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Delphi is a global supplier of components and technologies for automotive industry and other market segments. The company is structured in five divisions each one of them covering a group of product lines with development technical centers, manufacturing location and customers distributed worldwide. Another division is specialized in afterservice activities. Apart from the manufacturing activities the company is engaged in licensing agreements with other companies for its patented products.
Delphi originate from GM parts operation, which decided in 1991 to shift away from vertical integration under the cost pressure of its rivals Ford, Chrysler and Toyota, which already have made the same strategic move.
The new created company was not profitable for several years. In 1996 it decided to implement a Japanese-style lean manufacturing system and began to transform into a global supplier. The Asia-Pacific was seen as critical region for the company growth. China was going to double its car market and competitors such as Daewoo Group were also expanding capacity. Therefore Delphi invested in manufacturing plants in China and India, while acquiring new customers other than GM. Delphi was strongly hit by the currency devaluations of 1998 Asian financial crisis. As part of the strategy to become less dependent by GM as a customer Delphi Europe was developing its manufacturing capabilities towards new customers.
The company went public in 1999 and by that time it was twice as large as its competitor which breaks off from Ford - Visteon Corporation, employing more than 200000 people. Believing that the separation from GM would lead to wage concessions, the United Auto Workers union had always apposed Delphi's separation from GM. Union workers protested through numerous strikes the loss of jobs and benefits coming from outsourcing and globalization.
Delphi sought to expand its core businesses via acquisition. Several companies were acquired in 1999 including Lucas Diesel, which had become the Powertrain System Division. The company has shifted towards capital intensive activities rather than labor intensive investments.
In 2005 Delphi disclosed irregular accounting practices which lead to company being delisted from the NY Stock exchange and moved into Chapter 11 for bankruptcy. This gave the opportunity to reorganize the business towards its main strategy direction. Majority of the US manufacturing plants were sold or closed and 75% of the product lines were dissolved. By 2007 the company decided to invest in a manufacturing plant in Romania, part of the Powertrain System Division and in 2008 escape Chapter 11, with a private equity fund injection.
Strategy managerial implication
In this work I will analyze how a number of selected strategy frameworks have or can influence the approach to strategy in the company, and more specific the strategy discourse.
The four pressures and strategy framework managerial implication are relevant through the way in which it can inform some of the key decision taken by the company.
Figure 1 The strategy framework
Being a global company all of the pressure have force the company into one strategic direction or another. However not all the time the company clearly understood them and strategic decisions were weak. The company plan for future extensions and growth so applying the framework correctly is a must for the strategy making process in the company.
Porter's five forces framework is also a key concept that had managerial implication in the way company shaped its history. This is one key concept of the mainstream management teaching, highly adopted by the US schools of teaching which is transpiring through the majority of the key decisions. However this is not explicitly used by the European executive teams being replaced by a much softer tool - SWOT. In the analysis I will evaluate pros and cons of not having this as a main strategy tool.
Figure 2: Porter's five forces driving industry competition framework (Source: Porter, 1980, p. 4)
Another area of analysis is the exploration of managerial implication of stakeholder analysis. The company emphasizes the need of taken decisions with a strong sense of the mission and the vision. There is a strong orientation towards the use of stakeholder concept. The creation of mission and vision process is cascaded throughout the organization and I will explore its implication to the course of action.
In the end I will explore the managerial implication of making the strategy happen, especially in regards with how strategy workshops are valuable to the strategy implementation in the company. This is relevant for the study as this is one main instruments used to gain commitment around a strategy. However it is not always used effectively.
Company strategic discourse
The strategic discourse constitute of an overlapping series of decisions, compromises and adjustments between people at all levels of the organization.
The company is highly hierarchic in structure and therefore the strategy discourse follows in a similar manner. The strategy direction comes mainly from top-down. There are different level in the company were the strategy is crystalized;
Global strategies: were the main direction are established. The headquarters have identified three main megatrends that everyone has to follow: SAFE-GREEN-CONNECTED. Also at this level decision to explore new market are taken: for example, following the latest market trends the company decided to expand into the consumer market equipment and leverage this with the increase tendencies of use electronic devices in the cars.
Divisional strategies: these are more concrete and establish much more detailed the type of products and technologies that the division will invest in, operational footprint decision; growth rates, etc.
