Johnny Elie Chamata PPM 641

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Name: Johnny Elie Chamata

Student ID: 7E1B9207 / 13443261

Assignment 2 – Reflective Journals

Unit: Program and Portfolio Management 641

Lecturer: Dr. Minyu Wu

Word Count: 3,229 (Text and Citations)

375 (Cover, Contents, and References)

Submission Date: 28 October 2011

Johnny Elie Chamata PPM 641

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Contents

Cover page …………………………………………………………………………………………………………… 1

Contents ……………………………………………………………………………………………………………… 2

Mission Statement ………………………………………………………………………………………………. 3

Corporate Governance ………………………………………………………………………………………… 4

Porter’s Model for Analyzing Industry Competition …………………………………………….. 5

The Value Creation Process …………………………………………………………………………………. 6

Innovation …………………………………………………………………………………………………………… 7

Product Differentiation ……………………………………………………………………………………….. 8

Vertical Integration ……………………………………………………………………………………………… 9

Diversification …………………………………………………………………………………………………….. 10

Globalization and Benefits ………………………………………………………………………………….. 11

Organizational Design …………………………………………………………………………………………. 12

References ………………………………………………………………………………………………………….. 13

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1- Mission statement

A mission statement is a key factor in the success of any business that is for the role it plays in aligning

plans of an organization with its goals and structure. First, we need to define a mission statement.

Various definitions have been given, all centered at that a mission is an enduring statement of the

essential purpose of an organization concerning the reasons of existence, nature of business, and target

customers it seeks to serve and satisfy (Jeyarathnam, M. 2008).

A mission statement is built around the declaration of the overall mission of the company, key

philosophical values, and key goals to which it must adhere to attain the mission. For example

Mercedes-Benz’ mission statement states that, their mission is shaping automobile future; their

philosophy is to give their best to customers and living a culture of excellence; and that their goal is to

successfully meet the demands of future mobility.

But what is the purpose of a mission statement? Strategists argue that there are three major purposes

of a mission statement: one is related to diplomacy conducted by an organization in order to enhance its

external public relations and consequently its public image; and the other is to motivate the people

working within an organization (Klemm, Sanderson, and Luffman 1991), through selling them the

corporate goals and values. Another purpose is providing sense of direction for senior managers in their

planning and monitoring tasks, and for staff in their daily performance.

The importance of a mission statement lies in reassuring customers that the company is committed to

their purpose, as well as connecting with the firm if the values outlined are ones they share. People

usually like to work with those they like and agree with, it is just human nature (Daniel, A. Lynn 1992).

Realizing the value of a mission statement helped me understand that a corporate atmosphere must be

harmonic, where the symphony played by different musicians may generate different tones, but always

a whole perfect song.

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2- Corporate Governance

Corporate governance is the set of mechanisms necessary to govern managers and ensure that actions

they take are consistent with the interests of key stakeholders. Good corporate governance should serve

two main purposes; wealth creation and freedom from poverty, and should not be associated with high

costs (FRC 2008).

A debate takes place about the use of some corporate-level managers of their authorities in their

benefit such as desires for status, and on-the-job consumptions (Hill, Jones, and Galvin 2002). For

example some managers engage in growing the organization for them to become more powerful, or

have excessive travelling plans which sometimes are not for the sake of business.

The mechanisms of governing a corporate business are plenty, but I will take a few examples in this

topic. First, establishing an independent board of directors, that is by hiring external directors and giving

them the power of voting. Second, requesting for independent external auditing, away from the biases

that can exist in the case of internal auditing. Group decision making is another mechanism, as a sole

dissenting voice can make very bad decisions, for believing in their invulnerability, presumptions of

unanimity, and the need for suppression of personal doubt. These are in addition to the managers’

personal fear of corporate takeovers and concern about self-reputation (Marnet, Oliver 2008).

On the other side, rules of good governance should be applied; these are concluded in the presence of

ethical approach in the organization culture, setting balanced objectives through a suitable decision

making process, implementing an effective strategy process, creating a structure that defines roles and

responsibilities, and accountability and transparency (APG 2009) .

