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Week 3 – Topic Overview

Long-Term & Short-Term Strategizing

Learning Outcomes
After successfully completing this week, you will be able to

• Critically discuss the use and importance of generic strategies.

• Develop generic strategies for corporate examples.
• Critically examine the 15 Grand Strategies that decision makers use as building blocks in forming
the company’s competitive plan.

• Plan or criticize the long-term direction of a company of your choice.

• Critically discuss how short-term objectives are used in strategy implementation.
• Understand what activities and functions are appropriate to outsource in order to gain or strengthen
competitive advantage
• Design corporate functional tactics to be used in a company of your choice.

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Contents
Introduction ....................................................................................................................................................... 3

1. Long-term objectives and strategies .......................................................................................................... 3

2. The 15 Grand Strategies ............................................................................................................................ 5

3. Short-term objectives and functional tactics ............................................................................................. 9

3.1 Short-term Objectives ........................................................................................................................... 10

3.2 Setting S.M.A.R.T. objectives............................................................................................................... 11

4. Functional Strategy and Tactics .............................................................................................................. 13

4.2 Outsourcing functional activities .......................................................................................................... 14

5. Empowering operating personnel ............................................................................................................... 18

References ....................................................................................................................................................... 20

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Introduction
In the previous topics, we described the mission of a company, as encompassing the broad aims of the firm.
At the same time, we highlighted that the mission is an abstract statement that is quite too often brief, giving a
general sense of the direction but not specific benchmarks for evaluating the firm’s progress in achieving its
aims. In other words, a mission statement will not specify numbers, exact strategies, and objectives, or strict
timeframes. Therefore, long-term objectives are necessary for supporting the mission statement, with specific
timeframes, typically three to five years. This topic is divided into two parts. The first part of the topic will
focus on long-term objectives. These are statements of the results a firm seeks to achieve over a specific period,
typically three to five years. Additionally, we will focus on the formulation of Grand Strategies. Together,
long-term objectives and grand strategies provide a comprehensive general approach in guiding the entire
organization towards accomplishing its objectives. In the second part of the session, we will analyze the short-
term objectives and the functional tactics.

1. Long-term objectives and strategies

Long-term objectives are more specific than a mission statement and explain how, when, and with which
means we are up to chasing our mission (Kluyver and Pearce, 2015). At the same time, long-term objectives
should be Flexible; Measurable; Motivating; Suitable, and Understandable (Doyle, 1994).
• Flexible because objectives should be adaptable to unforeseen or extraordinary changes in the firm’s
competitive or environmental forecasts.
• Measurable because objectives must clearly and concretely state what will be achieved and when it
will be achieved.
• Motivating because people are productive when objectives are set at a motivating level.
• Suitable because objectives must be suited to the broad aims of the firm, which are expressed in the
mission statement.
• Understandable because strategic managers at all levels must understand what is to be achieved. If they
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don’t understand and subscribe to the objective, the company may never achieve its mission.

Moreover, according to Pearce and Robinson (2007) many planning experts believe that the general
philosophy of doing business declared by the firm in the mission statement must be translated into a holistic
statement of the firm’s strategic orientation before it can be further defined in terms of a specific long-term
strategy. The popular term for this core idea is generic strategy. From a scheme developed by Michael Porter,
a firm can achieve a competitive advantage based on one of three generic strategies (Stonehouse and Snowdon,

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2015):
1. Striving for overall low-cost leadership in the industry. Low-cost producers usually excel at cost
reductions and efficiencies. They maximize economies of scale, implement cost-cutting technologies,
stress reductions in overhead and in administrative expenses, and use volume sales techniques to propel
themselves up the learning curve. A low-cost leader is able to use its cost advantage to charge lower prices
or to enjoy higher profit margins.
2. Striving to create and market unique products for varied customer groups through differentiation.
Strategies dependent on differentiation are designed to appeal to customers with a special sensitivity for
a particular product attribute. By stressing the attribute above other product qualities, the firm attempts
to build customer loyalty. Often such loyalty translates into a firm’s ability to charge a premium price for
its product. The product attribute also can be the marketing channels through which it is delivered, its
image for excellence, the features it includes, and its service network.
3. Striving to have special appeal to one or more groups of consumers or industrial buyers, focusing on
their cost or differentiation concerns. A focus strategy, whether anchored in a low-cost base or a
differentiation base, attempts to attend to the needs of a particular market segment. A firm pursuing a
focus strategy is willing to service isolated geographic areas; to satisfy the needs of customers with special
financing, inventory, or servicing problems; or to tailor the product to the somewhat unique demands of
the small- to medium-sized customer. The focusing firms profit from their willingness to serve otherwise
ignored or underappreciated customer segments.