Local strategies: these are plant specific and related to gaining operational success through leveraging the local opportunities - collaboration with suppliers; partnerships with universities and local high schools to ensure proper qualification for the workforce; relationship with local authorities;
All the strategies have a strong sense of direction toward customer orientation under a common motto: "Passion for Excellence". The term "excellence" is highly utilized in all kind of forums from the definition of company mission and vision to individual personal performance evaluation.
The concept of having or defining a formal strategy is used in a wider concept that includes the definition of mission and vision, principals, culture and strategy. This follows to some extent the model describe by Campbell and Yeung in their article 'Creating a sense of mission' (1991).
However the term "strategy" is widely misused by most of the middle manager to refer to short term course of action which have merely tactical and operational relevance. Language such as "What is your strategy to achieve your monthly sales target?" is very common and denature the real meaning of the strategy.
The strategy development is not the responsibility of one designated department. The strategic directions are taken by the top management staff and the process is facilitated by outside consulting companies.
The final result is communicated in a package that is cascaded down in the company to all employees. The communication is emphasized by symbols like T-shirts distributed to all employees containing messages with key strategic directions that enable overall commitment. The message is supported by leadership messages sent with various occasions, coming from the CEOs of the company. The messages have stronger motivational reaction and contain the same key points presented in the strategy.
The strict hierarchical process is reflected by the fact that any strategic formulation is done under the umbrella of the superior level. The Division cannot supersede the Global team with an out of the box strategy, nor the Local strategy the divisional one. The formal strategy has the power of law. The only freedom as a business unit is to add details to the higher level strategy but not to deny, question or step out of the imposed boundaries.
On business unit the way to integrate the higher level strategy and generate a local one is through strategy workshops lead by a consultant. The results are shared with the employees and their feedback, as long as do not goes beyond established barriers is integrated in the final version.
Another way of communicating formally the strategy is through objectives and targets. This follows a standardized process of integration into each individual yearly personal business plan and becomes the bases of personal evaluation.
Managerial implication analysis
4.1 The strategy framework and the four pressure
Along its last twenty years of history the company shifted its strategy in different directions. Over this period of time the influences of the four pressure of the strategy framework are clearly identifiable:
Industry dynamics: - shift from vertical integration to horizontal under the pressure of competitors; change from low value added product to capital intensive, high value offerings
Globalization: - mainly operating in US, the company reinforce its position in Europe and expanded in Asia-Pacific; acquisitions of new companies
Degree of risk: - the global market brought with it additional financial risk
Ethics and CSR: - high level unethical misconduct moved the company under bankruptcy law protection; also reorganization in US was slow down by the unionized workforce
The benefits emerging from this general framework of looking at strategy is that it allows creating a structured way of thinking about the business future. Without separating the business issues in several major categories of influences - the pressures, it would be very difficult for a manager to put the right questions, which would eventually provide the right insight in the problematic of strategy which would lead in the end at creating a better competitive advantage.
Any strategy discourse can be made irrelevant by a shift in one of the four pressures so a constant review of them is necessary.
Separating the three steps of strategy formation Analyzing-Choosing-Implementing also bring clarity to the strategy process. It happens often in the organization that the strategic discourse comes like an amorphous blend of ideas, brainstorming, talks and power influences. Putting everything under the concept of the strategy framework will organize the discussion, opinions and will support a quicker and better consensus.
However this wider approach has some limitation when it is applied to a business unit at a low level in the organization. The complexity of pressure may not be completely or even at all understood. Translating the significance of pressure into a meaning for the organization requires developing a certain set of skills that may be ineffective at a lower level. In a strict top-down strategy process the lower level organization is somehow protected by the strategy umbrella created at top. Thus they might not be able to mitigate any negative influence coming from a wrong direction taken above.
4.2 Porter's Five Forces
Porter's Five Forces is a framework of examining the attractiveness of an industry. It does so by looking at five forces which act on that industry. These forces are elements causing that industry's profitability.
While the factors apply to all companies competing in one industry, in the same way, what differs creates the profitability variance between them. This is because of their own competitive advantages and applied business models. So just because all firms in one industry and market are subject to the same forces doesn't mean they perform equally.