In my opinion, corporate governance is far more than an approach to rule organizations. It is a culture to

be self-implanted, for the awareness it creates about the sense of responsibility, integrity, and direction.

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3- Porter’s Model for analyzing industry competition

Professor Michael E. Porter being the father of the modern strategy field (HBS 2011), he defined a five

forces model of industry competition that covers the major components of competitive barriers. This

model is of significant importance in analyzing a particular environment of an industry

(Learn Marketing 2011) by relating each of the barriers to each another (Jeffs, Chris 2008) and to the

effect of competition on organization’s profitability.

Analysis takes place from different views, such as the power of suppliers and buyers, rivalry among

existing companies, threats of substitutes and new entrants to the industry. These components are

provoked by a change in the microenvironment, for example, a technological change or enhancement to

a product (Jeffs, Chris 2008).

Analysis starts with the competitive rivalry, the weaker it would be the higher the organizations’

profitability. Organizations should focus their efforts on lowering costs, differentiating their products,

developing high exit barriers, and creating a strategic intent, to attain competitive advantage. A limited

number of suppliers and buyers (Jeffs, Chris 2008) increases competition and may either drive the prices

high or down respectively, according to the product differentiation of suppliers, or the purchasing power

and need of buyers. Availability of substitutes depends on alternatives made from different materials

but provides same benefit, and might be related to the existing number of suppliers, if a high

concentration of competitors exists, then it is easy to switch to another supplier to buy their substitute

product. One remaining threat is that of new entrants to an industry; incumbent competitors must

create significant barriers (Jeffs, Chris 2008) to prohibit future rivalry, or eliminate newly established

ones through creating customer loyalty, low-cost policy, and economies of scale.

Once in my life, I started a company and couldn’t stay in the market for a few months. At that time I

wasn’t able to define the reasons of failure; but now as I am aware of Porter’s model, I can identify that

lack of research about the existing barriers was a major reason.

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4- The value creation process

Value creation is the main concern for every organization on the globe, as it is the vital requirement for

the survival of a company and its ability to attain competitive advantage. Conceptualization of value

creation is centered at two objectives those are, delighting customer and long-term profitability.

In order to attain and maintain these two objectives, an organization should be aware of the process

needed. This process starts with assessing and productively using the services or resources available by

an experienced management (Teece, David 2009) and recruiting them into the available organizational

routines, to be able to move towards positioning the organization at a significant level of competitive

advantage in the industry.

Management of intangible assets and intellectual capital is a central to attain and sustain enterprise

competitiveness (Teece, David 2009). Superior performance must become a culture for a company to do

so; quality, efficiency, innovation and customer responsiveness are all major players of applying the

policy. Building the blocks of competitive advantage is everybody’s responsibility, always starting with

the senior management.

The significant effort made by the company’s personnel, in addition to a strong sense of direction

inspired by managers should lead to either reducing the organization’s cost, or differentiating its

product and enhancing its pricing options, hence in both cases leading to superior profitability. Once

that is attained, more work is required to sustain the company’s position in the industry.

The reaction of an organization’s staff to the call of management to use resources and capabilities

effectively is sometimes taken subjectively. Example of such alerts are those emails alerting staff to cut

down their mobile bills, visit customers more often and enhance relationships, and managing time in a

more productive manner. Some may think “why should the management bother about such a thing, it is

not a big deal!” But I disagree, as the relation between performance and profitability is exponential,

where very small changes in the first, can lead to significant changes in the latter.

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5- Innovation

Being a single most important building block of competitive advantage (Hill, Jones, and Galvin 2002),

innovation plays a giant role, not only as a sharpest tool in shaping organizations to gain a position in the

market, but in the significant effect it has on the remaining blocks, as well on achieving successful

corporate governance and superior profitability.

