BUSINESS PERSPECTIVES AT HOLDEN COMPANY
Instructions: As an individual assignment, students are required to use a case study to prepare a 1500 word report addressing the following:
- Explain how external environmental scanning could have alerted Holden to change its business strategies and avoid business closure in Australia?
- Using readings from week 2 (“critical reflection”), demonstrate how critical reflection can bring forth managerial foresight for Holden to remain competitive in their business in Australia.
- Critically analyse how innovative thinking and entrepreneurial orientation could have saved the Holden Manufacturing Group.
Solution
BUSINESS PERSPECTIVES AT HOLDEN COMPANY
The automobile industry in Australia
receives close to $500 million funding from the Government on an annual basis.
Initially, the industry experienced a boom, manufacturing a large number of
vehicles annually. Nevertheless, there has been a tremendous decline in the
number of vehicles manufactured in the company, with the government deeming it
costly to produce cars locally. As such, major players in the industry have
been forced to consider closing business in the country, an aspect that has
proven to be a major blow to them. The industry has developed increased
dependence on economies of scale in view of achieving cost competitiveness. A
rise in the Australian dollar has placed more pressure on the automotive
industry in terms of competitiveness, considering the increase in low-priced
imports and the decrease in export competitiveness. Holden is one of the
largest car producers in Australia and has reported its exit strategy
considering the Governments statement. The company has been faced out of
business in Australia as a result of failure in proper management approaches,
which have failed to consider environmental indicators in making major
strategic decisions. This paper is going to review how the company could have
averted its current situation through scanning their external environment,
critical reflection and innovative thinking.
Contents
The Benefits of External Environmental Scanning. 4
Management through Critical Reflection. 6
Entrepreneurial Orientation and Innovative Thinking. 7
Industrial Overview
The automobile industry in Australia was once one of the largest industries in the country, with companies such as Ford Motor Company and Holden experiencing high sales. There was a consistent rise in the number of cars manufactured in the country annual, with the year 2005 being the peak with a high of 4.5 million cars (AUDIIS, 2016). Nevertheless, the industry experienced a massive drop in demand for cars, leading to a subsequent drop in the cars manufactured per year to as low as 175,000 in the year 2009. Interestingly, most of the cars that are locally produced in Australia are not bought locally, but exported to Asia and Europe (Long & Hichens, 2014). There are three major players in the Australian automobile industry, which include Toyota, Ford, and Holden, which is a subsidiary of General Motors. All these companies have reported their closure of business in Australia with Toyota and Holden announcing their closure by the end of 2017, while Ford announcing its exit in October 2016 (AUDIIS, 2016).
Organizational Overview
As earlier mentioned Holden is a subsidiary of General Motors, first established in South Australia as a saddler company. The company was later established as a major operations branch of GM, building, designing, and selling different automobiles across the globe (Clibborn, et al., 2013). The company is headquartered in Port Melbourne, with its engine manufacturing centre being located in Adelaide, South Australia. The Company is responsible for the manufacturing of vehicles including Commodore, Camaro, and Chevrolet (Holden Company, 2016).
The Benefits of External Environmental Scanning
The main objective of any organization is performance. As such, the volatility and complexity of the external environment of a business are major influencers of its decision making and structure. The success of any organization within its market is determined by its capability to align its strategies with environmental requirements. Environmental scanning is a major step towards such alignment. It is through environmental scanning that organizations are able to identify the various opportunities for attaining competitive advantage in the market, and threats towards their survival (Zhang, et al., 2011). A scan of the external environment would allow Holden Company to gather information about these factors and hence to identify the changes that have been taking place in terms of trends and preferences. This would allow them to make informed strategic decisions on how to counter the various threats to their business (Cheng, et al., 2014).
With regards to the economic factor, an environmental scan would allow Holden to note the Australian dollar’s rise in value, which has greatly affected the company’s export competitiveness (Clibborn, et al., 2013). This is important considering that most of the company’s products are exported to Asia and Europe. As such, a rise in the Australian dollar negatively affects the company’s profit margin during currency exchange. Another important factor is the high level of competition, with the country having more than fifty brands competing for market share. The high number of competitors has left Holden scrambling for the same market share, amidst an increase in cost competition (Clibborn, et al., 2013). The political environment has also had a major impact on the sustainability of the automobile industry I Australia. Case in point, political influence has led to reduced funding of the industry from the government, which has proven to be a major threat as it has led to financial struggle among automobile manufacturers (Holden Company, 2016). On the other hand, a scan of the external environment would also allow Holden to identify the implications of the new laws and regulations that have been established towards the industry by the Australian Government. Lastly, external environmental scanning would also allow Holden to identify the implication of the Free Trade Agreements put forth by South Korea and Thailand.
