Strategy Formulation at the Corporate Level: Procedures & Impact - Essay Sample

Who makes strategies at the corporate level, and how this strategy is made? How would an organization with a multi-business model form their strategies? What would they target?

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In procedure definition processes, the final aspect involves corporate-level decisions. The organization's plans are driven by corporate-level systems. They determine the kind of methodology that is relevant and profitable to the organization both in the short and long run (Hill, Jones & Schilling, 2014). When organizations decide to venture into new markets or products, two levels of action always have to be implemented. First, it should conceive and action plan and processes or procedures for each particular unit in the industries it seeks to build. Secondly, it should "build up a more elevated amount of multi-users models that legitimizes its entrance into various organizations and commercial enterprises" (Hill, Jones & Schilling, 2014). Multi-business models should give clarity on the reasons why venturing into new products will help the organization to use its business systems and practical skills effectively.

Why would a company leverage horizontal integration as a strategy? What are the advantages and disadvantages of horizontal integration?

Horizontal integration refers to the process through which a company increases its production and supply chain. The company achieves this through mergers, internal expansion, or acquisition of new premises. Ultimately, this leads to monopoly. Most organizations that use horizontal coordination to gain competitive advantage also use corporate-level techniques. This is done to join companies to gain more access to the market and enjoy a competitive advantage. Companies that concentrate on one line of activities have always benefited by concentrating their money, assets, mechanical and administrative skills in one front of production.

This is significant when it comes to establishing and changing the business ventures that require information regarding business assets. Upon realizing the benefits of a merger, an organization can improve its administration or products, reduce competition from like-minded firms, offer its previous assets and products, and avail its benefits from expansion. Should the organization get affected by level-mix, the organization's quality diminishes due to the disappearance of the average cooperative energies. This is regardless of the financial muscles it can pull following the merger. Many burdens can result in adverse effects should the side effects of the merger conceive less adaptability due to its significant nature and size.

Why would a company leverage vertical integration as a strategy? What are the advantages and disadvantages of vertical integration? When companies vertically disintegrate, and why?

Vertical integration is a strategy in a business where two or more firms combine to control different stages of production. For instance, firms may manage suppliers, distributors, and retail locations. In simple terms, vertical integration is undertaken to control the supply chain. Today, the merging of companies must have a multi-business model that determines the mode of entry into a new business, thus enhancing efficiency (Amin & Smith, 2017). Models that legitimize vertical integration are rooted in the foundation that entering business ventures that enhances the business through the reduction of its operational costs and improving productivity. Vertical integration enables organizations to decrease costs, enhances strict quality control, and promises a stronger bond of data control networks.

Merits:

The most essential and outstanding benefit of vertical integration is the reduction of costs of the company. Such organizations don't have the hustle of sourcing for assets or supplies since they have already secured them. Instead, their concentration is ensuring they have a steady supply of customers and that their items are of good quality. Furthermore, organizations that involve in vertical integration have increased opportunities for internal employees, which, significant for it, enhances the size and quality of staff within the organization. Besides, the organization can venture into re-using or recycling of some of its recyclable items, thus, cutting down some costs. Moreover, it enables the organization to be well prepared with various brands of products.

Demerits:

Although vertical integration is beneficial to the business, the greatest undoing of the merger is the difficulty with which the organization may take adjusting to the change. In terms of coming up with new items, the company cannot just get at it once (Argyres & Mostafa, 2016). They must plan, channel enough finances and energy as well as brainstorm on how to make it happen themselves. This is time-consuming. Further, they are limited to what line of products to offer. Because they have the end product in mind, much financing is required to actualize the goals. Money is needed to purchase new lines of production, employ many people, and take great control of their newly procured offices. For this reason, vertical integration seems almost impossible for smaller organizations.

What is strategic outsourcing? Describe why a company would explore this option as an alternative to vertical integration. What are the potential advantages and disadvantages of strategic outsourcing?

