Sustainable Development and Innovation
The main concern of this study is to discuss the “increasing turbulence in the external business environment has highlighted the attention on the resources and the organizational capacities as the principal source of the competitive advantage”. As per the statement of Botha, Kourie and Snyman (2014), sustainable development cannot happen without innovation. The challenges before each of the company are to develop innovative strategies, which not only respond to the environmental changes as well as the societal pressure but also include the necessity and the expectations of several stakeholders. The intention of the research project can highlight how an organization within an emerging market economy changed the organizational strategy from being an implementer. In addition, Fr?czek et al., (2016) opined that organizations would adapt the changing in the external environment, which would occur due to the global economic crisis.
This study will highlight the effect of having to the changing strategy, on the capacity and the development of the organization. A research on holding organization subsidiary associations cannot be completed without investigation. Therefore, this essay would look specifically at the economic turmoil, which is the time of global financial crisis during 2008, 2009. The importance of controlling the integrating mechanism within the organizations would reduce the uncertainty, as well as increase the predictability. Therefore, this would assure that organizational behavior would separate the parts of the organization, which would be compatible and support the organizational goals. Okeyo (2015) opined that global trade contracted quickly and also rigorously during the period of global crisis. This would make discrimination to the business environment and also the demand of all of the organizations.
Strategic management can be defined as lying down of decisions and actions ensuing in formulation and execution of strategies that are being designed for attaining the organizational objectives. Strategic management is apprehensive in defining the performance of organization along with the strategic choice of variables and competitive advantage.
The major role of competitive advantage may develop from the perspectives of military and economy derivation of strategy literature. Strategic management has primarily been a body of knowledge that emphasizes managers with practical advice. Porter’s argument for competitive advantage was that it is a considerable determinant for bigger feat. A firm’s big performance crops up from the sustainable competitive advantages resulting in Ricardian rents and monopoly rents. Ricardian rents produce resources that are firm specific by intangible and internal inputs like leadership and knowledge, whereas, Ricardian rents takes account of refurbishing advantages over a period by innovation.
Challenges for Companies in Developing Innovative Strategies
Market-Based View (MBV):
The Market-Based view of strategy perceives that factors related to industry and orientations of external market are the prime determinants of feat of firms. The framework of Structure-Conduct-Performance (SCP) and Porter’s Five Forces Model are two of the better-known theories in this segment. A firm’s strategic position is an unambiguous set of activities that are different from their rivals. On the other hand, a firm’s strategic position is stated on ways it accomplish similar sort of activities to other firms, but in ways that are different.
The Market Based View takes into account the point of school of theories of strategy and theories improved in the economic phase of industrial organization of Hoskisson’s developmental account of strategic thinking. During this moment, the total focus was on external and environmental factors of the firm. While formulating strategies, firms make a general estimation of their own competitive advantage through proper assessment of the external environment depending on the Porter’s Five Forces Model. Porter’s five forces take into account: barrier to entry, suppliers bargaining power, buyers bargaining power, competitor rivalry and threat of substitutes. This states the market power of a firm and its comparative performance. A firm under monopoly performs better having strong market position. Industries that are having high barriers to entry for new companies leads to decline in the competition, thereby encouraging better performance.
The Porter’s Five Forces model facilitates organizations in analyzing the present situation existing in their industry in a structured way. However, like every other model, it has its limitations too. Porter’s model takes into account the classic market, which in the present scenario is very unlikely. Moreover, certain industries are found to be very complex taking in the various inter-relationships, making it complicated in analyzing the Porte’s Five Forces Model.
Resource-Based View:
The resource-based view takes into account the internal environment of a firm that drives the competitive advantage, emphasizing on the resources augmented by firms for competing in the environment. During early developmental strategies of Hoskisson’s account of expansion of strategic thinking, the focus has been on the firm’s internal factors. Scholars have suggested that Chandler and Ansoff have been influential in making healthy contributions en route for Resource-View based strategy. The resource-based view of strategy has materialized as an accepted theory of competitive advantage. The resource based view made Wernerfelt view firm as collection of assets that have been tied semi-permanently to the firm. A firm’s resources have been stated as the primary source of competitive advantage. It has been argued that Resource based view disregards the demand of market and only aims its focus towards the internal resources, with some of the scholars arguing to the fact that the internal and the external elements cannot ever be separated. Some scholars have pointed out the significant link existing between the internal wherewithal of a firm and the external market conditions. The association that subsists between the individual firm and the association of relationship in which the firm is entrenched that is significant for the competitive advantage. For having competitive advantage, the firm needs to augment proficiency and possessions that would be tricky in emulating by the competitors, that is intangible resource like knowledge and reputation.
Effect of Changing Organizational Strategy on Capacity and Development
As opined by Zhang and Wu (2016), it can be stated that the external factors are consumers, competitors, local environment and the suppliers. With the help of Porter’s diamond framework, the management would highlight the dynamism of the local organizational environment in terms of demand conditions, the presence of the connected and the supporting markets, stronger factor endowments and the other competitors. Ferreira et al., (2013) explained four types of environments, which highlight the business:
In this scenario of benign environment, the external competitive areas are weak. In a benign environment with the competitors and the consumers, the organization would be lazy but very profitable. In this context, He (2015) criticized that the situation of the organization would never improve. Under the volatile organizational environment with the competitors and the demand of the consumers, the organization would become must competitive.