Choosing the right strategy

Step 1:
For each generic strategy, carry out a SWOT Analysis of the company’s strengths and weaknesses, and the
opportunities and threats would face, if adopted a specific strategy.
Step 2:
Use Five Forces Analysis to understand the nature of the industry the company is.
Step 3:
Compare the SWOT Analysis of the viable strategic options with the results of the Five Forces analysis. For each
strategic option, ask yourself how you could use that strategy to:
• Reduce or manage supplier power.

• Reduce or manage buyer/customer power.

• Come out on top of the competitive rivalry.

• Reduce or eliminate the threat of substitution.

• Reduce or eliminate the threat of new entry.

Select the generic strategy that gives you the strongest set of options.

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2. The 15 Grand Strategies

As we mentioned in previous topics, strategic managers recognize that short-run profit maximization is rarely
the best approach to achieving sustained corporate growth and profitability (Rothaermel, 2018, p. 25). To
achieve long-term prosperity, strategic planners need to have in place Grand Strategies. Grand strategies, often
called master or business strategies, provide basic direction for strategic actions (Pearce, 1982). In contrast to
an abstract mission statement, Grand Strategies indicate the time period over which long-range objectives are
to be achieved. Any one of these strategies could serve as the basis for achieving the major long-term
objectives of a single firm. Firms involved with multiple industries, businesses, product lines, or customer
groups usually combine several grand strategies. Each of the 15 Grand Strategies is presented and discussed
independently below:
Concentrated Growth

Concentrated growth is the strategy of the firm that directs its resources to the profitable growth of a dominant
product, in a dominant market, with a dominant technology. Concentrated growth strategies lead to enhanced
performance. Specific conditions favor concentrated growth and the risks and rewards vary. Think for instance
of KFC. The company only does one product but it does it well. They have a sound business strategy, in a
particular market, the chicken market. In other words, they are enjoying special success through a strategic
emphasis on an increasing market share through concentrated growth in a particular industry, on a specific
product.
Market Development

Market development commonly ranks second only to concentration as the least costly and least risky of the 15
grand strategies. It consists of marketing present products, often with only cosmetic modifications, to
customers in related market areas by adding channels of distribution or by changing the content of advertising
or promotion. Frequently, changes in media selection, promotional appeals, and distribution are used to initiate
this approach. Think for instance of Nutella, the popular and successful chocolate spread. So far, people knew
Nutella as a breakfast chocolate spread. Of course, many of us used to consume Nutella with a spoon directly
from the jar. With an effortless strategy, nevertheless, and a short-term series of advertising, Nutella managed
to increase its market impressively. Simply, they added a cake recipe at the back label of the jar with the
question ‘did you know that Nutella is used for perfect cakes?’. In other words, they promoted the idea that
Nutella is not just a chocolate spread, but it can be used for pastry purposes as well. Cookies, cakes, chocolate-
fingers, and croissants are just a few among the wide range of delicacies that customers bake using Nutella.
And all these, with one simple Market Development strategy – by adding a recipe at the back label of the jar.

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Product Development

Product development involves the substantial modification of existing products or the creation of new but
related products that can be marketed to current customers through established channels. The Product
Development strategy often is adopted either to prolong the life of current products or to take advantage of a
favorite reputation or brand name. The idea is to attract satisfied customers to new products as a result of their
positive experience with the firm’s initial offering. A revised smaller and slimmer version of Playstation or
Xbox are examples of the product development strategy.

