Strategic evaluation and recommendations for WEX Inc.

Strategic Evaluation and Recommendation

Strategic Plan Part 3: Strategic Evaluation and Recommendation

Businesses can grow through business-level, corporate-level, and/or global strategies. Business-level strategies are strategies a firm employs to create value and competitive advantage in its product/service markets (Hill & Jones, 2012). Corporate-level strategies affect the organization as a whole and are tied to the strategic direction (long-term goals and objectives) of the organization (Johnson, Scholes & Whittington, 2010). Global strategy defines the extent of the organization\'s presence in the global market. This paper evaluates potential business-level, corporate-level, and global strategies for WEX Inc., an American payment processing and information management firm with operations in the U.S. and beyond.

Business-Level Strategies

There are a number of business-level strategies available to WEX. These mainly include cost leadership, focused cost leadership, differentiation, and focused differentiation. Cost leadership is a strategy that involves providing products or services at a lower price relative to competitors (Hill & Jones, 2012). Lower costs can be achieved by enhancing internal efficiency, optimizing production and overhead costs, as well as reducing costs associated with sales, service, and processes such as research and development (R&D). Rather than applying cost leadership to the entire market, an organization can focus on a smaller (niche) market. This is referred to as focused cost leadership. While cost leadership can be a significant source of competitive advantage in the marketplace, low costs may be interpreted as low or poor quality.

Differentiation entails offering unique products and services in terms of quality, features, performance, functionality, technological attributes, and customer service (Hill & Jones, 2012). By offering differentiated products, an organization is able to command premium prices. The organization also raises the cost of switching to other alternatives, thereby ensuring strong brand loyalty. Similar to cost leadership, an organization can as well focus on a small market segment. Though differentiation is an important value creating strategy, it faces risks such as imitation.

In an increasingly competitive business environment, relying on differentiation or cost leadership alone may not be enough. Indeed, consumers ever more desire unique products and services at a lower cost at the same time. Accordingly, the organization can take advantage of both cost leadership and differentiation (Hill & Jones, 2012). Firms such as Southwest Airlines have registered tremendous success with this strategy. While combining cost leadership and differentiation gives the organization the advantages of the two strategies, effective implementation and management is important to avoid being stuck in the middle.

Corporate-Level Strategies

There is also a broad array of corporate-level strategies available to WEX. These include market development, market penetration, product development, diversification, mergers, acquisitions, strategic partnerships, and restructuring (Johnson, Scholes & Whittington, 2010). Also, known as market share expansion, market penetration entails expanding the current offerings to the existing market. This can be achieved by decreasing prices, increasing promotional and distribution activities, and making modest improvements to the existing products. Market development involves expanding the current offerings to new markets mainly by creating new customer segments. Product development encompasses creating new offerings for the current markets. This particularly involves expanding the organization\'s product portfolio through channels such as R&D. Diversification involves creating new offerings for new markets. The offerings may be related or unrelated to the exiting offerings. For related diversification, for instance, an airline company may introduce travel and tours services. For unrelated diversification on the other hand, the airline company may venture into the banking industry.

Firms may acquire, merge with, or partner with other entities to pursue new markets, develop new products, and expand market share (Johnson, Scholes & Whittington, 2010). An acquisition mainly entails buying a competitor, while a merger involves combining two organizations to form one entity. Mergers and acquisitions are indeed common corporate-level strategies, offering faster growth in the marketplace. Rather than pursuing a merger or an acquisition, a firm may form strategic partnerships with rivals. In this approach, firms operate autonomously, but share resources, knowledge, and even customers. Airline companies are notorious for this strategy. A firm may also achieve growth at the corporate level by restructuring its operations and design. Operational restructuring involves withdrawing from underperforming markets, ceasing unprofitable offerings, scaling down the product range, and eliminating, creating new, or combining business units. Restructuring organizational design may involve changing organizational structure and downsizing the workforce (Johnson, Scholes & Whittington, 2010).

Corporate-level strategies are important for the long-term performance and growth of the organization. Nonetheless, they involve more resources, time, effort, and risk (Johnson, Scholes & Whittington, 2010). For instance, acquiring a rival involves millions or billions of dollars, and presents challenges such as inherited risk, lack of organizational culture fit, and loss of proprietary information. Similarly, venturing into new markets presents more market and operational risks. Therefore, the benefits and risks involved must be carefully weighed to avoid wastage of time and resources in an undertaking that may not be fruitful or which may turn out to be detrimental to the organization.

Global Strategies

Operating in the global environment is without a doubt a complex undertaking. An organization must consider a plethora of factors in the local environment (political, economic, social, technological, environmental, legal, and industry factors). These factors influence mode of entry the organization selects, how it reaches out to consumers in that market, and how it interacts with other relevant stakeholders such as suppliers, competitors, and regulators. In addition to mergers, acquisitions, and strategic partnerships, a firm can increase its presence in the global market through joint venture agreements, wholly owned subsidiaries, exporting, as well as franchising and licensing (Segal-Horn & Faulkner, 2010).

Joint venture agreements involve sharing ownership with an entity (public or private) in the domestic market. The agreement facilitates sharing of risk, resources, and technology. A wholly owned subsidiary entails full ownership of a business in a foreign market. This may be achieved through acquisition and greenfield investments. Exporting encompasses retaining production operations in the home country, but selling products to other countries through distributors, intermediaries, or sales representatives. This strategy is common with manufacturers. Though they are quite different, licensing and franchising agreements allow firms or business owners in foreign markets to produce a firm\'s proprietary product or utilizes its intellectual assets (trademark, copyright, brand name, and so on) (Segal-Horn & Faulkner, 2010).

Though global strategies facilitate international expansion, they often involve a great deal of risk. These include political instability, cultural difficulties, relationship management complexities, economic risks (such as foreign exchange risk), information asymmetry, longer time-to-market, loss of control, and loss of proprietary assets (Segal-Horn & Faulkner, 2010). Without effective management, therefore, a global strategy may turn out to be a disaster for the organization.