Management through Critical Reflection
Critical reflection is a process through which an individual reasons out the meaning of a certain experience (Bootz, 2010). It allows persons to probe their own thinking with questions in order to understand why they made certain decisions. Through critical thinking, Holden Company would be able to approach its problems through different perspectives by identifying and analysing its weaknesses and improving on them (Thorp & Goldstein, 2010). Critical reflection would allow the management at Holden to effectively analyse various areas such as their technological abilities, research capabilities, how willing they are to adopt to change, their flexibilities, political influences, understanding of dynamics, and competitiveness. This would allow the management to establish areas that could be improved on in order for the company to maintain its competitive advantage. One of the important area that the company could proper analyse via critical reflection is their increased dependency on the funding provided by the government. This would allow them to establish approaches through which they can generate their own capital and uphold sustainability. It is clear that the company received up to $250 million government funding at a point, though there is no enough evidence to establish if the company solely depends on the government (News Limited, 2015). Critical reflection would allow Holden to focus more on cost cutting and improving sales in order to increase its profit margin.
Another important factor that requires critical reflection involves the implications of their announced closure in 2017. Close to 250,000 Australian either directly or indirectly depend on Holden through employment (News Limited, 2015). The closure of the company will have detrimental consequences on the workforce, which has devoted itself to the company for years. In addition, through critical reflection, the company will be able to understand the psychological dynamics defining the behaviours and patterns of the consumers (Zhang, et al., 2011). In this case, psychological dynamics refer to the notion that the human behaviour is predictable and understandable, and that through it, a company can be able to establish approaches through which they can align their products with the needs of their consumers (Zhang, et al., 2011). As such, critical reflection would allow the company to effectively determine not only the preferences of the Australian consumers of their products, but also the purchasing behaviour of such customers.
Entrepreneurial Orientation and Innovative Thinking
Entrepreneurial Orientation (EO) is the level to which an organization is entrepreneurial. This approach is comprised of five components, which include Risk-taking, proactiveness, innovativeness, autonomy, and competitive aggressiveness (Lisboa, et al., 2011). Risk taking would allow managers at Holden to properly allocate huge resources in different projects, including those with uncertain outcomes, without the fear of losses. On the other hand, being proactive as opposed to reactive is important for the company as it allows for proper research of the environment in order to identify potential factors that are likely to present barriers towards the achievement of the organization’s goals (Bootz, 2010).
Strong entrepreneurial orientation and innovative thinking could have saved Holden through promoting the introduction of effective ideas and solutions. Through innovative thinking, the company would have clearly identified and replaced the products that had lost their popularity with new cars that meet the needs of the population (Lisboa, et al., 2011). Case in point, the company could have considered moving away from the production of the costly Commodore cars to cheap Cruze cars (Clibborn, et al., 2013). This would allow the company to gain a competitive edge in some of its export destinations such as South Korea and Thailand. On the other hand, innovative thinking would allow the company to establish and introduce new technology within its production process as this would reduce on cost. Introduction of new technology would lead to a subsequent reduction in the number of employed workers, and hence a reduction in the cost incurred due to wages (Bootz, 2010). The company could also have considered promoting entrepreneurial orientation initiatives including quality improvement in terms of car designs and features to match the demands of the consumers, as this would give them a competitive advantage. Innovative thinking would allow Holden to establish ways through which they could boost in-house capabilities in order to minimize their reliance on a large number of suppliers (Lisboa, et al., 2011). The company could also embrace innovative approaches such as the reduction of engineering costs through stopping the production of cars that are not in high demand and instead embracing a concept of cars to allow them to manufacture cars that meet the needs of consumers across the world (Davis, 2016).
It is clear that the operation of an
organization is not independent from the influence of various factors in the
external environment including political, economic, technological, and social factors,
among others. As such, it is important for any organization to effectively identify
and respond to such factors in a timely manner in order to promote
sustainability in their market place. Holden’s announced departure from
Australia is as a result of failure of the company to effectively identify and
tackle such factors. The Australian market became unstable due to the high cost
of production in the country, and the company failed to identify the long-term implications
of the economic and political factors. As such, without government support, the
company became unstable and bound to exit. Proper scanning of the external
environment would have allowed the company to identify its threats and opportunities.
It is also clear that through critical reflection, Holden would be able to weight
not only its actions, but the implications of such actions. In this case, the
company would be able to engage in critical thinking and refer to similar
situations before making important decisions. In addition, it is evident that
innovative thinking and entrepreneurial orientation are principles that ought
to be upheld in the company in order to foster risk taking and quality
improvement. Innovative thinking would allow the company to meet the
ever-changing needs of the consumers and to gain a competitive advantage over
other players in the market. On the other hand, the company ought to promote
innovative thinking, critical reflection, and entrepreneurial orientation in
order to facilitate competitiveness and sustainability.
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[Accessed 10 August 2016].
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[Accessed 22 August 2016].
News Limited, 2015. Holden receiving twice as much
government funding as Toyota and Ford to build cars. [Online]
Available at: http://www.news.com.au/finance/business/holden-receiving-twice-as-much-government-funding-as-toyota-and-ford-to-build-cars/story-fnda1bsz-1226610949671
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