Chapter 3
Strategic Choices
Contents Page
Introduction 58
D. Organisational Growth 80
Advantages and Disadvantages of Small and Large Businesses 80
Growing the Business 83
Financing Growth 84
Summary 88
Answers to Activities 89
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INTRODUCTION
This chapter is concerned with the decisions organisations make and how these change
during the firms life cycle.
When an organisation starts in business it will usually have values that it wishes to operate
by and these will very much influence its strategic choices. The values will not be the same
for every organisation and neither will its goals. We examine profit and not-for-profit
organisations to establish what the difference in their values and hence their strategic
choices may be.
We look at the influence of internal factors the strengths, weaknesses, competences and
capabilities and how these affect what an organisation does and how it operates. The
external environment will also affect the firms choices and in many ways, these will be out of
its control. We examine the opportunities provided by the external environment as well as
the threats to its continued survival.
Not many companies will be able to ignore competitors and what they are doing. Examining
the competition, to assess how to reach organisational goals, is a vital step to take in the
strategic plan and helps to enhance business performance. Michael Porter is the leading
guru in this area, but we also look at the merits of benchmarking as a strategy.
As small firms become more successful they make the choice of whether to grow bigger or
remain as a small business. There are pros and cons to both alternatives and if growth is the
chosen route, the firm needs to determine how best to structure and finance it. At the end of
the chapter, we evaluate growth options and the financing methods which underpin them.
Market
size Maturity
Slow growth Decline
Growth
Development
Time
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This life cycle represents the progress of the company slow development with low market
share, followed by rapid growth, then growth slows as the organisation matures and
eventually declines.
We can illustrate this process by considering the case of Xerox.
Xeroxs history from 1947 - 1980 demonstrates the phases of the industry life cycle well. It
was originally formed in 1908 and produced photographic paper, but it was not until it
became the market leader in plain paper copying in 1960s that is growth became
outstanding. It reached the mature state probably in early 1970s. In 1977 its patents ran out
and competition became fierce so that by the 1980s its market share had declined
significantly.
However, some large companies which have moved into decline, have managed to regain
their industry position, at least in part, after some years. This was the case with Xerox which
revived its fortunes by becoming The Document Company in the 1990s and later adapted its
model to become an outsourcing business. In early 2000, the company went into
administration in the US and was in danger of bankruptcy. Once again it managed to
reinvent itself into what is again a thriving company.
At each stage in its life cycle, a company will make different choices about how it drives its
business forward, as we can again illustrate with Xerox:
In the early development stage, a new company will be innovative and seek to
differentiate itself from the competition in its market sector. In this stage, Xerox
developed its patents which gave it a competitive advantage and allowed it to start its
growth.
During its growth it was able to demand its own price as competitors were unable
compete owing to patent protection (high barrier to entry) and customers were forced to
pay the high price demanded. It thus underwent massive growth in the 1960s and
early 1970s, and by the late 1970s it was in the mature stage.
However, with its patents running out, competition entered the market. Barriers to entry
fell significantly, prices reduced and competitors were now able to produce plain paper
copiers with superior features. Xerox did not foresee this change in the environment in
time and it passed its decline stage without realising it was happening.
A new set of strategic choices was required, as its purpose turned to finding a way to
survive in a different market environment.
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that is, deciding what strategy to pursue. Each firm will have a different set of parameters as
the factors listed above will all vary considerably in every case. So, for example, as we
discussed in Chapter 1, the business aims could be maximising:
profit
market share
revenue share
product development
growth
social, environmental or ethical outcomes.
Vision Statement
Values
Objectives
Implementation
Monitoring/Control/Review
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Xerox
Mission and vision statement:
"Through the world's leading technology and services in business process and
document management, we're at the heart of enterprises small to large, giving our
clients the freedom to focus on what matters most: their real business."
Core values:
"One thing that never changes is our core values:
We succeed through satisfied customers
We deliver quality and excellence in all we do
We require premium return on assets
We use technology to develop market leadership
We value our employees
We behave responsibly as a corporate citizen."
Google
Mission:
"To organise the worlds information and make it universally accessible and
useful."
Think Point
What differences do you notice in the mission, vision and values of these three
organisations?
Xerox has a "for profit" type of mission and vision, focused on revenue generation and
business to business activity. It publishes these statements given on its website and,
from these, you could relatively easily evaluate Xeroxs business actions and determine
whether it meets its own written standards.