Similarly, PEPSI developed new flavors of the famous soft drink, such as the PEPSI Twist and PEPSI Blue,
by adding lime, cherry, vanilla, and other flavors in the existing PEPSI drinks. The product development
strategy is based on the penetration of existing markets by incorporating product modifications onto existing
items or be developing new products with a clear connection to the existing product line.
Innovation
These companies seek to reap the initially high profits associated with customer acceptance of a new or
greatly improved product. Then, rather than face stiff competition as the basis of profitability shifts from
innovation to production or marketing competence, they search for other original or novel ideas. The
underlying rationale of the grand strategy of innovation is to create a new product life cycle and thereby make
similar existing products obsolete. Think for instance of APPLE’s iPod Shuffle and iPad. Both products were
innovative, high-tech devices appearing in the market for the first time in history. Therefore, this strategy
differs from the product development strategy of extending an existing product’s life cycle.
Horizontal Integration

When a firm’s long-term strategy is based on growth through the acquisition of one or more similar firms
operating at the same stage of the production-marketing chain, its grand strategy is called horizontal
integration. Such acquisitions eliminate competitors and provide the acquiring firm with access to new
markets. For example, Deutsche Telecom growth strategy of horizontal acquisition is a sound one. Deutsche
Telecom was a dominant player in the European wireless services market but without a presence in the fast-
growing U.S market in 2000. To correct this limitation, Deutsche Telekom Horizontally integrated by
purchasing the American Firm Voice-Stream Wireless, a company that was growing faster than most
domestic rivals and that owned spectrum licences providing access to 2220 million potential customers.
Vertical Integration
When a firm’s grand strategy is to acquire firms that supply it with inputs (such as raw materials) or are
customers for its outputs (such as warehouses for finished products), vertical integration is involved. The

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main reason for backward integration is the desire to increase the dependability of the supply or quality of
the raw materials used as production inputs. For example, AMOCO emerged as North America’s leader in
natural gas reserves and products as a result of its acquisition of Dome Petroleum. This backward integration
by AMOCO was made in support of its downstream business in refining and in gas stations, whose profits
made the acquisition possible.
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Concentric Diversification
Concentric diversification involves the acquisition of businesses that are related to the acquiring firm in terms
of technology, markets, or products. With this grand strategy, the selected new businesses possess a high
degree of compatibility with the firm’s current businesses. The ideal concentric diversification occurs when
the combined company profits increase the strengths and opportunities and decrease the weaknesses and
exposure to risk. A sound example of this strategy is the popular American retailer Wal-Mart. Although
traditionally a retailer, Wal-Mart decided to enter the financial services industry because of strategic
managers’ confidence that they could use their tremendous customer volume to reduce prices on services as
well as products. Over the past years, the giant has steadily built alliances with financial service providers,
such as MoneyGram International and SunTrust Banks.
Conglomerate Diversification
Occasionally a firm, particularly a very large one, plans to acquire a business because it represents the most
promising investment opportunity available. This grand strategy is commonly known as conglomerate
diversification. The principal concern of the acquiring firm is the profit pattern of the venture. Unlike
concentric diversification, conglomerate diversification gives little concern to creating product-market
synergy with existing businesses. Some examples of companies that conglomerate diversify are ITT,
Textron, American Brands, Litton, U.S. Industries, Fuqua and I.C. Industries (Pearce and Robinson, 2007).
Turnaround
Here we have a scenario where the firm finds itself with declining profits. Among the reasons are economic
recessions, production inefficiencies, and innovative breakthroughs by competitors. Strategic managers often
believe the firm can survive and eventually recover if a concerted effort is made over a few years to fortify
its distinctive competencies. This is a turnaround. There are two forms of retrenchment:

• Cost reduction: examples include the decrease of the workforce through employee attrition, leasing
rather than purchasing equipment, extending the life of machinery, elimination of elaborate
promotional activities, laying off employees, dropping items from a production line, and

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discontinuing low-margin customers.

