MBA Business Economics Assignment solution on Industry analysis of Kiwi Fruits industry in New Zealand - Market structure of the Kiwifruit Industry in New Zealand, INTERNATIONAL MARKET STRUCTURE of KIWI Fruit , Impact of national Policies on kiwifruit industry of New Zealand, Global economic trends of Kiwi Fruits, Factors affecting demand and supply of Kiwi fruits

 

TABLE OF CONTENTS

1.   INTRODUCTION

2.   DEMAND AND SUPPLY OF KIWIFRUIT

3.   MARKET STRUCTURE OF KIWIFRUIT

4.   IMPACT OF NATIONAL POLICIES on Kiwi Fruits

5.   GLOBAL ECONOMIC TRENDS of Kiwi Fruits

6.   REFERENCES

 Analysis of New Zealand’s Kiwifruit industry

Introduction

This essay is an analysis of the Kiwifruit industry, which is a major player of the horticulture landscape of New Zealand. It is exported to 53 countries and 30% share of the global export is with this country.

This essay examines and analyses the factors effecting the demand and supply of the product, the market structure of the industry both domestic and international and the dimensions on which the firms in the sector interact with each other. The analyses also cover the impact of the national polices over the industry and how it is affected by the global economic trends. 

It may be pertinent to mention here that in New Zealand the kiwifruit Industry is a regulated Industry.  Two of the important legislations which govern it are the Kiwifruit Industry Restructuring Act, 1999 and the Kiwifruit Export Regulations, 1999.

2. FACTORS AFFECTING THE DEMAND AND SUPPLY OF KIWIFRUIT INDUSTRY

DETERMINANTS OF DEMAND

·       TASTESAND PREFERENCES - Advertisement, lifestyle, customer perception, health considerations, and memories of eating the good on previous occasions influence tastes and preferences(Sloman, Norris, & Garrett, 2013). First and foremost, in the case of kiwifruit, being its high rating as a super food. Its distinctive melon like taste is unique. A recent nutritional study showed that the kiwifruit has more fiber than bran. Its vitamin ‘C’ contents are thrice as rich as an orange. It has low-calories and is sodium-free. It contains lot of potassium and calcium.

·       INCOME - As income increases, people's demand for most commodities will increase. These goods are normal goods.  When people are wealthier, they spend less on inferior products, such as bad fruit cuts, and turn to higher quality products (Sloman et al., 2013).Within the fruit bowl the Kiwifruit is still in an underdeveloped category. But the fruit has huge further growth and demand potential. As incomes in many countries increased, imports (especially from new emerging markets) also increased, particularly in Asia. (Bano. S, Scrimgeour F, 2012).

·       THE NUMBER AND PRICE OF SUBSTITUTE GOODS – Apple and Pears are substitute for Kiwifruit. When the prices of inferior fruits (Apple and Pears) rise the demand of normal fruit (Kiwifruit which has higher nutritive value) will increase because price is sensitive and once it gets increase the people will prefer more kiwifruit. The higher the inferior product price, the higher the demand for normal goods would be as people turn from the substitutes ((Sloman et al., 2013).The price will not differentiate much between inferior goods and normal goods. People will prefer kiwifruit more than apple and pears if price increases.

·       DISTRIBUTION OF INCOME - If national income were allocated to high-income earners from those with low incomes, the demand for luxury goods would increase. Kiwifruit is the super-food with high nutritive value. The cost of kiwifruit is high and cannot be purchased by low income earners frequently. Kiwifruit has always been the preference of higher income earners. 

Impact of changes in determinants of demand on market equilibrium price and quantity

 

Impact of positive changes

There is increase in demand (shift the demand curve right/up) due to positive change in determinants of Kiwifruit. Positive changes result in an increase of both equilibrium price and quantity. This is easily visible by looking at the red dots marked 1 and 2.  Initially equilibrium point is at 1 but when there is a rightward shift in demand curve the price as well as quantity of Kiwifruit has increased.

Impact of negative changes

There is decrease in demand (shift the demand curve left/down) due to negative change in determinants of Kiwifruit. Negative changes result in a decrease of both equilibrium price and quantity. Initially equilibrium point is at P and Q but when there is leftward shift in demand curve the price as well as quantity of kiwifruit has decrease and new equilibrium has been formed at price P1 and quantity Q1.