Under Dual focused competitive environment, the ultimate scenario is the stage where there are stronger both the internal and the external competitive environment. Initially, this offers the best of both worlds in that the subsidiary require to learn to make it competitive based on the external basis. At the same time, the dual focus would lead to the internal tensions due to the executives struggle to resolve the conflicting the demands from the organizational surroundings.
It is known that innovation is the approach of creating and incorporating a new idea. It is the procedure of considering essential ideas and converting them into the necessary goods and services. These useful ideas are considered as the outcomes creativity and these are prerequisite for organizational innovation. On the other hand, it can be inferred that creativity can combine the ideas and concepts in a unique manner, which can improve the organizational performance. In addition, innovation is helpful to put the projected organizational ideas into action.
The Birkinshaw and Morrison’s typology highlights three types of subsidiaries, which would be differentiated by strategy:
In case of the local implementer, the subsidiary has some specific geographic scope, specially for the single nation and severely constrained goods or the value added (Yamak, Nielsen & Escribá-Esteve, 2014). Therefore, in this connection, the role of the subsidiary would adapt global goods to the requirements of the local market. On the other hand, in case of specialized contributor, the subsidiary had considerable expertise within the definite operations or functions. Therefore, it is characterized by the narrow set of value functions, the higher levels of interdependences along with the affiliated subsidiaries. Under the world mandate, Chen et al., (2016) opined that the subsidiaries would develop the implement strategy. The subsidiary had the worldwide or the regional responsibility for a definite goods or the entire business. The subsidiaries had unconstrained product scope along with the broad value added scope. Therefore, this is the way the subsidiaries would be capable to achieve the ‘decentralized centralization’. Therefore, the activities are globally integrated (Beynon-Davies, 2013).
Importance of Controlling Integrating Mechanism Within the Organization
On the other hand, Gupta and Govindarajan (2013) proposed to use Williamson’s terminology as here the corporate manage over the definite subsidiary. It can be considered as the governance mechanism and it can regulate the transaction between the central subsidiaries. It highlights that such of these transactions along with the three definite major dimensions and these dimensions are capital flows, product flows and lastly the knowledge flows. On the other hand, Botha, Kourie and Snyman (2014) cited that the multinational corporations are considered as the network of capital, product and the knowledge transactions regarding the units located within the several countries. Moreover, Gupta and Govindrajan proposed that the multinational corporation is a network transacting in knowledge.
Firms possessing excellent knowledge are able to synchronize and coalesce their traditional resources in ways that are fresh and unique, offering more value to customers that their rivals. A firm having superior intellectual resources needs to appreciate and improve on their traditional resources. Thereby, knowledge can be considered an important facet in strategic resource having the capability to produce, marshal and operate it in forming a supporting competitive advantage.
It is the presence of tactic knowledge along with the context-specific facade sustained in the complex routines of organizations, developed from experience. Such organizational knowledge takes hold of four characteristics, which are; being priceless, being inimitable, being rare and being non-substitutable. Its value results in developed products, technologies and services. It is inimitable as it forms an exclusive past history of the organization has and accrue expertise. It is rare in the sense that it depends on the information and understanding of previous and currents set of employees as is built on definite organizational aforementioned knowledge. It is non-substitutable, as the things that have been once being formed and used cannot be simulated. The resource based view of firm states strategic assets to be a rare phenomenon, one that is valuable and cannot be surrogated. Knowledge is considered to a strategic asset having the potential of being a source of the organization’s competitive advantage.
Knowledge management harnessed by organization providing competitive advantage:
Resource-based view preserves that a firm’s sustainable competitive advantage is consequent of its resources where there is existence of enough cases where firms do not manage the resources they require. This is being well stated by the Resource Dependence theory. On the other side, institutional theory takes account of the ways firms shelter their positions and authenticity through compliance of the norms and rules of the institutional environment. This assists in building competencies that offers one firm unique competencies that acts as a basis of the sustainable competitive advantage. With the initiation of knowledge management, rational capital has been gaining enough recognition as a true planned asset. This has led to the propagation of organizational knowledge management system (OKMS), for handling of the intellectual capital. There are two views of the OKMS; the socio-technical and the technical view. An evaluation is being done on the perception of each OKMS that is being accessible and their resultant implies on the competitive situation of the firm.
Two Major Views of Strategic Management: Market-Based View and Resource-Based View
According to the findings, an organization in order to reap long-term premeditated benefits from OKMS, it should take into account the larger view of socio-technical when improving, executing and managing its OKMS. This recommends that firms need to believe in not only the technological aspect but also the infrastructure of the organization, the culture of the organization and the people who outline the OKMS and the acquaintance that is being processed by these OKMS.
