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Executive Summary
In this article, the many concepts and management philosophies about strategic supply chain management will be applied towards an automotive company from Malaysia, namely, Proton Holdings Bhd (“Proton”). The applications of supply chain management is particularly relevant for the company because as a manufacturing companies, the government-related automotive company is facing a higher production or manufacturing costs; while at the similar time, lower quality cars. Before the relevant suggestions on specific supply chain management strategies are discussed, the importance or roles of efficient and strategic supply chain management are illustrated. Then, viable recommendations on how the company should move forwards in the ever globalized and competitive world will be discussed. The impacts from following the recommended strategies will also be outlined. As a concluding remarks, the importance of supply chain management to Proton will be reiterate, and it is argued that without serious attention and efforts being paid to strategic management of the supply chain, Proton will never able to compete with other more powerful and reputable automotive companies around the world.
Introduction
Proton is the Malaysian government linked automotive company, which is struggling hard due to intense competition of the global automotive industry, despite the company is obtaining a lot of governmental protection and supports in the past (Chacko, 2006). There are a lot of issues faced by the company, in which if unsolved, may threaten the long terms growth, profitability as well as survival of the company in the ever challenging industry and globalized world. Firstly, the company is too small in scale, if compared to other big automotive and established multinational corporations such as Toyota, Honda, Ford, General Motors and etc (Ahmed et. al., 2008). This is causing the company to lose out in terms of economies of scale. Secondly, the company is not having efficient and high quality management of supply chain management practices. As such, the costs of every vehicles produced by Proton is costly (Economist, 2005), and worst, the quality is significantly below average when compared to other leading automotive (Burton, 2005). Thirdly, in the increasingly globalized world, there are talks that Malaysian government is forced to provide lesser support to the company in the future, while ASEAN free trade agreement is forcing the government to lower the tariffs upon imported cars (Jayasankaran, 2004). Apart from that, the company is also struggling to return to profitability, after years of financial losses (Burton, 2007).
A viable and strategically relevant supply chain management for Proton is urgently needed, considering so many unfavorable factors threatening the survivability of the company in the future. In fact, in the ever globalized and competitive business landscape, competition is no longer between companies or corporations, but between supply chains. In order to lower the costs while at the similar time improving the quality of products produced by Proton, the management shall look seriously into viable supply chain management strategies and techniques for growth, profitability, and ideally, successful global expansion in the future.
Roles of Strategic Supply Chain
There are many important roles of an efficient supply chain for any organization. In fact, particularly in the automotive industry, the management of supply chain is often the source of competitive advantages for an automotive company (Tippayawong et. al., 2010). Firstly, an efficient supply chain enables a company to lower the production costs. This is because all of the unnecessary wastes can be eliminated through the continuous improvement process. Then, when the supply chain had been optimized (Quah et. al., 2010), the production process can be streamlined and the many procedures and process in the value chain can be adjust accordingly. Setup time can be reduced, and thus, the time taken for the production of every unit of vehicle can be shortened. In the context of the automotive industry, this means that every different car models can be introduced to the market at a shorter time frame. Thirdly, when the supply chain is optimized, the many defects or production problems can be identified, as the manufacturing process is lean (Bonin et. al., 2010). All these mean that the quality of the end products can be enhanced. In other words, with an efficient supply chain, Total Quality Management in an organization is possible (Vanichchinchai et. al., 2011). Fourthly, the inventory level in an organization can also be reduced. Consistent with that, the storages costs can be minimized, and that would means higher profits or returns for the shareholders or more capital for reinvestment in the company in the future. Lastly, the adoption of strategic and efficient supply chain managements means the adoption of many state of the arts management philosophies, such as lean manufacturing, just-in-time, continuous improvement, kanban, kaizen, and Total Quality Management (Mann et. al., 2010). All of the concepts and philosophies are crucial to enhance customer satisfaction, and in the long run, enable a company to build up strong reputation and brand name in the competitive industry landscape (Khan et. al., 2010). In the long term, a successfully and efficiently managed supply chain will enable a company to attain competitive advantage as well as growth and profitability in the future.
Recommendations
A review of the Proton situation found that the company is seriously losing out from both the costs and quality factors when compared to the larger automotive manufacturers. However, the single advantage of the company is its ability to obtain protection from the Malaysian government. From the strategic supply chain management context, there are three options for the company, which include: low cost strategy, responsive strategy as well as differentiation strategy. Among all of these strategies, only the low costs strategies are viable, because the company is seriously lacking of technical competencies when compared to the other well-established manufacturers. Although low costs strategies may not enable the company to compete with the cost structure of the bigger manufacturers with truly efficient supply chain and economies of scale, the company does have certain advantages. For example, due to geographical factors, the company can aim to serve the low costs segment of the South East Asia countries. As such, it is argued here that Proton should apply low cost strategies to prepare for potential pricing competition from other auto manufacturer when the Malaysian government reduces the tariffs or quota for imported cars into the country.
In order to apply a low cost strategy, it is crucial for the company to choose the most efficient suppliers for the vehicles parts. In order to do this, it is crucial for the company to choose the most reliable and lowest cost suppliers for the parts required in the car manufacturing process. Strong partnerships are important, and the suppliers must agree to adjust the process flow together with Proton so that truly efficient supply chain can be made. In return, Proton shall agree to long term sourcing for the few vital suppliers for vehicles parts in the future. Sharing of information is crucial and should be encouraged. All these are crucial for lowering the costs structure of the vehicles produced, while as the similar time, to reduce the inventory level across the supply chain.
The lean manufacturing or waste management philosophies should also be applied. Under such a theme, management should be aware on the wastes incurred in the manufacturing process, and through a customer centric paradigm, any non-value adding process or value offering should be eliminated. This is consistent with the low costs strategies to be adopted by the company. Besides, lean manufacturing should also be implemented for relevant cost reduction. The seven wastes concepts can be applied, whereby from time to time, the potential wastages can be analyzed and investigated. Employees shall be educated on how to reduce wastages in the corporations; and through the continuous efforts, cost savings can be tremendous.
Besides, consistent with the increasingly educated and environmentally conscious consumers, it is crucial for Proton to adopt green supply chain manufacturing practices. This can be crucial to improve the corporate reputations, as well as to exercise the Corporate Social Responsibilities in the context of CO2 emissions and containment of global warming issues. For example, the procurement, the logistics management as well as the product design should incorporate the useful ideas related to sustainability and green manufacturing practices. Creativity and innovation could be very important to define the value offering consistent with the sustainability and green movement (Mollenkopf et. al., 2010). One good example is the development of hybrid vehicles or petrol saving vehicles (Soylu et. al., 2010). Not only such products are beneficial to the consumers, they could be beneficial to the environment as well. Under the increasingly soaring oil prices in the recent years, it can be seen that the demand of hybrid, or petrol and energy efficient or savings vehicles are becoming more popular. Overall, by being innovative, and ability to deliver the environmentally friendly and yet costs savings vehicles to the market place, the company can slowly gain reputation as well as enjoy potentially positive financial rewards for the new and timely value offering to the marketplace.
Impacts of Efficient Strategic Supply Chain
From the applications of the recommendations suggested in the section above, the direct implication is that Proton shall be able to enjoy significant costs savings from a more efficient supply chain. The relationships with vital suppliers can be strengthened, whereby both Proton as well as the partners can be mutually benefited. From the lean manufacturing practices, extra financial resources can be churn out, and that will also prepare the company to face with increasingly competitive and pricing cutting business environment. Besides, the company can gain better reputation, as the costs are lower down, and the financial resources can be better spent on other areas, such a product and development, or marketing purposes. In the long run, the company will be able to return to profitability, and with stronger financial muscle, the company can then expand globally, to further enhance the economies of scale. By adopting the strategies mentioned above, it is also possible for Proton to derive better financial performance, such as higher return on equity, return on assets and faster payback period. Overall, the many shareholders can be rewarded. The growth of the company can be ensured and all these will enable to firm to survive in the challenging industry landscape even without government support in the future.
Conclusion
Overall, for Proton, and any other automotive companies, it is managerial imperative to adopt efficient and strategic supply chain management to become relevant and fit in the new era of globalization. The entire industry is in the mature stage, and companies shall adopt the best business model, by focusing on relevant supply chain management to compete with other networks of companies. The management concepts and philosophies of supply chain are well-recorded, and it is up to the management to find the best strategies that fit their organizational and situational context. The importance of an efficient and well-defined supply chain is nothing complicated to understand. As discussed above, the associated benefits from well-formulated supply chain include: lower costs, better product quality, better inventory management, better customer satisfactions, faster setup or production time, and in the long run, better reputation and enhanced brand equity of the organization in the marketplace. For Proton, all of these benefits are what the corporation required. There is no better way for the company to achieve these unless with serious attentions on how to make the concepts related to supply chain management work in the organization.
References
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BusinessEssays.net
Monday, July 2, 2018
Sunday, July 1, 2018
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A STRATEGIC ANALYSIS FOR MERCEDES-BENZ
0
Introduction
In this article, a comprehensive company research will be performed for the Mercedes-Benz company. The article is arranged as follow. Firstly, the background of the Mercedes-Benz will be introduced. Then, relevant theoretical framework to analyze the company’s macroenvironment situation will be performed. Later, the automotive industry nature will be investigated. The article will then focus on the firm’s specific strategies and by using the SWOT framework, to deliver probable strategies for the company. The article end by providing several recommendations for the firm to achieve strong financial performance in the marketplace.
Background of Mercedes-Benz
Originated from a German car manufacturer, Mercedes-Benz is currently a manufacturer of various types of automotive, including buses, coaches, and trucks. Currently, Mercedes-Benz had become a division under its parent company, namely the Daimler AG group of companies. As early as 1901, the vehicles manufactured by Mercedes-Benz were marketed by Daimler Motoren Gesellschaft. Since then, the company has been introducing many technological advance and safety-oriented innovations that have become popular in the automotive industry. The company is a popular and branded one in the automotive industry – it is one of the most popularly known automobile company in the world, not to mention that it is also one of the world’s oldest automotive brand that are still in existence today (Bossink & Blauw, 2002).
Regarding its parent company, the Daimler AG group of companies is engaging in developing, manufacturing, distribution and sale of a variety of automotive related products – particularly in the passenger cars, trucks, vans and buses segments. There are five business segments under the parent company, namely: Mercedes-Benz Cars; Daimler Trucks; Daimler Buses; Mercedes-Benz Vans and Daimler Financial Services. Today, the company establishes its main operations and has significant market shares in the US, Germany, Western Europe, as well as Asia Pacific regions (Hessenberger et. al., 1997).
External Environment Analysis
PESTLE Framework for Macroenvironment Analysis of Mercedes-Benz
It is important for any analyst to carry out a comprehensive analysis on the macroenvironment before the various relevant and viable strategies can be formulated for Mercedes Benz. In order to analyze the macroenvironment the company is operating in, the PESTLE framework will be used. As the company is operating on a global scale, the relevant macroenvironment analysis will be focusing on a worldwide context. In the following paragraphs, the six factors to be discussed include: (a) political factors; (b) economic factors; (c) social and cultural factors; (d) technological factors; (e) legal factors; and (f) environmental factors.
Political factors. From a worldwide view, the political issues related to the automotive industry is complicated and complex. The political issues arising from the Western world is less of a concern for the leading car manufacturer because many of the leading car manufacturers are originated from the Western world. However, the political forces from the emerging countries are more complicated (Bossink & Blauw, 2002). Rules and regulations are generally set up to protect the car manufacturers from the emerging countries, to imposes extra taxes and tariffs against the car manufacturers from the other countries, and to demand the leading car manufacturers to shift their manufacturing plants and technologies to the emerging countries before these car manufacturers are allowed to penetrate the marketplace in the emerging markets (Apfelthaler et. al., 2002).
