Midterm Exam Set

Focus Strategy (Narrow Market Segment, Low Cost or Differentiation Advantage)

Concentrate on narrow segment and within it achieve cost advantage/differentiation - Needs of group better served by focusing entirely on it - Creates high customer loyalty that discourages firms from competing - Lower volumes, less bargaining power with suppliers, and can't pass on unlike differentiation strategies - Success creates ability to tailor broad range of product development strengths to narrow segment Risks: - Imitation and changes in target segments - Easy for broad market cost leader to adapt product to compete - Continued carving out of sub segments

Karan Giotra and Serguei Netessine's Four Parhts to Business Model Innovation

Creating a new model by altering current model by: - changing mix of products/services - Postponing decisions Changing the people who make decisions - Changing incentives in the value chain

7 Factors of Developing Sustainable Competitive Advanatages

Customer Loyalty: - Committed to buying from one retailer, obtained through branding, positioning and loyalty programs Location: - Factor for selection of store Distribution and Information Systems: - Most effective way to get products at a cheap price and sell them for reasonable price given distribution is expensive and timely Unique Merchandise: - Private labels brands developed by retailer for themselves Vendor Relations: - Strong relations gain exclusive rights to sell merchandise to certain regions and receive popular merchandise in short supply Customer Service: - Takes time to establish, hard for competitors to gain similar reputation Multiple Source Advantage: - Have multipel areas of advantage over the competition

Fixed and Variable Costs/Break Even Analysis

Describe a cost's behaviour relative to volume, what happens to cost when volume increases Breakeven = Total Fixed Costs/Revenue/Unit - Variable Cost/Unit - Measure of risk, higher the breakeven higher the risk - Lower fixed costs, increase revenue per unit and reduce variable costs per unit to reduce breakeven Variable Costs: - Cost in change in relation to variation in activity (production sales volume, etc) - High proportion means business can continue to function at low revenue level - High Fixed cost require high revenue level to stay in business - Direct materials, piece rate labour, prodcution supplies, billable staff wages, commissions, credit card fees, freight out Fixed Costs: - Doesn't change over short term even with change in slaes - Amortization, Depreciation, Insurance, Interest Expense, Property Taxes, Rent, Salaries, Utilities

Pest and Pestel Analysis

Find out current external factors affecting the company - Identify the external factors that may change in the future - Exploit changes or defend against them better than competitors would - Assess potential of new market, more negatives significantly reduces profit potential Steps: - Gather info about PEST factors - Identify which factors or opportunities or threats

Reducing Competitive Rivalry Between Existing Players

- Avoid price competition - Differentiate your product, crate strong brand customer loyalty/increase switching costs - Buy out competition, reduce industry over capacity, focus on different segments than competitors, communicate with competitors

Limitations of BCG Matrix

- Growth rate only single factor in industry attractiveness, and relative market share only one factor in competitive advantage - Assumes each business unit is independent (dogs in some units help other units gain advantages) - Depends of breadth of market definition, given units may dominate small niche and have low market share in industry,

Alex Osterwalder on Business Models

A business model is really a set of assumptions of hpyotheses: - Nine part business model canvas lays out assumptiosn about key ersources and acitvities of value chains, but also value prpos, customer relationships, channels, custoemr segments, cost structures and revenue streams But, once comparisons are made between models of businesses, entering strategy Margarita stipulates business models are descriptions of how your business runs, but competitive strategy explains how you will do better than rivals (offering better business model or offering the same to a different market

Drucker and IBM

A strategically nimble company - Drucker: sooner or later, some assumption you have about what's critical to your company will turn out to be no longer true - From transitioning to mincomputers to PC hardware, IBM runs adrift on assumption is just a hardware business

Sustainable Competitive Advantage Overview

Acquires attributes that allow it to perform better than others in same industry - Gained by creating value-creating strategies not being implemented by current competitors that are rare, valuable and non-substituable - Not easily copied, maintained over time so competitors can't do right away or is unsustainable for them to pursue - Requires customer loyalty, location, unique merchandise, good distribution, vendor relations, customer service, and multiple sources of advantages

Linkages Between Value Chain Activities

Activities aren't isolated, one chain often affects cost/performance of others - Linkages exist between primary/primary and support activities that have net cost increases or decrease

Decline Stage of Product Life Cycle

As sales decline, multiple options: - maintain product, rejuvenate it with new features and find new uses - Harvest product, reduce costs and continue to offer it to loyal niche segment - Discontinue product, liquidate inventory or sell it to another firm that will use it Mix decisions depends on selected strategy

Cost Leadership Strategy (Broad Industry Wide, and Low Cost Advantage)

Being low cost producer for given level of quality - Sells products at average price to earn profit higher than rivals, or below average price to gain market share - During price wars, firm maintains profitability while competition suffers lose and for when industry matures and prices decline, can produce cheaper to remain profitable for longer How to: - Improve process efficiencies, gain access to large source of low cost materials - Make optimal outsourcing and vertical integration decisions Possess these Internal Strengths: - Access to capital required to make big Investment in production assets - Skill in design products for efficient manufacturing - Expertise in manufacturing process engineering - Good distribution Limitations: - Other firms can lower costs, as tech improves can leapfrog prodcution restrictions - Focus strategies targeting several narrow markets can achieve even lower cost, altogether gets massive market share

Technology and the Value Chain

Changes in tech impact competitive advantage by incrementally changing activities themselves or making new configurations of the chain - Several steps used across chain, support activities leverage training, computers and software development Inbound Logistics Tech - Transportation - Material handing.storage - Communciation/Testing - Information systems Operations Tech: - Process/Materials - Machine tools - Material handling/packaging - Maintenance/testing - Building design and operation - Information systems Outbound Logistics Tech - Transportation - Material handling/packaging - Communications - Information systems Marketing/Sales Tech - Media - Audio/video - Communications - Information systems Service Tech: - Testing - Communciation - INformation Systems