Lambeth NHS does not state what its core values are in its strategy document, but
relies on a generalised "doing good" approach. Do you notice the differences in
emphasis of this public sector organisation compared with a large private sector
corporation? It is often more difficult for not-for-profit to make precise statements since
they serve a variety of stakeholders.
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Google gives little information except that it appears to have a more philanthropic
mission than the standard for profit firm. Its mission is published on the investor area
of its website, but there is no vision statement or list of values. It states values
occasionally in other text (where one of these is "teamwork"), but does not make a
conventional statement.
For profit organisations' missions and visions are likely to be based on shareholder
value or revenue generation, although some commercial companies in Asia Pacific, for
example, have purposes which are nearer to that of not-for-profit organisations in the
West such as the NHS.
Activity 1
Find out what the mission, vision and core values of your own organisation are (or those of
an organisation you have worked for or studied with)? Are they stated explicitly in documents
and, if so, how widely available are they? Are the organisation's stakeholders aware of
them?
What are the main differences between the mission, vision and core values of your
organisation and those of Xerox and of Lambeth NHS? Can you explain why they should be
different?
Activity 2
A company might state that it wishes to improve sales of product X by 10% by the end of the
quarter.
Is this a SMART objective?
See the suggested answer at the end of this chapter.
When a company is planning its objectives it cannot do this in isolation. It must take
into account a number of factors such as:
its resources and competences
its weaknesses
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We will examine these factors in more detail in the next section of this chapter.
In setting objectives, there are two important aspects to consider:
(i) Ensuring that the whole organisation understands and is geared towards
achievement of the objectives.
One problem can be that employees at lower levels of the firms hierarchy may
not understand the contribution they can make to the accomplishing the firms
objectives, and not be fully committed to them. This may be overcome by
involving employees in the planning process seeking their contribution in
actually structuring the strategic plan. This approach bottom-up planning as
opposed to top-down (imposed from above) often results in generating new and
more practicable solutions.
(ii) Building in flexibility objectives should be flexible enough to be modified.
To allow innovation to occur. If the objectives and/or their implementation
are too rigid there will be no opportunity to take advantage of innovative
ideas that might occur, owing to changes in the internal or external
environment. For example, a new manager is recruited and has some
useful new ideas or an existing member of staff contributes an idea to save
resources.
To respond to the business environment. Organisations operate in a very
turbulent environment and changes in interest rates, regulations,
government policy, etc. can impact on the original objectives in a positive or
negative way. The organisation needs to be able to adapt its objectives to
minimise the potential damage of negative changes in the environment or
to maximise opportunities.
(c) Implementing the Strategy
Once the objectives have been agreed, resources will need to be allocated to achieve
them. Thus, financial objectives will be set and resource levels agreed.
All employees will need to be briefed on what the organisations objectives are and
what their part will be in accomplishing the stated outcomes. In some organisations,
there is an Annual Conference where employees are able to share the strategic goals
for the year, discuss in groups how they will be achieved and celebrate success of the
previous years plan. This type of approach helps in communicating and implementing
the firms targets.
Ensuring appropriate resource levels for the of the objectives may also involve some
training and development of staff, in order to ensure there is the necessary skills and
knowledge profile required to enable specified goals to be met.
(d) Monitoring and Control
Progress towards achievement of objectives needs to be constantly monitored, with the
extent of progress, against set goals, measured at regular intervals.
The firm should have a monitoring mechanism with specified measurement tools and
time periods. There are many different types of monitoring mechanisms that can be
used, separately or together. Examples include:
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Budgets
Quality control
Balanced scorecard
Customer feedback
Employee feedback.
Monitoring systems are vital to the achievement of goals. The organisation needs to
measure progress and either address problems in implementation which are preventing
the achievement, or amend the objectives themselves if the set goals do not appear to
be feasible and/or to take advantages of new opportunities to exceed the stated
outcomes.
However, before the firm can get to this stage, it needs to carry out an analysis of its
environment to enable it to set appropriate, SMART objectives.
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Macro-environment:
broad environmental factors
Competitor
competences and activities
The
Organisation
The individual firm is a very small part of a much larger sphere of influence which impacts on
the way it manages its internal resources and reacts to changes that occur in that external
environment. In many cases the organisation has little control over its environment but must
adapt and make choices about how to adapt so that it can survive and prosper, as discussed
in Chapter 2.