Economic factors. Currently, the entire world is seemingly entering into an economic era of turbulent and volatility. After the housing and financial crises happening in the United States as well as the Europe, the world had entered into a temporary recession. Although many of the emerging countries able to recover in a satisfactory pace, the economic picture and prospect of the world in the future will still be turbulent. This will definitely affect and impact the operations and marketing strategies of the leading automotive manufacturers around the world. Besides, it is also worthy to mention that the automotive industry has a huge multiplier effects on the economy of a particular country. In fact, there are researches indicating that the automotive industry is one of the major industry that consume a large volume of computer chips, steel, iron, copper, textiles, plastics, rubber and etc. It is even argued that in every one workers being employed in the automotive industry, there are seven other jobs being created in the other industries.
Social and Cultural factors. It cannot be denied that in every part of the world, people do have their respective social and cultural practices and beliefs. For example, the culture in the East and the West is significantly different. The cultural differences are something not to be neglected by the automotive manufacturer. Nonetheless, due to the globalization effects, the culture and consumers behaviors are seemingly becoming similar around the world. Be it in the developed or the emerging country, people nowadays are judging others based on the types of car that they are driving. Anyone who able to drive a high class vehicle is often considered as wealthy, noble and powerful (Jackson, 2001). In fact, consumers may simply feel better and become more confident when driving a good and nice car. Nobody in fact just want to be seen driving in a piece of junk metal. However, the consumers’ preferences on the style of car and the design of the vehicles may differ across the globe.
Technological factors. It is obvious that technological advancement is a critical and important element not to be ignored by the various automotive manufacturers. In fact, to capitalize on the newly discovered and designed technologies are the methods or strategies utilized by car manufacturers to achieve competitive advantages in the marketplace. Apart from that, another technological change that will affect the automotive industry seriously is the advancement of the internet. In fact, the internet is impacting various industries around the world. Such a trend is not something that can be ignored by the car manufacturers. For example, there are studies indicating that a total of 60% to 80% of the consumers visited the automotive web-portal before they go to the test driving session. From the other end, internet is changing the entire supply change management in the industry as well (Apfelthaler et. al., 2002).
Legal factors. In the automotive industry, the various relevant laws and government regulations have been affecting the entire industry since 1960s, particularly in the United States. The legal aspect of the automotive is stringent, as the consumers’ life is dependent on the quality and reliability of the vehicles. There are various standard required by the government authorities in handling the manufacturing of automotive. Nonetheless, this is less of a concern for the entire industry, as many of the leading car manufacturers are proactively improving the quality of their products to gain competitive advantages in the marketplace.
Environmental factors. Currently, there are huge concerns if the industries and businesses around the world is polluting and damaging the world natural environment. Environmental activists are becoming more active and aggressive. Besides, it is also discovered that consumers are seemingly becoming more environmental conscious, where they may even consider if the car manufactured by a particular company has the lowest CO2 emission (Bossink & Blauw, 2002).
Porter Five Forces for Industry Analysis of Mercedes-Benz
To investigate the industry structure the company is operating in, it is useful to adopt a famous and yet practical theoretical framework – the Porter Five Forces framework to analyze the industry structure as well as the competitive forces in the automobile industry. Specifically, five important competitive forces relevant to the analysis of the automobile industry landscape will be discussed as follow.
Rivalry among existing competitors. The rivalry among existing competitors in the automotive industry is very tough and aggressive. There are many powerful players around the world, such as General Motors, Ford Motor, BMW, Volkswagen, Toyota, Honda, Nissan, Kia, Volvo, and Mazda (Jackson, 2001). The challenging part is that all of these companies are powerful, ambitious, aggressive, and engage in continuously improvement to beat the competition. The competition is even worst in the developed countries, as the market for the automotive is becoming saturated in the recent years. Thus, to increase the market share, a particular car manufacturer must either drop the current selling price or to add value to it end products. However, there are also views commenting that the competition in the emerging countries is as competitive as those in the developed world. For example, China is a huge market and the potential customers buying a car are gigantic. However, the competition in the country is highly competitive. Overall, the rivalry among existing competitors is intense and will negatively affect the company. In the recent years, it is not hard to witness that there is significant market share variation in the automotive industry – a strong indication that the market players are fighting among each other in the marketplace (Hessenberger et. al., 1997).
Bargaining power of suppliers. It is a well-known fact that auto manufacturers often require various types of input materials, such as hardware parts, raw materials, and consultancy services from various parties. As the profit margin of the various auto makers are being squeeze by the ever competitive business landscape, any increases in the input prices can reduce the profitability of the auto makers seriously. From the other perspective, there are also many suppliers in the automotive industry. The analysis of the bargaining power of supplier in the automotive industry is complex matters. However, for those leading auto manufacturers such as General Motors, Ford Motors, Toyota or the Mercedes Benz, they have successfully built up a large network of suppliers in various countries around the world (Bogue, 2008). Overall, the bargaining power of supplier for the company is moderate.
Bargaining power of buyers. Bargaining power of buyers is referring to the ability of the consumers, or customers in negotiating the prices offered to them by the various car dealers. In the automotive industry, it is generally observed that most of the time, individual consumers have some degree of influence against the car dealers, but have little and indirect influence against the car manufacturers. However, that does not mean that the consumers cannot exert negative impacts towards a company performance in the automotive industry. In fact, consumers often play a significant role in determining the pricing and value added features designed on a car, as although the consumers have no direct influence on the pricing of a car maker, they can choose to switch to the competitor’s products. In the information era, this is becoming more prevalent, as consumers can perform direct pricing comparison on the internet in a few seconds (Apfelthaler et. al., 2002). Overall, it is pretty challenging for a manufacturer to maintain loyal customers and to simply increase the selling prices of a car. In a nutshell, the bargaining power of customers is high, and this is negative towards the various car manufacturers.
Threats of substitute products. While the Porter 5 Forces framework does not explicitly investigating the consumers demand in the marketplace, the framework does take the potential of substitutes or complementary products into account when investigating the various competitive forces affecting a particular industry. In the context of car manufacturer, the potential substitute is the public transportation services. To explain: when the public transportation services becoming highly efficient, people may choose to take bus and rapid transit instead of buying a new car (Apfelthaler et. al., 2002). However, it is observed that the public transport is not a direct substitute for buying a car, because to travel from a destination to another may not be the only reason for people to purchase a car. On the issues of complementary products, the relevant issues related to the automotive industry include: gasoline prices, batteries, tires and etc. For example, the rising petrol prices and gasoline prices around the world often have negative effects against the demand of new cars. In fact, there are studies discovering that rising petrol prices have the most significant effect against the big three’s performance in US and Europe, namely, the General Motors, Ford Motor and Daimler AG, as their car design is less fuel efficient (Bossink & Blauw, 2002). Overall, the threats of substitute products in the industry are weak, while the changes in complementary products to the demand of new cars are moderate.
Threats of new entry. Any new player entering the automotive industry will definitely force the prices down, which will impact the profit margin of the other car manufacturers negatively. Nonetheless, there are significant barriers to entry in the industry. Firstly, the capital investment outlay can be very huge (in order to achieve economies of scale and to turn profitable in a short time frame is highly unlikely), and secondly, the already competitive business environment in the industry is deterring any potential entry into the market in a large scale. Not only that, the new market player will have to fight aggressively for market share, and unless the new brand able to become popular and respectable in a short time frame, it is likely that the new market player will need to suffer some degree of operating losses before the company able to turnaround. Thus, it is reasonable to expect that the barriers for new entrance can be relatively high in the industry. In the other words, the threats of new entrance to the automotive industry are relatively low.
Company Resources Audit for Mercedes Benz
Mercedes-Benz’s Assets
As a famous car manufacturing company, Mercedes Benz is a firm with attractive and powerful assets. In fact, the key asset of the company is not merely about the car manufacturing plants available around the world, but rather is the corporate culture, the reputable brand name, and the human capital available in the company. In this section, these assets of the company will be discussed in details.
The manufacturing plants and machineries. It cannot be denied that as the top five auto makers in the world, the physical assets of the company are valuable and huge. In fact, the company has several manufacturing related plants and equipment across the United States, Europe and Asia Pacific. However, it is also important to point out that the hardware is not the key success assets possessed by the company (Bossink & Blauw, 2002).
The corporate culture that uphold the high quality and perfection in manufacturing process. Mercedes Benz is a corporation with strong focus on the quality of its products. The organization, undoubtedly, strive for perfection, a typical German-style manufacturing company (Bossink & Blauw, 2002). That is the core competencies of the company, where precision engineering, attention to details, and the spirit to strive for perfection is the leading success factors in the marketplace.
The popular and yet admired brand name. Perhaps, it is even agreed by many of the consumers in the marketplace around the world that Mercedes Benz primary and key assets is the reputable and yet respectable brand the company possess. The noble brand of Mercedes Benz is often associated and is being positioned as a symbol of luxury, status and comfort. The brand name is already more than 100 years, and yet, it is still a brand favored by young and elder professional and businessmen, all around the world. To replicate such a brand equity possessed by Mercedes Benz is very hard, and require huge capital investment as well as a long time frame (Jackson, 2001).
Core Competencies of Mercedes-Benz
Without significant core competencies, it is unlikely, it not impossible, for the firm to rise to such a powerful and respectable position in the car manufacturing industry. In fact, purely based on the highly favorable consumers’ perceptions on the car manufactured by Mercedes Benz, it is not hard to speculate that the company possesses several powerful and distinguishing core competencies in the marketplace (Bossink & Blauw, 2002). It is found that the company possesses several core competencies as follow.
Innovation. One of the core competencies possessed by Mercedes Benz to rise to such a famous and respectable position in the automotive industry is due to its ability to innovate. For examples, the internal combustion engine automobile was introduced by the company in 1886; the company spearheaded the replacement of fuel injection with float carburetor, the company innovation of the first automotive with four brakes on all of the four wheels, the invention of the safety cell concept, and first to market on the Electronic Stability Programme (ESO) brake assist system, and many others (Apfelthaler et. al., 2002).
Quality. It is widely known that Mercedes Benz has been able to maintain a reputation of high quality and durability in the marketplace. In fact, the quality of the cars produced by the company success to achieve various rewards in the industry. For example, under the J. D. Power’s Initial Quality Study in the year of 2007, the company achieves the 5th place, exceeding the quality leader Toyota for some of its car models. Not only had that, later in 2008, the company also received the Platinum Plant Quality Award for its assembly plant in German (Bogue, 2008).
Marketing and branding. As discussed before, ability to market and to build highly reputable brand in the marketplace is one of the core competencies possessed by Mercedes Benz. With in-depth understanding on the customers wants and needs the company able to craft a noble brand in the marketplace – an achievement envied by many of the other auto manufacturers (Jackson, 2001).
Strategic Analysis for Mercedes-Benz
In this section, various strategic related issues and analysis related to Mercedes Benz will be performed. Firstly, after a review on the macroenvironment, the industry structure the company is operating in as well as the available resources the company is having, the SWOT analysis will be carried out, to investigate the opportunities or threats relevant to the company. Besides, some of the corporate and business unit strategies currently employed by the firm will also be investigated. The analysis will extend further to incorporate an analysis on the company’s global business strategic approaches in the recent years. All these are highly important before relevant strategies can be recommended to the firm.
SWOT Analysis of Mercedes-Benz
Under the SWOT analysis framework, the strengths and weaknesses and the firm will be analyzed, and then the relevant opportunities and threats in the industry will be ferreted. In order to make the analysis more readable, the SWOT analysis will be presented in a table form as follow.