• Asset reduction: examples include the sale of land, buildings and equipment not essential to the basic
activity of the firm.
Divestiture
A divestiture strategy involves the sale of a firm or a major component of a firm. When retrenchment fails
to accomplish the desired turnaround, or when a nonintegrated business activity achieves an unusually high
market value, strategic managers often decide to sell the firm. Reasons for divestiture vary. Sara Lee Corp.
(SLE) for example is a good example of Divestiture. This company sells everything from Wonderbras and
Kiwi shoe polish to Endust furniture polish and Chock Full o’Nuts coffee. The company used a conglomerate
diversification strategy to build Sara Lee into a huge portfolio of disparate brands. A new president, C. Steven
McMillan, faced stagnant revenues and earnings. So he consolidated, streamlined, and focused the company
on its core categories- food, underwear, and household products. He divested 15 businesses, including Coach
leather goods, which together equated more than 20 percent of the company’s revenue, and laid off 13,200
employees, nearly 10 percent of the workforce (Pearce and Robinson, 2007, p.217).
Liquidation
When liquidation is the grand strategy, the firm typically is sold in parts, only occasionally as a whole—but
for its tangible asset value and not as a going concern. In selecting liquidation, the owners and strategic
managers of a firm are admitting failure and recognize that this action is likely to result in great hardships to
themselves and their employees. Planned liquidation can be worthwhile. For example, Columbia
Corporation, a $130 million diversified firm, liquidated its assets for more cash per share than the market
value of its stock.
Bankruptcy
Business failures are part of corporate life. For instance, in the U.S., more than 300 companies fail on average
on a weekly basis. More than 75% of these financially desperate firms file for liquidation bankruptcy.
Liquidation bankruptcy is agreeing to complete distribution of firm assets to creditors, most of whom
receive a small fraction of the amount they are owed. 25% of these firms refuse to surrender until one final
option is exhausted. Choosing a strategy to recapture its viability, such a company asks the courts for a
reorganization bankruptcy. In other words, Reorganization bankruptcy is when the managers believe the firm
can remain viable through reorganization.
Joint Ventures
Occasionally two or more capable firms lack a necessary component for success in a particular competitive

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environment. The solution is a set of joint ventures, which are commercial companies (children), created and
operated for the benefit of the co-owners (parents). The joint venture extends the supplier-consumer
relationship and has strategic advantages for both partners. For example, Diamond-Star Motors is the result
of a joint venture between a U.S. company Chrysler Corporation, and Japan’s Mitsubishi Motors Corporation.
Located in Normal, Illinois, Diamond Star was launched because it offered Chrysler and Mitsubishi a chance
to expand on their long-standing relationship in which subcompact cars are imported to the United States
and sold under the Dodge and Plymouth names.
Strategic Alliances
Strategic alliances are distinguished from joint ventures because the companies involved do not take an equity
position in one another. In some instances, strategic alliances are synonymous with licensing agreements.
Most tend to be patents, trademarks, or technical know-how that are granted to the license for a specified
time in return for a royalty and for avoiding tariffs or import quotas. Outsourcing arrangements vary. For
example, Bell South and U.S. West, with various marketing and service competitive advantage valuable to
Europe, have extended a number of licenses to create personal computer networks in the United Kingdom.
Consortia, Keiretsus and Chaebols
Consortia are defined as large interlocking relationships between businesses of an industry. In Japan such
consortia are known as keiretsus, and in South Korea as chaebols. Their cooperative nature is growing in
evidence as is their market success. Examples include the Junior Engineers’ and Scientists’ Summer Institute,
which underwrites cooperative learning and research; and the European Strategic Program for Research and
Development in Information Technologies, which seeks to enhance European competitiveness in fields
related to computer electronics and component manufacturing.

3. Short-term objectives and functional tactics

So far, we have been discussing in the previous topics the use of intelligence and information for the
formulation of long-term strategies, always in line with the company’s mission statement. As we said, a
mission statement guides a company’s operations for 5 years. A company’s long-term strategy runs for 3 to 5
years. Mission and long-term strategies are critically important in crafting a successful future but are simply
not enough. Undoubtedly, we cannot jump from Monday to Friday. To make our mission and long-term
strategies become a reality, we need short-term strategies and objectives that span from 6 months to a year;
and functional tactics that run on a weekly to monthly basis (Kluyver and Pearce, 2015). Following this
mapping, we fill in the operation gaps as follows:

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• Mission Statement (5 Years – Formulation Stage)

• Long-Term Objectives (3 to 5 Years – Formulation Stage)
• Short-Term Objectives and Strategies (6 months to 1 Year – Implementation)
• Functional Tactics (week to a month – Operation Stage)
In this topic, we pass from formulation to implementation. In other words, the strategies that are discussed
and formulated by strategists behind closed doors are one thing; and the implementation of these strategies
is another. Short-term strategies/objectives guide implementation by converting long-term strategies/
objectives into short-term actions and targets.

3.1 Short-term Objectives

Short-term objectives are measurable outcomes achievable in one year or less. Discussion about short-term
objectives helps raise issues and potential conflicts within an organization and assists strategy implementation
by identifying measurable outcomes of action plans or functional activities, which can be used to make
feedback, correction, and evaluation more relevant and acceptable. In contradiction to the mission statement,
which is abstract and general, short term objectives should provide (Thompson et al., 2013, p. 97):
• Specificity (for instance: what exactly is to be done)
• Time-frame for completion (when the effort will begin and when its results will be accomplished)
• Accountability (who is responsible for what. This accountability is very important to ensure action
plans are acted upon).