The environment may be divided into the internal and external environments, and different
types of types are appropriate to each. Here we shall examine the following:
The Internal Environment:
SWOT analysis
Gap analysis
Value chain analysis
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While this company values "cash rich" as a strength, if the company was a plc this would be
seen as a weakness by financial experts since the cash could be working to improve the
companys performance. Poor credit control may also link with being cash rich and
demonstrates poor use of financial resources.
However, in times of economic downturn, having cash reserves can be vital to the survival of
the company. A cash rich company can be independent and its managers can innovate
without having to answer to shareholders or financial institutions. The Armani business, for
example, is cash rich and run without external loans, allowing Giorgio Armani to make the
business decisions he chooses without pressure from outside. Many Asia Pacific companies
are family run and independent of banks or other lending institutions and operate with a
similar philosophy.
Loyal employees can be a great strength, but they may also be unwilling to change and this
might account for technology being poor. So, is the company innovative or just thinks it is?
Will it lose its market leadership through the weaknesses?
The power and influence of trade unions varies from one organisation to another and from
one country to another. In the UK the role of unions has changed considerably in the past 30
years. Legislation has weakened their power to negotiate national wage rates and to strike.
However, many unions have become involved in assisting with employee development and
working with companies more closely, on health and safety issues for example. Unions also
offer their members access to legal services for issues inside and outside the workplace,
such as personal injuries like deafness from machine noise and road accidents. Hence trade
union presence may add a strength to the organisation rather than be perceived as a
weakness. On the other hand, in some countries, unions are more powerful, particularly
where employee working conditions are poor, and their power can be perceived as being a
weakness in terms of potential threat to the organisations business performance.
The level of technological competence and capability is an increasingly necessary strength
within the majority of organisations. It is not only important in production, but in sales and
marketing, value chain and general communication. The internal technological competence
that is a strength today can quickly transform into a weakness.
Thus, in carrying out the internal analysis, the group responsible for doing so must look at the
list they produce objectively some weaknesses can also be strengths and vice versa.
If the organisation is to produce an analysis of its internal environment that will help it to
plan for the future, being objective is crucial.
Organisations must seek to build on their strengths and reduce weaknesses to improve
future performance.
Competences and Capabilities
In the table of strengths and weaknesses, a few skills have been mentioned. These would
be termed as competences or capabilities which assist the organisation to be competitive.
When analysing organisations using case studies, we need to identify the capabilities so that
we can assess the potential for competitive advantage. Examples of organisational
competences/capabilities are:
Marketing
Customer service
Strength of value chain
Financial capability
Talent management
Innovation.
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In the Italian fashion industry, for example, design and marketing are two of its core
competences.
The sustainability of these competences must be monitored if the company is to continue to
thrive they may need to be updated. For example:
Companies that have talent management competence will be constantly appraising
employee development issues, to ensure that training and development initiatives
provide the staff with skills to make a difference to performance. Loss of key
employees may well cause a decline in a core competence such as technical expertise.
Organisations are constantly seeking to improve the value chain by cutting costs,
reducing the time between manufacture and delivery to the customer and so on.
Organisations that have patented products or services will have capability to
differentiate themselves from their competitors. On expiry of these patents, the
organisation can be vulnerable to the external competition, as was Xerox in 1977.
Capability through patents rights may not be sustainable and ultimately become a
weakness.
GAP Analysis
At its simplest, this planning activity is a case of establishing where the organisation is now
and where it would like to be in the future and examining how to close the gap. For example,
if an organisation manufactures 5,000 units and makes a profit of 50,000, what must it do to
manufacture the same number of units and make a profit of 55,000.
The gap is 5000 profit. How could the present operation be changed to meet this goal and
what is realistic? There are many alternatives to examine to close the gap for example:
Cut costs
Increase prices
Improve manufacturing techniques
Reduce waste
Reduce cost of materials by negotiating with suppliers
Reduce marketing/administrations costs.
The technique can be used in any area of the business to improve on the present situation.
It just needs the identification of the key gaps which are holding back the achievement of
objectives. Examples are:
In marketing increasing market share
In HR assessing employee skills now and those that will be needed in the future.