Strengths:
1. Quality, reliability and durability
2. Safety & precision engineering capabilities
3. Noble, respectable and high class reputation
4. Strong financial capabilities
5. Successfully attain significant economies of scale around the globe
6. Strong corporate culture
Weaknesses:
1. Cars designed are less fuel efficient compared to the Japanese cars
2. Relatively slow to introduce fuel efficient concept cars
3. Compete only in one of the niche market (i.e., in contrast, competitor such as Toyota has market share in several market segments)
Opportunities:
1. Able to capitalize on its brand name to tap into the other market segments.
2. The engineering and technological capabilities of the firm enable it to innovate and spearhead the revolution in the automotive industry
3. The strong corporate culture enable the firm to implement any strategic changes or direction easily
4. Huge profit potential from outsourcing operational activities to emerging countries, while tapping into the growing market size in the emerging countries
Threats:
1. The rise of environmentally-conscious consumers
2. The turbulent economic and financial system around the world
3. The saturation of market in the developed world
4. The intense competition in the industry
5. The ever demanding consumers preferences and demands
6. Protectionalism measures implemented by some of the governments in the emerging countries
Current Corporate and Business Unit Strategies Employed by Mercedes-Benz
Currently, there are various strategies formulated by the management of Mercedes Benz in continuously thriving in the challenging business environment. It is stated that the company will still continue to try hard in delivering the world best high-end automobiles. This will be achieved by maintaining the firm’s leadership in technology and design around the world (Bogue, 2008). New design concepts are being introduced. Some of these concepts include: (a) increasing the fuel efficiency of the company with a slight decrease in the end products’ recyclability, (b) design for robust and repair-ability as well as to (c) preserve technological edge in terms of design and development of automotive. It is thus obvious that the company is striving to maximize the company profitability while at the similar time to deliver benefits to the consumers, while not neglecting the concerns on preserving a better environment around the world (Jackson, 2001).
Recommendations for Mercedes-Benz
Judging from the many analysis frameworks applied in this article, several possible measures can be implemented by the company.
Firstly, the company should incorporate more concerns of environmental issues into its car design. The reason is that consumers are becoming more demanding and thus, any new concept car that able to deliver value to the environment will be favored. Currently, this is still the weak points for the company.
Secondly, the company should also strive to incorporate the concept of fuel efficiency into its design. As the petrol and gasoline prices are expected to be riding on an increasing trend, it is management imperative for the company to understand such an issue and take preventive actions to avoid the existing market share being taken by the other competitors.
Thirdly, the company can choose to form strategic alliances with other automotive manufacturers. The rationale is that today, the competition is intense, and to combine forces to compete effectively and successfully in the global market place is truly important. In order to penetrate to the emerging market, it is also important for the company to form partnerships with local parties from the emerging countries, as these local parties usually has more knowledge on the local market.
Lastly, the management should also consider developing a new brand to cater for the middle market. This can be done by forming strategic partners with some of the smaller scale manufacturers in the Asia Pacific regions. Many of these companies are suffering because they do not have the necessary technological edge to competitive with other large auto makers. Thus, Mercedes Benz can take over such an opportunity to link with these partners and provide technological assistance in return for a share in these companies income.
Conclusion
In short, the article has analyzed the macroenvironment, industry context and the firm specific issues related to Mercedes Benz in a comprehensive manner. As an overview, the automotive industry is highly competitive. The positive side of the story is that the Mercedes is one of the leading auto makers, enabling the company to achieve significant economies of scale. Besides, the company has a strong and respectable brand name. What is left for the company to pursue is to adapt to the changes in the market and to capitalize on the trend of globalization and information technology in the next decades.
References
Adams, J. (2005). Analyze Your Company Using SWOTs, Supply House Times, Vol. 48 Issue 7, pp. 26-28.
Apfelthaler, G., Muller, H. J., & Rehder, R. R. (2002). Corporate global culture as competitive advantage: Learning from Germany and Japan in Alabama and Austria? Journal of World Business, 37(2), 108-118.
Badrtalei, J., & Donald L Bates. (2007). Effect of Organizational Cultures on Mergers and Acquisitions: The Case of DaimlerChrysler. International Journal of Management, 24(2), 303-317.
Ben Rosier. (2000, August). Mercedes-Benz set to review EU web identity. Marketing,11.
Bogue, R. (2008). DaimlerChrysler installs new robot-based flexible assembly line. The Industrial Robot, 35(1), 16-18.
Bossink, A. G., & Blauw, J. N. (2002). Strategic ambitions as drivers of improvement at DaimlerChrysler. Measuring Business Excellence, 6(4), 5-11.
DaimlerChrysler confronts the challenges of global integration. (2004). Human Resource Management International Digest, 12(2), 5-8.
De Witt, B., and Meyer, R. (1998). Strategy: Process, Content, Context, 2nd Ed., Oxford: International Thompson Business Press.
Nicholson, G. (2001, October). Automotive corridor. Birmingham Business Journal, 18(43), 15.
Hessenberger, M, Schneider, H, & Kuhn, J. (1997). Continuous improvement as an improvement tool for logistics. International Journal of Technology Management, 13(1), 29-38.
Cantwell, J. (2001, August). Mercedes’ new top marketer plans major brand campaign. Automotive News, 75(5944), 2.
Mercedes Benz driven by global targets. (2001). Strategic Direction, 17(5), 14-15.
MERCEDES BENZ: Mercedes-Benz and its rivals. (2010, July). Marketing Week,21.
Mercedes-Benz overcomes the “elk-test”. (2001). Strategic Direction, 17(11), 13-15.
MERCEDES-BENZ: Mercedes-Benz leads industry in fuel cell research. (5 March). M2 Presswire,1.
MERCEDES-BENZ: Mercedes-Benz unveils A-class based roadster. (10 December). M2 Presswire,1.
Mintzberg, H. (1987). Crafting Strategy, Harvard Business Review, November-December, pp.21-25.
Mintzberg, H. (1990). The Design School: Reconsidering the Basic Premises of Strategic Management. Strategic Management Journal, Vol. 11 pp.171-195.
Pearce, J., and Robinson, R. (2005). Strategic Management, 9th Edition, New York: McGraw-Hill.
Raynal, W., & Kable, G.. (2008, January). ITTY-BITTY BENZ: MERCEDES UNLEASHES A COMPACT SUV. Autoweek, 58(1), 6.
Schreffler, R. (2001). Foreign fit, domestic finish in auto industry partnerships. Japan Quarterly, 48(2), 42-49.
Jackson, T. (2001, June). Mercedes Benz S600: The latest status symbol. Hispanic, 14(6), 62.
Yaping, C., & Jun, Y. (2002). Mercedes-Benz Car Destroyed in China – A Case of Cross-Cultural and National Marketing. Journal of Euro – Marketing, 12(2), 71-86.
0
Introduction
In this article, a comprehensive company research will be performed for the Mercedes-Benz company. The article is arranged as follow. Firstly, the background of the Mercedes-Benz will be introduced. Then, relevant theoretical framework to analyze the company’s macroenvironment situation will be performed. Later, the automotive industry nature will be investigated. The article will then focus on the firm’s specific strategies and by using the SWOT framework, to deliver probable strategies for the company. The article end by providing several recommendations for the firm to achieve strong financial performance in the marketplace.
Background of Mercedes-Benz
Originated from a German car manufacturer, Mercedes-Benz is currently a manufacturer of various types of automotive, including buses, coaches, and trucks. Currently, Mercedes-Benz had become a division under its parent company, namely the Daimler AG group of companies. As early as 1901, the vehicles manufactured by Mercedes-Benz were marketed by Daimler Motoren Gesellschaft. Since then, the company has been introducing many technological advance and safety-oriented innovations that have become popular in the automotive industry. The company is a popular and branded one in the automotive industry – it is one of the most popularly known automobile company in the world, not to mention that it is also one of the world’s oldest automotive brand that are still in existence today (Bossink & Blauw, 2002).
Regarding its parent company, the Daimler AG group of companies is engaging in developing, manufacturing, distribution and sale of a variety of automotive related products – particularly in the passenger cars, trucks, vans and buses segments. There are five business segments under the parent company, namely: Mercedes-Benz Cars; Daimler Trucks; Daimler Buses; Mercedes-Benz Vans and Daimler Financial Services. Today, the company establishes its main operations and has significant market shares in the US, Germany, Western Europe, as well as Asia Pacific regions (Hessenberger et. al., 1997).
External Environment Analysis
PESTLE Framework for Macroenvironment Analysis of Mercedes-Benz
It is important for any analyst to carry out a comprehensive analysis on the macroenvironment before the various relevant and viable strategies can be formulated for Mercedes Benz. In order to analyze the macroenvironment the company is operating in, the PESTLE framework will be used. As the company is operating on a global scale, the relevant macroenvironment analysis will be focusing on a worldwide context. In the following paragraphs, the six factors to be discussed include: (a) political factors; (b) economic factors; (c) social and cultural factors; (d) technological factors; (e) legal factors; and (f) environmental factors.
Political factors. From a worldwide view, the political issues related to the automotive industry is complicated and complex. The political issues arising from the Western world is less of a concern for the leading car manufacturer because many of the leading car manufacturers are originated from the Western world. However, the political forces from the emerging countries are more complicated (Bossink & Blauw, 2002). Rules and regulations are generally set up to protect the car manufacturers from the emerging countries, to imposes extra taxes and tariffs against the car manufacturers from the other countries, and to demand the leading car manufacturers to shift their manufacturing plants and technologies to the emerging countries before these car manufacturers are allowed to penetrate the marketplace in the emerging markets (Apfelthaler et. al., 2002).
Economic factors. Currently, the entire world is seemingly entering into an economic era of turbulent and volatility. After the housing and financial crises happening in the United States as well as the Europe, the world had entered into a temporary recession. Although many of the emerging countries able to recover in a satisfactory pace, the economic picture and prospect of the world in the future will still be turbulent. This will definitely affect and impact the operations and marketing strategies of the leading automotive manufacturers around the world. Besides, it is also worthy to mention that the automotive industry has a huge multiplier effects on the economy of a particular country. In fact, there are researches indicating that the automotive industry is one of the major industry that consume a large volume of computer chips, steel, iron, copper, textiles, plastics, rubber and etc. It is even argued that in every one workers being employed in the automotive industry, there are seven other jobs being created in the other industries.
Social and Cultural factors. It cannot be denied that in every part of the world, people do have their respective social and cultural practices and beliefs. For example, the culture in the East and the West is significantly different. The cultural differences are something not to be neglected by the automotive manufacturer. Nonetheless, due to the globalization effects, the culture and consumers behaviors are seemingly becoming similar around the world. Be it in the developed or the emerging country, people nowadays are judging others based on the types of car that they are driving. Anyone who able to drive a high class vehicle is often considered as wealthy, noble and powerful (Jackson, 2001). In fact, consumers may simply feel better and become more confident when driving a good and nice car. Nobody in fact just want to be seen driving in a piece of junk metal. However, the consumers’ preferences on the style of car and the design of the vehicles may differ across the globe.
Technological factors. It is obvious that technological advancement is a critical and important element not to be ignored by the various automotive manufacturers. In fact, to capitalize on the newly discovered and designed technologies are the methods or strategies utilized by car manufacturers to achieve competitive advantages in the marketplace. Apart from that, another technological change that will affect the automotive industry seriously is the advancement of the internet. In fact, the internet is impacting various industries around the world. Such a trend is not something that can be ignored by the car manufacturers. For example, there are studies indicating that a total of 60% to 80% of the consumers visited the automotive web-portal before they go to the test driving session. From the other end, internet is changing the entire supply change management in the industry as well (Apfelthaler et. al., 2002).
Legal factors. In the automotive industry, the various relevant laws and government regulations have been affecting the entire industry since 1960s, particularly in the United States. The legal aspect of the automotive is stringent, as the consumers’ life is dependent on the quality and reliability of the vehicles. There are various standard required by the government authorities in handling the manufacturing of automotive. Nonetheless, this is less of a concern for the entire industry, as many of the leading car manufacturers are proactively improving the quality of their products to gain competitive advantages in the marketplace.
Environmental factors. Currently, there are huge concerns if the industries and businesses around the world is polluting and damaging the world natural environment. Environmental activists are becoming more active and aggressive. Besides, it is also discovered that consumers are seemingly becoming more environmental conscious, where they may even consider if the car manufactured by a particular company has the lowest CO2 emission (Bossink & Blauw, 2002).