Specifically, short-term objectives are (Thompson et al., 2013, p. 97):

• Measurable: Short-term objectives are more consistent when they clearly state what is to be
accomplished when it will be accomplished, and how its accomplishment will be measured.
Measurement can help to monitor both the effectiveness of each activity and the collective progress
across several interrelated activities. Also, measurable objectives make misunderstanding less likely
among interdependent managers.
• Providing priorities: Although all objectives are important, “some deserve priority because of timing
consideration or their particular impact on a strategy’s success” (Pearce and Robinson, 2011, p. 269).
If such priorities are not established, conflicting assumptions about their relative importance of annual
objectives may inhibit progress toward strategic effectiveness.
• Linked to Long-Term Objectives: The link between short-term objectives and long-term objectives
should be flowing through the firm’s key operations. This flow has a clear effect on communication
and operations.

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The figure below presents three short-term objectives:

Moreover, short-term objectives specify and quantify the goals or targets towards which leadership, willpower,
effort, the investment of resources, and the use of enterprise capability are to be directed such that mission and
strategic intent are achieved. At the same time, short term objectives offer several value-added benefits such as
(Rothaermel, 2018, p. 68):
• They give operating personnel a better understanding of their role in the firm’s mission.
• The process of developing them becomes a forum for raising and resolving conflicts between
strategic intent and operational reality.
• They provide a basis for developing budgets, schedules, trigger points, and other sources of
strategic control.
• They can be powerful motivators, especially when connected to the reward system.

3.2 Setting S.M.A.R.T. objectives

The S.M.A.R.T. tool consists of 5 thematic filters/directions that correspond to each goal. It takes its name
from the initials of the thematic directions. Thus, each goal according to this methodology should be:
• Specific
• Measurable

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• Achievable / Acceptable
• Realistic (Relevant)
• Time-bound
The S.M.A.R.T. can guide you to formulate your business goals clearly and achieve the desired results faster.
Specific
A vague goal, such as "our company wants to increase its turnover", shows that the current situation is not
satisfactory. Turnover needs to be strengthened. However, there is no real plan to achieve this goal. Goals
need to be articulated more precisely so that everyone knows what is expected of them. Besides, it would be
helpful to describe an observable action, behavior, or effect in quantified form. If a goal is associated, that is,
with a number, an amount, or a percentage it is much clearer and specific.
Measurable
Each goal, to be "SMART", must be achieved within a time. This period contains indications of the quality
of the effort to be made. For a goal to be measurable, it is practical to mention a system, a method and/or a
process that determines the extent to which the desired moment has been achieved. Therefore, it is advisable
to have a reference point and define a basic measurement of the initial state.
Achievable / Acceptable
Also, the goals should be acceptable to both you and the team or department. Managers need to create goal
support among employees. Support will be enhanced if employees are involved in the decision-making
process. This is especially true for short-term goals. If it is decided as a target that turnover should increase
by 20% over the previous year, this target may be too ambitious and may lead to a decrease in satisfaction if
this is not achieved. Therefore, acceptable is also referred to as attainable.
Relevant
A relevant objective takes into account the practical situation and the work in which everyone participates.
Everyone can't focus on the same goal all the time. After all, there are always other issues that require
attention. For example, emergencies and unforeseen events. Also, the goal must be relevant to those who are
going to work on it. If the finance department has the mandate to increase turnover by 20%, then probably
nothing will be done.
Time-bound
The importance of formulating the objectives in the S.M.A.R.T. way has already been mentioned. This is not
always possible for long-term goals. The term "time-bound" is often confused with the measurable, but there
is a clear difference between the two. Time is the time allotted for achieving the goal. Therefore, a S.M.A.R.T.
goal has a clear start time and a clear end date.

