Research Proposal on "Strategic Management Human Resources and Finance"

Research Proposal 12 pages (5277 words) Sources: 1+

[EXCERPT] . . . .

De Beers Case Study

Conduct a value chain analysis for De Beers, including the new activities of jewelry making and retailing through its joint venture with LVMH.

In assessing the value chain analysis of De Beers, the transition of their business model from being a cartel with monopolistic pricing and demand management strategies to being more market-driven is evident. As is evident from the value chain analysis below, De Beers dominates the Inbound Logistics processes of the industry by controlling nearly all mined diamonds, and domination the Operations and Outbound Logistics functions of the industry value chain. Figure 1 illustrates the De Beers value chain, capturing the transition from being monopolistic in process and pricing to being more market driven.

Figure 1: De Beer's Value Chain Analysis

The value chain analysis identifies the issues that De Beers faces in transitioning from a cartel to a market-driven company that relies on its branding over just pricing. Specific issues include a re-alignment of their firm infrastructure, approach to Human Resources Management (HRM) to also be in compliance to more ethical and fair trade approaches to managing their workforce and supplier base. Another critical issue De Beers faces is the use of information technologies and more strategically, Technology Development to better streamline the processes they will need in order to successfully transition from being monopolistic to market customer- and market driven. The greatest issues in the short-term and intermediate timeframes however are the difficult tasks of creating joint venture (JV) for retailing with LVMH. This is the most difficult area of the value chain for De Beers to execute on as it forces a major cultural shift in how they view their own strengths, and secondly, how they relate to specific external partners. This JV is represented in the Outbound Logistics, Marketing & Sales and After-Sales Services of the value chain analysis shown in Figure 1. Between the processes, people and technologies that need to be drastically changed for De Beers to be more adept at competing for consumers vs. driving their competitors out the greatest challenge is going to be changing the internal De Beer's culture. Supporting Activities as shown in Figure 1 in the short- and medium-term that will undergo the greatest change will be the firm's infrastructure, approach to HRM, technology development and rapid adoption of Business Process Management (BPM) approaches to streamlining and making more customer-centric their most complex processes including order management. Procurement will need major re-vamping to be in compliance to fair trade guidelines and also to alleviate ethical lapses that have been happening in mining operations globally.

Part 2: How sustainable is the competitive advantage created by their new strategy?

The sustainability of the competitive strategy created by their new business model is predicated on how quickly they align all customer-facing and channel-facing strategies in the outbound logistics, marketing & sales and after-sales service areas of their value chain. These are entirely new areas of operations for De Beers. Symptomatic of the extend to change required in these processes is the reliance on distributed order management systems that can integrate at the process and information systems levels with LVMH for example. There is also the requirement of having a more synchronized yet auditable procurement and supply chain series of processes in place. Initiating an approach of focusing more on creating value through fulfilling the unmet needs of channel partners, including ensuring the success of the LVMH joint venture will require De Beers to re-define their pricing strategies to be more focused on process costing and cost controls than has been in the case. In addition, the Inbound Logistics and Operations areas of the value chain will need to be more focused on inventory turns and efficiency of supply chain responsiveness to the needs of the channel partnerships including LVMH and the new ventures aimed at penetrating the jewelry manufacturing market. With all these intermediate- and long-term modifications to their business model, the sustainability of their new competitive strategy is going to be very difficult in the short-term. it's entirely realistic to assume that De Beers is going to struggle for at least twelve months or more to get their processes, revised roles for its staff, and systems synchronized and in place to sustain the new strategy. The magnitude of these changes on a cultural basis will result in turnover and attrition as many of the long-time employees immersed in the culture will find the change too difficult to cope with over time and leave the company or retire as a result.

Part 3: Do you support De Beers' entry into the retail jewelry business or do you think they should focus exclusively on diamond mining, grading, sorting, wholesaling, cutting and polishing?

As the retailing business is one that encompasses entirely new skill sets, processes, systems, integration points, HRM practices and supply chain considerations, it's critical that De Beers take a realistic approach to their ability to re-align their business model while entering an entirely new business. Retailing is much faster moving, more attuned to analytics and interpolating market signals than is the case for cartels, which rely on pricing alone. Even down to the perspective of the market itself, De Beers will face a daunting task of re-orienting their approach to reading the market and interpreting market-driven needs and requirements. This is going to be even more exacerbated by the dual cultures of LVMH and De Beers, two companies who operate in vastly different processes, systems and practices. Secondly, the core competencies or strengths that De Beers has today are most efficiently transferred to the roles of Inbound Logistics, Operations, Manufacturing, and Outbound Logistics. Their existing approach of costing and pricing as a cartel are best aligned with mining, grading, sorting, wholesaling, cutting and polishing, all critical functions of process-driven costing. The transition to retailing requires an entirely new perception of time within the organization as well. Retailing is much more short-term while other areas of the De Beers value chain are more long-term in orientation. For all these reasons the move to retailing is going to be fraught with challenges and unexpected delays as the cultures of De Beers and LVMH collide in many of the areas defined.

Question 2 De Beers -- Human Resources Question - Describe some of the difficulties that De Beers may find in staffing senior international positions. Your answer should include the following areas: Which HR issues may cause particular difficulties? What might be some of the skills gaps for staff in these positions? How might newly-appointed staff be prepared for positions in parts of the world of which they have little experience?

Cartels and monopolistic companies, organizations and trading exchanges develop a highly unique and what many consider to be eccentric organizational cultures and structures as a result of their approach to competing. That's because these organizations, to survive as cartels, attract those that don't ethically find anything wrong with using pricing as a means of enforcing conformity to the cartel's specific methods of operating. A common strategy on the part of De Beers is to drive down prices to punish those companies who are defectors from their cartel. Another common strategy is to preserve the perception that diamonds are scare and therefore substantiate inflated prices, thereby supporting the pricing strategies of the De Beers cartel as well. A common third strategy is to continually control demand though the use of their CSO to give De Beers Corporate the opportunity to directly control the optimal price for the market.

These three common strategies that are engrained in the culture of De Beers require senior management candidates that are accustomed to navigating ethically complex decisions quickly. The role of new senior international positions will be made more complex by taking into account these challenges of ethically making the best decisions while taking De Beers into a more market-driven set of strategies over those that had been defined purely on price alone. At first glance it would appear that cognitive, theoretically-minded senior managers would be the best possible choice for assisting De Beers move from being one-dimensional in its planning, execution and selling strategies. Yet consider the fact that many of the primary activities as defined in the company's value chain, including Inbound Logistics, Operations and Outbound Logistics are intensively manual in scope. There has been no impetus for De Beers to improve these manual processes of mining, no impetus to change how to manage the 12-15% of employees in Africa who may be infected with the HIV / AIDS virus, and no reason to embrace any sort of Corporate Social Responsibility (CSR) coordination, as none of these factors have in the past impacted their brand. De Beers had successfully been able to keep a duality of their company from emerging to the buying public. As the Internet and social networking are continually making the world a much more transparent place, De beers can no longer allow this duality to exist. Senior managers in international positions will be forced to bridge… READ MORE

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