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2.2.2 The Three Cs and SWOT Analysis in Management Strategy

The term “strategy” in the concept of “management strategy” was originally a military term, with Japanese characters derived from the ancient Chinese classic “The Art of War” by Sun-Tzu. A famous phrase from that work states that “if one knows one's enemies and knows oneself, one will not be imperiled in a hundred battles.” When comparing it to management strategy, “oneself” might refer to corporate strengths and weaknesses, while “one's enemies” might refer to competitors. Value is created from corporate activities when customers purchase products or services of a company. Thus, customer awareness is also important. Therefore, designing management strategies begins with the analysis of the three Cs which are “company,” “competitors,” and “customers.”

SWOT analysis is a commonly used tool in the determination of corporate strategy. SWOT refers to “strengths, weaknesses, opportunities, and threats.” Strengths and weaknesses refer to internal management resources and correspond to the aforementioned “know oneself.” Therefore, it is important that the management identifies corporate strengths and weaknesses, and develops necessary strategies that take advantage of strengths and avoid weaknesses. On the other hand,

Fig. 2.1 SWOT analysis

opportunities and threats are external to a company. Opportunities refer to a company's business opportunities, for example, entering an overseas market to find new customers. Threats, on the other hand, refer to powerful competitors or the expectation of heightened competition in the company's business sphere because of deregulation. Management strategies set by companies should avoid areas with large threats and focus on areas with greater opportunities (Fig. 2.1).

Determining management strategies requires a combination of both internal (strengths and weaknesses) and external (opportunities and threats) factors. There are two theories regarding the areas where more emphasis should be placed. The first is “Porter's Positioning Theory” that emphasizes external factors. Porter's theory of management strategy analyzes the forces that result in lower profitability using the “Five Force” model (Porter 1980). The five forces are outlined below:

1. Bargaining power of customers

2. Bargaining power of suppliers

3. Threat of new entrants

4. Threat of substitute products

5. Competitive rivalry within an industry

Under SWOT analysis, these factors focus on “threats” and suggest that management resources should be channeled toward areas where threats are relatively small. On the other hand, the theory that emphasizes management resources in terms of corporate strengths (the “S” in SWOT) is called the “resource-based management strategy theory” (Barney 1986, 1991). Sustained competitiveness is dependent on having management resources (technology, organizations, personnel, supplier networks, etc.) that are rare and difficult to copy. This theory states that management strategy should be directed toward taking advantage of such strengths. The VRIO framework is used by this theory; we discuss this framework below.

Value: Is the company's technology far superior to that of its competitors? Does the company have better human resources than its competitors? Does the company have a network of powerful customers? Are the company's assets of high value?

Rarity: Are the company's assets rare compared with those of its competitors? Imitability: How difficult is it for competitors to imitate the company's technology,

and can “rarity” be maintained for a certain length of time?

Organization: Does the company have an organizational structure that can effectively utilize available management resources?

Management resources that can affirmatively answer the above questions can bring about sustained competitiveness; therefore, management strategies that can maximize the utility of such resources must be undertaken. Moreover, because the types of management resources provide an economic value change according to the environment in which a company is placed, there is an expanded theory called the “dynamic capability theory” that emphasizes the rearrangement of management resources in a dynamic fashion (Teece et al. 1997).

Needless to say, these two theories of management strategy are not in conflict with each other, and must be used in conjunction when designing corporate strategies to maximize the value of a company's internal management resources in response to external environments. Management strategies in Japanese corporations are generally based on a resource-based management theory that emphasizes internal environments (Numagami 2009). Japanese corporate management is built on a long-term employment system based on stable relations. In addition, there is a strong tendency to build stable relationships with the network of suppliers and customers. Thus, resources such as technologies, personnel, and relationships with customers tend to be built over time, with corporate strategy designed around such management resources. Alternatively, the US and other Anglo-Saxon-based countries have well-developed external labor markets with highly fluid employment. In addition, dynamic changes in company structure due to M&A activities force companies to analyze external business environments and make a prudent realignment of management resources when attractive markets are found. Thus, Porter's positioning theory is more applicable.

However, as companies are becoming more global, the methods in which management strategies were designed in the past to respond to varying market transactions and country-specific systems are beginning to break down. Many Japanese companies in a global business environment struggle because of a non-functioning Japanese-style management structure. For example, in its overseas subsidiaries, business models based on stable and long-term labor relationships and long-term customer and supplier relationships often do not work. There are exceptions to this, such as in the automotive industry where companies have launched a Japanese-style supply chain system overseas to great success. However, these cases are exceptions and creating management strategies requires a shift in thinking. Specifically, companies must strengthen their analysis of external environments, where they have not made much effort domestically in the past, and speed up changes in business domains using M&As or other entry methods.

 
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