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4. Functional Strategy and Tactics

Functional strategy is the approach a functional area takes to achieve corporate and business unit objectives
and strategies by maximizing resource productivity (Kluyver and Pearce, 2015). According to Wheelen and
Hunger (2017, p. 238) “it is concerned with developing and nurturing a distinctive competence to provide a
company or business unit with a competitive advantage”. Each business unit has its own set of departments,
each with its own functional strategy and functions, including the (Doyle, 1994):
▪ Marketing Department
▪ Finance Department
▪ Research and Development (R&D)
▪ Operations
▪ Logistics
▪ Human Resource Management (HRM) and
▪ Information Technology and Information Systems (IT/IS)

For example, a business unit following a competitive strategy of differentiation through high quality needs a
manufacturing functional strategy that emphasizes expensive quality assurance processes over cheaper, high-
volume production; a human resource functional strategy that emphasizes the hiring and training of a highly-
skilled, but costly, workforce; and a marketing functional strategy that emphasizes distribution channel “pull,”
using advertising to increase consumer demand, over “push,” using promotional allowances to retailers. If a
business unit were to follow a low-cost competitive strategy, however, a different set of functional strategies
would be needed to support the business strategy.
Just as competitive strategies may need to vary from one region of the world to another, functional strategies
may need to vary from region to region. For example, When Mr. Donut expanded into Japan, it had to market
donuts not as breakfast, but as snack food. Because the Japanese had no breakfast coffee-and-donut custom,
they preferred to eat the donuts in the afternoon or evening. Mr. Donut restaurants were thus located near
railroad stations and supermarkets. All signs were in English to appeal to the Western interests of the Japanese.
Functional tactics are the key, routine activities that must be undertaken in each functional area to provide the
business’s products and services. In a sense, functional tactics translate thought into action (Morden, 2016, p.
101). Every value chain activity in a company executes functional tactics that support the business’s strategy
and help accomplish strategic objectives. Functional tactics, moreover, are different from business or corporate
strategies in three fundamental ways:
1. Time horizon: Functional tactics identify activities to be undertaken now or in
the immediate future.

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2. Specificity: Functional tactics are more specific than business strategies. As

opposed to business strategies that provide general direction, functional tactics
identify specific activities that are to be undertaken in each functional area and
thus allow operating managers to work out how their unit is expected to pursue
short-term objectives.
3. Participants who develop them: Different people participate in strategy
development at the functional and business levels. According to Pearce and
Robinson (2007), business strategy is the responsibility of the general manager
of a business unit. That manager typically delegates the development of
functional tactics to subordinates charged with running the operating areas of
the business. The manager of a business unit must establish long-term
objectives and a strategy that corporate management feels contribute to
corporate-level goals. Similarly, key operating managers must establish short-
term objectives and operating strategies that contribute to business-level goals.

4.2 Outsourcing functional activities

For a functional strategy to have the best chance of success, it should be built on a distinctive competency
residing within that functional area (Insinga and Werle, 2000). If a corporation does not have a distinctive
competency in a particular functional area, that functional area could be a candidate for outsourcing. According
to Wheelen and Hunger (2012), outsourcing is purchasing from someone else a product or service that had
been previously provided internally. Thus, it is the reverse of vertical integration. Also, Pearce and Robinson
(2009) define outsourcing as acquiring an activity, service, or product necessary to provide a company’s
products or services from “outside” the people or operations controlled by that acquiring company.

Outsourcing is becoming an increasingly important part of strategic decision making and an important way to
increase efficiency and often quality. In a study of 30 firms, outsourcing resulted on average in a 9% reduction
in costs and a 15% increase in capacity and quality. For example, Boeing used outsourcing as a way to reduce
the cost of designing and manufacturing its new 787 Dreamliner. Up to 70% of the plane was outsourced. In
a break from past practice, suppliers make large parts of the fuselage, including plumbing, electrical, and
computer systems, and ship them to Seattle for assembly by Boeing. Outsourcing enabled Boeing to build a
787 in 4 months instead of the usual 12.

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Outsourcing can save valuable time and money for many organizations. For instance, a firm in a highly
competitive market may have to cut costs in key areas and decide it can only do so by outsourcing to lower-
cost producers. For example, a hotel may outsource its laundry facilities. Instead of operating its own in-house
laundry housekeeping department, the hotel‟s management may cooperate with a company that specializes in
laundry services.

If you just Google the phrase ‘Laundry cleaning services’, you will get endless examples of companies
offering exactly this service. One of these examples is the Manhattan Linen LLC company.