Porter Five Forces for Industry Analysis of Mercedes-Benz
To investigate the industry structure the company is operating in, it is useful to adopt a famous and yet practical theoretical framework – the Porter Five Forces framework to analyze the industry structure as well as the competitive forces in the automobile industry. Specifically, five important competitive forces relevant to the analysis of the automobile industry landscape will be discussed as follow.
Rivalry among existing competitors. The rivalry among existing competitors in the automotive industry is very tough and aggressive. There are many powerful players around the world, such as General Motors, Ford Motor, BMW, Volkswagen, Toyota, Honda, Nissan, Kia, Volvo, and Mazda (Jackson, 2001). The challenging part is that all of these companies are powerful, ambitious, aggressive, and engage in continuously improvement to beat the competition. The competition is even worst in the developed countries, as the market for the automotive is becoming saturated in the recent years. Thus, to increase the market share, a particular car manufacturer must either drop the current selling price or to add value to it end products. However, there are also views commenting that the competition in the emerging countries is as competitive as those in the developed world. For example, China is a huge market and the potential customers buying a car are gigantic. However, the competition in the country is highly competitive. Overall, the rivalry among existing competitors is intense and will negatively affect the company. In the recent years, it is not hard to witness that there is significant market share variation in the automotive industry – a strong indication that the market players are fighting among each other in the marketplace (Hessenberger et. al., 1997).
Bargaining power of suppliers. It is a well-known fact that auto manufacturers often require various types of input materials, such as hardware parts, raw materials, and consultancy services from various parties. As the profit margin of the various auto makers are being squeeze by the ever competitive business landscape, any increases in the input prices can reduce the profitability of the auto makers seriously. From the other perspective, there are also many suppliers in the automotive industry. The analysis of the bargaining power of supplier in the automotive industry is complex matters. However, for those leading auto manufacturers such as General Motors, Ford Motors, Toyota or the Mercedes Benz, they have successfully built up a large network of suppliers in various countries around the world (Bogue, 2008). Overall, the bargaining power of supplier for the company is moderate.
Bargaining power of buyers. Bargaining power of buyers is referring to the ability of the consumers, or customers in negotiating the prices offered to them by the various car dealers. In the automotive industry, it is generally observed that most of the time, individual consumers have some degree of influence against the car dealers, but have little and indirect influence against the car manufacturers. However, that does not mean that the consumers cannot exert negative impacts towards a company performance in the automotive industry. In fact, consumers often play a significant role in determining the pricing and value added features designed on a car, as although the consumers have no direct influence on the pricing of a car maker, they can choose to switch to the competitor’s products. In the information era, this is becoming more prevalent, as consumers can perform direct pricing comparison on the internet in a few seconds (Apfelthaler et. al., 2002). Overall, it is pretty challenging for a manufacturer to maintain loyal customers and to simply increase the selling prices of a car. In a nutshell, the bargaining power of customers is high, and this is negative towards the various car manufacturers.
Threats of substitute products. While the Porter 5 Forces framework does not explicitly investigating the consumers demand in the marketplace, the framework does take the potential of substitutes or complementary products into account when investigating the various competitive forces affecting a particular industry. In the context of car manufacturer, the potential substitute is the public transportation services. To explain: when the public transportation services becoming highly efficient, people may choose to take bus and rapid transit instead of buying a new car (Apfelthaler et. al., 2002). However, it is observed that the public transport is not a direct substitute for buying a car, because to travel from a destination to another may not be the only reason for people to purchase a car. On the issues of complementary products, the relevant issues related to the automotive industry include: gasoline prices, batteries, tires and etc. For example, the rising petrol prices and gasoline prices around the world often have negative effects against the demand of new cars. In fact, there are studies discovering that rising petrol prices have the most significant effect against the big three’s performance in US and Europe, namely, the General Motors, Ford Motor and Daimler AG, as their car design is less fuel efficient (Bossink & Blauw, 2002). Overall, the threats of substitute products in the industry are weak, while the changes in complementary products to the demand of new cars are moderate.
Threats of new entry. Any new player entering the automotive industry will definitely force the prices down, which will impact the profit margin of the other car manufacturers negatively. Nonetheless, there are significant barriers to entry in the industry. Firstly, the capital investment outlay can be very huge (in order to achieve economies of scale and to turn profitable in a short time frame is highly unlikely), and secondly, the already competitive business environment in the industry is deterring any potential entry into the market in a large scale. Not only that, the new market player will have to fight aggressively for market share, and unless the new brand able to become popular and respectable in a short time frame, it is likely that the new market player will need to suffer some degree of operating losses before the company able to turnaround. Thus, it is reasonable to expect that the barriers for new entrance can be relatively high in the industry. In the other words, the threats of new entrance to the automotive industry are relatively low.
Company Resources Audit for Mercedes Benz
Mercedes-Benz’s Assets
As a famous car manufacturing company, Mercedes Benz is a firm with attractive and powerful assets. In fact, the key asset of the company is not merely about the car manufacturing plants available around the world, but rather is the corporate culture, the reputable brand name, and the human capital available in the company. In this section, these assets of the company will be discussed in details.
The manufacturing plants and machineries. It cannot be denied that as the top five auto makers in the world, the physical assets of the company are valuable and huge. In fact, the company has several manufacturing related plants and equipment across the United States, Europe and Asia Pacific. However, it is also important to point out that the hardware is not the key success assets possessed by the company (Bossink & Blauw, 2002).
The corporate culture that uphold the high quality and perfection in manufacturing process. Mercedes Benz is a corporation with strong focus on the quality of its products. The organization, undoubtedly, strive for perfection, a typical German-style manufacturing company (Bossink & Blauw, 2002). That is the core competencies of the company, where precision engineering, attention to details, and the spirit to strive for perfection is the leading success factors in the marketplace.
The popular and yet admired brand name. Perhaps, it is even agreed by many of the consumers in the marketplace around the world that Mercedes Benz primary and key assets is the reputable and yet respectable brand the company possess. The noble brand of Mercedes Benz is often associated and is being positioned as a symbol of luxury, status and comfort. The brand name is already more than 100 years, and yet, it is still a brand favored by young and elder professional and businessmen, all around the world. To replicate such a brand equity possessed by Mercedes Benz is very hard, and require huge capital investment as well as a long time frame (Jackson, 2001).
Core Competencies of Mercedes-Benz
Without significant core competencies, it is unlikely, it not impossible, for the firm to rise to such a powerful and respectable position in the car manufacturing industry. In fact, purely based on the highly favorable consumers’ perceptions on the car manufactured by Mercedes Benz, it is not hard to speculate that the company possesses several powerful and distinguishing core competencies in the marketplace (Bossink & Blauw, 2002). It is found that the company possesses several core competencies as follow.
Innovation. One of the core competencies possessed by Mercedes Benz to rise to such a famous and respectable position in the automotive industry is due to its ability to innovate. For examples, the internal combustion engine automobile was introduced by the company in 1886; the company spearheaded the replacement of fuel injection with float carburetor, the company innovation of the first automotive with four brakes on all of the four wheels, the invention of the safety cell concept, and first to market on the Electronic Stability Programme (ESO) brake assist system, and many others (Apfelthaler et. al., 2002).
Quality. It is widely known that Mercedes Benz has been able to maintain a reputation of high quality and durability in the marketplace. In fact, the quality of the cars produced by the company success to achieve various rewards in the industry. For example, under the J. D. Power’s Initial Quality Study in the year of 2007, the company achieves the 5th place, exceeding the quality leader Toyota for some of its car models. Not only had that, later in 2008, the company also received the Platinum Plant Quality Award for its assembly plant in German (Bogue, 2008).
Marketing and branding. As discussed before, ability to market and to build highly reputable brand in the marketplace is one of the core competencies possessed by Mercedes Benz. With in-depth understanding on the customers wants and needs the company able to craft a noble brand in the marketplace – an achievement envied by many of the other auto manufacturers (Jackson, 2001).
Strategic Analysis for Mercedes-Benz
In this section, various strategic related issues and analysis related to Mercedes Benz will be performed. Firstly, after a review on the macroenvironment, the industry structure the company is operating in as well as the available resources the company is having, the SWOT analysis will be carried out, to investigate the opportunities or threats relevant to the company. Besides, some of the corporate and business unit strategies currently employed by the firm will also be investigated. The analysis will extend further to incorporate an analysis on the company’s global business strategic approaches in the recent years. All these are highly important before relevant strategies can be recommended to the firm.
SWOT Analysis of Mercedes-Benz
Under the SWOT analysis framework, the strengths and weaknesses and the firm will be analyzed, and then the relevant opportunities and threats in the industry will be ferreted. In order to make the analysis more readable, the SWOT analysis will be presented in a table form as follow.
Strengths:
1. Quality, reliability and durability
2. Safety & precision engineering capabilities
3. Noble, respectable and high class reputation
4. Strong financial capabilities
5. Successfully attain significant economies of scale around the globe
6. Strong corporate culture
Weaknesses:
1. Cars designed are less fuel efficient compared to the Japanese cars
2. Relatively slow to introduce fuel efficient concept cars
3. Compete only in one of the niche market (i.e., in contrast, competitor such as Toyota has market share in several market segments)
Opportunities:
1. Able to capitalize on its brand name to tap into the other market segments.
2. The engineering and technological capabilities of the firm enable it to innovate and spearhead the revolution in the automotive industry
3. The strong corporate culture enable the firm to implement any strategic changes or direction easily
4. Huge profit potential from outsourcing operational activities to emerging countries, while tapping into the growing market size in the emerging countries
Threats:
1. The rise of environmentally-conscious consumers
2. The turbulent economic and financial system around the world
3. The saturation of market in the developed world
4. The intense competition in the industry
5. The ever demanding consumers preferences and demands
6. Protectionalism measures implemented by some of the governments in the emerging countries
Current Corporate and Business Unit Strategies Employed by Mercedes-Benz
Currently, there are various strategies formulated by the management of Mercedes Benz in continuously thriving in the challenging business environment. It is stated that the company will still continue to try hard in delivering the world best high-end automobiles. This will be achieved by maintaining the firm’s leadership in technology and design around the world (Bogue, 2008). New design concepts are being introduced. Some of these concepts include: (a) increasing the fuel efficiency of the company with a slight decrease in the end products’ recyclability, (b) design for robust and repair-ability as well as to (c) preserve technological edge in terms of design and development of automotive. It is thus obvious that the company is striving to maximize the company profitability while at the similar time to deliver benefits to the consumers, while not neglecting the concerns on preserving a better environment around the world (Jackson, 2001).
Recommendations for Mercedes-Benz
Judging from the many analysis frameworks applied in this article, several possible measures can be implemented by the company.
Firstly, the company should incorporate more concerns of environmental issues into its car design. The reason is that consumers are becoming more demanding and thus, any new concept car that able to deliver value to the environment will be favored. Currently, this is still the weak points for the company.
Secondly, the company should also strive to incorporate the concept of fuel efficiency into its design. As the petrol and gasoline prices are expected to be riding on an increasing trend, it is management imperative for the company to understand such an issue and take preventive actions to avoid the existing market share being taken by the other competitors.
Thirdly, the company can choose to form strategic alliances with other automotive manufacturers. The rationale is that today, the competition is intense, and to combine forces to compete effectively and successfully in the global market place is truly important. In order to penetrate to the emerging market, it is also important for the company to form partnerships with local parties from the emerging countries, as these local parties usually has more knowledge on the local market.
Lastly, the management should also consider developing a new brand to cater for the middle market. This can be done by forming strategic partners with some of the smaller scale manufacturers in the Asia Pacific regions. Many of these companies are suffering because they do not have the necessary technological edge to competitive with other large auto makers. Thus, Mercedes Benz can take over such an opportunity to link with these partners and provide technological assistance in return for a share in these companies income.
