Critically discuss to what extent Porter’s Diamond Essay
Critically discuss to what extent Porter’s Diamond
Critically discuss to what extent Porter’s Diamond is a useful concept in explaining home and host location strategies of international business? Illustrate your answer with reference to at least two case companies.
The main aim of International business is to build and sustain competitiveness for economic value creation in both domestic and overseas markets (Besanko et al. 2007). Internalization business theory however has a variety of models that can identify the environmental analysis of specific countries. These models are used for companies to internationalize and find the right location(s) overseas by taking; institutional, cultural fit and success opportunities into consideration. These models also give in-depth information on locations that the companies have chosen. A very well-known framework is the Porter’s Diamond which was found by Michael Porter in 1990. This report will discuss the advantages and disadvantages to determine a company’s home and host location decision by analyzing two high street retailers – French E.Leclerc and UK’s Sainsbury’s. Porter’s Diamond Model (1990: 73 ) states that nation’s competiveness depends on the capacity of its industry to innovate and upgrade this however depends on the productivity level of the nation.
From a company’s point of view a national competitive advantage means that it would have to depend on the nation to implement a home base to improve their existing products and services such as; technology, features, quality as well as being able to compete with international industries. Therefore, the advantage of this model is that it identifies the four factors that develop the essential national environment where companies are born, grow and as mentioned above sustain competitive advantage (Porter, 1990:78). The idea of this model is useful because it allows organizations to carry out the necessary research and identify which countries would be good enough to internationalize.
As you can see from the Porters Diamond diagram the first factor is the factor condition, this factor is about production such as land, raw materials, capital infrastructure etc. these are not inherited, but developed and improved by a nation for instance skilled labor (Porter, 1990:79). In order to sustain competitive advantage it will depend on the factor creation ability. For instance, E. Leclerc started as a small rented warehouse “Leclerc established a chain of outlets across the country, single-handedly changing the landscape of shopping in France”(www.independent.co.uk)
“Critical evaluation of development and role of Balanced Scorecard in production and service organizations”
Excerpts from HBR-1 (1992):
“The Balanced Scorecard – Measures That Drive Performance,” Robert S. Kaplan and David P. Norton, Harvard Business Review, January-February 1992, pg 71-79. Page 76-77:
… Analog Devices, a Massachusetts-based manufacturer of specialized semiconductors, expects managers to improve their customer and internal business process performance continuously. The company estimates specific rates of improvement for on-time delivery, cycle time, defect rate, and yield. … …Over the three-year period between 1987 and 1990, a NYSE electronics company made an order-of-magnitude improvement in quality and on-time delivery performance. Outgoing defect rate dropped from 500 parts per million to 50, on-time delivery improved from 70% to 96%, and yield jumped from 26% to 51 %. Did these breakthrough improvements in quality, productivity, and customer service provide substantial benefits to the company? Unfortunately not.
During the same three-year period, the company’s financial results showed little improvement, and its stock price plummeted to one-third of its July 1987 value. The considerable improvements in manufacturing capabilities had not been translated into increased profitability. Slow releases of new products and a failure to expand marketing to new and perhaps more demanding customers prevented the company from realizing the benefits of its manufacturing achievements. The operational achievements were real, but the company had failed to capitalize on them. … Excerpts from HBR-2 (1993):
“Putting the Balanced Scorecard to Work,” Robert S. Kaplan and David P. Norton, Harvard Business Review, September-October, 1993, pg 134-147. Page 142:
… Analog Devices, a semiconductor company, served as the prototype for the balanced scorecard and now uses it each year to update the targets and goals for division managers. Jerry Fishman, president of Analog, said, “At the beginning, the scorecard drove significant and considerable change. It still does when we focus attention on particular areas, such as the gross margins on new products. But its main impact today is to help sustain programs that our people have been working on for years.” Recently, the company has been attempting to integrate the scorecard metrics with hoshin planning, a procedure that concentrates an entire company on achieving one or two key objectives each year. Analog’s hoshin objectives have included customer service and new product development, for which measures already exist on the company’s scorecard. …
Excerpted from JMAR (1998):
Innovation Action Research: Creating New Management Theory and Practice, Robert S. Kaplan, Journal of Management Accounting Research, Vol. 10, 1998, pg. 89-118. Page 99-101
“…For the balanced scorecard, the initial idea also came somewhat serendipitously, but also not completely by accident. The need for improved performance measurement systems had been widely recognized during the 1980s. Many articles, books and conferences documented the limitations of relying solely on financial signals for improving business performance. The adoption of total quality management, just‑in‑time production systems and synchronous manufacturing all created a demand for improved performance measures that would support companies’ continuous improvement initiatives. Therefore, much work had already occurred by 1990, the time when the balanced scorecard concept initially emerged (Berliner and Brimson 1987; Howell et al. 1987; Kaplan 1990b). Much of the need for improved operational performance measurements had been satisfied by measures such as part‑per‑million defect rates, yields, cost of nonconformance, process cycle times, manufacturing cycle effectiveness, throughput times, customer satisfaction, customer complaints and employee satisfaction.
What remained missing was a theory for how the myriad of nonfinancial performance measures now being used on the factory floor could be reconciled with and achieve comparable status to the financial measures that still dominated the agenda of senior company executives. Fortunately (again), a skilled practitioner, Arthur Schneiderman of Analog Devices, contacted me to assist his company with launching an activity-based costing project. In our initial conversation, I learned that he had developed an innovative approach, the half-life system, to measure the rate of improvement of his company’s TQM program. As part of my research agenda (see step 1 in exhibit 1), I asked for and received approval to visit Analog Devices and write a case about their initiatives. During my visit, I learned that Schneiderman had also developed and implemented a corporate scorecard that senior executives were using to evaluate the company’s overall performance and rate-of-improvement.
The corporate scorecard included, in addition to several traditional financial measures, some metrics on customer performance (principally operational measures related to lead times and on time delivery), internal processes (yield, quality and cost) and new product development (innovation). This corporate scorecard, evolved, as we shall see, into what came to be called the balanced scorecard. … … by teaching the Analog Devices case to executives, I learned quickly that Analog’s corporate scorecard was of much more interest to them than the half-life method, the original focus of the case. … … even more initial learning came from testing the ideas directly with a set of companies that participated in a yearlong project on performance measurement with the Nolan, Norton & Co. The project attracted senior financial and planning executives from a dozen companies who met on a bi-monthly basis throughout 1990.
Analog’s corporate scorecard captured the interest of the participants. Throughout the year, they experimented with it in their organizations and reported back to us on the results. The concept proved successful in many of the pilot sites and turned out to be the prime output from the year-long research project. In the process, the original corporate scorecard, which focused mostly on operational improvements (on lead times, delivery performance, manufacturing quality and cycle times) had become transformed into a much more strategic organizational performance measurement system, characterized by four identifiable perspectives (financial, customer, internal business process and innovation and growth). … Page 109:
… The balanced scorecard implementations being done at the end of 1995, as integrated strategic management systems, were far more advanced than the initial formulation, as a complementary nonfinancial measurement system, at Analog Devices or the companies described in our initial article (Kaplan and Norton 1992). In six years (1990-1995), Norton and I had made three cycles around the knowledge creation cycle. The half-life of improvement of the balanced scorecard knowledge base was much shorter than for activity-based costing. …