DETERMINANTS OF SUPPLY

·       USE OF TECHNOLOGY- Technology in the form and robotics and automation helps improve efficiency in the horticulture sector including kiwifruit supply chain in New Zealand. Sensors used in the supply chain provide accurate real time information and data for analysis. Robotic harvesters which work day and night are deployed in the orchards to pick up fruits. High accuracy GPS units; Drones (UAV) used to capture aerial imagery; and, Geographic Information Systems (GIS) software to process and present the maps are being deployed to map the orchards with high value kiwifruit varieties. High accuracy results about crop estimation, biosecurity readiness, pest and disease management and more are obtained with the use of these three complementary technologies for advance planning with confidence and precision. In post harvest operations automated bin trippers , infra red camera and robotic packing and stacking technology is being deployed. The use of this advanced technology has brought in accuracy and speed in the supply chain.

·       GEOPOLITICAL UNCERTAINTIES - In this connection mention may be made of the Brexit induced negotiations for the exit deal of United Kingdom from the European Union. Due to delay in this process there have been considerable distractions as well as uncertainty since the last two years. The process of FTA with EU and New Zealand has also been hanging fire. US/China tariff war is another factor under this category. Similarly, in the name of food security and self-sufficiency protectionist policies are being espoused by some of the countries. All these factors represent a significant risk in so far as the international trade environment is concerned and have jeopardized the growth of New Zealand’s export business of Kiwifruit. Non tariff barriers have impacted the demand of the fruit internationally.

·       THE NUMEBR OF SUPPLIERS AND THE ALTERNATIVE PRODUCTS- In order to beat the competition, new varieties of kiwifruit better in taste, quality and consistency needs to be introduced and given proper branding and promotional campaigns. This is, however, a cost intensive exercise needing high spending in research and innovation. Moreover new varieties take several years to grow. It can be made available in sufficient quantity when a large number of growers cultivate the same. All these issues add up to increased cost of production. The other alternative to compete with the rivals in the market is to ensure that Zespri manage to supply the kiwifruit to the international market throughout the year. This is achieved by getting the fruit cultivated offshore in the southern hemisphere region in Italy and China as the harvesting seasons in the northern and southern hemisphere complement each other. When the harvesting season ends in northern hemisphere, it starts in southern hemisphere. (NZKGI, 2018-kiwifruit book).

·       NATURE, ‘RANDOM SHOCKS’ AND OTHER UNPREDICTABLE EVENTS -Adverse weather such as frost, cyclone, drought, etc, Biosecurity incursion, Food safety/contamination risks, labour constraints are some other factors which impact the supply of the kiwifruit. (NZKGI, 2018-kiwifruit book). PSA the bacterial disease which effected the kiwifruit in 2010 devasted the harvest and had hindered the supply ( NZ herald,2010)

IMPACT OF CHANGES IN DETERMINANTS OF SUPPLY ON MARKET EQUILIBRIUMPRICE AND QUANTITY (DEMAND CONSTANT)

 Impact of favorable changes

Supply curve shifts rightward leading to new equilibrium price and quantity. New equilibrium price is less than initial equilibrium but quantity has been increased in new equilibrium.

Impact of negative changes

There is decrease in supply (shift the demand curve left/ up) due to negative change in determinants of Kiwi. Negative changes result in a decrease of quantity and increase in price. Initially equilibrium point is at P and Q but when there is leftward shift in supply curve the price Kiwi has gone up and quantity supplied went down.

   

Price elasticity of demand of Kiwi fruits

Demand of kiwifruits are inelastic( very less elastic) in nature in short run as it is categorized as a super product among various fruits available in the market in terms of health benefits, minerals and vitamins available in Kiwi fruits. Increase in price of Kiwi fruits tends to decrease demand of Kiwi fruits in short run to a very lower extent. Generally, in long run, demand of products remain more elastic, however, looking into nutritious benefits of kiwi fruits as compared to its substitutes , it tend to remain less elastic in long run as has been observed in continuous increase in demand of kiwi fruits year over year around the importing countries.

Price elasticity of Supply

Supply elasticity of Kiwi fruits is very less elastic near to inelastic in short run due to limitation of resources required to produce Kiwi fruits however, in long run, supply elasticity is elastic in nature as production capacity can be easily increased in long run as has been seen from statistical data of increase in quantity of exports over year and year.