Conclusion
In short, the article has analyzed the macroenvironment, industry context and the firm specific issues related to Mercedes Benz in a comprehensive manner. As an overview, the automotive industry is highly competitive. The positive side of the story is that the Mercedes is one of the leading auto makers, enabling the company to achieve significant economies of scale. Besides, the company has a strong and respectable brand name. What is left for the company to pursue is to adapt to the changes in the market and to capitalize on the trend of globalization and information technology in the next decades.
References
Adams, J. (2005). Analyze Your Company Using SWOTs, Supply House Times, Vol. 48 Issue 7, pp. 26-28.
Apfelthaler, G., Muller, H. J., & Rehder, R. R. (2002). Corporate global culture as competitive advantage: Learning from Germany and Japan in Alabama and Austria? Journal of World Business, 37(2), 108-118.
Badrtalei, J., & Donald L Bates. (2007). Effect of Organizational Cultures on Mergers and Acquisitions: The Case of DaimlerChrysler. International Journal of Management, 24(2), 303-317.
Ben Rosier. (2000, August). Mercedes-Benz set to review EU web identity. Marketing,11.
Bogue, R. (2008). DaimlerChrysler installs new robot-based flexible assembly line. The Industrial Robot, 35(1), 16-18.
Bossink, A. G., & Blauw, J. N. (2002). Strategic ambitions as drivers of improvement at DaimlerChrysler. Measuring Business Excellence, 6(4), 5-11.
DaimlerChrysler confronts the challenges of global integration. (2004). Human Resource Management International Digest, 12(2), 5-8.
De Witt, B., and Meyer, R. (1998). Strategy: Process, Content, Context, 2nd Ed., Oxford: International Thompson Business Press.
Nicholson, G. (2001, October). Automotive corridor. Birmingham Business Journal, 18(43), 15.
Hessenberger, M, Schneider, H, & Kuhn, J. (1997). Continuous improvement as an improvement tool for logistics. International Journal of Technology Management, 13(1), 29-38.
Cantwell, J. (2001, August). Mercedes’ new top marketer plans major brand campaign. Automotive News, 75(5944), 2.
Mercedes Benz driven by global targets. (2001). Strategic Direction, 17(5), 14-15.
MERCEDES BENZ: Mercedes-Benz and its rivals. (2010, July). Marketing Week,21.
Mercedes-Benz overcomes the “elk-test”. (2001). Strategic Direction, 17(11), 13-15.
MERCEDES-BENZ: Mercedes-Benz leads industry in fuel cell research. (5 March). M2 Presswire,1.
MERCEDES-BENZ: Mercedes-Benz unveils A-class based roadster. (10 December). M2 Presswire,1.
Mintzberg, H. (1987). Crafting Strategy, Harvard Business Review, November-December, pp.21-25.
Mintzberg, H. (1990). The Design School: Reconsidering the Basic Premises of Strategic Management. Strategic Management Journal, Vol. 11 pp.171-195.
Pearce, J., and Robinson, R. (2005). Strategic Management, 9th Edition, New York: McGraw-Hill.
Raynal, W., & Kable, G.. (2008, January). ITTY-BITTY BENZ: MERCEDES UNLEASHES A COMPACT SUV. Autoweek, 58(1), 6.
Schreffler, R. (2001). Foreign fit, domestic finish in auto industry partnerships. Japan Quarterly, 48(2), 42-49.
Jackson, T. (2001, June). Mercedes Benz S600: The latest status symbol. Hispanic, 14(6), 62.
Yaping, C., & Jun, Y. (2002). Mercedes-Benz Car Destroyed in China – A Case of Cross-Cultural and National Marketing. Journal of Euro – Marketing, 12(2), 71-86.
Sunday, June 24, 2018
The Six Leadership Styles - by BusinessEssay.net
One of the greatest assets of an organization is that strong managers create an environment to encourage members and motivate their high energy (Taggart, 1989). Effective leadership has drawn great attention from organization management in recent years due to its contribution to organizations’ competitive advantage and sustainable profitability. Leadership is as a critical management skill in various organizations, which influences and motivates a group toward the achievement of organizational goals (Rafferty & Griffin 2004). Leadership must be differentiated from management. Some commentators propose the view that management function includes leadership, that it is possible to be a good manager without being a good leader. In contrast, other commentators argued that leadership is different form the “managership”. The difference is obvious, that the leader shows incremental influence beyond his or her authority, he or her will influence instead of purely performing planning, organising, and controlling activities. It is possible, therefore, for an individual to be a good manager without being an effective leader. There are some overlaps between leadership task and management task, and the distinction is not always clear, Davidson and Griffin (2006) summaries the differences between the roles are often difference of degree rather than of kind. “Managers and leaders differ in how they go about creating an agenda, developing a rationale for achieving the agenda and executing plans, and in the types of outcome they achieve”.
There are abundant books and articles on leadership styles and also ‘Leadership Experts’ who have made careers out of testing and coaching of leaders. At the end of it all, one may not be wiser still. The author Daniel Goleman – who is well known for his two books ‘Emotional Intelligence’ and ‘Working with Emotional Intelligence’ – in an article titled “Leadership That Get Results” in Harvard Business Review dated March-April 2000 attributes this reason for lack of quantitative research that demonstrates which precise leadership behavior yield which type of organizational results. He points out the research of consulting firm Hay/McBer on random sample of 3871 executives selected from a database of more than 20,000 executives worldwide which has demystified the effective leadership. The research found six distinct leadership styles, each springing different components of emotional intelligence. It offers a fine understanding of how six different styles affect which type of organizational performance and results. It also offers guidance how an effective leader switches between these styles seamlessly and also uses a combination of these styles depending on the business situation. As such, in the context of the effective leadership, we will discuss it in the following sections. The six distinctive styles of leadership are: coercive, authoritative, affiliative, democratic, pacesetting, and lastly, coaching style.
1. The Coercive Style.
Leader is one who demands immediate compliance to his dictates. His style is ‘Do What I Tell You’. He creates a reign of terror, bullying and demeaning his executives, roaring his displeasure at the slightest missteps in achieving the business goals. This style is the least effective, because of top-down decision making; it snuffs the ideas and the creativity from the bottom rung of employees. And, high-performing employees who are motivated by more than money, this style erode their performance. But it has its use. It can break failed business habits, shock people into new ways of working. And in turning around a company or when a hostile takeover is looming.
2. The Authoritative Style.
Leader is a visionary; he motivates people by making clear to them how their work fits into a larger vision of the organization. This style maximizes commitment to the organization’s goals and strategy. By framing the individual tasks within a grand vision, this leader defines standards – giving performance feedback positive and negative – which revolves around that vision. This style works well in almost any business situation, particularly, when a business is adrift. But while working with a team of experts or peers, who are more, experienced than the authoritative leader, it gives an impression that the leader is being pompous and out-of-touch. If this leader becomes overbearing, he also undermines the egalitarian spirit of an effective team.
3. The Affiliative Style.
Revolves around its people – its proponents value individuals and their emotions more than tasks and goals. The leader keeps his employees happy and creates harmony among them, which has positive effect on communication leading to sharing ideas, inspiration and building trust. Because of this style, flexibility also rises among employees giving employees freedom to do their job in the way they think is most effective. This leader gives ample positive feedback on their day-to-day efforts, which is all the more motivating. These leaders are natural relationship builders. This style should not be used alone. Its exclusive focus on praise can allow poor performance to go uncorrected, employees may perceive that mediocrity is tolerated. If one uses this style in close conjunction with the authoritative style, he would have a potent combination.
4. The Democratic Style.
Leader builds trust, respect and commitment by spending time, getting his people’s ideas and buy-in. By letting his employees themselves have a say in decisions that affect their goals and how they do their work, this leader drive up flexibility and responsibility. He also by listening to employees learns to what to do, to keep morale high. In this democratic set-up, his followers are realistic what can and cannot be accomplished. This approach is ideal when a leader is himself uncertain about the best direction to take and needs ideas and guidance. The drawback of this system is, it can lead to endless meetings where ideas are mulled over, consensus remains elusive, and the only visible result is more meetings, particularly when crucial decision have to be taken. In times such as this people end up confused and leaderless. This style also makes much less sense when employees are not competent or informed enough to offer sound advice.
5. The Pacesetting Style.
Leader sets extremely high performance standards and exemplifies them himself. He is obsessive about doing things better and faster. He pinpoints poor performers and demands more from them. If they don’t raise to the occasion, they will be replaced who can. This destroys the organization climate, as employees feel overwhelmed by pacesetter’s demand for excellence and their morale drops. Guidelines for working may be clear in the leader’s head, but he/she does not state them clearly; he/she expects employees to know what to do. The pacesetter either gives no feedback on how people are doing or jumps in to take over when he/she thinks they’re lagging. And if the pacesetter leaves, his flock suddenly becomes directionless. This style should be sparingly used, and works best when all the employees are self-motivated professionals, highly competent and need little direction and coordination, like in R&D and legal firms.
6. The Coaching Style.
Leader helps employees identify their unique strengths and weaknesses and tie them to their personal and career aspirations, encouraging them to establish long-term development goals and help them to conceptualize a plan for attaining them. They give plenty of feedback and instruction. Coaching leaders excel at delegating, even if it meant the tasks would not be accomplished. Their prime motive is long-term learning of their followers. Although this style works best, it is seldom used, because many leaders don’t have time in this high-pressure economy for the slow and tedious work of teaching employees to grow. This style works well in many business situations and works particularly well when employees are already aware of their weaknesses and would like to improve their performance. In contrast, the coaching style makes little sense when employees, for whatever reason, are resistant to learning or changing their ways. The other danger of this style is when the leader lacks the expertise to help the employees to grow.
References, Bibliography and other Readings
Brech, E.F.L. & Aldrich, R.M. 1968, The Principles and Practice of Management, 2nd edn, Longmans, Green and Company Limited, London.
Certo, S.C. 2000, Modern Management: Diversity, Quality, Ethics, and the Global Environment, 8th edn, Prentice Hall, USA
Chapman, A. 2006, Adams’ equity theory, Viewed August 4, 2007, Available online:< http://www.businessballs.com/adamsequitytheory.htm >.
Hellriegel, D., Slocum, J. & Woodman, R.W. 1998, Organizational Behavior, 8th edn, South-Western College Publishing, USA.
House, R.J. & Mitchell, T.R. 1994, ‘Path-goal theory of leadership’, Journal of Contemporary Business, vol. 3, pp. 21-36.
Ivancevich, J.M. & Matteson, M.T. 1990, Organizational Behavior and Management, 2nd edn, Richard D. Irein, US.
Kotter, J 1990, A force for Change: How leadership differs from management, Free Press, New York.
Luthans 2005，Organizational Behavior, 10th edn, McGraw-Hill, Singapore.
Mitchell, T. R. 1988, People in Organizations: An Introduction to Organizational Behaviour in Australia, McGraw-Hill, Australia.
Rafferty, A. E. & Griffin, M. A. 2004, Dimensions of transformational leadership: Conceptual and empirical extensions, The Leadership Journal, Vol.15, No. 3, pp. 329–54.
Robbins, S. P. & Mukerji, D. 1990, Managing Organization: New Challenges & Perspectives, Prentice Hall, New Jersey.
Robbins, S. & Coulter, M. 2003, Management, Prentice Hall, USA.
Taggart, J. 1989, Motivation and Leadership: For Executive Members, Managers, Committee Chairs, Factsheet: Ontario Ministry of Agriculture and Food, No.89-178.
Turknett, R. L. & Turknett, C. N. 2005, Decent People, Decent Company: How to Lead with Character in Work and in Life.
Yukl, G. 1994, Leadership in Organizations, 3rd edn, Prentice-Hall, New Jersey.