For a Hotel, the laundry cleaning service would collect all dirty clothes early in the morning, and drop
off the clean and ironed clothes that have been collected the previous day. With this strategy, the
hotel’s management will save the following costs:
1. Operating costs for designated personnel in the laundry department
2. Initial and operating costs for purchasing laundry machines, including their regular
service
3. Operating costs: energy
4. Operating costs: raw materials for cleaning linens and clothes and employee training

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Following the above example, the hotel may outsource this service at a cost that is lower than the sum of
all those costs stated above. This is a cost reduction decision. In this way, the ‘make or buy’ decision for a
particular activity or component is therefore critical. This is the outsourcing decision. There is a wide range
of businesses that now offer the benefits of outsourcing. Of course, the more an organization outsources,
the more its ability to influence the performance of other organizations in the value network may become
a critically important competence in itself and even a source of competitive advantage. At the same time,
however, cost reductions may result in an inability to pursue a differentiation strategy. For example,
outsourcing Information Technology (IT) systems for reasons of cost efficiency may mean that no one takes
a strategic view of how competitive advantage might be achieved through IT. If IT, nevertheless, is not that
central in the operations of a company, outsourcing would be a good idea as the competitive advantage is
not influenced whatsoever.

An interesting example of outsourcing IT services is that of XEROX Corporation

According to Yahoo Finance, Xerox Corporation provides business process and information
technology (IT) outsourcing, and document management services worldwide. Its business process
outsourcing services include human resources services; finance and accounting services; healthcare
payers and pharma; customer management solutions; healthcare provider solutions; technology-based
transactional services for retail, travel, and non-healthcare insurance companies; programs for federal,
state, county, and town governments; transportation solutions; and government healthcare solutions.

The company is involved in designing, developing, and delivering IT solutions, such as comprehensive
systems support, systems administration, database administration, systems monitoring, batch
processing, data backup, and capacity planning services; telecommunications management services;
and desktop services. Its document outsourcing services comprise managed print services that
optimize, rationalize, and manage the operation of Xerox and non-Xerox print devices; and
communication and marketing services that deliver design, communication, marketing, logistic, and
distribution services through SMS, Web, email, and mobile, as well as print media. The company also
manufactures and sells products, including desktop monochrome, color and compact printers,
multifunction printers, copiers, digital printing presses, and light production devices for small/mid-size
businesses and large enterprises.

According to this example, all of the following activities can be outsourced:

• Payroll
• Manufacturing
• Maintenance

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• Warehousing/ transportation/ distribution

• Information Technology
• Travel
• Temporary Service
• HR Activities
• Product Design
• R&D (Research & Development)
• Marketing

According to an American Management Association survey of member companies, 94% of the responding
firms outsource at least one activity. The outsourced activities are general and administrative (78%), human
resources (77%), transportation and distribution (66%), information systems (63%), manufacturing (56%),
marketing (51%), and finance and accounting (18%). The survey also reveals that 25% of the respondents
have been disappointed in their outsourcing results. Fifty-one percent of the firms reported bringing an
outsourced activity back in-house. Nevertheless, authorities not only expect the number of companies
engaging in outsourcing to increase, they also expect companies to outsource an increasing number of
functions, especially those in customer service, bookkeeping, financial/clerical, sales/telemarketing, and the
mailroom. It is estimated that 50% of U.S. manufacturing will be outsourced to firms in 28 developing
countries by 2015.

Also, outsourcing can be achieved in the form of offshoring. According to Wheelen and Hunger (2012),
offshoring is the outsourcing of an activity or a function to a wholly-owned company or an independent
provider in another country. Offshoring is a global phenomenon that has been supported by advances in
information and communication technologies, the development of stable, secure, and high-speed data
transmission systems, and logistical advances like containerized shipping.

According to Bain & Company, 51% of large firms in North America, Europe, and Asia outsource offshore.
Although India currently has 70% of the offshoring market, countries such as Brazil, China, Russia, the
Philippines, Malaysia, Hungary, the Czech Republic, and Israel are growing in importance. These countries
have low-cost qualified labour and an educated workforce. These are important considerations because more
than 93% of offshoring companies do so to reduce costs. For example, Mexican assembly line workers
average $3.50 an hour plus benefits compared to $27 an hour plus benefits at a GM or Ford plant in the U.S.
Less skilled Mexican workers at auto parts makers earn as little as $1.50 per hour with fewer benefits.

