mgt 401 test 2 part 1
network structure
"Spider Web" - Virtual - more flexible. IBM, Tata group or franchise model - very decentralized and organized around customers or geography. No formal hierarchy, sharing information is hard because of the loose structure. CEO is an advisor only. Difficult to manage. Lots of duplication.
how to implement corporate strategy
-define common thread ex: amazon. Diff businesses but same platform ex: tata- innovation -consulting so they help clients and clients use that knowledge -same rules of the game from top to bottom ex: autocratic-make sure they all follow that method -set performance success- define success for a business -communication for wall street -decide how to allocate resources to businesses
corporate diversification
-publicly traded companies need to grow faster than private companies ex: yum brand's kfc vs. chick fil a -product diversification strategy= pursuing different products -geographic diversification strategy= work in diff countries -product-market diversification strategy= pursues both *key variables of diversification* -% of revenue -relationship of the core competencies across the business units *types* 1) single business 2) dominant business 3) related 4)unrealted
internal ventures
1 of the 3 approaches of diversification methods 1.No risk sharing 2.Use R&D 3.More control 4.Keep proprietary information internally 5.Retain profits 6.Risk of failure is high 7.Too long to get to market Ex: IBM Watson wasn't first on the market b/c it took too long but can be first to market -proactive vs. reactive
mergers and acquisitions
1 of the 3 approaches of diversification methods 1.No risk sharing in acquisition -much easier than merger 2.Mergers occur when 2 organizations combine into one - organizational development is required which makes it more likely to fail -advisory team -1st step -team consists of both companies and they need internal and external advisors -trying to blend cutlures with change management plan -long time and more complex ex: etna and cvs 3.Acquisition is a type of merger when one organization buys another. One firm controls the other. Acquisition includes buying a competitor - horizontal acquisition -much easier and faster 4.Acquisition is considered a substitute for innovation - buy diversification 5.70-90% of mergers fail because of culture (organizational fit) not related to products or services 6.Fast way to enter the market 7.Acquire products, services, skills, knowledge, market share 8.High turnover 9. Lack of strategic & organizational fit
strategic alliance/joint ventures
1 of the 3 approaches of diversification methods -quickest to market, least amount of risk to org 1.Shared risk between 2 organizations 2.Firms come together to form a contract or a legally independent entity (company - with equity sharing) - Joint Venture= combine resources 3.Strategic Alliance - 2 organizations coming together to develop a new product or service - contract based relationship 4.A Strategic Alliance - non equity a.Less risky, less complex b.No dominant company or culture c.Fast to market entry d.Have more strategic flexibility because they can easily leave a business or invest in resources somewhere else e.Foreign joint ventures are risky because of misunderstanding & miscommunication 5.Requires strategic & organizational fit
broad corporate strategy
3 Approaches for Broad __________Strategy 1)Concentration- best for new to market -1 thing only -problem: easily replaced -ex: ben and jerrys—only sells ice cream -compete against more than just ice cream -won't be known for ice cream any more if they expand 2) Vertical Integration -diy or buy from supplier ex: chipotle—more control over food when they own the farm -need to do a cost benefit analysis -1 time deal= buy from someone else -something you produce all the time= own the factor -both= tapered integration (diy and buy) 3) Diversification -scope that describes org -more comp, more money, more power -harder to manage 1) related diversification -tangible-economies of scope -intangible -skills from somewhere else and apply it to serve somewhere else ex: tata 2) unrelated -every industry—not related to core competencies
Alternatives on the Make-or-Buy Continuum
Alternatives to ______ 1) short term contracts=sends out requests for proposal to multiple companies in order to create a bidding contest for a short less than 1 year contract -benefit= allows for longer planning period, can demand lower prices 2) strategic alliances=voluntary shared arrangements b/w firms that involve sharing the knowledge and resources and capabilities with the intent of developing processes, products and services a) long term contracts=contracts greater than 1 year and help facilitate transaction specific investments ex: licensing (commercialize intellectual property like patents), franchising (franchisor grants a franchisee permission to create a new branch) b) equity alliances a partnership which at least one partner takes partial ownership in the other partner. Ex: coke buying monster (coke make a credible commitment which is a long term strategic decision that is both difficult and costly to reverse.) c) joint ventures=two or more partners create jointly own a new org. 3)Parent-subsidiary relationships= most integrate alternative to performing an activity within one's own corporate family -direct via command and control -ex: gm owned by opel and Vauxhall