ABOUT THE AUTHOR
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Case Study on Organisational Change in Ermenegildo Zegna; by BusinessEssay.net
ORGANIZATIONAL CHANGE IN ERMENEGILDO ZEGNA
Introduction
This paper present a successful change management programs recently completed in Ermenegildo Zegna (“Zegna”). A study of the successful organization transformation program enables us to understand the steps and approaches used in real life in changing an organizational culture. In the following sections, the paper is arranged as follow. Firstly, the situational context of the change process is introduced and articulated. For this, the forces pushing forward for a change process, the nature of the change process, the level of the change process as well as the respective change agents involved in change process are discussed. Then, the approaches employed in the change process are also outlined. The impacts from these approaches are also discussed. Then, the relevant stages of the change process are summarized. Lastly, the effectiveness of the change process is discussed. For this, the skills and experiences of the change agents are outlined. The evidences of success and effectiveness of the change process are also demonstrated. Overall, this paper is relevant for those who wish to learn more about a successful change process, and to understand how change process is being implemented in a corporation in real business life, in the recent years.
Situational Context of the Change Process
Forces Demanding the Change Process
Prior to the change process, Zegna is a family owned business. In 2000, the management of the company was taken over by younger generation of family members (Tyler-Cagni & Hills, 2008). Apparently, the younger negation of senior management is more ambitious, and is committed to bring the firm to greater heights. External consultants and change agents are employed (namely, Lynda Tyler-Cagni and Jan Hills). Thus, apparently, one of the key factors leading to the change process in Zegna is due to change of management, whereby the new management is currently more ambitious, and obviously has the opinion that a change is required to bring the organization to better performance and greater profitability.
From the industry wide perspective, the fashion industry in Italy is facing increasing competitive business environment. The entire fashion industry in the country is undergoing a period of consolidation in the luxury market segment (Tyler-Cagni & Hills, 2008). From these statements, it is reasonable for us to believe that factors in external environment are pressing the firm to change. As the industry of luxury goods become more competitive, firms in the industry must adapt and evolve to suit the new environment (Colli and Merlo, 2007), for survival as well as for better performance in the future. As such, change is required in the organization to ensure that Zegna can remain competitive in the every challenging industry landscape. To understand the driving and restricting forces in the change process, Lewin’s Force Field Model is presented as in Figure 1 below:
Figure 1: Lewin’s Force Field Model
Nature of the Change Process
The objective of the change process is to transform Zegna into a high performing organization with a performance oriented culture (Tyler-Cagni & Hills, 2008). To do this, the management had identified several areas of change. These areas include: structure, skill and attitude, policies and systems, education of the customers as well as moving towards a more result oriented culture.
Level of the Change Process
The change process performed is executed at the organizational level. The entire organization is affected, all people working in the firm involved in the change process. As will be discussed in the following sections, the change process firstly involves only the HR department, but later is organized to change the entire organization, which includes Zegna business units in foreign countries around the world. According to Tyler-Cagni & Hills (2008), the duration of the entire change process took about 6 years. As such, the level of change can be categorized as ‘Gamma’, as the change process involves a paradigm shift.
Change Agents
According to Tyler-Cagni & Hills (2008), the newly appointed company group executive vice president, namely Lynda Tyler-Cagni (whom was previously an external consultant) was responsible in changing the company HR department from a previously traditional and transactional focused division into a business-oriented team. The transformed HR department later becomes the role model for the rest of the divisions in the organization. When the HR department is becoming more capable of handling emerging external threats and internal challenges, the department took over the role to influence and change the rest of the departments in Zegna.
Thus, another critical change agent in the change process is the HR department in Zegna. That department was leaded by Jan Hills, who is given the responsibilities to lead the transformation process in the other part of the organization. After the HR department is successfully transformed, they in turn acted as the business partner and change agent to lead the ultimate change programs in the firm.
Approaches Used in the Change Process
Several approaches have been employed to successfully and effectively change Zegna into a performance oriented company. A study on the change process had identified several approaches employed by the senior management to change the culture of the organization. These approaches are outlined in the following paragraphs.
Hiring of external consultants. The change process is performed through the hiring of external consultants, namely Lynda Tyler-Cagni and Jan Hills to bring new fresh perspectives and ideas to the organization. These external consultants are appointed to work in the organization, and then to analyze the existing structure, culture, and policies of the firms, in order to formulate viable change programs for the firm. Several approaches were used in analyzing the scenario and situations in the organization during the consultation process. These approaches include: (a) surveys to understand the existing HR perceptions of the change program and the future – using Ulrich model, (b) face to face interviews on key managers in Zegna, (c) discussions with HR managers on how they could be transformed to involve in strategic business issues in organization, and (d) dialogues with the other staffs in the organization whenever it is necessary.
Engaging HR department as the business partner and change agent. The change process started with changing one of the key department in the organization, and then to use that department to change the other departments in the organization. HR department is selected, as that is the best possible move to change the organization. According to Tyler-Cagni & Hills (2008), prior to the change process, the company is managed through a paternalistic approach. It is the organization commitment to hire the most talented employees as well as to utilize their skills and talents effectively. As such, it is critical to firstly transform the HR function in the firm, before other workforce can be influence and changed. In the change process, HR was capable of affecting the employees from other divisions and then to support the organizational needs to change and to move towards a more result and performance oriented company.
Organizing workshop to re-educate the HR personnel. Re-education programs were organized to teach the employees from HR department on the necessary change and knowledge needed to transform themselves from a traditional and transactional HR department into one that able to support the strategic directions of the company. The programs are tailored to teach the employees on how to work under a more business focus approach. According to Tyler-Cagni & Hills (2008), several series of workshop had been launched for the purpose of re-educating the workforce. The subjects taught and discussed in the workshop include: (a) business planning (i.e., it is about discussions of new business missions and the respective challenges), (b) HR initiatives (i.e., it is about the identification of HR services that can support, facilitate and drive the growth of the business), (c) new skills and training, (d) new HR system, processes and skills, (e) measures of progress and lastly (f) adjustments or corrective actions to be taken if required.
Emphasizing on the potential benefits to be reaped from the change program. Besides, the benefits that can be reaped from the outcomes of the change process were communicated to the employees, through the re-education programs. The potential advantages or values to be reaped by the HR personnel by taking up new roles and responsibilities are communicated often, to ensure that these HR personnel can see the benefits bring to them by taking up new roles in the change process as in supporting the change process through HR functions. Thus, HR personnel is trained to learn the new ways, and then to serve as the role models for others in the firm to follow and learned from. When people can see the positive side of the change, they can focus on the positive points, and subsequently become more open minded and having better attitudes to participate and involve in the change process. This can provide great motivation for them to change, as contrast to resist changes when they do not understand the reasons that they must change, or when they perceive that change process may harm or hurt them in the future.
Working together with HR department, further execute the change programs to other departments in the organization. After the HR personnel are transformed and changed, line managers are then taught about the value and benefits to be reaped through the change process. At this point of time, HR personnel and department serve as the change agent, and the business partner of the consultants to change people in other departments. As the key line managers buy into the ideas on the needs to change, as well as understand the benefits and potential advantages to the organization from the change process, these benefits, ideas, and values are then delivered, communicated and transferred to other staffs in the respective departments. As a result, people now aware and understand the reasons they must change, and their doubts on the viability and ambiguity of the change programs can be cleared.
Emphasizing key ideas required for successful change program along the change process. Apart from that, it is also noted that the external consultants are found to constantly communicate several crucial ideas to people in the organization that can help to facilitate the change process. The key ideas communicated on a continuous basis include: (a) people need to have the courage to change, (b) stay focus on the change, and (c) change is an ongoing process. As a result, people become more open to change, and their resistance to change is lessening, as they were currently supported by the change agents. Instead of blaming others for the need to change, the now can take the change as something necessary, for them to move forward for a better future. With the awareness that change in an ongoing process, people inherently understand the hard work required in the process, and more persistent in working towards the successful implementation of change programs in Zegna.
Overall, the change strategies can be summarized using Kurt Lewin’s Ice Cube Model as in Table 1 below.
Table 1: Kurt Lewin’s Ice Cube Model
Stages of the Change Process
A study of the change process in Zegna revealed that the change process indeed was carried out in several stages. The first stage is the hiring of external consultants to act as the key change agent to kick start the change process in Zegna. External consultants were hired as one of the top managers in the organization. After that, a study of the organization is performed by the change agents. The initial change process was focused on changing the HR department in Zegna. After the HR department is changed, and had agreed to change the other staffs from other departments, HR department is managed as the change partner to facilitate change in the organization. To change the behaviors, mindset and processes in the other department, change agents had targeted their efforts on the line managers first. When the line managers bought into the change process, the change programs were then executed to all other employees in the firm.
In order to present a better view on the stages of the change process, the CONSULT model is presented in Table 2 as follow:
Table 2: CONSULT Model
Effectiveness of the Change Process
Skills and Experience of the Change Agents
Obviously, from a study on the change process implemented by Lynda Tyler-Cagni and Jan Hills, it is found that they possess several important skills and experiences that make the change process a success possible. The crucial skills and experiences contributing to the change process identified include:
Wide experiences in business management. Prior to joining Zegna, both the external consultants already were having wide experiences in business management. They were serving as senior management in other corporations. As they had been working on managerial position prior to taking the roles as change agents for Zegna, it is reasonable to expect that they are indeed experienced manager and understand the twist and turns of managing people and implementing effective change program in the context of a big corporations.
Managerial skills. As discussed before, the external change agents employed are having wide experiences prior to joining Zegna. Thus, it can be expected that they possess the relevant skills in managing businesses. Managerial skills such as planning, coordinating, facilitating, supporting, leading and managing employees and work flow in an organizational should not be something of huge challenges to them.
Communication skills. Ability to persuade others to change is crucial to any change process. As cited in Colli and Merlo (2007), one of the key reasons that the business transformation in Zegna was successful was because the change agents able to persuade the people in the organization to buy into the ideas that they need to change. Without good communication skills, it is not possible for the change agents to persuade the people to try out something new, particularly when these people are happy to stick with their previous roles and responsibilities (This is explicitly acknowledged by the change agent, as cited in Tyler-Cagni & Hills, 2008). Thus, we can easily deduce that the change agents are having excellent communication skills to talk to, and to persuade people to not to stay in status quo, and to take up new risks to move towards a new direction for better future.
An understanding on the requirement of change process. The entire business transformation and change process is performed smoothly, although it is also acknowledged by the change agents that the route was never smooth and easy. However, viewing from the difficulties of a change program, it is reasonable to deduce that the change agents understand the critical issues in successfully implementation of a change program. This is not hard to discern, considering the fact that the change process is carried out in sequence, and the change agents understand the delicate and complicated people management issues in Zegna – and successfully change the HR department and ultimately use the HR department as the change partner to properly carry out the change process in Zegna.
Ability to handle resistance to change. There were resistance to change in the organization but that were handled properly and effectively by the change agents. To handle the resistance to change, it is observed that the change agents had been stressing on the benefits to be reaped from the change process, constantly communicate with people in Zegna, support them when required, as well as to allow them to participate and involve in the change process.
An in-depth understanding on the industry. Possessing industry specific skills and certain degree of technical know-how is critical to the success of the change process. When the change agents had better technical competencies, it is more likely that people will believe in them, and then to buy into their ideas on the directions and methods to change.
Effectiveness of the Change Agents
The change process is a highly successful one. After the change process, the previously struggling firm is now performing in an excellent and profitable manner. According to the statistics provided by the change agents, as cited in Tyler-Cagni & Hills (2008), the business grow to a bigger corporations with 7500 employees (whereby 50% of these employees are based in Italy), and able to achieve a turnover rate of Euro 779.4 million in the year of 2006 (i.e., 6 years after the year 2000, where the change process is started). Apart from the numerical and financial achievement obtained by the change agents, Zegna had also become a case study being referenced in academic research. The change process in Zegna is currently served as one of the success case study for researchers from the field of change management and business management to study. The success case study is cited in Human Resource Management International Digest, and is later quoted by Colli and Merlo (2007) in the discussion of best performing fashion corporations from Italy. Viewing from these facts, it can be concluded safely that the change process indeed is pretty successful.