Joan Margretta on Business Models

Coined during dot.com bust, at heart are stories that explain how enterprises work. - Answers Drucker's question of who is the customer, what does the customer value and answers fundamental questions every manager asks in how we make money in the business - Underlying economic logic explaining how we deliver value to customers at good cost - Like Drucker focuses on assumptions than on money, given business model first came into use with advent of personal computer and spreadsheet, which let components be tested given previous models wer erected by accident than by foresight - By enabling companies to tie insights to resulting economies, in linking assumptions about how people would behave to numbers of a pro-form (spreadhseets could model businesses before they were launched) Defines business model in terms of value chain: - Two parts including the activities associated with making something like design, raw materials, manufacturing and second everyone-thing for selling something: finding customers, transacting sales, distributing products, delivering services - New business models turn on designing a new product for unmet need or on a process innovation

Effective Swot Analysis Pointers

Distinguish between where you're now and where you wish to be - Be realistic about strengths/weaknesses - Be specific - Relate S/W to KSFs and state them in competitive terms - Rank points in order of importance

Related Diversification Commonalities

Exchanging Skill and Resources - One business unit has skills exportable to another - Must identify skills exportable or that are needed and can be imported - Find partner that provides or uses them - Next, ascertain whether integration is feasible Brand Name: - Extend brand names to other products like Puma sunglasses Marketing Skills: - Export or import marketing talent via localization to a specific geographic area Localization Tasks: - Local character seems need to be supported - Interface needs to be translated in form familiar to local users - All documents in local language - Configure software to support locally available software - Provide local customer service Service: - Small companies can enter markets and do well with innovation, as markets mature, necessary for strong service - Join forces with larger firm which has serving organization adopted into involved product. Bluetooth in Phones R&D and Product Development: - Firms good at R&D/new product development, lacks marketing product (get firm help) Exploiting Excess Capacity: - Bottling plants with excess capacity due to for other companies Achieving Economies of Scale: - Two smaller consumer product firms can't afford sales force, new development or warehousing, but together can operate at efficient level or sharing equipments

Competitive Rivalry Between Existing Players

Intensity of competition existing, leads to pressure on prices, margins, profitability for every company in industry Competition High When: - Many players of same size with similar strategies - No differentiation between players and products (price competition ensues) - Low market growth rates - Barriers for exit high (expensive/specialized equipments - Price sensitive customers with low switching costs

Factors to Help Find Business's KSFS

1. Important market trends occurring now. Growth, cyclical, static, massive cheap imports, new innovation etc? 2. How important are existing vs new customers. Is it essential to keep current ones, how does marketing compare with competitors 3. Why have competitors grown to position they hold> What have they done and what skills, what advantages tehy offer customers, why are they persuasive? 4. Largest cost areas of business, and for competitors. Do comps share same cost profile? 5. How important is R&D and innovation, even if original research isn't involved 6. Is our business capital intensive? Are there long lead times for customer orders, how do our resources compare 7. What worker and management skills are crucial 8. How important are sudden movements in currency and tax 9. How important is quality, how do we maintain quality, how do consumers define it 10. how important is location to business? Do we need to be in a special location

Affinity Club, Brokerage, Bundling, Cell Phone, Crowdsourcing (Business Models)

Affinity Club: Pay royalties to some large organization the right to sell your product exclusively to their customers Brokerage: Bring together buyers and sellers, charging fee per transaction to one or another party Bundling: Package related goods and services together Cell Phone: Charge different rates for discrete levels of service Crowd Sourcing: Get a large group of people to contribute content for free in exchange for access to other people's content

Scope of Application of Porter and Influencing the Five Forces

Allows structured analysis of market structures/competition - Tool for industry but appleid to companies, segments, or regions too - First determine scope of market analyzed then all relevant forces identified and analyzed (not always needed to analyze all elements in same depth After analysis of current and potential future states, search for options to influence forces - Certain business models limit options, own strategy changes impact of competitive forces on organization - Objective is reducing competitive powers

Differentiation and the Value Chain

Arises form any part of chain, stemming from uniqueness by changing individual value chain activities to change final product or reconfigure the chain itself - Many are cost drivers, given differentiation results in greater costs resulting in tradeoffs between cost and it Drivers of Uniqueness: - Policies and decisions - Linkages among activities - Timing, location and interrelationships - Learning ,integration, scale, institutional factors Different approaches: - Forward integrate to perform functions that were once performed by customers - Backward integrate to have more control over inputs - Implement new process tech or new distribution channels

Critiques of Porter's Model

Assumes perfect markets which isn't correct given most industries are regulated and information imbalances exist - Model based on competition, therefore less suitable to analyze collaborative industries - Assumes relatively static market structures that are predictable, but now business is Volatile, Uncertain, Complex and Ambiguous (VUCA)

Contemporary Organizational Designs (Autonomous, Boundary-less, Learning)

Autonomous Internal Units: - Many independent decentralized business units each with its own products, clients, competitors and profit goals with no centralized control or resource allocation Boundary-less Organization: - Design not limited to horizontal, vertical or external boundaries imposed by structure - IE UNSTRUCTURED DESIGN< flexible with no boundaries to deal with chains of command, hierarchy or departmentalization - Use teams, small numbers of permanent employees, specialists hired when needed - Examples are subcontractors or freelancers Learning Organization: - Developed capacity to continuously learn, adapt and change - Has knowledgeable employees able to share it with others and apply it to work enviroment - Strong culture wehre all employees have common goal - Team design and greater leadership creates leverage over competitors

Product Life Cycle Growth Stage

Build Brand preference and increase market share - Product quality is maintained and additional features and support services may be added - Pricing is maintained as the firm enjoys increasing demand with little competition - Distribution channels are added as demand increases and customers accept the product - Promotion aimed at broader audience