competitve tactics
Approach to strengthen and protect their competitive position -The Goal of every Organization - Survive & Thrive 1) national/global context 2) impacting factors 3) proactive strategies 4) reactive strategies
industry effect
Forces from the Broad Environment: -Political/Legal; Tech; Economic; Sociocultural; Ecological External Stakeholders - Task Environment Strategic Groups
organizational effect
Needs to decide which strategies would be best to use to achieve a sustainable competitive advantage: a.Direction setting - mission, vision, ethics, goals b.Situation analysis - compilation & assessment of information c.Selection strategies - generic strategy (cost leadership, differentiation, focus, broad, blue ocean and competitive tactics including growth strategies as well as functional strategies for implementation d.Management of resources - acquisition and/or development of resources leading to competitive advantage
BCG Growth-Share Matrix
The Boston Consulting Group planning tool that evaluates business units in terms of their growth potential and market share question mark | star dog | cash cow .
c level execs
____ level of execs Marketing - CMO - Customer centric -Investing in marketing efforts to achieve business goals -Differentiation & Co-branding HR - CHCO - Approach to get & retain the best people to deliver to customers IT - CIO - Provide integrated systems for decision making -ERP—all tech is integrated -functions customer base is the business (internal focus) -business customer base is the customer (external focus) Finance - CFO - Control funds & allocations -Compliance with regulatory guidelines (SOX) R&D -- CRDO (also Chief Innovation Officer) - Define priorities for new products or services Operations - COO - Supply chain -How should the internal functions be designed & coordinated to enable the organization to achieve results
cost position for org effect
______ position for organziational effect 1) economies of scope= decrease cost per unit, as output increases - decreasing in cost per unit as output increases -ex: airbus vs. boeing 1) spread fixed costs over larger output -ex: Microsoft with r and d 2) employ specialized systems and equipment ex: erp and manufacturing robots specific ex: tesla 2)economies of scale= Producing 2 outputs at less cost by sharing resources & tech - savings that come from producing 2 or more outputs at less cost than producing each output individually. Even though you are using the same tech and resources ex : Dasani and coke use same machine but create different products coke and water
risk of blue ocean
______ strategy gone bad? stuck in the middle -leads to bad performance -hard to maintain b/c it requires two elements of value chain that are fundamentally different
fits to consider
________ to consider Strategic= 2 business that are complemens Org= cultures are similar
starbucks
a company -globalization -create unique value for employees with stock and healthcare -expanding in asia and licensing in europe -3 regional model where they have diff pres and ceos for diff regions -values are universal ( to be respected) -open forum is a differentiator
tesla
a company -why open patents to public? People can fix the bug for you -invested so much in r and d need more charging stations so he wants electric cars to be normalize
inertia
a firm's resistance to change the status quo, can set the stage for the firm's subsequent failure. sucessful firms often plant the seed of subsequent failure. -leads to failure and is tightly coupled internal and external shifts *traditional path* 1) mastery of and fit with the current environment 2) success, usually measured by financial measurements 3) structures, measures, and systems to accomodate and manage size 4) inertia
core competency marketing matrix
a matrix for ____ lower left= existin core competencies with existing markets. improve current market positionn -ex: bank of America lower right= exisiting core competencies and new market opps. deploy and create future opps. ex: b of a buying merril lynch upper left= new core competencies with existing markets. build new core competencies while protecting their current assets ex: Gatorade selling it to quaker oats upper right= new core, new market. most challenging diversification strategy. ex: salesforce strategy.com
principal agent problem
a problem caused by an agent pursuing his own interests rather than the interests of the principal who hired him -inevitable in a publicly traded company ex: job security and managerial perks
differentiation strategy