Q 1 & 2.Market structure of the Kiwifruit Industry in New Zealand and over what dimensions do the firms interact with each other:

(Market structure may be different domestically and internationally. Justify your conclusions about the structure. Consider also carefully the interactions. The firms may not interact only on price. They may also cooperate at some levels and not just compete with each other.)

There are 2681 kiwifruit growers in New Zealand with 2900 registered orchards spread in 12185 hectares. In 2017/18 the earnings from the export of the kiwifruit produce was $1.859 billion, up significantly 12% from 2016/17(Retrieved from http://kiwifruit-Book.pdf). In 2018 New Zealand exported 417000 tonnes of kiwifruit. (Global Trade, Nov5, 2019 issue).

 

Market Structure for EXPORT of Kiwi fruits –

For most of exports of Kiwi fruit there is monopoly market that exists in Newzealand. However, for export to Australia, there is oligopolistic market structure.

MONOPOLY – A monopoly exists when there is only one firm in the industry. Zespri is the major player in export market from Newzealand to other countries except Australia. The Kiwifruit Export Regulations, 1999 govern and regulate the export. Under the provisions of the said regulations only a single marketer, namely, Zespri Group limited has been permitted to export and market the Kiwifruits grown in New Zealand to the countries outside Australasia (Retrieved from http://kiwifruit-Book.pdf).The firm’s monopoly position by patents on the essentials(Sloman et al., 2013). Zespri has patent gold kiwi. Zespri has copyright. The various forms of licensing and tariffs and trade restrictions are applicable to keep the one firm to operate from Newzealand for exporting kiwifruit. This arrangement is what is called the Single Point of Entry (SPE). Provision for collaborative marketing arrangements between other marketers and Zespri has also been made under the Regulations and is defined as “an arrangement by which a person may export New Zealand grown kiwifruit in collaboration with Zespri Group Limited”. Collaborative marketing has “the purpose of increasing the overall wealth of New Zealand kiwifruit producers.” This arrangement makes Zespri, in effect, a monopsony buyer of kiwifruit, grown in New Zealand, for export. The New Zealand Kiwifruit Authority has the look and most of the mechanisms of a state- sanctioned marketing monopoly. It is not mandatory for the producers of the NZ kiwifruit to have share ownership in Zespri. The growers receive the payment for their produce form the packhouse and cold storage Company, or a legal entity of group of growers which negotiates the contract with the packhouse on their behalf. The Zespri and the packhouses have a direct contract called the ‘Supply agreement’. The packhouses are called the registered suppliers.

OLIGOPOLY – Oligopoly occurs when there are few firms sharing a large proportion of the industry(Sloman et al., 2013).There are few firms like SEEKA which exports to AUSTRALIA. Export of kiwifruit to Australia is governed under the New Zealand Horticulture Export Authority Act,1987. Both firms have identical product kiwifruit. Both the firms SEEKA and ZESPRI are interdependent. Each firm is affected by its rival’s action. Both the firms SEEKA and ZESPRI does not ignore the actions and reactions of each other in kiwifruit industry. The price change or product enhancement will affect the other firm and vice-versa. The companies are interdependent. If a company changes its price or product quality it will be influenced by the rival's sales(Sloman et al., 2013).

INTERNATIONAL MARKET STRUCTURE of KIWI Fruit-  

MONOPOLISTIC COMPETITION

Zespri is the largest firm to export globally the kiwifruit. ZESPRI is among the top choice for the kiwifruit because of its superior quality of kiwis. Zespri grows the best-tasting kiwifruit whichever variety to be choose either green kiwi or gold kiwi. The size of the kiwis are large as comparing it global varieties. Zespri has a brand name in the global market because of its better nutritive content. There are several other countries who are the producers of kiwifruit like Italy, Chile, Greece, Belgium, Iran and many more.

As stated by globaltrademag.com “ EXPORTS BY COUNTRIES IN 2007 TO 2018

New Zealand (417K tonnes) and Italy (289K tonnes) were the key exporters of kiwi fruit in 2018, resulting at near 29% and 20% of total exports, respectively.