Profit Pool Attractiveness and the Business Model

Business models as formulas to create value in product via the configuration of internal operations and commercial model in the structure of transactions with customer and others like pricing, bundling etc - IE models differ so profitability different between firms which alters the size of profit pools - Look at value chain view across flow by the offering to the end customer

BCG Growth-Share Matrix Overview

Company business units classified into four boxes based on combination of market growth and market share relative to largest competitor - Market Growth serves as proxy for long term industry attractive, and Market share serves as proxy for competitive advantage - Assumes increases in share results in increased cash generation given the experience curve: increased share implies firm moving forward relative to competitors and developing cost advantage - Assumes Growing market requires investments in assets to increase capacity of results in consumption of cash - As industries decline, business units either become cows or dogs, determined by whether its a market leader during period of high growth Cash required by rapidly growing businesses obtained form firm's other units that were at more mature stage and generate cash - By investing to become leader in rapidly growing market, move along experience curve and develop cost advantage

Global Strategy OVerview

Competing Pressures: - Pressure for Local Responsiveness in consumer taste and preferences, differences in traditional practices, distribution channels and demand of host governments - Pressure for Cost Reductions in commodity-type product, universal needs of customers, competitors using low cost position - Not lower prices, pressure to lower costs because you need to lower prices or commodity your price taker (oil, sugar, etc) Four Strategies: - Global Strategy: Low Local Responsive, High Pressure for Cost Reduction. Soft drink industry. Bottles of pop taste the same, a lot of pressure to control costs because they can't increase prices due to competition - Transnational Strategy: High Pressure for Cost Reduction, High Pressure for Local Responsiveness - International Strategy: Low Local response, low pressure for cost reduction. Various systems public private health care, but have IP - Multi-domestic Strategy: High pressure for local responsiveness, low pressure for cost reduction. Law firms given laws are different worldwide, but people assume they're going to pay a lot for a good lawyer

Mission Statements for New and Small Firms

Concise statement of business strategy and developed from customer perspective and fit with vision. Answers: What do we do - Not what is physically delivered to customers, but the real/psych needs fulfilled when customers by p/s - Customers make purchases based on economics, logistics and emotional factors - From need fulfilled, perspective better answers how and for whom we do it How do we do it: - Technical part of business, encompasses physical product/service and how its sold and delivered to customers, fits with need customer fulfills with purchase For whom do we do it - Helps focus marketing efforts given not everyone is a customers due to demographic and geographic limitations - Starting out, define the demographics likely to buy and then define geography where business can gain presence, as you grow, add new cusomter grows/expand geography Additional Consideration: - Most businesses have multi customer groups with different pruchase motivations, and so one mission statement can be written to answer each of 3 questions for each group or multiple mission statements created - Both mission and vision guide business, not lock it into one direction, as company grows/competition intensifies, mission may need changes to include different needs that need fulfilling, delivery systems/customer groups - Revisit mission/vision periodically

Different Interpretations of Organizational Culture

Consistent, observable patterns of behaviour in organizations - Elevates repeated habits as core of culture and deemphasizes what people feel think and believe Product of Compensation: - Shaped by incentives, including money and non monetary rewards like status, recognition and sanctions Defines Jointly Shared Description of Company from Within: - Sense making within companies, a collaborative process of creating shared awareness out of different perspectives and interests Culture is Organization's Immune System: - Form of protection evolved from situation pressures, prevents wrong people and thinking from entering company - Problem is companies attack agents of needed change, that has implications for on boarding and integrating people Shaped by Main Culture: Emphasizing Particular Parts of it - Makes it harder to operate in multiple national, regional and local cultures in striking balancing between one culture and allowing local cultural influence Over Simplifies Situation in Are Companies in assuming only one culture - risky for new leaders to ignore subcultures: - Many factors drive internal variations in culture of business functions and units, and history of acquisition defines sub cultures - Legacy cultures of acquired units can persist over time Culture Should be Managed as a Continuous Process: - Is dynamic, shifting constantly in response to external and internal change

Output of Value Chain Anaylsis

Cost Advantage: Better understanding costs and squeezing them out of the value adding activities Differentiation: By focusing on those activities associated with core competencies and capabilities in order to perform them better than competitors

Cost Advantage and the Value Chain

Create cost advantage via reducing cost of value chain activity or reconfiguring the chain - Assign costs to value chain activities from accounting - Cost advantage by controlling drivers better than comp - Reconfigure chain for production process, distribution channel or different sale etc. 10 Cost Drivers: - Economies of scale - Learning - Capacity utilization - Linkages among activities - Interrelationships among business units - Vertical integration - Timing of market entry - Policy of cost or differentiation - Geographic location - Institutional factors regulations, unions, taxes

Bargaining Power of Customers

Determines how much pressure customers impose on margins/volumes - Think about intermediaries of puchase (Coke, customer of grocery stores/cnvenience store etc) - Consider switching costs/choice interplay High when: - Buy large volume/concentration of buyers - Supply industry comprises large number of small operators - Supplying industry operates with high fixed costs - Product undifferentiated/has substitutes - Switching to alternative product simple/not costly - Customers have low margins/price sensitive - Customers produce product themselves - Product isn't of strategical importance, customer knows prodcution costs - Customers integrate backwards

Differentiation Strategy (Broad Industry Wide, Product Uniqueness Advantage)

Development of product that offers unique attributes valued by customers that they perceive to be better than/different from competitors - Charge premium for value added by uniqueness that covers extra cost for developing it - If Suppliers increase prices, pass along to customers who can't find substitute Success based on: - Access to scientific research - Skilled and creative development team - Strong slaes team that communicates perceives strengths of product - Corporate reputation for quality/innovation Limitations to strategy: - Imitation by competitors/change in custoemr taste - Many firms pursing this achieve greater differentiation in market segments

Disintermediation, Fractionalization, Freemium, Leasing, Low-Touch (Business Models)

