Term Paper on Strategic Planning

(First 3 Pages)

There are several aspects that an organization should consider in order to strategically manage its relationships with its stakeholders. These include: being an agile competitor; building buyer/seller relationships; strategic partnering; and concentration on value chain Relationships that generate competitive advantage. (Hax, A. C. & Majluf, N. S. 1996)
Being an Agile Competitor refers to the ability of an organization to thrive in a highly competitive global market with continuous and unanticipated change. The demands placed on organizations require them to be configured in a manner that promotes high-performance, high-quality and low-cost products that meet the needs of the customer. An agile company integrates design manufacture and marketing support for its products and services into customer centered business processes. The time and costs associated with new product development and launches are dramatically reduced. This allows such organizations to be flexible to customers' needs, and enables rapid entry and exit into new markets. (Stone, Ed.)

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Building Buyer/Seller Relationships refers to the relationship between buyer and seller where both are able to peruse long-term competitive improvements, which may pertain to market share, growth and profitability and risk reduction. Several organizations like Kraft, Kodak and Motorola have negotiated key agreements with selected suppliers in order to create value. The advantages for Kraft, Kodak and Motorola include: (1) cost savings in manufacturing and labor costs; (2) improved quality; and (3) reduced lead-time and inventory reductions. For the supplier, there are also benefits, including: (1) having contracts that guarantee cash flow over a period of time; (2) maintaining a stable workforce because of regular customers; and (3) having 'inside' information on buyers' decisions. (Hill, C. W. & Jones, G. R., 1992)

Strategic Partnering refers to the relationships that an organization could form with its customers, suppliers and competitors in order to promote market share, growth and profitability and risk reduction. Buyer/Seller relationships are a form of Strategic Partnering, but only concentrate on the aspect of the strategic relationship that relates to buyer and seller. The Strategic Partnering relationship can encompass buyers, sellers and competitors. For instance, General Motors and Fujitsu are competitors in most markets, but they entered into a relationship to manufacture robots. (Because General Motors was unable to learn the required skills, it now does little more than distribute the robots (Lei and Slocum, 1991).)

Value Chain relationships generate competitive advantage: the value chain for any firm is "the value creating activities all the way from basic raw material sources from component suppliers through to ultimate end use product delivered into the final consumers hands" (Shank and Govindrajan, 1993). Firms can concentrate on the value chain to generate competitive advantage. Competitive advantage in terms of products and services takes two possible forms (Porter, 1985). These include a cost advantage and a differentiation advantage. A low-cost advantage allows customers to gain as companies charge a lower average cost relative to competitors. The differentiation advantage allows firms to charge customers a higher price relative to a competitor because of attributes in the product or service. Firms like Ford, Canon, General Motors and Siemens examine value chain relationships and coordinate similar value creating activities in factories globally to generate sustainable competitive advantage.

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Ford and DaimlerChrysler are clearly more profitable than any other carmakers in the world in absolute dollars, and they show a higher net profit margin than any competitor except Honda. But that's not the end of my comparison. When I compare two companies to see which one is better, I take two different slices of the data. First, I like to look at trends over time. It's a good sign that Ford shows steadily increasing net profit margins that rise from 3% in 1996 to 4.5% in 1997 to 5.6% in 1998. (I have corrected Ford's net profit margin in 1998 to exclude one-time gains from the sale of assets.) But Toyota hasn't been standing still during this period -- its profit margin goes from 2.4% in 1996 to 3.2% in 1997 to 3.9% in 1998. That's particularly impressive given that Toyota's home market of Japan is going through a deep recession, and sales in Asia as a whole could hardly be called robust. (Lerner, A. L., 1999)

Second, I like to try to normalize the numbers so that I'm comparing companies at similar points in their business cycles. Ford's home market is booming with car and truck sales near recent highs. Toyota's home and Asian markets are in the tank, and in the U.S., the company's sales have suffered because until the launch of the Tundra, Toyota did not have an entry in the hot full-size truck segment. Go back to 1990 or 1991, when Ford and Toyota's home markets were more in sync and look at the margin numbers: 4.4% for Toyota in 1991 vs. -2.6% for Ford; 4.8% for Toyota in 1990 vs. 0.9% for Ford. From these comparisons, I'd have to say that while it appears Ford has made real progress at closing the gap with Toyota, the data suggest that the gap still exists.

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