Innovation has the strongest inter-relational effect among the other components. This effect extends to

improving the effectiveness of efficiency, quality and customer responsiveness. We need to innovate to

improve the procedures followed in our organizational work; for example, an engineer can think of new

design methods that will save time and reduce the components needed to develop the product which

leads to reducing cost and consequently to efficiency; a surgeon can think of how to reduce the cut in a

patient’s body during surgery hence improving the quality of their work; or a customer support staff can

build-on their skills so that they will solve customers’ problems faster leading to customer delight and

sparing room for more callers.

Corporate governance may have an essential need for innovation; senior managers must have unusual

standards in assigning managers, as well allocating resources and capabilities; that will lead to improving

overall organizational performance and reducing costs, hence maximizing shareholders’ profit. Examples

are, hiring managers not for their age or seniority in the organization, but for their expertise; and

employing lesser skilled and knowledgeable staff instead of just having a large number of employees for

the sake of status gained from growth.

Having a conversation with a friend who happened to be a senior manager in a large organization, I

came to know that the criteria used to promoting employees was based on personal relations with

senior managers, regardless the consideration of the person’s capabilities or the value they can add to

the organization.

The above mentioned factors if taken into consideration, when managing an organization, superior

profitability becomes inevitable, and a durable and sustainable competitive advantage is achievable.

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6- Product differentiation

Differentiation is the use of attributes such as benefits, prices, quality, services ... etc in gaining a

customer perception that the product is different and desirable (BD 2011). Differentiating a product

leads to gaining increased profitability through premium pricing; strong status and reputation for the

organization in the industry; and creating a sense of preference and exclusivity in the customer. At this

stage, customers will not switch even if the price is very high compared to rivals; that is known as

inelasticity and leads to the organization attaining the power of monopoly (Amason, C. Allen 2011).

Differentiation goes through numerous paths, such achieving superior quality, innovation and customer

responsiveness. Quality can be presented in different ways, i.e. high pricing, durability, sustainability and

special features. Examples of quality-based differentiated products are Rolls Royce and Mercedes cars,

and Blackberry mobile services.

Innovation is another path that is achieved by exerting the effort, possessing the know-how and the

ability to think outside the box to create an unusual product or service. Some think that innovation is

about creation of a brand new product, but others propose that it can be achieved by creating new ways

to present an existing product, or launching a new advertising campaign (Investopedia 2011).

Last but not least is responsiveness, which is very important in building strong customer relations

(Jeffs, Chris 2008). That goes through different stages, such as accuracy in defining customer’s

requirements, speed of response, and delicacy and decency in the relation. A disability in achieving all of

these stages can form a serious threat, and may lead to losing the customer.

Differentiation is not only a business request rather it should become an attitude for life. A person must

work hard to be different and gain value in society. This is achievable through continuously improving

knowledge, behaviors and attitudes; a proper use of talents; and aligning them to our personal vision

and mission for life.

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7- Vertical Integration

A firm is said to be vertically integrated either, when it produces its own inputs, and this is known as

backward integration; or when it disposes its outputs to a retailer or distributor

(Hill, Jones, Galvin 2002), that is forward integration. This strategy can be applied fully to the inputs and

outputs of an organization, hence leading to full integration; or adopting partial application to either

inputs or outputs, and then leading to taper integration.

A determinant of vertical integration is technological economies; as fewer inputs may be required from

the upstream processes to produce the same output in the downstream process. Another determinant

is the transactional economies; these result from the costs associated with the process of exchange of

goods or services to overcome market imperfections. Finally, vertical integration can arise from market

imperfections, such as those resulting from competition, externalities or asymmetric information

(Kerry, Martin 2008).

As well, vertical integration plays a role in creating a value for an organization; that is through building

barriers to prevent incumbent and new rivals reach the same position in the market, which is possible by

implementing either backward or forward integration; controlling product quality by gaining control on

the upstream processes, through controlling and protecting the knowledge of creating the product;

avoiding the risk of holdup that may arise from the lack of trust in the partner; and improving scheduling

resulting from ease of planning and coordination.

