Johnny Elie Chamata PPM 641

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

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Contents
Cover page 1 Contents 2 Mission Statement . 3 Corporate Governance 4 Porters 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- Porters 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 organizations 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 couldnt stay in the market for a few months. At that time I wasnt able to define the reasons of failure; but now as I am aware of Porters 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 everybodys responsibility, always starting with the senior management. The significant effort made by the companys personnel, in addition to a strong sense of direction inspired by managers should lead to either reducing the organizations 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 companys position in the industry. The reaction of an organizations 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 patients 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 persons 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. Page | 7

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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 customers 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 organizations activities such as marketing, R&D and administration but has higher production costs thus profit is marginally better than non-integrated companies (DAveni, 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. Page | 10

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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 markets 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 customers 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 companys 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 managements 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. DAveni, 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/bestcorporate-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. Porters Five Forces Model: Industry Analysis Model. http://www.learnmarketing.net/porters.htm

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