
It is doubtless that joining a new business can be challenging and quite demanding especially when the right procedures and strategies are not put into action. In understanding these strategies, it is worth noting that different businesses may require the implementation or adoption of unique strategies (Sadler & Craig, 2003).
For example, small business strategies may differ from a multi-dollar investment. It is therefore important to have a clear picture of the business before adopting any of the strategies discussed below. Most business experts argue that formation of joint ventures with another company can be quite significant in realizing a business dream. This allows a company to merge efforts and drive a common business agenda (Kenny, 2009). Nevertheless, these efforts may be jeopardized by conflicting interests.
Additionally, some investors may opt to purchase an existing business and advance its agenda. Acquisition of an existing investment is preferred by most people because it allows the launching of a new business brand without going through initial procedures. Moreover, proponents of this strategy argue that it eliminates hurdles and barriers, which are common when entering a new business.
Nevertheless, it is important for the purchasing company to carry out enough survey and establish the history and performance of the firm on offer before sealing the acquisition deal. It can be concluded that every entry strategy has its drawbacks that have to be addressed sufficiently (Kenny, 2009).
Diversification strategies of Sony and GE
Like other companies in the world, Sony has implemented several diversification strategies throughout its history especially after Norio Ohga took over the presidency of the company in the year 1976. After observing the struggling nature of the company, Norio remained determined to make a difference at the helm of the company.
Although Sony had concentrated in production of CDs, Norio Ohga pushed for mass manufacture of CCD (Sony, 2012). As an innovative manager, he diversified Sony’s products by moving away from VCR to other brands that would sustain the company in a competitive business environment.
In order to meet this target, the company aimed at strengthening its brands and made advances in office automation and microcomputer products. Through miniaturization of products, Sony has continually advanced original equipment manufacturing. Additionally, Sony ventured into professional products for industrial usage and in production of component parts (Sony, 2012).
On the other hand, General Electric remains a major manufacturer of consumer appliances, industrial products, and offers a wide range of financial services. Due to expansion and diversification, GE deals in healthcare, energy and industrial manufacturing among other sectors. In the year 2010, Forbes ranked GE as the second largest company worldwide (Barron, 2011). Its diversification approach has enabled the company to guard against poor performance among its business sectors.
Additionally, its size allows it to acquire and sell companies when market conditions are deemed favorable by the management. Integration of acquired business is also given first priority by the company’s management. The company has announced its shift to engine, healthcare and energy, and aimed at acquiring Clarient in 2010. The diversification of the two companies focuses on products and not services (Barron, 2011).
Case Study
It is doubtless that there are reasons why a consumer electronic company may enter into a joint venture with a mobile phone company. A good example of such a joint venture is between Japan’s Sony, specializing in consumer electronics and Sweden’s Ericson, dealing with mobile phones.
One of the reasons why such a merger may occur is the presence of market (Tharp, 2009). For instance, the launch of joint ventures between the two companies proved popular especially with the existence of a huge target audience, who were mainly high-class people. Besides the existence of a potential business market, the compatibility of some products may force companies to join their production efforts.
This is also coupled with merging technology. For example, walkman phones and cyber-shot camera phones utilized Sony’s expertise in wireless technology to meet the demands of the market. Through their partnership, Sony Ericson has been able to produce LG electronics, emerging in fourth position as the largest manufacturer by 2006. Through this collaboration, Sony Ericson was able to register a pre-tax of € 514m in 2005, which contrasted a loss of € 291m that the company had made in 2002 (Tharp, 2009).
Additionally, the joint venture has enabled Sony Ericson to diversify and serve a wide range of customers. After its success in production of handsets, Sony Ericson targeted mobile operators like Orange through deals that were to see the company increase its sales. Moreover, this joint venture has addressed the changing needs of the mobile phone market and technology (Tharp, 2009).
Sony Ericson is able to manufacture television mobile phones to allow young people to watch TV, since they spend a lot of time online. In addition, they have addressed the issue of social media, which is driving most manufactures to woo consumers.
References
Barron, Z. (2011). General Electric: A Deep Analysis of Company Strategy. Web.
Kenny, G. (2009). Diversification Strategy: How to Grow a Business by Diversifying Successfully. London: Kogan Page Publishers.
Sadler, P., & Craig, C. (2003). Strategic Management. London: Kogan Page Publishers.
Sony: Chapter 24 Diversification. (2012). Web.
Tharp, A. (2009). Joint Venture: Sony Ericsson. Web.
Thompson, A., Strickland, J., & Gamble, J. (2009). Crafting and Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases. New York City: McGraw-Hill Higher Education.
VIVA: Company Overview. (2011). Web.