Recently, the usefulness of vertical has been argued and opinions about its effects on cost structure and

performance at the line-of-business level analysis. Major debates are that vertical integration, control

economies of scope and scale; though economizes the costs of an organization’s activities such as

marketing, R&D and administration but has higher production costs thus profit is marginally better than

non-integrated companies (D’Aveni, Ravenscraft 1994) .

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8- Diversification

Diversification is the technique that mixes a wide variety of investments within a portfolio in order to

lower the risks that can be associated, by neutralization of the negative performance of some

investments through the positive performance of others, thus yielding to higher returns

(Investopedia 2011). Diversification can take place within the existing business domain, hence called

related; or into a new business field, and then called unrelated.

Multi-business firms that follow a related diversification strategy are known to gain efficiency

advantages on those which are not diversified or have unrelated portfolios. Related diversification

requires that the new business either is a substitute or complementary to the existing one ; for example,

in the automobile industry, a firm can decide to start a production line either for a different class of cars,

or for producing spare parts . But, under what circumstances do such similarities give efficiency

advantages? Researchers suggest that the absence of contractual and transactional difficulties can

allow two separate firms to share inputs, facilities, or any other resources for achieving the economies

of scope (Klein, and Lien 2002).

Substitutability and complementarities do not apply to unrelated diversification. But, can it still be an

efficient or it is just a form of empire building? Williamson in his hypothesis suggests that efficiency may

come from different sources; such as, ease of information access to the headquarter (HQ); managers

within a firm prefer to reveal information to HQ than outsiders; HQ can make marginal changes to

divisions, therefore intervening selectively; as well, it can redeploy assets of the poorly performing

divisions (Klein, and Lien 2002).

I used to work in an organization that follows unrelated diversification. Divisions included medical

equipment, telecom products, automobiles, geotechnical services, IT consultancy; and that organization

was known to make the biggest profits in the country. I believe diversification has many advantages, but

still requires a highly experienced senior management, and a strong board of directors to implement to

put operations in control.

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9- Globalization and Benefits

In the new world, the need of shareholders for growth and increase of wealth is turning to be an

obsession. Many local players have the intention to move outside their home countries but the step yet

is tempting, but requires deep knowledge of the paths and attributes that will allow an organization to

survive the ruthless competition in the global market.

An organization to survive should consider three essential requirements in its step outbound the

domestic market. First is possessing strong national attributes; such as the costs of hiring skilled labor

and implementing a strong infrastructure, in addition to the existence of sophisticated local customers.

Second is the ability of the organization to respond to the pressures of the target market by serving

either the similarity or differences in the market’s taste, infrastructure and governmental regulations.

Third is by analyzing the external business forces revolving around the industry globalization drivers and

ways to make a business global; and measuring the internal organizational competencies

(Yip, Loewe, and Yoshino 2002).

Corporate managers in entering a new global market should consider important factors, such as choice

of market, timing and the scale of business. An example is the “Subway” food chain. Early in the past

decade Subway opened many branches in Egypt, and did great marketing campaigns, but suddenly they

shutdown of the chain. A few years later, Subway re-established only few branches, and customized

their product up to the customer’s preference, and turned previous failure into significant success.

Benefits of globalization is an everlasting argument, some perceive that it is taking the money of local

economies and putting it to the global one (Thekaekara, 2002), and increasing poverty as it is affecting

the power of agriculture as a major earning source for the poor (Low, Linda 2001). Others see that it is

essential as organizations carry responsibility towards global economics, through increasing job

opportunities and hence enhancing the standards of living.

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10- Organizational Design

Organization design is the process of selecting a combination of organizational structure and control

systems that are necessary, to allow the company attain and sustain a competitive advantage in the

industry. The importance of that design lies in maximizing the effectiveness, by which the company’s

activities are run; and motivating employees and enhancing their morale in order to achieve superior

efficiency, quality, innovation and customer responsiveness (Hill, Jones, and Galvin 2002). Three major

components that build up an organizational design are: Organizational structure, Control Systems and

Organizational Culture.