Disintermediation: Sell direct, sidestepping, traditional middlemen Fractionalization: Sell partial use of something (Netjets) Freemium: Offer basic services for free, charge for premium service Leasing: Rent, rather than sell, high margin, high priced prodcuts Low-Touch: Lower prices by decreasing service

Types of KSFs (Distribution and Marketing)

Distribution: - Strong network of wholesale distributors/dealers - Gaining ample space on retailer shelves - Having company retail outlets - Low distribution costs and fast delivery Marketing: - Strong network of wholesale distributors/dealers - Available, dependable service and tech assistance - Accurate filling of buyer orders (few back orders or mistakeS) - Breadth of product line and selection - Merchandising skills, customer guarantees and warrantees)

Ideal BCG Matrix Portfolio

Diversity of offering across four quadrants, heavier weight for cows and stars, lower dogs and question marks - Cows best for profitability today and stars profitability for future - Several cash cows and two well places tars to ensure future profits - Couple of dogs and questions marks ok given it shows the firm is proactively looking for opportunities

SWOT Matrix

Don't pursue lucrative opportunities always, have better chance at developing competitive advantages by identifying strengths and upcoming opportunities - Overcome weaknesses first to prepare for potential opportunities S-O Strategy: Pursue opportunities that are good fit to strengths W-O Strategy: Overcome weaknesses to pursue opportunities S-T Strategy: Identify ways firm can use strengths to reduce vulnerability to external threats W-T Strategy: Establish defensive plan to prevent weaknesses from making you susceptible to external threats

Mission Statement

Drives company, what you do/core of the business, and from it comes objectives and how to reach them, and how culture is shaped - What do we do, whom do we serve, how do we serve them - Solid mission motives team to advance toward common goal, weak one leads to silos, miscommunications, no motivation

Threat of New Entrants

Easier to enter industry, higher competition with new entrants possesses the ability to change market environment (shares, prices, customer loyalty, service) at any time Level of threat from new entrants dependent on barriers to entry: - Economies of scale (minimum size requirements for profitability) - High initial investments/fixed costs - Cost advantages of existing players due to experience curve effects of operation with fully depreciated assets - Brand loyalty - Intellectual property - Scarcity of resources - Access to raw materials/distribution channels controlled by existing players - Existing players have customer relations from long term service contracts - High switching costs for customers/legislation and government action - Barriers to entry

Cost Leadership Industry Forces

Entry Barriers: - Ability to cut price in retaliation deters potential entrants Buyer Power: - Ability to offer lower price to powerful buyers Supplier Power: - Better insulated from powerful suppliers Threat of Substitutes: - Can use low price to defend against substitutes Rivalry: - Better able to compete on price

Differentiation INdustrY forces

Entry Barriers: - Customer loyalty can discourage potential entrants Buyer Power: - Large buyers have less power to negotiate because of ew close alternatives Supplier Power: - Better able to pass on supplier price increases to customers Threat of Substitutes: - Customer's become attached to differentiating attributes, reducing threat of substitutes Rivalry: - Brand loyalty to keep customers from rivals

Focus Industry Forces

Entry Barriers: - Focusing develops core competencies that an act as entry barrier Buyer Power: - Large buyers have less power to negotiate because of few alternatives Supplier Power: - Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases Threat of Substitutes: - Specialized products and core competency protect against substitutes Rivalry: - Rivals cannot meet differentiation- focused customer needs

Environmental, Legal, Ethical, Demographic Factors to Consider

Environmental: - Weather, climate change, pollution laws - Recycling, waste management, Endangered species Legal: - Anti-trust, Discrimination, IP, consumer protection, employment, health and safety and data protection law Ethical: - Advertising and sales practices, accounting and marketing standards - Counterfeiting and breaking pattens, - Recruiting practices Demographic: - Immigration and Emigration rate - Age distribution, life expectancy, sex distribution, disposable income - Social class, family size, minorities

Types of Profit Pools

Existing Profit Pools: - Readily accessible already addressed by business New and Charted: - Increment to existing business, taking existing offering into new market or expanding services of existing model with new offering - Competitors already exist here New and Uncharted: - Little known or established in areas with two familiarity with customer needs or the offering model hasn't been tried before

Value Chain System

Firm's value chain part of larger system including other upstream and downstream channels Suppliers Chain - Firm Value Chain - Channel Value Chain - Buyer Value Chain - Firms with a lot of VI poised to better coordinate upstream and downstream activities, less can forge agreements still to achieve better coordination - IE ability to create CA based on managing both its value chain, and manage others

Outsourcing Value Chain Activities

Firms may specialize in single value activities/outsource rest - Vertical Integration describes how much firm performs upstream and downstream activities Considerations for outsourcing for differentiation/cost reduction purposes: - Activity performed cheaper or better - If activity is core competency which stems from cost advantage/differentiation - Risk of performing in house. If activity relies on fast changing tech or product sold in changing market, outsource to maintain flexibility and avoid investing in specialized assets - If outsourcing results in process improvements like reduced lead time, higher flexibility and reduced inventory

Combination of Generic Strategies (Stuck in the Middle_)

Firms that possess multiple strategies often do so with different business units for each one - But, viewpoint that single strategy not best because with same product customers often seek multi dimensional satisfaction form combinations of quality, style convince and price - Porter argues to be long term success, pick one (unless multi-business unit factor applies)

Ramon Cassadesus-Masanell and Joan Ricart on Business Models

Focus on choices managers make when determining processes neede to deliver offering, dividing them into: - Policy Choices: Union/non union workers, locating plants in rural areas - Asset Choices: Manufacturing plants, satellite communication systems etc - Governance Choices: Who has the rights to make the other two categories of decisions

Analyzing Business Unit Interrelationships

Forms basis for horizontal strategy that offer direct opportunities for synergy amongst units - IE if multiple units require same raw material, can be shared that reduces costs - But synergies often fall short due to drawbacks in coordination costs, reduced flexibility etc

