With reference to appropriate literature and organisational examples related to the case study, critically evaluate the advantages and disadvantages of strategic alliances over other forms of external strategic development such as mergers and acquisitions, in a globalized environment.
Strategic alliance according to Dean & Yunus (2007) is an agreement formed between two or more parties for them to pursue an agreed upon objectives that are needed while the organizations remain independent. the partners forming the strategic alliance provide the needed resources such as distribution channels products, funding, manufacturing capability, expertise, knowledge, intellectual property and capital funding with the hope that the benefits that will be accrued form the alliance will be greater compared to the individual efforts. For example, most of the major UK energy firms formed a strategic alliance with DONG Energy and Siemens Project Ventures to develop onshore and off shore wind farms around UK. According to Nina (2012p.56), a merger occurs when one organization is combined and disappears into another organization. Acquisition, on the other hand, is a term used in describing an ownership transfer. This could be in form of purchase of the business assets, stock and a merger of the organization buying the business (Chakravorty et al 2012p.119). Example of merger and acquisition is NuGen, a joint venture formed between GDF-Suez and Iberdrola and later joined by Toshiba, a Japanese company. Similarly, through acquisition, Toshiba in 2006 acquired a US firm, Westinghouse Nuclear that provides world leading products of boiling the water reactors. Through strategic alliance, mergers and acquisition, the energy industry has seen invasion by international corporations.
Davenport (2011p.94) pointed out some of the advantages and disadvantages of global strategic alliance. The advantages include:
- Instant market access, or the speeding of entry into a new market
- Exploitation of new opportunities in the market to strengthen the position of the corporation
- Sales increase
- Gaining of new technology and skills
- Development or new products with more profits
- Sharing of resources and fixed costs
- Enlarging the distribution channels of the corporation
- Broadening of the corporations political and business contact base
- Gaining of greater knowledge of international culture and customs
- Enhancement of the corporate image in the global marketplace
However, the disadvantages include:
- Less equity stake or weaker involvement of the management
- Less efficient communication
- Due to the partners presence, there is fear of market insulation
- Poor allocation of the resources
- Loss of the control over important issues like operating costs, product quality and employees.
According to Haibin et al (2011p.1070), some of the advantages and of mergers and acquisition include;
- Acquisition of a larger market share of an existing market
- Entry into new markets
- Elimination of competitors
- Acquisition of assets and expertise
- Transfer if skills
- Efficiencies increase
- Saving of costs
- Consolidation of power and control over markets and governments
However, the disadvantages of mergers and acquisition as observed by Haibin et al (2011p.1074) include:
- Loss of the skilled employees by the corporation except those in the leadership position and this is costly
- Employees retrenchment leads to loss of motivation and this could result to loss in productivity and revenue reduction
- Improper or rushed new structures of the new organization
- Improper management due to increased costs
- Duplication if the merger is on companies that has been producing similar products
- Resistance to any change initiatives in future.
“The effective use of knowledge is the key to sustained competitive advantage”. Discuss this statement with reference to the strategic importance of knowledge within the energy industry
In the modern business landscape, companies strive to come up with mechanisms of becoming different from their competitors in the market and to get a competitive advantage. The changes created by the information age have shifted companies to be more concerned with the holistic and steadfast interests in leveraging the intangible assets. The information management as a gateway to gaining the competitive advantage has evolved recently into a management of knowledge that is strategically focused.
Knowledge management is a strategy of ensuring the right people get the right knowledge at the right time, and assisting people in sharing and putting information in ways that will improve the performance of the organization (Davenport 2011, p.96). Knowledge management concept deals with the creation of structures that incorporates the technological resources elements that are more advanced and the indispensable decision making and human response input. According to Ikujiro (2010, p.100), knowledge is only created as interpretation of information and evaluation from a mental model context. This is because companies and individuals have different mental models. Therefore, knowledge management is the creative information mining from different sources with the main purpose in mind for business opportunities.
It is critical to understand the distinction between explicit and tacit knowledge. Explicit knowledge is first codified and then stored in the memory of the organization and then made available to the employees in the entire structure (Peter 2001). For instance, Schlumberger Company that explores, extract gas utilizes the information technology, communities of practice and network in facilitating sharing of knowledge and innovation in all its activities. Tacit knowledge, on the other hand, is a personal knowledge that is possessed by an employee of the corporation that may be difficult to communicate or express to others (Ikujiro 2010, p.101). For example, all the six big energy supplying companies in the energy industry in UK employ managers that are knowledgeable in their businesses. Iberdola Company even stated that the basic foundation for the formation and protection of the value of a company is the intellectual property.
According to Davenport (2011, p.98), it is hypothesized that there are five components that are essential in producing effective knowledge management. These include harvesting, filtering, dissemination, configuration and application. They must be combined together to achieve the competitive advantage. To share their knowledge, the companies developed in 2008, a knowledge management policy, that outlines how the knowledge of groups and individuals is captures and used in the line with the requirements and competencies to help in the development of the core strategy of the company. EDF Company, in its nuclear plants, use communities of practice and knowledge sharing to ensure safety is paramount to avoid disasters.
“An organisations strategic focus should take into account people, planet and profit, for them to be considered truly socially responsible”. Critically evaluate this statement with reference to academic literature and examples from the energy industry
Corporate social responsibility is an integrated form of corporate self regulation in the model of business whereby a business monitors and ensures that it complies actively with the ethical standards, spirit of the law and international norms. The CSR process aims to embrace the company’s responsibility for their actions and also encourage positive impact through their activities to their customers, environment, communities, employees and their stakeholders (Alison &Tyson 2007, p.820). For example in the energy industry in UK, Eon Centrica, RWEnpower among the six major companies in the energy industry have invested in the renewable energy like biomass, hydropower and wind farms to protect environment, and to lower prices for the consumers
The CSR concept has a long history that is associated with the way it impacts on the behavior of an organization. According to Grahame & Peter (2003), CSR has constantly changed for the past 60 years. The primary focus in 1950s for CSR of businesses was to do good to societies. Key ideas, people, events of 1960s were instrumental in shaping the social change during that decade. However, the business managers in 1970s applied the traditional functions of management when dealing with the issues of CSR. The social and business interest came closer in 1980s and the companies became even more responsive to the stakeholders. CSR was approved universally n 1990s while in 2000s it became an important issue for strategy.
In a corporation, stakeholders are constituencies and individuals that contribute involuntarily or voluntarily, to its capacity of wealth creation and activities and are the potential risk bearers and beneficiaries. CSR should therefore mean corporate stakeholder responsibility. Stakeholder theory according to Randall & Roger (2014) is organizational management theory and business ethics that addressed values and morals in organizational management. The link between CSR and the stakeholder theory outlines how the stakeholders play their roles in a company to give back to the community. The investments of the shareholders are used to finance CSR activities, the employees engage directly in the CSR activities while the competitors also engage in CSR to be relevant with their competitors.
Critics and proponents of CSR debate many concerns that include the relationship of CSR to the nature of business and fundamental purpose and the questionable motives for performing CSR. These include the hypocrisy and insincerity concerns. Another key CSR debate is to determine the responsible actors that are responsible to make sure that companies behave in environmentally and socio-economic sustainable manner (Grahame & Peter 2003).
A theory is a set of concepts with statements in which degree and as to how these are correlated, with statements where the theory can be termed valid. The theories associated with corporate social responsibility include the institutional theory, CSR theory, legitimacy theory, reputation theory, strategic CSR theory, credibility theory, moral CSR theory among others (Randall & Roger 2014).
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