Organizational activities need to be structured through coordinating the activities of various functions to

exploit fully their skills and capabilities; that is through vertical differentiation which is choosing how to

distribute authorities and responsibilities through a certain hierarchy in order to best control the value

creation activities; Horizontal differentiation is another step, and that is the process of dividing people

and tasks into functions and divisions to maximize their potential in creating value. Finally, integrating

mechanisms, which role is to increase the level of integration as differentiation increases; that is

achievable through cross-functional teams that work on common problems.

Control systems are another vital component, as they are the tools to assure that organizational plans

and behaviors are in control. To make it achievable, standards and targets must be clearly articulated,

monitored, and evaluated. Control systems may include board members and other corporate-level

managers.

Organizational culture though is discussed separately in some literature, I perceive it as a part of the

control systems, or at least it shares a mutual role with them. Spreading a culture through leadership

and reward systems whether they are financial or motivational, along with the management’s

manipulation skills, would surely play a major role in putting strategies and behaviors in control, and

achieve competitive advantage.

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References

Academic:

A. Lynn Daniel, 1992, “Strategic Planning: The Role of the Chief Executive”, Long Range Planning, 25 (2), 97-104.

Amason, C. Allen. 2011. “Strategic Management from Theory to Practice”. New York: Routledge.

D’Aveni, A. Richard ; David J. Ravenscraft. 1994. “Economies of Integration versus Bureaucracy Costs : Does Vertical Integration Improve Performance?”. Academy of Management Journal, 37(5). 1167-1206. http://www.jstor.org/pss/256670

Hill, WL Charles, Gareth R. Jones, and Peter Galvin. 2002. “Strategic Management: An Integrated Approach”. Australia: Wiley and Sons.

Jeffs, Chris. 2008. “Strategic Management”. Los Angeles; London: SAGE.

Jeyarathnam, M., 2008. “Strategic Management”. Mumbai: Himalaya Publishing House.

Kerry, K. Martin. 2008. “Vertical integration: determinants and effects”.

Klein, G. Peter ; Lasse B. Lien. 2009. “Diversification, Industry Structure, and Firm Strategy: An Organizational Economics Perspective”. Advances in Strategic Management, 26 (1). 289-312.

Low, Linda. 2001. “Globalization and Poverty reduction: Can the Rural Poor Benefit from Globalization?”: An Asian Perspective. 1-13.

Marnet Oliver. 2004. “Behavioral Aspects of Corporate Governance”. Advances in Financial Economics. 9 (1): 265-285.

Mary Klemm, Stuart Sanderson, George Luffman, 1991, “Mission Statements: Selling Corporate Values to Employees”, Long Range Planning, 24 (3), 73-78.

Teece, J. David. 2009. “Dynamic Capabilities and Strategic Management”. Oxford ; New York: Oxford University Press.

Thekaekara, Stan. 2002. “Globalization: who benefits?”. Growth: The Celtic Cancer (2). 110-113. http://www.feasta.org/documents/review2/thekaekara3.htm

Yip, S. Georg; Pierre M. Loewe; Michael Y. Yoshino. 2002. “How to Take your Company to the Global Market”

Non-Academic:

Applied Corporate Governance. 2009. “Best Corporate Governance Practice”. http://www.applied-corporate-governance.com/best-

corporate-governance-practice.html

Business Dictionary. 2011. “Product Differentiation”. http://www.businessdictionary.com/definition/product- differentiation.html

Financial Reporting Council. 2008. “The UK Approach to Corporate Governance”. http://www.frc.org.uk

Harvard Business School. 2011. Michael E. Porter, Biography. http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=bio&facEmId=mporter

Ivestopedia. 2011. “Product Differentiation” http://www.investopedia.com/terms/p/product_differentiation.asp#axzz1bsTbt200

Investopedia. 2011. “Diversification”. http://www.investopedia.com/terms/d/diversification.asp#axzz1c3H9pTcv

Learn Marketing. 2011. “Porter’s Five Forces Model: Industry Analysis Model”. http://www.learnmarketing.net/porters.htm