Competitive advantage facilitates a firm in considering whether its organizational learning in a strategic manner is possible through incarceration and sharing of the knowledge via the OKMS. Taking into consideration the fashion industry that is solely being based on creativity. Tactical knowledge helps fashion designers to commence their creations, giving birth to new ideas that are considered surprising yet very valuable. In the recent scenario, it can be seen that prominence on knowledge and knowledge management has generated enough interest in the presentation inferences of the organizational knowledge management and other practices. The theory of knowledge creating firms divulges the ability of continuously generating new knowledge from the capabilities of existing firms that corresponds to the value added possession of the firm. Knowledge management becomes important but only through managerial involvement facilitating sharing of systematic knowledge.
In BP Amoco, British petroleum’s Mother company, the program of knowledge management cropped up out of former CEO John Brownie’s coerce of creating a learning organization. British Petroleum set out to associate knowledge across locations, divisions and meaning. It took a step further than the initial flow of knowledge that shares explicit knowledge. The pool of knowledge has been the main foundation for knowledge sharing.
It can be concluded that knowledge sharing is important for an organization’s competitive advantage like seen in BP Amoco. Knowledge management in BP Amoco generated increased productivity and enough acceleration in learning, leading to better decision making and increase in the development of competence among other things.
The theoretical analysis can make an association between the subsidiary strategic contexts as well as the corporate control mechanisms is depending upon the some definite key arguments (Khan & Khalique, 2014). Firstly, several subsidiaries strategic would refer several task environments for the subsidiary managers for the degree of lateral interdependence and the level of global responsibility as well as also for the necessity for the local initiative. Secondly, different task environments need several behaviors on the context of subsidiary managers. Thirdly, different control mechanisms would highlight and support several types of managerial behaviors (Singh & Mahmood, 2014). As a result, fourth, it can be assumed that the norms of administrative rationality in organizational design. It can be expected that there would be systematic relation among the subsidiary strategic contexts as well as the emergence of the definite corporate control mechanisms.
Market-Based View and Porter’s Five Forces Model
According to Zhang and Wu (2016), it can be mentioned that the construction of the top management team will be varied across the subsidiary strategic context, the ratio of the expatriates as the proportion of top-management team will be dissimilar in the in the several strategic context. In this connection, it can be mentioned that organizational socialization is the procedure with which an individual would be able to learn about the behaviors and the desirable within the work setting. On the contrary, He (2015) argued that socialization of the managers is the powerful mechanism for developing the identification and the commitment to the company as a whole.
Moreover, Gupta and Govindarajan and the Birkinshaw proposed that autonomy is the important premise within the subsidiary’s capacity to engage in innovation (Dash, Pattnaik & Rath, 2016). In this essence, it can be mentioned that headquarters’ control of subunit behavior and the organizational performance is the essential integrated function in all of the complex organizations. As per the organizational theory, the loss of control from one level of the company to the other would occur due to the reflection of limiting factor in an organizational design and organizational structure. This would significantly determine how an organization would become large or complex (Yamak, Nielsen & Escribá-Esteve, 2014). Chen et al., (2016) pointed that autonomy highlights the freedom or the independence of the subsidiary, this would be helpful for the decisions. In this purpose, it can be mentioned that parent company factors would consider the corporate culture and also the management style, organizational mission and business objectives, organizational planning and manage mechanisms and the association with the subsidiaries, which would influence the subsidiary autonomy. Furthermore, Beynon-Davies (2013) highlighted that autonomy is the factor for subsidiary initiatives and it aimed to the expansion of the role of the subsidiary. More specifically, it can be mentioned that higher autonomy is connected with the local as well as the global market initiatives. On the other hand, lower autonomy is connected with the hybrid initiatives and the internal market (Morschett, Schramm-Klein & Zentes, 2015). Therefore, it can be inferred that knowledge has emerged based on the strategically significant resources for all of the organizations.
Conclusion
This study highlighted the role of organizational learning as well as the knowledge of management in innovation. From the above analysis, it can be observed that in today’s environment, all of the organizations are concerned with the change of demands for radical change and also for the incremental change. In addition, globalization and the market segmentation have reinforced as per the organizational necessity in order to differentiate, exploitation and also leverage the intangible assets. With the help of experimentation, the organizational practices and technologies would be able to supervise the performance of the organization. It can be mentioned that control mechanisms would be interpreted and would use to represent not only the formal control process, which are available for making decisions as well as actions for the subsidiaries. The cross-unit committees, integrator roles as well as the matrix formation are the key structural determinants for the coordination among the subunits within the organization. The significant management of lower interdependence needs less complex integrated mechanisms. The organizational strategies, organizational structure and the communication practices would design to motivate the innovations and change. Organizations, which string together a series of temporary and the adequate benefits, would outperform organizations for the long period of time. The capacity is differentiated depending on how the organizations are depending effectively to integrate their innovation management practices. The rising turbulence in the external organizational environment has aimed to the attention on the organizational resources as well as the organizational capabilities due to the principal source of competitive advantage. This study also highlights how an organization would incorporate the changing in the environment influenced by the global financial downturn.
Limitations of Porter’s Five Forces Model
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