Also, software programming and customer service, in particular, are being outsourced to India. For example,

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General Electric’s back-office services unit, GE Capital International Services, is one of the oldest and biggest
of India’s outsourcing companies. From only $26 million in 1999, its annual revenues grew to over $420
million by 2004.61 As part of this trend, IBM acquired Daksh eServices Ltd., one of India‟s biggest suppliers
of remote business services.

Outsourcing, including offshoring, has significant disadvantages too. For example, mounting complaints
forced Dell Computer to stop routing corporate customers to a technical support call center in Bangalore,
India. 63 GE‟s introduction of a new washing machine was delayed three weeks because of production
problems at a supplier’s company to which it had contracted out key work. Some companies have found
themselves locked into long-term contracts with outside suppliers that were no longer competitive.

5. Empowering operating personnel

Another important practice in strategic management is empowerment. According to Pearce and Robinson
(2009), meeting customer needs these days is a buzzword regularly cited as a key priority by most business
organizations. Efforts to do so often fail because employees that are real the contact point between the
business and its customers are not empowered to make decisions or act to fulfill customer needs. One solution
has been to empower operating personnel by pushing down decision-making to their level. For example:

• General Electric allows appliance repair personnel to decide about warranty credits on the spot, a
decision that used to take several days and multiple organizational levels.

• American Airlines allows customer service personnel and their supervisors a wide range in resolving
customer ticket pricing decisions.

• Federal express couriers make decisions and handle package routing information that once involved
five management levels in the U.S. Postal Service.

Empowerment is the act of allowing an individual or team the right and flexibility to make decisions and
initiate action (linked to decision making). Differently, empowerment is the process of enhancing the capacity
of individuals or groups to make choices and to transform those choices into desired actions and outcomes
(Meyerson and Dewettinck, 2012).

Besides, policies are directives designed to guide the thinking, decisions, and actions of managers and their
subordinates in implementing a firm’s strategy. In other words, policies empower operating personnel by
defining guidelines for making decisions. They do this in the following way (Rothaermel, 2018):
1. Policies establish indirect control over independent action

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2. Policies promote uniform handling of similar activities

3. Policies ensure quicker decisions by standardizing answers to recurring questions

4. Policies institutionalize basic aspects of organization behavior

5. Policies reduce uncertainty in repetitive and day-to-day decision making

6. Policies counteract resistance

7. Policies offer predetermined answers to routine problems

8. Policies afford managers a mechanism for avoiding hasty decisions

Also, formal, written policies have at least 7 advantages, which are:

1. They require managers to think through the policy‟s meaning, content, and intended
use
2. They reduce misunderstanding

3. They make equitable and consistent treatment of problems more likely

4. They ensure unalterable transmission of policies

5. They communicate the authorization or sanction of policies more clearly

6. They supply a convenient and authoritative reference

7. They systematically enhance indirect control and organization-wide coordination of
the key purposes of policies

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References

de Kluyver, C., and Pearce, J. A. (2015). Strategic management: an executive perspective. New York:
Business Expert Press.

Doyle, P. (1994). Setting business objectives and measuring performance. European Management Journal,
12(2), 123-132.

Insinga, R. C., & Werle, M. J. (2000). Linking outsourcing to business strategy. Academy of Management
Perspectives, 14(4), 58-70.

Meyerson, G., & Dewettinck, B. (2012). Effect of empowerment on employees performance. Advanced
Research in Economic and Management Sciences, 2(1), 40-46.

Morden, T. (2016). Principles of strategic management. London: Routledge.

Pearce, J. A. (1982). Selecting among alternative grand strategies. California Management Review, 24(3),
23-31.

Pearce, J.A., and Robinson, R.B. (2009). Strategic Management, Formulation, Implementation and Control.
New York: McGraw-Hill International.

Rothaermel, F. T. (2018). Strategic management: concepts. Dubuque, IA: McGraw-Hill Education.

Stonehouse, G., & Snowdon, B. (2007). Competitive advantage revisited: Michael Porter on strategy and
competitiveness. Journal of Management Inquiry, 16(3), 256-273.

Thompson, A., Peteraf, M., Gamble, J., Strickland III, A. J., & Jain, A. K. (2013). Crafting & executing
strategy 19/e: The quest for competitive advantage: Concepts and cases. McGraw-Hill Education.

Wheelen, T. L., Hunger, J. D., Hoffman, A. N., & Bamford, C. E. (2017). Strategic management and business
policy. Boston, MA: Pearson.

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