Product Life Cycle and BCG Overlap

From descending market growth rate: - Growth phase - Introduction Phase - Maturity Phase - Decline Phase Stars and Question Markets are considered within the introduction and growth phase - Cash Cows and Dogs are part of maturity and decline phases - Variations for fads, style and fashion products and products reinvented for consumer and go from maturity to another period of growth - Given increases in tech breakthroughs are being adopted by market much faster than previously, indicates period of time products remain stars or questions marks is decreasing

Vision Statement

Gives company direction, future of business, which provides purpose - Aspirational, what are hopes and dreams, what problems are we solving for greater good and whom and what are we inspring to change - Promote internal and external growth, helps team focus on what matters most for company - Invites innovation, with purpose firms envisioning success as a whole - Flip side, lack of vision is stagnation, outdated processes, no purpose

Vision Statements for New/Small Firms

High level goals coincides with founders goals for business - State what founder envisions business to be for gowth, values, employees, contributions to society, therfore self-reflection by founder vital for meaningful vision creation - Company mission comes after, ie the strategies for moving the company towards the vision

Threat of Substitutes

IF alternative products with lower prices of better performance parameters for same purpose. Attracts market volume and reduces sales volumes for existing players Threat of substitutes determined by: - Brand loyalty, close customer relationships, switchings for for customers - Relative price for performance of substitutes - Current trends in tech, customer preferences etc

Porters Generic Strategies

If primary determinant of profitability is attractiveness of industry, secondary determinant is its position within the industry - Even though industry has below average profitability, firm positioned well is still good - Strengths either in cost advantage or differentiation applied in a broad or narrow scope, can either use cost leadership, differentian, and focus. - Generic strategies, not firm or industry dependant

Porter's Generic Value Chain

In understanding competitive advantage/shareholder value, separate business systems in series - Goal to offer customer level of value exceeding cost of activities thereby creating margin - Competitive advantage achieved by reconfiguring chain to provide lower cost/better differentiation Inbound Logistics: - Receiving and warehousing raw materials, and distribution to manufacturing as required Operations: - Transforming inputs into finish goods Outbound Logistics: - Warehousing and distribution of finished goods Marketing and Sales: - Identification of customer needs and generation of sales Service - Support of customers after the products and services are sold to them SUPPORTING ACTIVITIES: - Infrastructure: Organizational structure, control system, culture - HR Management: Employee recruiting, hiring, training, development, and compensation - Tech Development: Tech to support value creating activities - Procurement: Purchasing inputs like materials, supplies, and equipment = Margin!

Clay Christensen's Disruptive Innovation

Introducing a better business model into an existing market - Designed to work out how a new entrants model might disrupt yours - Focus on customer value proposition (customer's job to be done) in identifies profit formula, processes, and resources that make rivals better, harder to copy and respond to Rita Mcgrath: - Business models run out of gas when innovations to current offering create smaller and smaller improvements because when your own people have trouble thinking up new improvements at all or your customers can increasingly find alternatives

Resource Base View of Firm

Jay Barney established four criteria determining competitive capability: - Are they valuable (Enable firm to devise strategy to improve efficiency or effectiveness) - Are they rare (If other firms possess, then not) - Are they imperfectly imitable (because of unique history, causally ambiguous/socially complex) - Are they non-substitutable

Tips for Setting Strong Objectives

Know your Strengths and Weaknesses: - Conduct SWOT to develop relevant/realistic strategies, investigate future trends in industry and develop objectives giving competitive advantage - Hedgehog Concept: For long term objectives, identify what your best at in the world, economic driver for company, and what the team is passionate about Where you want to be in 3 months, 1 and 5 years out - Vision reflected in objectives, with them being mixture of short and long term goals Think About Who is Contribution to the Objectives: - Problem is organizational and departmental goals create confusion with adaptation of flatter organizational structures - Consider who contributes to the objectives success and have greatest impact on result - At the company level if everyone contributes somehow Brainstorm with Employees: - Ask for employee feedback for insights at executive level given they work with customers. - Gather info about internal processes and clients needs, add 360 degree feedback components MOST IMPORTNAT THING: After setting objectives, communicate them to employees to show where the company is heading.

Unrelated Diversification

Lacks commonality in markets, distribution channels, production tech, and R&D thrust to provide opportunity for synergy through sharing of assets Manage and Allocate Cash Flow: - Balance cash flows from SBU. Firm with many SBUs that merit investment might buy or merge with cash cow for source of cash - Acquisition of ash cow reduces need to raise capital, but the cow still needs resources - Balance seasonalities Entering Business Areas with High ROI Prospects: - Enter high growth business areas Obtaining a Bargain Price for A Business: - Acquire a business at a bargain so the involved investment is low and associated ROI is high Potential to Restructure a Firm: - Acquisition provides basis for restructuring of acquired firm, the acquiring firm or both Reduce Risk: - Heavy reliance on single product lines stimulate diversification move, leads to entering into businesses that counter or reduce cyclical nature of earnings Reduce Risk by operating in multiple product markets Tax Benefits: - Use tax losses of acquisition for your firm - Government gives you tax benefit incentives for poor areas of country Obtaining Liquid Assets - Buy business with a lot of cash on hand, receivables, can borrow money Vertical Integration: - Supply critical for business Defending against a takeover - Purchase the company thats looking to purchase you or purchase another firm to increase your power providing Executive Interest

SWOT Analysis

Matches firm's resources and capabilities to competitive environment it operates in Strengths: Resources/capabilities used as basis for competitive advantage - Patents - Brand Name - Customer reputation - Cost advantage from proprietary know how - Exclusive access to natural resources - Good distribution networks Weaknesses: Absence of strengths - Opposite of strengths, consider weaknesses can be flip side of strength ie big manufacturing capacity but not running at 100% Opportunities: External analysis reveals opportunities for profit/growth - Unfulfilled customer need - Arrival of new tech - Loosening regualtions - Removal of trade barriers Threats: - Opposite to opportunities