By making use of the economy scale, setting for high standard quality, developing markets and spending in Research and Development, the SPE arrangement has been instrumental in improving the value of the kiwifruit industry exports. All these measures have helped Zespri to compete effectively in international markets and command a premium for its world leading brand. The kiwifruit growers of Newzealand have benefitted from the price that the Zespri pay for their fruits (Retrieved from http://kiwifruit-Book.pdf).

Impact of national Policies on kiwifruit industry of NewZealand

(Note the broadness of this. The industry may be affected by the government’s fiscal and monetary policies. There could be other areas where they are also impacted. For instance transport and environment policies may have strong impact. Try not to just list the policies that apply but focus on the most important ones for the industry.)

The National Policy of a country provides an operating environment which is fundamental to any industry for its operation. Therefore, the responsibility for success of kiwifruit industry is to be shouldered not only by the kiwifruit growers, post harvest operators and the exporter but also on the environment in which they operate. Any change in the operating environment influences the structure and performance of an industry. The major policy change for the kiwifruit industry had been the regulation the industry through legislation. In 1977 the New Zealand Kiwifruit marketing Authority was created by the Government under its power under the Primary Product Marketing Act 1953. The authority not only provided controls to the producers but also regulated and coordinated the number of exporters through issue of license. It also set high quality and enforced the standards set for the kiwifruit industry. The other interventions by the authority were through controls on packaging and marketing. It also funded R&D (Wills 1994).

Q4. How it is affected by the global economic trends.

(Note again that this is general. Many thins have the potential to affect your industry. These could range from other country’s economic performance, political stability, trends in energy prices etc. Focus on most important and analyze them.

In its annual report for the year 2019 the NZ horticulture Export Authority has identified following global trends which impacted the New Zealand exports.

1.Turbulent international trading conditions and sluggish growth (World Economic Outlook, July 2019)

New Zealand Dollar was less volatile. It remained at slightly lower levels which helped New Zealand to retain the export competitiveness across a range of international markets with a weighted trade index of 71 down by one point.

2.Freight environment

In 2019 a balancing occurred in the supply/demand of fright environment. Low performing and obsolete vessels were cut down with a view to rationalizing efficiency. Freight rates eased for the three quarters of the year. These recovered in the last quarter of the calendar year. Bunker fuel prices also fluctuated, 10 to 20% lower from previous year. Competition among carriers remained strong. Trade uncertainties combined with the January 2020 deadline for introduction of the Global Sulphur Cap (whereby the cap on sulphur content of marine fuels will be cut from 3.5% to 0.5%), will impact the supply/demand situation as shipping lines will hasten the scrapping of older vessels. This may also impact the future freight cost structure dynamics. The decarbonisation of shipping is a leading issue for the industry to address.

3.Global Market Dynamics

Following global issues are of concern to the horticulture sector of New Zealand:

·       Delayed progress in negotiations for a Free Trade Agreement with EU due to the uncertainty of a deal between UK and EU over Brexit

·       The US/China tariff war

·       Protectionist policies that are being espoused in the name of food security and self-sufficiency represent a significant risk to the international trading environment and jeopardize our growth prospects.

·       Non-tariff measures in particular are impacting on the development of our export sectors.

4.Resource Usage

·       As far as horticulture is concerned, the usage, availability and sustainability of water is a key issue in developed markets in Europe and North America.

·       In Asian and Latin American economies, investment in large infrastructure projects relating to food production continued at pace, and contingent upon access to water, horticulture crops retained prominence as a desirable land use,.

·       More products with less sugar and/or additives, plant-based products, probiotic foods, food waste reduction/management, traceability and integrity, convenient online food shopping to save time, all continued to feature as themes in the top ten consumer trends.

·       Search for plastic packaging and wrapping alternatives is a key issue for the horticulture sector.

·       The carbon footprint of food production is being debated globally with renewed vigor which, may require public reinforcement of earlier research on New Zealand’s positive credentials as regards production and transport to markets. Encouraging a more Collaborative Horticulture

REFERENCES

Sloman, J., Norris, K., & Garrett, D. (2013). Principles of economics. Pearson Higher Education AU.

Bano, S., & Scrimgeour, F. (2012). The export growth and revealed comparative advantage of the New Zealand kiwifruit industry. International Business Research, 5(2), 73.

Scrimgeour, F., & Locke, S. (2015). Review of Kiwifruit New Zealand. Available at SSRN 3286701.