A Porter analysis should always be done in conjunction with other assessments, and should not be regarded as being absolute. It should only serve as an indicator, not absolute fact. There are many critical assumptions that should be made and explained in one's five forces analysis. The market must be described, the competition must be explained, and the products must be defined.
For example, an analysis of the industry in the US would not necessarily apply in China. The markets are totally different, and the product life cycle is not even close to being the same.
The company is operating on multiple markets and multiple geographical locations. Applying the model for the entire company would not give a very relevant result. However as we reduce the scope of the analysis this would inform better the strategic choices.
The main tool used to analyze the business environment and internal resources in the company is the SWOT analysis. The main objective of this tool is to analyze internal strategic factors, strengths and weaknesses of the organization, and external factors beyond control of the organization such as opportunities and threats. The last two originate in the industry analysis but do not offer the same insights like the Porter's Five Forces.
The use of the SWOT covers to some extent the elements required for analysis by the Porter's model but do not allow for an integrated view. The advantage of the five forces model is that it makes clear the links between each one of them.
Use of complex frameworks is seen in the company as a tool used only by specialized consultants so its use may be accepted as an exercise in a strategy workshop but using it in a formal way other than that would be marked by skepticism and reluctance.
To be able to generate a strategic discourse around Porter's model would require a longer preparation and mindset change towards the use of strategic thinking. This would be probably easier to be done at the global or divisional level but very difficult in the operational thinking environment of the manufacturing parts.
4.3 Stakeholders analysis
A general definition of a stakeholder is someone who has an interest in a company for some reason. The most common stakeholders in the company are the employees, the customers and the shareholders, but the company includes also in its discourse also the suppliers, educational institutions and authorities.
The strategy is always defined after a thoughtful understanding of company purpose, expressed under the form of mission and vision statement. These come in a written mode and the texts are referred in all strategy formation discussion.
Having a harmony between mission, vision, values and strategy can be a significant advantage for the organization looking to achieve the success. But this is really achieved only if the organization creates that "sense of mission" that comes from the harmony between the employee personal values and beliefs and organizations values. Creating that type of workforce can be done through either selection or formation. The company is using an intense formation program to explain, realign and clarify peoples value, which covers all level of people in the company but still the success rate is not very high, which shows that implementing a culture is a never ending process.
A weak point of this approach is that the strategy is defined in isolation, by a small group of executives. For an organization's vision and mission to be effective, they must become assimilated into the organization's culture. The strategy followed a top to bottom communication plan but no internal feedback loop was created to allow the organization to interpret the mission statement. More focus has been put into the external assessment, integrating mainly investors and customer feedback.
During the process it was very clear the tendency to focus more on the concrete touch of strategy formulation. The Values were defined but there were more presented like something that the company must possess not that it already has. The gap to reality was not identified, neither planned for further analysis.
However it is recommended to keep this path as it creates the right balance and align competing objectives. The orientation is not to profit maximization but to look first to people, quality, volume, and at the end at cost.
4.4 Making the strategy happen
Strategy workshop is an important part of the strategy planning process. The company is using it as the main methodology of strategy formulation and is widely applied across all business units. They are organized with the support of a consultant or a senior manager.
The benefit of having the strategy formulated this way is that it creates a common vision to which the participants are committed. It always start with the clarification of the organizational purpose, If already define it is reinforced to the members.
The workshops permit the application of the strategy frameworks within which future decisions will be made. Even the people that are not used with it are much more willing to accept a new concept. The environment allows for an "out of the box" thinking and can make the paradigm change much easier if required. It is thou easier to identify new opportunities in the business environment and tie them to the core strengths that create a competitive advantage.
The workshop can get additional benefits to the people or the teams. It permits the creation of mix teams and eases the communication between different management levels or functional areas. People get ownership for the strategic plan and the team gets an identity around it which raises the commitment and eases the implementation.
However what is missing is a working feedback loop at every organizational level that would allow the open feedback and change of the strategy if it proves inaccurate or ineffective.
This work has been critically assessed a range of key strategy managerial implication and the relation with the strategic discourse of the organization I am working with, explaining the reasons behind each chosen
I have described how strategic discourse is formed in the organization, by making a critique assessment of the top-down approach.
The main body was focused on identifying the limitation of each of the managerial implication and how this translate into the strategic discourse, pointing out the challenges that these pose to the organization.