Activity 3
Imagine you want to start a business now offering web design to small companies and make
a profit of 6,000 by the end of your first year.
Make a list of what skills and physical resources you are likely to require.
What might be your strengths and weaknesses in terms of reaching this goal?
What activities and resources will you need to employ to allow you to reach your goal?
See the suggested answer at the end of this chapter.
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Company infrastructure
Support activities
Technology development
Procurement
Margin
Primary activities
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Again some opportunities also pose threats. Acquiring a supplier may well increase the
efficiency in the value chain and reduce costs, but not if the newly acquired firms employees
cannot adapt to the organisations working practices and/or culture.
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but makes exporting the goods or services offered more attractive to the countries
affected.
(c) Socio-cultural Factors
These influences concern different cultural and demographic factors.
Is the population ageing and how does this impact on the sales of the firms
product or service in that country?
Older age groups generally have the most disposable income. How can the firm
adjust its product or service to maximise revenue from this sector?
How will the demographic change affect employee recruitment? More women
have entered the workforce than in the past and demand for part time jobs has
risen. This has also meant less time being spent on domestic tasks such as
cooking and opened up opportunities for companies to provide larger ranges of
ready-made meals.
Is a change in taste/ingredients necessary in a foodstuff to make it attractive to
people of another culture?
If an organisation is planning to operate part of its business in a new country what
cultural aspects does it need to take into account?
(d) Technology Factors
This is a rapidly changing factor that influences the organisation in a number of ways:
Communication is faster
Operational costs can be reduced as fewer employees are required
New materials developed
Monitor and control of quality of all aspects of the business can be more effective
Technical skills may be needed in the workforce which are not currently available
Growth in e-commerce allows organisations to sell globally without having to set
up operations in all the countries that buy their products. The whole transaction
can be completed online
Virtual working is now normal practice for large numbers of employees and
entrepreneurs.
(e) Legal Factors
This refers to regulation which can be national or regional. An example is recent
Corporate Governance Regulations which governments have applied to organisations
wishing to float shares on the stock exchange.
Health and safety legislation and employment law have been developed in all EU
countries in the last 50 years, and are being continuously extended by the Parliament
in Belgium, resulting in sometimes quite drastic changes in operational costs.
Restrictions on mergers and acquisitions, to prevent the growth of monopolies, and
hence the national and international power of individual large firms, operate in many
developed countries, including the UK and USA.
Governments are increasingly collaborating to produce legislation to reduce global
emissions and regulate financial transactions and reporting.
(f) Environmental Factors
The earth has finite resources which are rapidly diminishing. Organisations are under
a lot of pressure from consumers and governments to conserve resources such as
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water, energy and raw materials. In addition, the manufacturing process can cause the
emission of harmful substances into the air, rivers and rubbish dumps.
Many large and small organisations have green corporate policies which state their
specific commitment to effective use of resources and responsibility in their interaction
with the environment. Such policies can have the effect of making their products more
attractive to some consumers, acting effectively as a strategic marketing tactic. In
many cases, these policies also allow the organisation to reduce costs, for example, by
recycling waste or pursuing research to reduce the proportion of raw materials required
to produce a product.
(g) Ethical Factors
These concerns have always been present internally and externally for example:
How does a company treat its employees?
Does the company deal with corrupt governments?
Is it considered ethical to use child labour?
Nations and regions of the world have different ethical principles, some of which are
based on their cultures.
Organisations planning their business strategy may have to take into account cultural
ethical differences, but may also have a policy which states what they stand for and so,
ethically, the types of business practice they will not engage in.
Large multinationals such as Coca Cola have published Corporate Governance and
Ethics Policies that their employees and suppliers must adhere to.
We now present an outline STEEPLE analysis for you to consider the range of factors
covered.
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Activity 4
Think about the car industry and make a list of the STEEPLE factors that might affect the
strategic choices of a car manufacturer. What changes might you see in that list in 10 years
time?
See the suggested answer at the end of this chapter.
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Rivalry between
existing firms
Buyers Substitutes
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Differentiation
Stuck
Cost Leadership With No Focus
Clear
Strategy
Porter's strategy model allows a company to decide which overall "type" of marketing they
want to adopt. If the firm is powerful and rich in resources they may well choose to follow a
Cost Leadership or Differentiated strategy. Smaller firms may be forced to adopt a Niche
strategy because their product offering has a very specific market.