Strategic outsourcing involves hiring offshore teams to conduct specific tasks for the company. Most companies engage in outsourcing, especially the administration of their frameworks, at the same time keeping other administrative functions within the organization.

Many organizations engage in outsourcing to solidify their action plans and enlarge their benefits. Outsourcing begins with differentiating the functional exercises that give the company a comparative advantage (Globerman & Vining, 2017). This is shielded from the outside world to ensure it is the company's secret. The directors then audit the nonessential exercise that can be performed by external organizations with ease and efficiency.

Outsourcing results in the reduction of costs, given that the cost of hiring an external organization to conduct the task compared to internally doing it is lower. Further, the organization may also benefit by separating its last items in a right way by hiring external experts.

Why companies diversify, when they companies consider diversification and the advantages of diversification

Entering new markets and venturing into the production of new products unique to the company's initial product is what we call diversification. Organizations with action plans that require the utilization of its many resources will enter into diversification. Various resources, for instance, stocks and bonds, do not respond the same way to unfavorable conditions. Similarly, mixing production decreases the degree to which the business can be affected by changes in the market (Bakke & Gu, 2017). Provided that two lines of output in an organization run inversely, an increase in the market value of another item counters the fall in the market for another.

Related and unrelated diversification and why a company would choose one diversification method or the other.

Related expansion compares with unrelated diversification. Related diversification involves the development of business ventures into new products, but in the same line of production, it does currently. This enables the organization to gain advantages through the sharing of skills, assets, making use of abilities, and packaging of items (Bakke & Gu, 2017). The related expansion entails excellent innovation, assembling, and the promotion of the raw materials that can be built into new products.

Unrelated diversification is the addition of new lines of products that penetrate and command the market. Such organizations that seek to venture into unrelated diversification don't require special skills but only money and the necessary assets. This can bring the company much profitability.

What can cause diversification to fail.

Diversified systems are generally unsuccessful for several reasons despite their large sizes. One of the potential causes could be the unpredictability of markets coupled with venturing into new lines of production. Also, the organization may ignore some important considerations as it ventures into new product lines.

Besides, the lack of institutional backing explains the failure of most mergers. Putting the right staff in place to support the system is very vital, without which the whole thing collapses. Furthermore, some activities require much finance to establish. These include enhancements needed in the company. When they fail to be successful, they lead to the failure of the whole organization.

The advantages and disadvantages a company may face when exploring acquisition to introduce a new sector.

Screening and conducting an assessment test on the procurement is vital. It helps the company have a stronger view of the take over as well as minimizes the risk of purchasing an organization with a weak action plan. Furthermore, it enhances the assessment of how to acquire new items and necessities for the new venture to avoid culture clashes (Madsen & Walker, 2015). Careful screening is aimed at reducing the cost of purchasing an organization that is weak in terms of its action plan. The best way to engage a merger is to take over the organization with its managers and completely.

However, regardless of the many advantages of screening, unless the organization has a healthy leadership plan, it will fail to accomplish its aims. Therefore, the lack of a proper leadership outline in terms of the hierarchy is a significant setback to mergers.

References

Amin, A., & Smith, I. (2017). Vertical integration or disintegration? The case of the UK car parts industry. In Restructuring the global automobile industry (pp. 169-199). Routledge.

Argyres, N., & Mostafa, R. (2016). Knowledge inheritance, vertical integration, and entrant survival in the new US auto industry. Academy of Management Journal, 59(4), 1474-1492.

Bakke, T. E., & Gu, T. (2017). Diversification and cash dynamics. Journal of Financial Economics, 123(3), 580-601.

Globerman, S., & Vining, A. R. (2017). The outsourcing decision: A strategic framework. Global outsourcing strategies (pp. 27-40). Routledge.

Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: theory: an integrated approach. Cengage Learning.

Madsen, T. L., & Walker, G. (2015). Modern competitive strategy. McGraw Hill.