Business strategy refers to scope and direction that an organization is planning to take in the process of achieving organization goals by use of resource configuration available in the challenging environment (Janis 1982, p. #). These strategies occur at different levels within an organization. Corporate strategies, for example, are concerned with the stakeholders’ expectation through the business purpose and scope as defined by the organization mission, vision and statement of purpose (Daft 1998, p. #). These strategies are influenced by the investors and form the basis of making strategic decision. Business unit strategies focus on how the businesses compete in the market. Such strategies examine the customer’s needs; focus on creating and exploiting opportunities, outmatching the competitors, choosing the products among others (Johnson et al. 2002, p. #). How well the corporate strategies and business unit strategies are able to agree on the strategic direction depends on how well the operation strategies are made. To have convergence of strategic direction a healthy strategic management should exist and take place through the components shown below.
Either of these components, however, depends on the environment, organization structure and design integration. The scope of this paper will be to evaluate how these factors may effectively integrate or otherwise be helpful in designing of the organization’s strategies.
Organization structure refers to the activities such as supervision, task allocation and coordination in a way that helps to achieve the organization goals. L’Oreal Thailand had three divisions based on the products they focused on. The design of the organization should distinctly set the following parts: top management and middle management, technical core, administrative support and technical support. Among the following parts, the company must formulate policies that help them to interact effectively in line with the organization’s goals. The policies should provide boundary spanning; define the functions of production, maintenance and adaptation (Burns & Stalker 1962, p. #).
The culture should be flexible to meet the ever dynamic needs of the market. The culture of a company is to encourage innovations and creativity to bring about changes when necessary. At the beginning L’Oreal Thailand obtained innovations through licensing and contracts with firms in Japan. Currently such strategies are indispensable in electronic, ecommerce and cosmetic industries. The culture may be as result of emphasis on the organization visions, especially where there is more focus on profit and competitiveness. Sometimes the focus may be on meeting the employees’ need resulting to clan culture. It’s done where the organization believes that employee satisfaction is the course to better performance. Bureaucratic culture may exist, but it results to reduced response to external environmental changes.
One part of the organization design relates to the structural dimension. It is concerned with the internal features of the organization and forms a ground for comparing the organization with others in the industry, and also measuring performance. It is mainly contained in the organization’s mission statement. The rules that that govern the company hels the different activities to be aligned to the objectives of the organization and, hence, effectiveness in the strategic direction (Mintzberg 1979, p. #). Another aspect of the structural dimension is the specialization levels in different subdivisions of the organization.
Specialization in organization may be in the basis of function, divisions or matrix in nature. In a functional structure specialization is based on specialized set of tasks. This improves the efficiency in an organization and, hence, working to meet the goals. However, this specialization may work against strategic direction in the sense that it may act as a barrier to effective communication between functional groups (Daft 1998, p. #). It suits where there is production of standardized products in large scale and, hence, low costs. There is also a need to have centralized coordination and specialization for the functional groups. Sometimes, however, inefficiency may also arise as a result of vertical integration. Sometimes the structure may be on divisional bases. The division may be based on product and geographical basis. For example, an automobile company may have a division structure of subcompact cars, division for SUVs and sedans division. L’Oreal’s divisions are based on products into luxury, consumer and professional. Some companies may also choose to have matrix structure to avoid the disadvantages associated with exclusive use of functional or product structure. However, the responsibility given to the manager differs (Porter 1980, p. #). It’s limited in case of weak functional matrix; balance where the authority is shared between the project and functional manager. The matrix may give strong authority over the functional manager. Thought it is the purest method to meet the organization’s goals, it may result to disagreements that work against the strategic direction.