Benchmarking
There are several approaches to benchmarking that allow strategic planners to make choices
about their future actions.
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Historical benchmarking
This is reflecting on performance in previous years to identify any changes that need
making. The issue with this technique is that it is subjective and may leave an
organisation feeling complacent. It is not actively looking externally to judge what
changes competitors may be taking or how the external environment could impact on
the organisation in the future.
Comparing with others in the same industry or sector
This is also limited in so far as, if the whole industry is not performing well, then
complacency could set in. Other firms which are not currently active in that industry
sector may enter as they can meet customer needs more satisfactorily.
Benchmarking against best in class
This can be done irrespective of the industry. Xerox actually revived this kind of
benchmarking in the 1980s when its quality had declined. It chose best organisation in
class and went out to observe how they operated, as shown by the following example.
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Xeroxs benchmarking model is now taught in business schools and regularly used by
companies when making strategic choices.
The impact of benchmarking, as it was with Xerox, is often to change behaviours.
However, there are some potential negatives such as:
It may not be used to ascertain why the process benchmarked works so well if it does
not compare competences between organisations. For what reason is distribution
better in company X than company Y? What are the underlying competences of
employees in both firms?
It may change focus in an unintended manner. School league tables in UK were meant
to provide benchmarking comparisons between teaching quality, but have led to a
narrow focus on the questions that will be asked rather than improving thinking skills
and application of knowledge.
D. ORGANISATIONAL GROWTH
Most firms begin as small organisations and if successful, can grow into multinationals.
Hotel Chocolat began with two people making mints and has grown into a multimillion
business.
In this section we examine the advantages and disadvantages of large and small businesses,
and look at the methods by which businesses grow.
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Financing Growth
There are a number of methods of financing growth, some of which are applicable to different
stages in the organisational life cycle.
Initial capital investment is required to begin a small firm. This is usually in the form of loan
from a bank or by using personal savings.
Working capital is then required for the day-to-day running of the business paying wages,
paying creditors, purchasing small items such as stationery, advertisements and so on. This
will either come from sales made and/or the support of a bank overdraft facility.
In the early stages of the business it is quite common for firms to have cash flow problems
where the amount of revenue earned is insufficient or not paid quickly enough by debtors,
and the business cannot pay its day-to-day bills. The owners will often rely on a bank
overdraft to relieve the problem. However, if this does not solve the issue in the short term,
the firm will probably close.
When larger amounts are required for purchasing large items or expansion of premises,
funding research and development projects and so on, the business will need to consider
longer term financing. There are several options available including bank loans and venture
capital. We consider four such options briefly here.
(a) Overdrafts
Advantages Disadvantages
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Advantages Disadvantages
(c) Leasing
Advantages Disadvantages
Advantages Disadvantages
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Activity 5
Finally in this chapter, we present a further case study of the development of Xerox.
Consider the following summary of its development and then answer the questions that
follow.
Xerox can trace its roots to 1906, when a photography-paper business named
the Haloid Company was established in Rochester, New York. In 1958 Haloid
changed its name to Haloid Xerox, reflecting its belief that the company's future
lay with xerography, although photography products were still more profitable.
That balance quickly changed with the success of the Xerox 914 copier.
Introduced in 1960, it was the first automatic Xerox copier and the first
marketable plain-paper copier. Demand for the 650- 914 model exceeded
Haloid-Xerox's most optimistic projections and Fortune later called the copier "the
most successful product ever marketed in America". Sales and rental of
xerographic products doubled in 1961 and kept growing.
However, by 1985 Xerox's worldwide plain-paper copier share had dropped to 40
percent, from 85 percent in 1974.
In 1988, Xerox underwent a $275 million restructuring, cutting 2,000 jobs and
creating a new marketing organisation, to get new technologies into the
marketplace more effectively. Xerox's comeback was so impressive that in 1989
its Business Products and Systems Unit won Congress's Malcolm Baldridge
National Quality Award for regaining its lead in copier quality. Xerox had
demonstrated its ability to change.
In 1994, Xerox began calling itself The Document Company to emphasise the
wide range of document processing products it produced.
April 1998, Xerox announced yet another major restructuring, as its shift to the
digital world led it to spend more on overheads than its competitors. The
company eliminated 9,000 jobs over the next two years. The cuts came at a time
when Xerox was enjoying record sales and earnings as well as a surging stock
price, so the company was clearly proactive in maintaining the momentum it had
gained through its impressive 1990s resurgence.