Jim (2020).Monopolostic competition

http://www.investopedia.com/m/monopolisticmarket.asp

Newzealand horticulture export authority. (2012). Kiwifruit.

http://www.hea.co.nz/2012-05-11-03-05-28/kiwifruit-trade

https://www.globaltrademag.com/

http://www.hea.co.nz/2012-05-11-03-05-28/kiwifruit-trade

https://www.nzkgi.org.nz/wp-content/uploads/2018/12/2018-Kiwifruit-Book.pdf

Study Notes on design and implementation of strategy - Constituents of Strategy implementation, Administrative Aspects of Strategy Implementation, Matching Organization Structure to Strategy, The Strategy-Related Pros and Cons of Alternative Organization Forms Aligning culture and strategy: Impact of Organizational Culture on Strategy Implementation Aligning resources and capabilities with strategy

Strategy Implementation

Just being able to conceits bold new strategies is not enough. The general manager must also be able to translate his or her strategic vision into concrete steps that "get things done”

Strategy formulation entails heavy doses of vision, analysis, and entrepreneurial judgment, successful strategy implementa­tion depends on the skills of working through others, organiz­ing, motivating, culture-building, and creating stronger fits be-teen strategy and how the organization operates Ingrained behavior does not change just because a new strategy has been announced. Practitioners emphatically state that it is a whole lot easier to develop a sound strategic plan than it is to make it happen.

Constituents of Strategy implementation

What makes the job of the strategy manager so complicated when it comes to implementation is the number of tasks involved and the variety of ways to approach each task. Strategy implementation has to be tailored to the organization's overall condition and selling, to the nature of the strategy and the amount of strategic change involved and to the manager's own skills, style, and methods.

Four broad areas stand out:

1. Performing the recurring administrative tasks associated with strategy implemen­tation.

2. Creating "fits" between strategy and the various internal "ways of doing things" in order to align the whole organization behind strategy accomplishment.

3   Figuring out an agenda and a set of action priorities that matches¹ up well with the organization's overall situation and the context of the- sluing in which imple­mentation must take place.

4.  What managerial approach and leadership style to adopt in inducing the needed organizational changes.

The strategy implementers’ challenge in performing these tasks is to bring the organization's conduct of internal operations into good alignment with strategy and to unite the total organization- behind strategy accomplishment. The implemented job is one of building such enthusiasm and commitment up and down the ranks that a virtual organization wide crusade emerges to carry out the chosen strategy.

Strategy-supportive matches are needed with organizational skills and capabilities, functional area activities, organization structure, reward systems, and incentives, policies and procedures, information systems and control mechanisms, budgets and programs, and shared values and cultural norms.

 Administrative Aspects of Strategy Implementation

The Manager's role in the implementation process is to lead and keynote the tone, pace, and style of strategy imple­mentation. There are many ways to proceed. A strategy implementer can opt for an active, visible role or a low-key, behind the scenes role. He or she can elect to make decisions authoritatively or on the basis of consensus, to delegate much or little, to be deeply involved in the details of implementation or to remain aloof from the day-to-day problems. It is up to the strategy implementer to decide whether to proceed swiftly (launching implementation initiatives on many fronts) or lo move deliberately, content with gradual progress over a long period.    

To some extent, therefore, each strategy implementation situation is unique enough or require the strategy manager to tailor his or her action agenda to fit the specific organizational environment at hand- This forces the manager to be conscious of all that strategy implementation involves and to diagnose carefully the action priorities and in what sequence things need to be done. The manager's role is thus all-important His or her agenda for action and conclusions about how hard and how fast to push for change are decisive in shaping the character of implementation and moving the process along.

Successful strategy execution depends greatly on good internal organization, resources, healthy work culture and com­petent personnel. Building a capable organization is thus always a top strategy imple­mentation priority. Some of the organizational issues that stand out as dominant:

·       Developing an internal organization structure that is responsive to the needs of the people of the organisation.

·       Keeping a tune with the culture of the organisation that is aligning strategy with corporate culture and competencies.

·       Developing the skills and distinctive competences in which the strategy grounded and seeing that the organization has the managerial talents, technical expertise, and competitive capabilities it needs.

·       Keeping a match among the resources and routine activities that can be easily incorporated with the strategy.

·       Selecting people for key positions.