SWOT Process

Means to capture information so you can do analysis later - Draw analysis using external environment (PEST and Five Forces) - Draw analysis using internal environment (Porter's Value Chain, Resource Analysis ETC) Conducting It: - Brainstorm the SWOT's pertinent to situation, only include key points with evidence/don't over analysis - Highlight most important and rank them in order of importance Developing Strategic Plan: Take highest ranking points and answer: - How do you use strengths to leverage opportunities - How to overcome weaknesses preventing you from taking advantage of opportunities - How can strengths reduce probability of threats - What can you do about weaknesses to make threats less likely

Business Models

Michael Lewis The New, New Thing Definition: - Term of art, people can recognize when tehy see it like clever or poor ones yet can't define - How you planned to make money, central to internet boom in glorying all manners of half baked plans in attracting big crowds to website, sell ads for products to the crowds Peter Drucker Definition: - Assumptions about what company gets paid for underlying drucker's theroy of the business - Theory of business: Set of assumptions and what acompany will and won't do (clsoer to Porter's strategy definition - Assumptiosn are aobut markets, idnetifying usotmers and competitiors, valeus and bheaviour. About tech and dynamics, about company stregnths and weaknesses - Mroe intersted inassumptions than money given the theroy of business expalins hwo smart comapneis fial to keep up with changing market conditions by fialing to make assumptions explicit

Common Components of CSR

Needs to be designed and continuously evaluated according to needs fo community - Process of trial and error, three areas of enviroment, social and economic factors

Negative Operating Cycle, Pay as you Go, Razor/Blades, Reverse Razor/Blades (Business Models)

Negative Operating Cycle: Lower prices by receiving payment before delivering the offering Pas as you Go: Charge for actual, metered usage Razor/Blades: Offer the high-margin razor below ost to increase volume sales of the low margin razor blades Reverse Rezor: Offer the low-margin item below cost to encourage sales of the high-margin companion product

Reducing Threat of New Entrants and Substitutes

New Entrants: - Increase minimum efficient scale of operations - Create strong brand (loyalty to barrier) - Intellectual property - Alliance with linked products - Tie up suppliers/distributors - Retaliative/lobby for favourable regulations Substitutes: - Legal action/lobby for regulations - Increase switching cost, alliances, customer surveys to learn about preferences - Then substitute market and influence from within - Accentuate difference (real or perceived

Poor BCG Matrix Portfolio

No cash cows, no portfolio capable of generating income that can be reallocated to stars and question marks - High proportion of question marks are heavy users of cash, possible for stars to become self supporting but don't produce enough surplus to assist questions - Example of start up investing into too many areas that burns cash - Divest its question marks, manage flows of stars until 1 or 2 becomes cows

Risks of Unrelated Diversification and Three Tests for Diversification

No synergies exist, Drucker claims that all successful diversification requires common core or unity represented by common markets, tech or prodcution Three Tests For Diversification: - How attractive is the industry. No strong profit potential, earning is risky - How much will it cost to enter industry, need to be able to recoup expenses. - Will the new unit and firm be better off. Unless one side or other gets competitive advantage, diversification avoided

Goal Setting

Objectives and Key Results (OKRS): - In making objectives transparent, employees better see how they contribute to success of organization leading to higher engagement in workplace - Employees should set individual objectives by aligning their contributions to the departmental and company objectives - Consider internal and external factors when setting objectives (financial, human capital, competition/demand for product, economy

Profit Pool Overview

On dimensions based on - Markets: A Customer set; consumers business or channels with common needs and wants) and - Game: Offering (product or service), or commercial model (approach to conducting commerce; bundle, transaction or other) Existing Profit Pools: Your existing markets and your existing game New and Charted Profit Pools: New Game for You with Markets new to you New and Uncharted Profit Pools: New game for all and completely new markets

Entry Strategies

On spectrum form least amount of commitment, control, risk and profit potential to most: - Licensing: Clothing, licence ballcap manufacturers to sell Yankee hats, take a cut from royalties, risking brand name on poor quality product/products that don't align with value - Exporting: Making product in home country then selling products elsewhere. Tariffs, regulations bu - Franchising - Contract Manufacturing: Hire company to manufacturer parts, blows up in your face. An say what oyu want - JV/Strategic Alliances: Star alliance in Air Canada, points on other airlines, stronger relationship, can't boss them around - FDI:

Conservative BCG Matrix Portfolio

Only has cows and dogs - Extremely profitable given no portfolios require a-lot of reinvestment given products in stable markets - Lack of future investment, nothing in growth markets showing lack of initiative/innovation - Short term strategy 5-10 years, scary given cows an dogs will enter decline stage giving company nothing to replace they're income with (shortsighted)

What are Profit Pools

Part of market that offers some economic return - Good ones offer large cash based profit over certain amount of time - Less attractive ones offer smaller profit - Unattractive pools offer net loses

Political and Economic Factors to Consider

Political: - Government stability and likely changes - Bureaucracy, corruption, tax policy, freedom of press - Regulation ,trade control, important restrictions, tariffs - Competition regulation, govnerment involvement in trade unions - Environmental, education, anti trust discrimination, IP, consumer protection, employment, health and safety, data protection LAW Economic: - Growth, inflation, interest, exchange rates - Unemployment, labour cost, business cycle 0- Credit availability, trade flows, consumer disposable income - Monetary, fiscal policy - Price and stock market fluctuations - Weather/Climate Change

Product Life Cycle Introduction Stage

Product: - Branding and quality established, IP protection obtained Pricing: - Low penetration pricing to build market share rapidly, or high skim pricing to recover development costs Distribution: - Selective until consumers show acceptance of the product Promotion: - Aimed at innovators and early adopters - Build product awareness and educate potential consumers about product