This resurgence, however, came to a crashing halt during the later months of
1999. For both the third and fourth quarters, Xerox was forced to issue warnings
that its profits would be well below the expectations of Wall Street analysts,
sending its stock tumbling.
Sales and profits were hurt by a number of factors, several of which were out of
the company's control, including the strength of the dollar against European
currencies, heightened competition from Japanese rivals, particularly Canon,
which launched new lines of midrange and high-end copiers that ate into Xerox's
market share, a slump in the sales of high-end copiers and printing systems late
in the year because of Y2K fears, and a severe economic downturn in Brazil, a
long-time key market for Xerox that had been responsible for about 10 percent of
sales and an even-larger portion of profits.
In March 2001, Xerox sold half of its stake in Fuji Xerox to Fuji Photo Film for
more than $1.3 billion in cash, reducing its interest in the joint venture to 25%. In
another key move, Xerox outsourced about half of its worldwide manufacturing
operations to Flextronics International Ltd., at the same time selling to Flextronics
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plants in Canada, Mexico, Malaysia, the Netherlands and Brazil. Several other
non core operations were also sold off as part of this overhaul, which in total
culled 11,200 positions from the payroll. During 2001, a separate restructuring,
which aimed to sharpen the company's focus, saw Xerox eliminate product lines
aimed at the small office/home office business segment. Approximately 1,200
more employees were laid off. Xerox eliminated its stock dividend that year to
conserve cash and in August, Mulcahy was named CEO. She replaced Allaire as
chairman in early 2002.
Late in 2000, the Securities and Exchange Commission (SEC) launched an
investigation into Xerox's accounting practices for the period from 1997 to 2000.
The SEC eventually found that the company had been improperly accounting for
revenues associated with office equipment it leased to customers, booking more
of the lease revenue up front than was proper and thereby artificially, if
temporarily, inflating revenue and according the SEC, misleading investors. In
April 2002, Xerox agreed to pay a record $10 million civil penalty to settle the
charges.
In addition to shedding unprofitable businesses and lines of business, and
eliminating tens of thousands of workers from the workforce (which was reduced
by one-third from the beginning of 2001 to the end of 2003, from 92,500 to
61,100), Xerox vastly improved its balance sheet. Total debt was reduced from
$18.64 billion in 2000 to $11.17 billion in 2003. Perhaps most importantly, Xerox
moved aggressively to regain lost market share by introducing 38 new products
during 2002 and 2003 as well as a wide range of new document-related services.
Through the CEOs able leadership and dogged pursuit of a turnaround, Xerox
was able to post strong results for 2003. Net income of $360 million was the
firm's highest profit level since 1999. Debt was reduced further during 2004 to
less than $10 billion and the now cash rich company was poised to begin
pursuing acquisitions again. From the real possibility of bankruptcy when she
took over, CEO Mulcahy had engineered at least the beginnings of a remarkable
comeback, though the competitive environment showed no sign of becoming less
brutal.
Questions
(a) Identify three separate and different examples that show Xerox changed its strategic
choices over the years.
(b) Describe how the external environment has impacted negatively on Xerox in a way that
was beyond its control.
(c) What actions did Xerox take as a result of the impact of the external environmental?
(d) What effect did these actions have on the business?
(e) From the limited information in the case study, describe the strategies Xerox used to
grow the business.
(f) Which of Michael Porters generic strategies has Xerox focused on? Provide
supporting evidence for your answer.
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SUMMARY
Organisations exhibit life cycles in a similar way to that of products, with different
characteristics at each stage.
The strategic choices they will make will depend to some extent on the stage they have
reached in the business life cycle.
All organisations whatever their size have to make strategic choices about how the firm can
survive and prosper in the future.
The stage in the life cycle can be very important. An organisation in the development stage
may have few or no competitors. An example of this was the early days of online recruitment
when there was little competition.
A company in decline will have to examine every aspect of its business and decide what it
can do to either adapt its operation or change its products or services to regain momentum.
In either case, when making strategic choices, firms need to carry out a structured
examination of their internal and external environment so that they can make informed
choices:
Internal strengths and weaknesses identifying the competences and capabilities that
can be built on and the weak areas that need to be improved, and listing the actions
required to make improvements. Similar results could be obtained from a SWOT or
Gap Analysis.