Matching Organization Structure to Strategy

The following five-sequence procedure serves as a useful guide for fitting structure to strategy:

·       Pinpoint the key functions and tasks requisite for successful strategy execution

·       Reflect on how the strategy-critical functions and organizational units relate to those that are routine and to those that provide staff support-

·       Make strategy-critical business units and functions the main organizational build­ing blocks.

·       Determine the degrees of authority needed to manage each organizational unit, bearing in mind both the benefits and costs of decentralized decision making.

·       Provide for coordination among the various organizational units.

1.Pinpoint the key functions and tasks requisite for successful strategy execution

 In any organization, some activ­ities and skills are always more critical to strategic success than others are. The strategy-critical activities vary according to the particulars of a firm's strategy and competitive requirements. To help identify what an organization's strategy-critical activities are, two questions can usefully be posed:

"What functions have to be performed extra well and on time for the strategy to succeed? and

 "In what areas bad performance would seriously endanger strategic success?

The answers to these two questions should point squarely at what activities and skills are crucial and where to concentrate organization-building efforts.

2. Understanding the Relationships among Activities

Activities can be re­lated by the flow of material through the production process, the type of customer served, the distribution channels used, the technical skills and know-how needed to perform them, a strong need to centralized authority over them, the sequence in which tasks must be performed, and geographic location, to mention some of the most obvious ways. Such relationships are important because one (or more) of the interrela­tionships usually become the basis for grouping activities into organizational units. If the needs of strategy are to drive organization design, then the relationships to look for are those that link one piece of the strategy to another.

3. Grouping Activities into Organization Units

If activities crucial to strategic success are to get the attention and visibility they merit, then they have to be a prominent part of the organizational scheme.

When key functions and critical tasks take a backseat to less important activities, the politics of organizational budget making usually leads to them being given fewer resources and accorded less significance than they actually have. On the other hand, when they form the core of the whole organization structure, their role and power in the overall scheme of things is highlighted and institutionalized. Senior managers can seldom give a stronger signal as to what is strategically important than by making key function and critical skills the most prominent organizational building blocks and, further, assigning them a high position in the organizational pecking order.

4.Determining the Degree of Authority and independence to be given to Each Unit

Activities and organizational units with a key role in strategy execution should not made subordinate to routine and non-key activities. Revenue-producing and results-producing activities should not made subordinate to internal support or staff functions. With few exceptions, decisions should delegate to those managers closest to the scene of the action. Corporate-level authority over operating decisions at the business-unit level and below should hold to a minimum. The crucial administrative skill is selecting strong managers to head up each unit and delegating them enough authority to formulate and execute an appropriate strategy for their unit.

5.Providing for Coordination among the Units

Providing for coordination of the activities of organizational units is accomplished mainly through positioning them in the hierarchy of authority. Managers higher up in the pecking order generally have authority over more organizational units and thus the power to coordinate, inte­grate, and otherwise arrange for the cooperation of the units under their supervision. The chief executive officer, to chief operating officer, and business-level managers are_, of course central points of coordination because they have broad authority. Besides positioning organizational units along the vertical scale of managerial author­ity, coordination of strategic efforts can also achieved through informal meetings, project teams, special task forces, standing committees, formal strategy reviews, and annual strategic planning and budgeting cycles. Additionally, the formulation of the strategic plan itself serves a coordinating role; the whole process of negotiating and deciding on the objectives and strategies of each organizational unit and making sure that related activities mesh suitably help coordinate operations, across organizational units.

Structure Evolves as Strategy Evolves: The Stages Model

Four distinct stages of strategy-related organization structure have singled out:

Stage I  organizations, are small, single-business enterprises managed by one person. The owner-entrepreneur has close daily contact with employees and each phase of operations. Most employees report directly to the owner, who mates all the pertinent decisions regarding mission, objectives, strategy, and daily operations.

Stage II organizations differ from Stage I enterprises in one essential aspect: an increased scale and scope of operations force a transition from one-person management to group management.

Stage III consists of organization whose operations, though concen­trated in a single field or product line, are scattered over a wide geographical area and large enough to justify having geographically decentralized operating units. These units all report to corporate headquarters and conform to corporate policies, but they are given the flexibility to tailor their unit's strategic plan to meet the specific needs of each respective geographic area. Ordinarily, each of the geographic operating units Of a Stage III Organization is structured along functional lines.