Conclusion
Change management and successful implementation of a change process is never an easy task. Several guideline and requirements must exist before the change process can be effectively or successfully implemented. It is found that the successful change program in Zegna indeed followed systematic approaches to change. The change agents are also experienced and skillful. Many of the approaches employed are also consistent with theories suggested from change management literature. All these contribute to the success of that change process in Zegna. These present us a valuable case study and lessons to be learned from Zegna, and serve as good reference for managers that are about to implement change programs in their respective organization.
References & Bibliography
Anon. (2009). Business transformation at Zegna: human resources as a change agent. Human Resources Management International Digest, 17(3), 8-10.
Beardwell, J. & Claydon, T. (2007). Human Resource Management: A Contemporary Approach, (5th edn). Prentice Hall
Briscoe, D., & Schuler, R. (2004). International Human Resource Management 2e. Routledge: London.
Colli, A., & Merlo, E. (2007). Family business and luxury business in Italy. Enterprise Et Histoire, 46, 112-124.
Dessler, G. (2011) Human Resource Management ,12th edition, Prentice Hall,
Legge, K. (2004). Human Resource Management: Rhetorics and Realities (Management, Work and Organisations), (Ed. Edition). Palgrave Macmillan.
McShane, S. L., & Von Glinow, M. A. V. (2010). Organizational Behavior: emerging knowledge and practice for the real world (5th Edition). McGraw Hill.
Robbins, S.P. (2005). Organizational Behavior, 11th edn, Pearson Prentice Hall, Upper Saddle River, NJ.
Tyler-Cagni, L., & Hills, J. (2008). HR leading by example during Zegna transformation. Strategic HR Review, 7(1), 22-27.
Wilson F.M. (2004) Organizational Behaviour and Work, Oxford, Oxford University Press.
ABOUT THE AUTHOR
BusinessEssays.net
Introduction
This paper present a successful change management programs recently completed in Ermenegildo Zegna (“Zegna”). A study of the successful organization transformation program enables us to understand the steps and approaches used in real life in changing an organizational culture. In the following sections, the paper is arranged as follow. Firstly, the situational context of the change process is introduced and articulated. For this, the forces pushing forward for a change process, the nature of the change process, the level of the change process as well as the respective change agents involved in change process are discussed. Then, the approaches employed in the change process are also outlined. The impacts from these approaches are also discussed. Then, the relevant stages of the change process are summarized. Lastly, the effectiveness of the change process is discussed. For this, the skills and experiences of the change agents are outlined. The evidences of success and effectiveness of the change process are also demonstrated. Overall, this paper is relevant for those who wish to learn more about a successful change process, and to understand how change process is being implemented in a corporation in real business life, in the recent years.
Situational Context of the Change Process
Forces Demanding the Change Process
Prior to the change process, Zegna is a family owned business. In 2000, the management of the company was taken over by younger generation of family members (Tyler-Cagni & Hills, 2008). Apparently, the younger negation of senior management is more ambitious, and is committed to bring the firm to greater heights. External consultants and change agents are employed (namely, Lynda Tyler-Cagni and Jan Hills). Thus, apparently, one of the key factors leading to the change process in Zegna is due to change of management, whereby the new management is currently more ambitious, and obviously has the opinion that a change is required to bring the organization to better performance and greater profitability.
From the industry wide perspective, the fashion industry in Italy is facing increasing competitive business environment. The entire fashion industry in the country is undergoing a period of consolidation in the luxury market segment (Tyler-Cagni & Hills, 2008). From these statements, it is reasonable for us to believe that factors in external environment are pressing the firm to change. As the industry of luxury goods become more competitive, firms in the industry must adapt and evolve to suit the new environment (Colli and Merlo, 2007), for survival as well as for better performance in the future. As such, change is required in the organization to ensure that Zegna can remain competitive in the every challenging industry landscape. To understand the driving and restricting forces in the change process, Lewin’s Force Field Model is presented as in Figure 1 below:
Figure 1: Lewin’s Force Field Model
Nature of the Change Process
The objective of the change process is to transform Zegna into a high performing organization with a performance oriented culture (Tyler-Cagni & Hills, 2008). To do this, the management had identified several areas of change. These areas include: structure, skill and attitude, policies and systems, education of the customers as well as moving towards a more result oriented culture.
Level of the Change Process
The change process performed is executed at the organizational level. The entire organization is affected, all people working in the firm involved in the change process. As will be discussed in the following sections, the change process firstly involves only the HR department, but later is organized to change the entire organization, which includes Zegna business units in foreign countries around the world. According to Tyler-Cagni & Hills (2008), the duration of the entire change process took about 6 years. As such, the level of change can be categorized as ‘Gamma’, as the change process involves a paradigm shift.
Change Agents
According to Tyler-Cagni & Hills (2008), the newly appointed company group executive vice president, namely Lynda Tyler-Cagni (whom was previously an external consultant) was responsible in changing the company HR department from a previously traditional and transactional focused division into a business-oriented team. The transformed HR department later becomes the role model for the rest of the divisions in the organization. When the HR department is becoming more capable of handling emerging external threats and internal challenges, the department took over the role to influence and change the rest of the departments in Zegna.
Thus, another critical change agent in the change process is the HR department in Zegna. That department was leaded by Jan Hills, who is given the responsibilities to lead the transformation process in the other part of the organization. After the HR department is successfully transformed, they in turn acted as the business partner and change agent to lead the ultimate change programs in the firm.
Approaches Used in the Change Process
Several approaches have been employed to successfully and effectively change Zegna into a performance oriented company. A study on the change process had identified several approaches employed by the senior management to change the culture of the organization. These approaches are outlined in the following paragraphs.
Hiring of external consultants. The change process is performed through the hiring of external consultants, namely Lynda Tyler-Cagni and Jan Hills to bring new fresh perspectives and ideas to the organization. These external consultants are appointed to work in the organization, and then to analyze the existing structure, culture, and policies of the firms, in order to formulate viable change programs for the firm. Several approaches were used in analyzing the scenario and situations in the organization during the consultation process. These approaches include: (a) surveys to understand the existing HR perceptions of the change program and the future – using Ulrich model, (b) face to face interviews on key managers in Zegna, (c) discussions with HR managers on how they could be transformed to involve in strategic business issues in organization, and (d) dialogues with the other staffs in the organization whenever it is necessary.
Engaging HR department as the business partner and change agent. The change process started with changing one of the key department in the organization, and then to use that department to change the other departments in the organization. HR department is selected, as that is the best possible move to change the organization. According to Tyler-Cagni & Hills (2008), prior to the change process, the company is managed through a paternalistic approach. It is the organization commitment to hire the most talented employees as well as to utilize their skills and talents effectively. As such, it is critical to firstly transform the HR function in the firm, before other workforce can be influence and changed. In the change process, HR was capable of affecting the employees from other divisions and then to support the organizational needs to change and to move towards a more result and performance oriented company.
Organizing workshop to re-educate the HR personnel. Re-education programs were organized to teach the employees from HR department on the necessary change and knowledge needed to transform themselves from a traditional and transactional HR department into one that able to support the strategic directions of the company. The programs are tailored to teach the employees on how to work under a more business focus approach. According to Tyler-Cagni & Hills (2008), several series of workshop had been launched for the purpose of re-educating the workforce. The subjects taught and discussed in the workshop include: (a) business planning (i.e., it is about discussions of new business missions and the respective challenges), (b) HR initiatives (i.e., it is about the identification of HR services that can support, facilitate and drive the growth of the business), (c) new skills and training, (d) new HR system, processes and skills, (e) measures of progress and lastly (f) adjustments or corrective actions to be taken if required.
Emphasizing on the potential benefits to be reaped from the change program. Besides, the benefits that can be reaped from the outcomes of the change process were communicated to the employees, through the re-education programs. The potential advantages or values to be reaped by the HR personnel by taking up new roles and responsibilities are communicated often, to ensure that these HR personnel can see the benefits bring to them by taking up new roles in the change process as in supporting the change process through HR functions. Thus, HR personnel is trained to learn the new ways, and then to serve as the role models for others in the firm to follow and learned from. When people can see the positive side of the change, they can focus on the positive points, and subsequently become more open minded and having better attitudes to participate and involve in the change process. This can provide great motivation for them to change, as contrast to resist changes when they do not understand the reasons that they must change, or when they perceive that change process may harm or hurt them in the future.
Working together with HR department, further execute the change programs to other departments in the organization. After the HR personnel are transformed and changed, line managers are then taught about the value and benefits to be reaped through the change process. At this point of time, HR personnel and department serve as the change agent, and the business partner of the consultants to change people in other departments. As the key line managers buy into the ideas on the needs to change, as well as understand the benefits and potential advantages to the organization from the change process, these benefits, ideas, and values are then delivered, communicated and transferred to other staffs in the respective departments. As a result, people now aware and understand the reasons they must change, and their doubts on the viability and ambiguity of the change programs can be cleared.
Emphasizing key ideas required for successful change program along the change process. Apart from that, it is also noted that the external consultants are found to constantly communicate several crucial ideas to people in the organization that can help to facilitate the change process. The key ideas communicated on a continuous basis include: (a) people need to have the courage to change, (b) stay focus on the change, and (c) change is an ongoing process. As a result, people become more open to change, and their resistance to change is lessening, as they were currently supported by the change agents. Instead of blaming others for the need to change, the now can take the change as something necessary, for them to move forward for a better future. With the awareness that change in an ongoing process, people inherently understand the hard work required in the process, and more persistent in working towards the successful implementation of change programs in Zegna.
Overall, the change strategies can be summarized using Kurt Lewin’s Ice Cube Model as in Table 1 below.
Table 1: Kurt Lewin’s Ice Cube Model
Stages of the Change Process
A study of the change process in Zegna revealed that the change process indeed was carried out in several stages. The first stage is the hiring of external consultants to act as the key change agent to kick start the change process in Zegna. External consultants were hired as one of the top managers in the organization. After that, a study of the organization is performed by the change agents. The initial change process was focused on changing the HR department in Zegna. After the HR department is changed, and had agreed to change the other staffs from other departments, HR department is managed as the change partner to facilitate change in the organization. To change the behaviors, mindset and processes in the other department, change agents had targeted their efforts on the line managers first. When the line managers bought into the change process, the change programs were then executed to all other employees in the firm.
In order to present a better view on the stages of the change process, the CONSULT model is presented in Table 2 as follow:
Table 2: CONSULT Model
Effectiveness of the Change Process
Skills and Experience of the Change Agents
Obviously, from a study on the change process implemented by Lynda Tyler-Cagni and Jan Hills, it is found that they possess several important skills and experiences that make the change process a success possible. The crucial skills and experiences contributing to the change process identified include:
Wide experiences in business management. Prior to joining Zegna, both the external consultants already were having wide experiences in business management. They were serving as senior management in other corporations. As they had been working on managerial position prior to taking the roles as change agents for Zegna, it is reasonable to expect that they are indeed experienced manager and understand the twist and turns of managing people and implementing effective change program in the context of a big corporations.
Managerial skills. As discussed before, the external change agents employed are having wide experiences prior to joining Zegna. Thus, it can be expected that they possess the relevant skills in managing businesses. Managerial skills such as planning, coordinating, facilitating, supporting, leading and managing employees and work flow in an organizational should not be something of huge challenges to them.
Communication skills. Ability to persuade others to change is crucial to any change process. As cited in Colli and Merlo (2007), one of the key reasons that the business transformation in Zegna was successful was because the change agents able to persuade the people in the organization to buy into the ideas that they need to change. Without good communication skills, it is not possible for the change agents to persuade the people to try out something new, particularly when these people are happy to stick with their previous roles and responsibilities (This is explicitly acknowledged by the change agent, as cited in Tyler-Cagni & Hills, 2008). Thus, we can easily deduce that the change agents are having excellent communication skills to talk to, and to persuade people to not to stay in status quo, and to take up new risks to move towards a new direction for better future.