Why engage in CSR programs and Limitations

Provides mechanism of compensations for social and environmental costs associated with the project - Provides means they can be involved and provide input in projects - Helps build relations with local communities given economic risks of having poor relations includes project delays - Provides way of responding to consumer concern about how products are produced, given the internet offers platform for scrutiny too - More likely to be asked to do business with governments accountable to their citizens Drawbacks: - Just part of PR strategy, want to bolster image - Funding for projects under CSR never materializes, divest profits from company shareholders and diminish market economies - Limit ability for govnerment to regulate

Factors for Considering Organizational Design

Purpose: - What do you want to achieve, big picture goals Strategy: - Strategy to reach goal, want employees to make decisions on clear guidelines with admin, system and tech in place to help them succeed Division of Labour: - How you divvy responsibility, after determining department and roles, consider where to position them to thrive Authority, Responsibility, and Control - Once departments set, employees in place, how will you structure chain of command - Limit number of decision makers, employees be lear about roles and who their supervisor is Communication: - How to facilitate communication, everybody must be on same page and in loop so they feel valued Coordination: - Coordinate employees, info and tech via job descriptions so employees know their responsibilities - Check other businesses similar to yours, no clear cut model

Reverse Auction, Product to Service, Standardization, Subscription, User Communities

Reverse Auction: Set a ceiling price and have particpants bid as the price drops Product To Service: Rather than sell a product, sell the service the product performs Standardization: Standardize a previously personalized service to lower costs Subscription: Charge a subscription fee to gain access to a service User Communities: Grant members access to a network, charging both membership fees and advertising

New Profit Pools

Search for growth in high cash margin revenues while improving existing business performance - Only grow in positive profit pools, not negative ones that detract resources form other sections of businesses New Charted Profit Pools: - Already penetrated by players, both information on attractiveness and market has existing structure with working models - Access to information makes it easier to understand the the pool (risk mitigation) including economics of competitors, business models, market unit demand, customer value props etc - USE GAAP statements, pricing, customer sources, and public sources - Existing commercial model in market, less scope for new entrants to define structure, difficult to break into giving first mover advantage New Uncharted Profit Pools: - Rudimentary market information and no commercial model - Opposite of charted: risk due to lack of information, limited opportunity to define market - Increases potential returns via first mover effect - Gather same info as charted areas (demand, potential customer value prop, economics etC)

Traditional Organizational Designs

Simple Structures: - Low departmentalization, wide span of control, centralized authority, and little formalization - Common for small start ups - Few employees, owner is manager and controls all functions and employees work in all parts of business (no departmentalization) - No standardized policies and procedures Functional Structure: - Groups related occupational specialties together Divisional Structure: - Separate, semi autonomous units with its own goals to accomplish - Manger oversees division and completely responsible for its success/failure (Drives management accountability)

Types of KSFs (Skills-Related, Organizational, Others)

Skills-Related: - Superior talent, quality control know how - Design and tech expertise - Come up with catchy ads, get newly developed products out of R&D phase and into market quickly Organizational: - Superior talent - Ability to respond quickly to shifting market conditions (Streamlined decision-making, short lead times to bring new products to market) - More experience and managerial know-how Other Types of KSFs: - Favourable reputation with buyers - Overall low cost - Convenient locations, pleasant staff - Access to capital - Patent protection

Socio-cutlural and Technological Factors to Consider

Socio-Cultural: - Health consciousness - Education level - Attitude toward imported goods, work, leisure, career - Attitude toward product quality, saving and investing - Emphasis on safety, lifestyles, buying, religion - Green product attitude, population growth rate - Immigration and emigration - Age distribution, life expectancy, sex distribution, disposable income - Social class, family size, minorities Technological Factors: - Infrastructure, rate of tech change - Spending on R and D - Tech incentives, legislation, communciation infrastructure, access to new tech - Internet infrastructure

Existing Profit Pools

Sometimes not extracting all profits out of current market, little knowledge of own performance in extracting profits - GAAP distorts real profit - Right information not available, not enough granularity, limited view by customer, channel offering or geography. - Poor expense allocations/limited partner and competitor info - Right skills not at right place/not using profit pools Value at one end of business being destroyed with cash based losses at same end by serving wrong customers

Smart Model for Objectives

Specific: What type of company do you want to be best at, on what scale do you want to compete (in your area or world etc) Measurable: How will you know you've achieved objectives/benchmarks for measuring success Attainable: Is the objective achievable given your resources? What obstacles are you going to encounter and can you get past the hurdles Relevant: How relevant is this objective to the company/employees? Will it benefit the company Time Bound: When the objective must be meant

BCG Growth Share Matrix

Stars: High Market Share and High Growth Rate - High cash generation and cash usage - Strong relative market share, but lots of cash for growth rate, so cash nets out - If it maintains large market share, becomes cow when growth declines - Portfolio should always have stars that become further cash cows to stabilize future flows Question Marks: Low Market Share and High Growth Rate - Low cash generation and high cash usage - Results in large net cash consumption, has potential to become star, and cow hen growth slows but if doesn't succeed in becoming leader, then after years of cash consumption will turn into dog - Analyze carefully to determine whether they're worth investment to grow share Cash Cows: High Market Share and Low Growth Rate - High cash generation and low cash usage - Leader in mature market, return on assets greater than growth, more cash than they consumer - Provides cash to turn questions into leaders, cover admin costs of company, fund r&d, service debt, pay dividends - Value can be determined easily Dogs: Low Growth Rate and Low Market Share - Low cash usage and low cash generation - Cash traps because money tied up in business with little potential, divestiture needed. Keep as they complement other products

Analysis from Porter Output

Static Analysis: - Looks at industry or market segment at present to understand current situation - Doesn't look at future changes - Porter model determines attractiveness for profitability, supports decisions about entry or exit and compare competitive forces of companies impact on competitors - Competitors have different options to react to changes in competitive forces form different resources and competences Dynamic Analysis: - Look at changes over time and past changes - Look at expected or potential changes compared to status quo, analysis possesses uncertainty - Combo with pest, porter gives insights given PEST impacts industry Analysis of Options: - With knowledge about intensity and power of competition, organizations create options to influence them to improve competitive position resulting in new strategic directions sometimes