The key difference between Stage II and Stage III, however, is that while the functional units of a Stage II organization stand or fall together (in that they are built around one business and one end market), the geographic operating units of a Stage III firm can stand alone (or nearly so) in the sense that the operations in each geographic unit are not dependent on those in other areas. Typical firms in this category are breweries, cement companies, and steel mills having production capacity and sales organizations m several geographically separate market areas.

Stage IV includes large, diversified firms decentralized by line of business. Typically, each separate business unit is headed by a general manager who has profit-and-loss responsibility and whose authority extends across all of the unit's functional areas except, perhaps, accounting and capital investment (both of which are traditionally subject to corporate approval). Both business strategy decisions and operating decisions are concentrated at the line-of-business level rather than at the corporate level

The Strategy-Related Pros and Cons of Alternative Organization Forms

There are essentially five strategy-related approaches to organization:

(1) Functional specialization,

 (2) Geographic organization,

(3) Decentralized business divisions,

(4) Strategic business units, and

(5) Matrix structures featuring dual lines of authority and strategic priority.

1.The Functional Organization Structure

Generally speaking- organizing by functional specialties promotes full utilization of the most up-to-date technical skills and helps a business capitalize on the efficiency gains result­ing from use of [hose technical skills; it also helps a business capitalize on the efficiency gains resulting from the use of specialized manpower, faculties, and equipment. These are strategically important considerations for single-business organizations, dominant-product enterprises, and vertically integrated firms, and account for why they usually have some kind of centralized, functionally specialized structure.

2. Geographic Forms of Organization

Used by large-scale enterprises whose strategies need to be tailored to fit the particular needs and features of different geographical areas. In the private sector, a territorial structure is typically utilized by chain store retailers, power companies, cement firms, and dairy products enterprises. In the public sector, such organizations as the Internal Revenue Service, the Social Security Admin­istration, the Indian Postal Service, the state troopers, have adopted territorial structures in order to be directly accessible to geographi­cally dispersed clients.

3. Decentralized Business Units

Grouping activities along business and prod­uct lines has been a clear-cut trend among diversified enterprises for the past half-century, beginning with the pioneering efforts of Du Pont and General Motors in the 1920s. Separate business/product divisions emerged because diversification made a functionally specialized manager's job incredibly complex. Strategy implementation is facilitated by grouping key activities belonging to the same business under one organizational roof, thereby creating line-of-business units (which then can be subdivided into whatever functional subunits suit the key activities/ critical tasks makeup of the business}. The outcome is not only a structure, which fits strategy, but also a structure that makes the jobs of managers more doable. The creation of separate business units is then accomplished by decentralizing authority over the unit to the business-level manager. The approach, very simply, is to put entrepreneurial general managers in charge of the business unit, giving them enough authority to formulate and implement the business Strategy chat they deem appropriate, motivating them with incentives, and then holding than accountable for the results they produce. However, when a strong strategic fit exists across related business units, it can be tough to get autonomy-conscious business-unit managers to cooperate in coordinating and snaring related activities. They are prone to argue long and hard about "turf" and about held accountable for activities not totally under their control.

4. Strategic Business Units

A strategic business unit (SBU) is a grouping of business units based on some important strategic elements common to each; the possible elements of relatedness include an overlapping set of competitors, a closely related strategic mission, a common need to compete globally, an ability to accomplish integrated strategic planning, com­mon key success factors, and technologically related growth opportunities.

5. Matrix Forms of Organization

A matrix organization is a structure with two for more) channels of command, two lines of budget authority, and two sources of performance and reward. The key feature of the matrix is that product (or business) and functional lines of authority are overlaid (to form a matrix or grid), and managerial authority over the activities in each unit/cell of the matrix is shared between the product manager and functional manager.

Selecting People for Key Positions

Assembling a capable management team is an obvious part of the strategy implementa­tion task. The recurring administrative issues here center on what kind of core management team is needed to carry out the strategy and finding the people to fill each slot. Sometimes the existing management team is suitable and sometimes the core executive group needs to strengthened and/or expanded, either by promoting qualified people from within or by bringing in skilled managerial talent from the outside to help infuse fresh ideas and fresh approaches into the organization's manage­ment. In turnaround situations, in rapid-growth situations, and in those cases, where the right kinds of managerial experience and skills are not present in-house, recruiting outsiders to fill key management slots is a standard part of the organization-building process.