An understanding on the requirement of change process. The entire business transformation and change process is performed smoothly, although it is also acknowledged by the change agents that the route was never smooth and easy. However, viewing from the difficulties of a change program, it is reasonable to deduce that the change agents understand the critical issues in successfully implementation of a change program. This is not hard to discern, considering the fact that the change process is carried out in sequence, and the change agents understand the delicate and complicated people management issues in Zegna – and successfully change the HR department and ultimately use the HR department as the change partner to properly carry out the change process in Zegna.
Ability to handle resistance to change. There were resistance to change in the organization but that were handled properly and effectively by the change agents. To handle the resistance to change, it is observed that the change agents had been stressing on the benefits to be reaped from the change process, constantly communicate with people in Zegna, support them when required, as well as to allow them to participate and involve in the change process.
An in-depth understanding on the industry. Possessing industry specific skills and certain degree of technical know-how is critical to the success of the change process. When the change agents had better technical competencies, it is more likely that people will believe in them, and then to buy into their ideas on the directions and methods to change.
Effectiveness of the Change Agents
The change process is a highly successful one. After the change process, the previously struggling firm is now performing in an excellent and profitable manner. According to the statistics provided by the change agents, as cited in Tyler-Cagni & Hills (2008), the business grow to a bigger corporations with 7500 employees (whereby 50% of these employees are based in Italy), and able to achieve a turnover rate of Euro 779.4 million in the year of 2006 (i.e., 6 years after the year 2000, where the change process is started). Apart from the numerical and financial achievement obtained by the change agents, Zegna had also become a case study being referenced in academic research. The change process in Zegna is currently served as one of the success case study for researchers from the field of change management and business management to study. The success case study is cited in Human Resource Management International Digest, and is later quoted by Colli and Merlo (2007) in the discussion of best performing fashion corporations from Italy. Viewing from these facts, it can be concluded safely that the change process indeed is pretty successful.
Conclusion
Change management and successful implementation of a change process is never an easy task. Several guideline and requirements must exist before the change process can be effectively or successfully implemented. It is found that the successful change program in Zegna indeed followed systematic approaches to change. The change agents are also experienced and skillful. Many of the approaches employed are also consistent with theories suggested from change management literature. All these contribute to the success of that change process in Zegna. These present us a valuable case study and lessons to be learned from Zegna, and serve as good reference for managers that are about to implement change programs in their respective organization.
References & Bibliography
Anon. (2009). Business transformation at Zegna: human resources as a change agent. Human Resources Management International Digest, 17(3), 8-10.
Beardwell, J. & Claydon, T. (2007). Human Resource Management: A Contemporary Approach, (5th edn). Prentice Hall
Briscoe, D., & Schuler, R. (2004). International Human Resource Management 2e. Routledge: London.
Colli, A., & Merlo, E. (2007). Family business and luxury business in Italy. Enterprise Et Histoire, 46, 112-124.
Dessler, G. (2011) Human Resource Management ,12th edition, Prentice Hall,
Legge, K. (2004). Human Resource Management: Rhetorics and Realities (Management, Work and Organisations), (Ed. Edition). Palgrave Macmillan.
McShane, S. L., & Von Glinow, M. A. V. (2010). Organizational Behavior: emerging knowledge and practice for the real world (5th Edition). McGraw Hill.
Robbins, S.P. (2005). Organizational Behavior, 11th edn, Pearson Prentice Hall, Upper Saddle River, NJ.
Tyler-Cagni, L., & Hills, J. (2008). HR leading by example during Zegna transformation. Strategic HR Review, 7(1), 22-27.
Wilson F.M. (2004) Organizational Behaviour and Work, Oxford, Oxford University Press.
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Checklist for award-winning entries at HR Excellence Awards 2018
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In this part two of the series, Priya Veeriah showcases our judges’ key checklist that will help you craft an award-worthy entry for the upcoming HR Excellence Awards.
How to win — A burning passion for continuous improvement, going the extra mile to achieve this, and possessing a winning spirit to be an over achiever are the signs that Dato’ Norashikin is looking out for.
HR’s role — She breaks it down into three specific areas:
- As part of talent management, a steady talent pipeline, competent leadership and a nurturing culture are all important.
- Secondly, building an open and safe workplace that encourages employee engagement, and lastly a competitive rewards scheme are all necessary for HR to achieve functional excellence.
- “HR’s ability to deliver and gain credibility from its business partners would deem it as trustworthy,” she says, thereby adding value to the business in the long run.
How to win — “A team should be agile and forward thinking to stand out!” remarks Low as she points out that winners will be identified based on their knowledge on latest market trends, ability to reinvent and benchmarking against best practices.
She draws references to the Aon model of “say, stay and strive” particularly when building an engaged workforce, by looking at the wide spectrum across an employee’s life cycle.
HR’s role — Data mastery has become an imperative skill for HR leaders as HR functions shift away from administration and reporting, towards analysing and prediction. This enables HR to become a value adding partner by ensuring parallel business and people strategies.
How to win — Furn is on the lookout for organisations that push the boundaries of people strategy through people analytics while balancing between data transparency and governance, innovation in redefining workplace and flexible workplace arrangements with proven increased productivity.
“HR teams need to demonstrate how they successfully leverage on digitisation and digitalisation of the workplace to create an ecosystem that accentuates people experience and ultimately creating business value,” she affirms.
HR’s role — This includes creating experiences at workplaces and delivering them with sincerity and genuine purpose at heart with the best interests of the company and employees. Individuals who possess high integrity, right values, and strong purpose to serve the greater good are needed.
About HR Excellence Awards 2018
This is Asia’s only regional awards that serve as a platform to honour and celebrate organisations that deliver business growth alongside strategic human capital strategy with confidence in scaling the HR industry.
Top 5 HR Challenges - as posted by HumanResourceonline- for reference.
HR leaders from McCain Foods, MoneySmart, P&G, Schneider Electric, and Tan Chong Group shed light on the trends and challenges in the HR landscape for 2018, in interviews with Jerene Ang.
The world of work is evolving every year, and so is the HR landscape.
In this feature, we speak to five HR leaders across Malaysia, Singapore, and the rest of Asia to present a special focus on some of the key HR considerations anticipated in the coming year.
1. A challenging recruitment and retention landscape
Chiou Thien Ling (Michelle), head of group human resources, head of group employee relations and organisational development, Tan Chong Group, shared that as the conglomerate expands into Indo-China, one of the major challenge faced is recruitment and retention especially when it comes to the younger generation.
“The younger generation is quite selective; they have the tendency to think they want to be a manager in five years. But it’s about how they can get there, whether or not a degree is sufficient. We have issues trying to get people who have language capabilities and who are open to learning beyond their degree and who put in effort to learn beyond what they have already learnt. They also have to be able to adapt to different cultures and environments. That is what makes anyone successful even without a degree,” she said.
She added that in an expanding business like Tan Chong Group, it is necessary to post people to different areas.
However, Chiou noted that employees may have an apprehension to try new fields or environments, adding that “they have this mentality that if they are away from home, they can’t accomplish anything or they might fail in the new assignment – that fear is there.”
To overcome this challenge, she shared: “It is all about people, the communication and the psychology of what people needs and wants at a given time. If you don’t know how to motivate people, communicate it effectively and get people to feel comfortable in an environment they are unfamiliar with, you will have these challenges of getting people to do other new things, and go elsewhere where we need them to develop themselves with the business.”
2. Adding value to the business through work-life balance
Another way HR can help retain people and add value to the business is to provide them with a good environment to work in.
Choong Wai Bin, HR director – Korea, SEA and Taiwan, McCain Foods, shared: “Nowadays, HR is different from how it used to be traditionally. To me it is important that HR should add value to the business in the sense that we should look into not just management, but also look into taking care of our employees especially work life balance. I think this is part of retention to me. If you want to retain people, I think you have to have a good environment to work in.”
Choong is of the opinion that employers should think about empowering and trusting employees especially when it comes to implementing flexi-timings to support work-life balance.
“If you hire this line manager, I think you should trust them. That is important because at the end of the day, whether the employee is performing or not, it is the line manager’s responsibility as well. Also, as long as the line managers agree that this is the working time they have with their direct reports, I think that’s perfectly fine.
Unless there is an issue where the employee takes it for granted – and it will happen; that is when HR will step in to take necessary action, or rather to have a conversation with the employee and see how serious it is. If it affects their performance, I think the necessary steps will have to be implemented.”
She shared that in her previous experience flexi-timings really helped to retain employees – especially working mothers.
“In KL, traffic is really bad during peak hours. So flexi timings help allows them to avoid this morning rush when they send their children to school in the mornings. It also gives them the choice to pick up their children after school. As a result of this, they actually value the company more. It also helps them see the value in life.”
3. Leveraging on digital technologies
Olivier Blum, chief human resources officer, and executive vice president, at Schneider Electric, believes that digital technologies not only transforms businesses, but also the HR function.
“The power of digital and data analytics can help to transform the HR function in decision making and managing a company. This is one of the biggest transformations at Schneider Electric, that we already have in place.
“Moving forward into 2018, we are looking to accelerate the use of digital technology. Digital has allowed us to perform many talent and project management processes more efficiently. For example, the use of HR systems that can help manage digital expenses for employees, as well as improving the organisation of performance management and feedback.”
Blum added that technologies such as mobile applications have been deployed to support employees in their overall job functions. This includes a global recognition program which allows employees to connect and recognise people everywhere in the world, to build a true culture of appreciation easily and quickly – simply by using a smartphone.
The company has also invested in data and smart analytics to anticipate and make decisions in areas of strategic talent management and will be starting a pilot with artificial intelligence (AI) for recruitment where AI will be used to do the initial screening of candidates.
Sharing the reason behind the pilot, Blum said: “Today, most people have their profiles on LinkedIn, and one of the challenges for a large company is how to connect job opportunities with the people who are most suitable for them. We see opportunities for technology to help us with this.”
In line with this, MoneySmart’s head of talent, Ian Jongho Im, said:” In 2018, we will see employers more aggressively searching for talent skilled in new technology capabilities and engineering, While this trend was previously attributed to supply and demand, it is now being driven by companies who want less outsourcing of these functions to other countries.”
4. Diversity and inclusion
Vinitaa Jayson, vice president – HR, P&G Asia, noted that more companies are now driving focused efforts to create a diverse workforce.
Shedding light on the multi-national consumer goods company’s view on the matter, Jayson said: “At P&G, we believe that a diverse organisation outperforms a homogenous organisation every time. So we are committed to developing the most diverse mix of talent by gender, ethnicity, culture, geography, experiences, personality and so on. As a consumer products company, the more we reflect and mirror the consumers we serve, the better equipped we are.”
Jayson pointed out that the majority of people who buy P&G’s products are women. Hence the company believes in gender equality – with equal voice and equal representation.
“Our #WeSeeEqual program empowers women, inside and outside the company – it’s our vision to create a world free from gender bias. In Asia, we are proud that over 50% of our managers are women. We hire men and women equally at entry level. We provide equal pay, equal benefits and flexible work arrangements.
“We manage our talent pipeline to ensure we have a diverse pool of experienced talent at all levels. We have affinity groups and women’s networks in each site for informal advice and peer coaching. We work to create an inclusive culture where women can be successful at P&G, and we educate our men on their crucial role as allies in closing the gender gap.”
P&G is not the only company prioritising diversity and inclusion. Schneider Electric’s Blum noted that diversity and inclusion is also a core priority for the technology company.
“Our diversity and inclusion philosophy aims to provide equal opportunities to everyone everywhere, and ensure that all our employees feel uniquely valued and safe to contribute their best. This year, Schneider Electric was included in the Bloomberg Gender-Equality Index, among 104 companies across sectors worldwide. Our inclusion in the index reinforces our commitment to create an inclusive culture where all forms of diversity are valued,” Blum said.
5. Localisation
Another trend pointed out by MoneySmart’s Im is localisation.
“Employees who have deep understanding of cultural nuances in specific markets will also be highly sought after, as businesses develop more localised go-to market strategies for better relevance and audience engagement.”
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