Assignment Help on CommonWealth Bank In Australia
Introduction
A standard definition of strategy is “A high-level plan to achieve the goals under uncertain conditions.” Michael Porter wanted to know the drivers of success in commercial organizations. The research he did showed that the industry structure is more important than the firm’s behavior, and his model of five forces (1979) provides insight into the sources of competition at the industry level. Combining both price and market type, He proposes the following competitive strategies:
- cost leadership,
- differentiation,
- cost segmentation or focus (that he further divided into cost and differentiation focus),
To determine the direction of an organization these strategies can be used.
However, these strategies do not come without criticism
It is argued that all the strategies defined by porter may not be suitable for every firm. Sometimes a single strategy adopted would yield results, or a mixture of these would be beneficial. They depend on several variable factors, such as the organizational structures, the skills of employees. control procedures in place etc. (Ouma and Oloko 2017) . Porter’s strategies are deemed to be firm-specific only, which addresses alone a specific situation and time. They do not set a guideline for a changing business environment or for businesses that operate in a dynamic environment(Moon, Hur et al. 2014)
Mechanistic organizations differ in nature from Organic ones significantly, the ideas and processes governing these two ideologies are opposites of each other. Efficiency, rigidity, and standardization is prevalent in mechanical organizations. Accurately, mechanistic organizations are categorized by a strict hierarchy, a heavy dependence on rules, high levels of formalization, centralized decision making, vertical specialization, and narrowly defined tasks (Hunsaker, 2018). Contrariwise, organic organizations encourage a team-based approach, while being flexible and adaptable to changes in the environment. Particularly, organic organizations are categorized by multiple or weak hierarchies; lower levels of formalization; relaxed rules, procedures and policies; decentralized decision making; horizontal specialization; fluidity of tasks adjustable to changing conditions; and communication moves in all directions.
Discussion
Porter’s four competitive strategies
Cost leadership strategy
Cost leadership strategy is achieved by focusing on the efficiency levels where the goal is to produce high volumes of output, which would lower costs through economies of scale. However, having a large market share or preferential access to production factors is necessary to keep competitors from copying the adopted strategy. (Tanwar, 2013)
Organizations that attempt to produce their goods in an industry at the lowest cost can be referred to as those which follow a cost leadership strategy. Organizations with the lowest costs associated with their outputs would make the uppermost profits assuming that the market the entity is competing in consists of products mostly homogeneous and sold at standard market price (Kuijk, 2018). The main objective of these entities is to reduce costs at all steps of their supply chain in an effort to reduce or remove all cost overheads, provided that it can do so without a significant hit to the quality of the product offered. It is necessary to note that cost leadership does not necessarily mean that the entity’s products will be available at the lowest price. There are some instances where an object offers the products are an average market price and pockets the profits earned due to being a cost leader.
However, a noticeable downside for a company that adopts cost leadership strategy is that it focuses on minimizing costs, sometimes at the cost of other important factors, which may turn out to be so dominant that the company fails vision of why it boarded on one such strategy in the very first place.
Differentiation strategy
When a company segregates its products, it is normally able to sell its services or products in the market for a premium. This strategy can often manifest as better service levels to customers, improved product performance, etc. compared to prevailing competitors. In (1980) Porter has debated that for a company using a differentiation strategy, it would have to bear extra costs. Those extra costs may include high marketing and advertising spending to encourage a differentiated brand image for the product.
Differentiation has countless advantages for the firm, but there are some disadvantages associated with it too. Some problems include the effort on the part of the firm to predict, if the extra costs used to differentiate can be restored from the customer through premium pricing (Kuijk, 2018). It is significant to note that a company can use differentiation in more than one way. Differentiation can be attained through a differentiated product, customer service, and higher quality, etc.
Focus strategy
Initially Porter presented emphasis as one of the three generic strategies, but then later divided focus into two strategies (Bradstreet, 2008). Companies involve this strategy by concentrating on niche parts in a market where there is the slightest amount of competition. That is why the focus strategy is also sometimes referred to as a niche strategy. In cost leadership focus, the company practices the cost focus approach for cost-benefit in its targeted segment only. If a company uses the differentiation focus approach, it will aim to differentiate itself in only the target market segment, not the overall market.
If the company uses this strategy it can then allow the company to charge a premium price for providing superior quality (differentiation focus) or by presenting a low-price product (cost focus) to a small group of buyers. The Nokia-made Vertu and Rolls Royce are good examples of niche players in the automobile and mobile phone industry (Bradstreet, 2008). Both these companies have a niche of finest products presented at a premium price. Furthermore, they have a tiny percentage of the overall market, which is a representative of niche players. However, the weakness linked with the focus strategy is that the niche might not be substantial or huge enough to justify a company’s attention. In those industries where economies of scale play an important role in deciding the product’s cost the focus on cost can be problematic (Hunsaker, 2018). There is also the possibility that the niche may fade away by time, as the customer preferences and business environment change.
A detailed analysis of the strategy of Commonwealth Bank in light of the strategies mentioned above, a clear argument can be made that the bank has embarked on adopting a “Differentiation” strategy to perform its business. The following indicators can support the argument:
- The bank’s vision states, “To be Australia’s finest financial services organization through excelling in customer service.” This indicates that the entity is striving to differentiate itself from the market.
- The entity’s top strategic priority is to provide class-leading customer service, which is a sign of a differentiation business strategy.
- The view of the entity website lacks any indication of cost leadership strategy, such as a display of comparisons of the cost of their services with the market, nor does the bank operate in a niche market, as the bank provides a wide range of services to varied types of customers.
Mechanistic vs. Organic organizations – An Overview
The contingency theory of organizational structure is that the most effective organizational structure for an entity depends on the circumstance. An example of contingency theory is the management study of Burns and stalker, where they identified mechanistic and organic structure organizations (O’Neill, Beauvais et al. 2016).
Mechanistic organizations tend to delegate more of their authority, bureaucracy is practiced, jobs are precise, and of specialized nature with vertical communications. However, the preference is always given to what is more suited to the administration (Lam 2011).
A mechanist organization always prefers the internal knowledge that is more beneficial for the administration rather than having a specialist knowledge for a functional position.(Kaspersma, Alaerts et al.)
An organic is network structure, not a delegated structure, control culture is not bureaucratic, and communication is horizontal. This structure is best suited for the dynamic environment and for people who would communicate during their jobs. Organic organizations require special knowledge and most importantly interaction with people to exchange views, bring solutions to the problems, and developed the same view interpretations. (O’Neill, Beauvais et al. 2016)
The way that an organization is structured and the processes in place to achieve its objectives can be analyzed through a collection of variables defined by organizations either intentionally or through some strategy-setting process. These variables are centralization, complexity, formalization, adaptiveness, stratification, production, job satisfaction, and efficiency. The difference between the two organizations can be demonstrated through a detailed look at each of these variables. Although these theories at hand may look to be contrasting, they can be adopted simultaneously. Lawrance and Lorsch earlier in their studies suggested that the mechanist and organic structures can co-exist, surprisingly, in different parts of the same organization.(Lam 2011)
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