The organization hierarchy of authority is intended to benefit the organization by ensuring managerial integrity. It defines the accountability path, hence, prevents the risks in the organization. However, it may counter strategic directions if such hierarchical authority is used in pointing fingers, accusations and instilling fear to junior staff. Martin, the managing director of L’Oreal is seen to provide good governance through the series of meetings that they hold. Competencies are necessary in the different levels of hierarchy. Hierarchy also creates a career path, which the junior staffs have to understand to know corporate ladder that they may take. As a way of meeting the strategic goals, managers may use the career path as a way of employee motivation. Management of L’Oreal encourages sharing of best practices and team work that creates motivation. Hierarchy also creates a basis for developing efficient and effective communication paths for the departments, employees and divisions. This may contribute much towards the strategic directions, but the problem would arise if delegations are done inappropriately, hence, creating problems in execution of responsibilities. Sometimes there exists centralization in decision making which may work well in terms of decision making, but may limit achievement of organization goals if enough consultations are not made.
Business leaders all over the world are concerned about the technology and the transformation that it brings to the organization. Advent of personal digital assistants, personal computers, mobile technologies personal productivity software has transformed the technologies that firms used to use. The available technologies have changed how the organizations conduct their business. Technology has improved productivity, efficiency and knowledge for the workers. L’Oreal seeks to hire and retain individuals that may help to advance the technology in the organization.
However, it’s sometimes difficult to manage technologies. For example, depending on the position the organization is in the product life cycle, it may have limited finances to invest in sophisticated technologies. The culture of the employee may also determine their responsiveness to technology adopted by the organization. However, the greatest challenge is the right time to invest in a certain technology, because of the constant changes that are witnessed in the market. The worry is that technology adopted today may become rudimentary any time soon. Phasing out the present technology and substituting it may be also difficult
The external environment of an organization refers to factors that cannot be controlled be beyond the control of the organization. They may relate to raw materials, financial resources, technologies, market, human resource, socio-cultural, government, international and economic conditions. The external environment can be stable, unstable, simple or complex. These factors affect the level of uncertainty. Previously, the Thai government restricted foreign investment by requiring a substantial ownership by Thai people. Upon abolishment of such policy, it was easier for L’Oreal Thailand to operate. The import duty was also high in Thailand and to counter this, Lindsay, chairman and C.E.O L’Oreal group, opted to form a fully owned subsidiary. The regulations in Thailand that relate to food and drug administration of cosmetics are bureaucratic and complicated operations.
L’Oreal Thailand faces stiff competition from local firms that are also protected by the government. The major International competitors include Uniliver and Procter & Gamble (P&G). The extent of competition varies among different industries (Daft 1998, p. #). The strategies adopted by the firm could be low cost or product differentiation to be able to benefit. However, their success depends on the status of the industry. For example, a counter response in case of price competition reduces the benefits realized from the low-cost strategies. However, such a strategy may be fruitful if the company is in its maturity stage and is able to enjoy economies of scale. In such a situation, the other competitors may not be able to match the low prices for the products produced. Low cost strategy is also reinforced by the technology that the firm is able to adopt in its production (Pugh 1990, p. #). For example, Boeing has embarked on technologies that will help it to reduce the fuel consumption by air planes. Sometimes to contain competition, managers may chose to employ corporate strategies such as acquisition to reduce the level of competition. A good example of this is Hanson PLC company which in its growth strategies adopted acquisition technique. This made it secure against any possible threats of new entry. Sometimes, companies may focus on improving the value chain to gain competitive edge. This is a technique that has been employed successively by Dell Company in personal PCs. L’Oreal Thailand focused on brand management in a specialized way, such that it was able to outperform its competitors in beauty products.