Introduction to Porter Model

Strategy should meet opportunities and threats in external environment - Determines intensity of competition and profitability and attractiveness of industry (doessn't mean you leave difficult industry, hard to earn profit) - Corporations modify these competitive forces to improve organization position - Five Forces: Factor in supply and demand, complimentary products/substitutes, relationships between volume and cost of prodcution, and market structures (monopolies, etc): (INDUSTRY ATTRACTIVENESS TODAY) - Bargaining Power of Suppliers: Supply and demand theory, cost and production theory, price elasticity - Bargaining Power of Customers: Supply and demand, customer behaviour, price elasticity - Rivalry between Existing Players: Market structures, number of players, market size and growth rats - Threat of Substitutes - Threat of New Entrants

Maturity Stage Product Life Cycle

Strong growth in sales diminishes, competition appears with similar projects. Objective is to defend market share while maximizing profits: - Product features enhanced to differentiate product from competitors - Pricing lower because of new competition - Distribution becomes more intensive and incentives offered to encourage preference over competing products - Promotion emphasizes product differentiation

Bargaining Power of Suppliers (Porter)

Suppliers is all input sources needed to provide goods or services Bargaining Power High When: - Market dominated by few large suppliers - No substitutes for inputs - Suppliers customers are fragmented, bargaining low - Witching costs between suppliers is high - Suppliers integrate forward to obtain higher prices/margins - Buying industry has higher profitability than supplying industry - Forward integration provides economies of scale for supplier - Buying industry hinders supplying industry in development (reluctance to accept new releases of products) - Buying industry has low barriers to entry

Reducing Bargaining Power of Suppliers and Customers (Porter Influence)

Suppliers: - Partnering, supply chain management/training - Increase supplier dependency, improve relationships - Have bidding wars, build knowledge of supplier cost and methods - Aquire suppliers Customers: - Partnering, supply chain management, increasing loyalty - Increase incentives/value added - Move purchase decision away from price, cut powerful intermediaries (Go DTC)

Risks of Related Diversification

Synergies don't exist - People convince themselves they do through self analysis and manipulating semantics Synergy exists but isn't realized because of implementation problems: - When diversification involves integrating two companies with fundamental differences or lack motivation to undertake programming to make it work Violation of Antitrust Laws

Contemporary Organizational Designs (Team, Matrix, Project)

Team Structure: - Teams work toward common goal - Organization made up of groups to perform functions of company, teams perform because they're held accountable for performance - No hierarchy or chain of command, work how they like, and figure out most effective way for task performance - Innovative as tehy want, some have group leaders Matrix Structure: - Assigns specialists from different functional departments to work on one or more projects - Each project has manager, and has duty of allocating functional resources needed to accomplish it (marketing, sales, finance etc) - Two managers: project and department/functional manager Project Structure: - Employees continuously work on projects - Like matrix, but when project ends, employees don't go back to departments, continuously work on team - Each team has employees that bring specialized skills

Types of KSFS (Tech. Manufacturing)

Tech KSF's: - Scientific research expertise - PRodcution process innovation capability - Production innovation capability - Expertise in a given technology Manufacturing KSF's: - Low cost prodcution efficiency (scaling, etC) - Quality of manufacture - Utilization of fixed assets - Access to skilled labour - Low cost plant locations - High labour productivity, low cost product design and engineering - Flexibility to manufacture range of models and sizes

Examples of Mission/Vision

Tesla: - Mission: Accelerate the world's transition to sustainable energy - Vision: Create the most compelling car company fo the 21st century by driving the world's transition to electric vehicles Amazon: - Mission: Offer customers lowest possible prices, best available selection, and utmost convenience - Vision: To be earth's most customer centric company, where customers can find and discover anything they might want to buy online

Related Diversification

Two businesses have commonalities, which provide economies of scale or synergies to exchange skills or resources - Improved ROI from revenues, decreases costs, reduced investments attributable to these commonalities - If meaningful commonality lacks, diversifications still justifiable but need to be different

Nice and Balanced BCG Portfolio

Typical real life firm - One significant cash cow to provide surplus income for reinvestment - 1 question mark, couple stars, and looking to divest the dog - Few, valuable portfolios and weighting towards cash cows and stars

Vision vs Mission Statement

Vision focuses on tomorrow and what organization wants to become, mission focuses on today and what company does to achieve it - Both important for directing goals, and especially important for new and small firms since without to makes to hard to develop cohesive plan and promotes pursuing activities that don't lead the organization forward and devoting resources to stupid activities

Six Components of Good Organizational Culture

Vision: - Starts with vision or mission statement that guide's company's values to provide purpose to orient employee decision making - When authentic and prominent, helps orient customers, suppliers and stakeholders Values: - Core, offers set of guidelines on behaviours and mindsets needed to achieve that vision that should be prominently communicated to all employees and involve way firm serves clients, traits, colleagues and upholds standards Practices: - Values must be enshrined in practices, if you value something, carry through with it (flat hierarchies encourage junior members to have opinions) - Reinforce in review criteria and promotion policies, operating principles and everything else. People: - People who share its values and willing to embrace them - Best firms have stringent recruiting policies, studies show applicants would accept 7% lower salary for cultural alignment, 30% less turnover - People stick with cultures they like, bringing in right culture reinforces it they already have Narrative: - Companies have unique histories and ability to unearth it and craft it into a narrative is a great culture creator - Formal and informal Place: - Open concept offices for talking, encourage collaboration, via geography, architecture or aesthetic design impacts values and behaviours of people in workplace

Corporate Social REsposnbility

Voluntary actions undertaken to either improve the living conditions of local communities or reduce negative impacts of projects - Going beyond legal obligations, contracts etc - Investment in infrastructure, building social capital, or human capital