2. Literature Review
3. The New Business Strategy in Practice: Case Studies
Demos, Chung and Beck stated in their paper “ The New Strategy and Why It Is New” (2001) that the traditional approach of strategy to create and protect long-term defensible competitive advantage in the marketplace no longer holds in the new millennium. Their arguments were based on three revolutionary sources of business upheaval: 1) New and disruptive technologies; 2) Deregulation and globalization; 3) Capital markets. These revolutionary changes in global and sectoral economies have converted the traditional linear value chain into a “three-dimensional value constellation”, “where both threats and opportunities can arise more easily in almost any one of a firm’s competencies or capabilities”. To solve this problem, traditional ways of developing strategies must be changed. They further pointed out the way out in the changing environment that “traditional strategies aimed only at shaping and protecting long-term positions need to be supplanted by a focus on continuous transformation, to forge capabilities required to win the next game …” This paper agrees on this point of view and will combine this new strategic thinking with practice by analysing two worldwide successful multinationals: IKEA and Canon, to demonstrate how the new strategy functions and determines companies’ success in the new millennium.
2. LITERATURE REVIEW
The development of the new strategy, linked tightly to the three revolutionary changes and increasing uncertainty, is an international phenomenon and to understand it fully needs a global perspective. In the last two decades, a series of strategy concepts and theories have been developed. The first key figure in this area is Michael E. Porter. Corn of his theory is the competitive strategy, which is mainly based on empirical evidence in the post-war period. He applied the term “competitive advantage” (Porter, 1985, 1990) to explain both successes and failures of firms and nations. Mintzberg & Waters (1985) explored the complexity and variety of strategy formation processes by refining and elaborating the concepts of a sharp dichotomy: deliberate and emergent strategy in the context of companies’ organization. Similar to Porter and Mintzberg & Waters, the most famous Japanese strategist, Kenichi Ohmae (1985) concentrated mainly on the concept of innovative strategic thinking in organisations’ context. Other key figures, De Wit & Meyer (1999) covered the entire field with “strategy synthesis” by defining ten sets of strategy issues in three dimensions of strategy: strategy process, strategy content and strategy context.
Similarities of the mentioned authors above are that they all departed from a global perspective and pointed out that strategies were dynamic and needed to be changed constantly. Their concepts are fundament of the strategic thinking. Nonetheless, these concepts of strategies aim fully at creating and protecting long-term positions, and thus tend to be “traditional” without considering dramatic changes of accelerating pace of technology transfer, velocity of communications and speed of global capital flows nowadays (Demos & Chung & Beck, 2001), which mainly contribute to uncertainty of companies’ strategy. No strategy thus holds for ever or even for long period. “Competitive advantage is so transitory as to be meaningless”. Therefore, these concepts are constantly revised and replaced by new approaches.
Recent research emphasizes more on the speed of changes in the business context and continuously emerging opportunities that firms are facing in adapting and reacting to the dynamic and complex environments (Chakravarthy, 1997). Another recent issue suggests that new strategic thinking has to be innovative in order to constantly exploit or break into new markets in the new environment (Beinhocker, 1999). Mintzberg & Quinn (1996) were fully aware of the global strategic considerations and the implications of new information and communications technologies. Their research and case studies based more on the recent business upheavals, which coincided with Demos & Chung & Beck (2001).
3. THE NEW BUSINESS STRATEGY IN PRACTICE: CASE STUDIES
IKEA, founded by Ingvar Kamprad in Sweden in 1953, is worldwide the most successful company in designing and selling inexpensive furniture and accessories in over 40 countries (Mark, 2001). It came into the Swedish market as an innovative furniture seller and a rule breaker. In the early 1950s, furniture retailers in Sweden were all small firms, purchasing furniture to customer specifications and placing an order with the manufacturer only after receiving a commitment from the customer. Furniture was expensive and bought in sets, such as a dining room suite, and credit was the most important tool of doing business (Cheadelberg, 2002). IKEA entered into the Swedish market with large showrooms outside cities, large parking places and relatively high-quality products, and offered however the option to buy one piece of furniture at a time. Furniture usually came in boxed kits, which must be picked up by the customers. It is technically possible for consumer to assemble easily at home, sometimes even with a single screwdriver (Stear, 2002). IKEA’s old strategy was to possess long-term cost leadership. Its products were priced 30 percent to 50 percent below the fully assembled furniture in the competition (Mark, 2001). The company innovatively turned the ready-to-assemble concept into the company’s practice. Huge amounts of cost were thus reduced by putting the consumer in the middle of the value chain.
To achieve low-priced furniture, IKEA used to find low-cost suppliers in Poland with very low material and labour costs over the last decades (Mark, 2001). With the process of globalization and economic liberalization, IKEA is fully aware of new opportunities and has now managed to subcontract new lower cost sources around the world that can produce products with even higher quality. Today, the company sources its products from around 2,400 suppliers in 65 countries (Darlas, 2002). Channels of achieving these sources are diverse. IKEA not only order its furniture directly from manufacturers, it has also taken ownership positions in some factories by means of mergers and acquisitions, and in other cases, it acts as financier, especially in Eastern Europe, which accounts for 13 percent of its production (Seben, 2001). The collapse of communism and deregulation of some transition economies also allowed IKEA to expand. For instance, it opened its first retail store in Poland in 1991 and in Russia in 2000, which are both proven to be successful (Mark, 2001).