The external environment conducting a STEEPLE analysis to identify factors that
provide opportunities and challenges, and analysing the competitive environment of the
business. The aim will, again, be to identify what competences and capabilities the
organisation has to maximise the opportunities and minimise the challenges that affect
it. Porters Five Forces and Benchmarking can be used to identify the forces that
provide its best advantage against rivals and consideration given to how could these be
enhanced. One of the strategies here could be to benchmark its business activities
against the best in class.
A company may choose to grow larger or not. This may be a personal preference of the
owner, but the situation may be forced owing to customer demand.
If the organisation chooses to grow it will either grow through use of its own resources or by
alliance with or acquisition of another company. Again the choice made will depend on the
stage in its life cycle and the STEEPLE factors surrounding the other organisation.
Growth will require financing whether this is short term working capital or a long term
financing vehicle. This is yet another choice for the firm to make.
Making the right strategic choices is vital for organisations of any size. A systematic
approach is more likely to result in appropriate decisions for an individual firm.
ABE
Strategic Choices 89
ANSWERS TO ACTIVITIES
Activity 2
In terms of SMART, we can say that:
S This objective is specifically about sales of product X.
M 10% is measurable
A we cannot state whether this is achievable without further information
R it is focused on results
T the time period is clearly stated as 3 months.
The objective does appear to fit the criteria as in a real situation we would be able to look at
past sales and the business environment to determine its achievability.
It is, therefore, not quite a SMART objective.
Activity 3
The skills and competences are likely to include innovation, entrepreneurship, marketing and
good communication. The physical resources should include hardware and software of
various types, working capital, work space and a business plan.
Strengths and weaknesses will depend on the circumstances. Appropriate strengths may be
knowledge of small business operations, experience in successful web design for small firms
and technical ability, while weaknesses could be lack of knowledge of running a business,
poor financial skills and so on.
The activities and resources that you will need to employ again depend on the
circumstances, but you may need financial backing to meet the forecast cash flow, a
colleague with business and/or financial skills, and a database of growing and successful
small companies.
Activity 4
The STEEPLE analysis for the car industry might be along the following lines
Political
Does the Government own a share in car manufacturers
Is the Government a stable one?
Government support for overseas investment.
Economic
Disposable income available
Economies of scale possible
National growth rate
Favourable interest or exchange rate.
Socio-cultural
What kind of products will appeal to the various age groups.
ABE
90 Strategic Choices
Environmental
Use of resources in the production process
Emissions are a health hazard
Raw material wastage
Alternative fuels available to appeal to conservationists.
Technological
Lean manufacturing to reduce costs
Quality monitoring and control
R&D advances for new fuels or engine improvement.
Ethical
Level of corruption in industry and location
Consumption of resources needed to provide essential energy requirements.
Legal
Emission level regulation
Other regulation relating to the industry specifically
Quality control standards
Restrictions on mergers/acquisitions.
Activity 5
(a) You could have identified any of the following:
Xerox changed the type of business it wished to be in when it switched emphasis
from producing photographic paper to photocopiers.
When it lost its patents Xerox could no longer ignore the competition and had to
create a new marketing organisation to get new technologies into the market
place quicker. (1988)
In March 2001 instead of growing in size it divested companies in order to go
back to core business.
It decided in 2001 to move out of the small office/home business market.
(b) In 1999 the negative impact included the strength of European currencies against the
dollar, a slump in sales of high end copiers, Year 2K fears and a severe economic
downturn in Brazil, one of Xeroxs key markets.
(c) It sold businesses, outsourced manufacturing, sold non-core operations and downsized
in number of employees. It also paid no dividend that year.
(d) This allowed it to recover its financial strength by 2003 and to recover market share by
introducing 38 new products in 2002-3.
(e) It used a joint venture with Fuji (which it subsequently sold). In 2004 "it was poised to
begin pursuing acquisitions again". It acquired many non-core businesses in 2001, so
had been involved in conglomerate operations previously.
(f) Initially Xerox could be said to have a differentiation strategy it offered a unique
selling (service) proposition (USP) that the competition did not have. Prices were not
important to buyers of the products and they became so brand loyal that Xeroxing is
still a word used globally for photocopying.
ABE