Aligning culture and strategy:  Impact of Organizational Culture on Strategy Implementation

Organizational culture includes the shared beliefs, norms and values within an organization. It sets the foundation for strategy. For a strategy within an organization to develop and be implemented successfully, it must fully align with the organizational culture. Thus, initiatives and goals must be established within an organization to support and establish an organizational culture that embraces the organization’s strategy over time.

Flexibility and Adaptability

Organizations that remain flexible are more likely to embrace change and create an environment that remains open to production and communication. This provides a model that welcomes cultural diversity and helps clarify strategy implementation. Culture within an organization can serve many purposes, including unifying members within an organization and help create a set of common norms or rules within an organization that employees follow.

Characteristics of Stability

A stable culture, one that will systematically support strategy implementation, is one that fosters a culture of partnership, unity, teamwork and cooperation among employees. This type of corporate culture will enhance commitment among employees and focus on productivity within the organization rather than resistance to rules and regulations or external factors that prohibit success.

Goal Unification

Flexible, strong and unified cultures will approach strategy implementation and affect implementation in a positive manner by aligning goals. Goals can come into alignment when the organizational culture works to focus on productivity and getting the organization’s primary mission accomplished. This may include getting products delivered to customers on time, shipping out more products than the organization’s chief competitor or similar goals. This will create a domino effect in the organization that ensures that all work performed by each individual in the company and work group focuses on performance and on the strategic importance of the company. This allows culture to align with strategy implementation at the most basic level. For this level of unification to work, goal setting must align with and be supported by systems, policies, procedures and processes within the organization, thereby helping to achieve strategy implementation and continuing the cultural integrity of the organization.

Process Implementation

Part of cultural alignment and strategy implementation involves process implementation. Processes include utilizing technology to facilitate goal attainment and the results a company is looking for when working with customers to meet their needs. While most of the time the hard problems and needs of an organization get met, the culture becomes neglected in the process. That is where processes come into place and strategy implementation gradually comes into existence to uphold and maintain organizational culture and strategies.

Cultural Alignment

When culture aligns with strategy implementation, an organization is able to more efficiently operate in the global marketplace. Culture allows organizational leaders to work both individually and as teams to develop strategic initiatives within the organization. These may include building new partnerships and re-establishing old ones to continue delivering the best possible products and services to a global market.

Aligning resources and capabilities with strategy

In appraising resources and capabilities to guide strategy formulation there are four key steps. Firstly, the key resources and capabilities have to be identified. Next they have to be appraised both for their strategic importance, and then for their comparative strength in relation to competitors. Finally, strategic implications — how these capabilities can drive value — have to be developed.

1.Identifying Key Resources and Capabilities

The first step is to identify the firm’s key resources and capabilities, and this should be done both from the client end (what the clients need) and the firm’s supply end (what the firm offers). It helps to thoroughly identify, analyze and appraise key resources and capabilities. This work should include an overall look at the practice, some investigation of client needs, industry and sector analysis, financial analysis, market intelligence, partner interviews and practice-group discussions.

2. Assessing the Strategic Importance of The Firm’s Resources and Capabilities

The principle here is to assess how vital (or unimportant) it is for the firm or a department to have certain capabilities in order to successfully pursue their strategic objectives. The true test of strategic importance is to assess the extent to which the resources and capabilities of the firm actually give the firm a sustainable competitive advantage against its rivals.

3.  Relative Strength

Resources and capabilities need to be assessed for relative strength compared with those firms identified as competitors. A thorough competitor analysis — considering the likely strategies of competitors, their overall objectives, their resources and capabilities, their positioning in their markets, their specialist strengths, the sorts of clients and sectors they serve, their pricing, service levels and profitability — all helps to establish ways in which the firm can successfully compete. In its review of comparative strength of resources and capabilities, the firm should also look out for stagnating capabilities and declining competitiveness. Where relevant, benchmarking and other analytical methods should be used to move from subjective to objective analysis.

4.Bringing It All Together

How does the firm exploit its key strengths more effectively and what should the firm do about its vulnerabilities either to correct them or reduce the firm’s exposure to them? The next step, therefore, is to develop some strategic implications so as to exploit strengths more effectively and so as to address weaknesses by correction development, outsourcing or acquisition of further resources.