Product differentiation is a competitive strategy that is used to make products different from those of the customer and trying as much as possible to appeal to the consumer tastes. L’Oreal Thailand realized that barrier in communication with the customer was one cause of low sales, hence, resulting to accumulated stock, for example the one that was accumulated between 1996-1998. They had to increase the stock keeping units so that the diversified tastes in the market would be catered for. This resulted to immediate increase of sales by 40%. The problem, however, is that any differentiation may require adjustment to technology in use which may be expensive and is even more difficult for companies in start-up stages. The industry may also be unstable as a result of philosophies and cultures of some industries. A good example is hospitals; some of them are charitable organizations in universities or affiliated to religions, while others for profit making. Such philosophies will have to affect the decision making of each other. Suppliers in the industry also affect the performance of the firms operating in the industry. In case suppliers have monopoly powers, then the raw materials may be costly. The cost of energy also is very unpredictable. This is especially where petroleum products are used.
The labour market also has its contribution to the strategic direction of the market. The quality of human capital that an organization can access in the market influences the cost of training to be conducted upon recruitment, and also the labor’s productivity (Daft 1998, p. #). In the start-up, the greatest challenge that L’Oreal Thailand experiences relates to inability to access quality labour and also retaining those who have got the skills. In its advancement strategies, it sets two parts in Human Resource to address the issue of hiring, training and retention. Some markets, however, have strong labour unions with immense bargaining power which increases uncertainty in the market as far as the labor costs are concerned. In case of a large industry, companies may be able to outsource qualified staff from other firms in the industry and can also absorb cheap labor from firms that are restructuring through retrenchments.
Healthy sources of funds make it easier for companies to develop. The companies also gain reputation if their shares are performing well in the stock market. In such case, it may raise new capital from issue of shares, because investors are already interested in the company. However, poor performance of the shares may make difficult to raise more capital from investors. Losses made by L’Oreal Thailand make it difficult to access fund. It makes it difficult for the company to approach their headquarters in Paris, because of having consistently making losses. Growth is also supported by the banks and insurance companies that exist in the market. Government monetary regulations may, however, limit or facilitate growth through interest rates. Regulations regard patent rights, intellectual property rights protection, legal system in the country and taxation. The economic conditions in the market may be in favor or limit attainment of the organization’s strategies. The major factors determine the uncertainty in the market relate to economic cycles, inflation rate, unemployment and exchange rate. This may force the organization to get into some derivative arrangements to hedge against the risks.
Conflicts result from disagreement between different groups in the organization. Where there exist close interaction among people, conflicts are almost an inevitable phenomena. In an organization conflicts are as result of frustrations, different group identifications physically observable group differences (Daft 1998, p. #). The management should be able to come up with rules to harmonize incompatible goals. This may be achieved through some centralization of authority, such that conflicts resulting from which product to be produced, inventory levels, quantity and quality among others. The conflicts that may exist among managers, should be handled by making clear policies in the organization. They policies should, for example, define the values, behavior standards and attitude that should be upheld within the organization. Where there exists interdependence between different divisions, the decisions on resources and communication among other interdependence should be overseen by a senior manager.
The power in organization refers to the ability of a department or individuals to influence others so as to bring about their desired results. The power could be legitimate as provided by the organization structure. It may also give one the ability to bestow rewards to others. This can be controlled by ensuring there is transparency and clear process of rewarding. The power may also relate to the skills possessed, for this to be more beneficial the organization should practice job rotation to have the knowledge shared. In case of authority to punish, there should be clear policies to decide when to punish and what kind of punishment for which acts. Referent power should be controlled by use of the organization’s rules and policies. Martin tries to break the tribes between different divisions in L’Oreal by creating a sharing forum through constant messages. The training conducted upon employment also helps to reduce differences that may create disagreements.
Politics in an organization result from existence of great goal differences, organization groups and great diversity in interests. They characterize the organization with inconsistencies, decentralization due to group interests, disorder, and ambiguity due to withheld strategies and used information. Such politics make the decision making difficult due to diverse views. The politics, however, may be beneficial if used negotiation and bargaining to create convergence of opinions. The politics are clearer in management succession, structural changes and resource allocation. The management should identify loyal individuals to help to drive the organization goals. A framework should also be established to form decision premises. It is also important to evaluate formation of multiple goals, subordinate goals may be used to suppress the differences.