a strategy that seeks to create higher value for customers than their competition. Create value with products with unique features but keep the costs about the same. This allows them to charge higher prices - increase perceived value of goods and services so that customers will pay higher price for additional features -focus of competion is on value enhancing attributes and features while controlling costs -unique value drivers managers can manipulate product features, customer service, customization and complements -value created needs to exceed cost *related to economies of scope*
related diversification
a type of corporate diversification -= less than 70% from single business activity and obtains revenue from other lines of business linked to the og businesses -related constrained diversification= only engage in business when it can leverage the current resources -related link diversification= only sharing a limited number of linkages
single business
a type of corporate diversification -characterized by low level of diversification if any b/c it derives more than 95% of its revenues from one business. The remained of less than 5% of revenue is not yet significant to the firm ex: facebook- only from online ads
dominant business
a type of corporate diversification 70-95% of its revenues from single business but pursues at least one other business activity that accounts for the remainder of the revenue ex: Harley- bikes and licensing
unrelated diversification
a type of corporate diversification aka a conglomerate --less than 70% of its revenues comes from a single business and there are few, if any, linkages among its businesses ex: tata groups
acquisition
a type of merger when one organization buys another. One firm controls the other. - includes buying a competitor (horizontal acquisition) -much easier and faster
functional structure
a type of structure -org structure in which groups employees into distinct functional areas based on domain of expertise -General Manger would have marketing, IT, finance, HR, Operations. Easier to manage and you get more efficiency and quality because employees are focused on one function. -This structure promotes silos and poor communication reporting and authority relationship -used when firm has narrow product or service offerings *how its used in diff business strategys* -cost-leadership strategy= use mechanistic functional structure aka well defined lines up and down -differentiation strategy= use organic functional structure. Decentralized to emphasize continued innovation -blue ocean= use both and mitigate disadvantages -control costs and allow for creativity -ambidextrous org= balances and harness diff activities in trade off situations -exploitation= applying knowledge to help firm in short term -exploration= new knowledge that will help firm in the future -issues with functional structure -across dept communication
simple structure
a type of structure .-org structure in which founders make all the decisions and run the day to day operations. Ex: facebook beginnings One less complex concentrated business run by the founder who makes all strategic and operational decisions. Example: doing technology consulting from your home office. Easier to manage
divisional structure
a type of structure aka m form -org structure that consists of several distinct business units each with its own profit loss responsibility ex: UM has Administration & Academia - Academia has school of business, school of nursing, law school - each of those has an HR, IT, Legal. Employees work in functions but report up thru a divisional manager. president reports to board of directors -easier to manage and can be organized by product, service, customer segment and geography. *comparison with strategies* -used by related and unrelated diversification -dominant uses functional disadv -slow decision making process, sbus compete with each other -cooperation= cooperation b/w competition is necessary -promote duplication of skill, silos and poor communication. each sbu is run by their own ceo
matrix structure
a type of structure organizational structure that combines the functional structure with the m form -Hybrid of functional & divisional -combine domain expertise, economies of scale, and the efficient processing of info from m form and those of functional structure responsiveness and decentralized focus. -global matrix= pursue transational strategy in which firm combines the benefirts of a multidomestic strategy ( high local responsiveness) with those of a global standardization strategy ( lowest cosrt postion attainable) -versatile and allows for cross functional teams -network structure= allows the firm to connect centers of excellence, whatever their global location -communities of practice= important organizational learning and expertise -communities of practice= store important organizational learning and expertise matrix structure and global strategy -international strategy= the company leverages its home-based core competency by moving into foreign markets. Best matched with functional -mne pursues a multidomestic strategy and a multidivisional org. -allows for different divisions for diff geo regions example PWC - managers come together for a particular project and as an example marketing managers will work on several projects. Consulting project would have a project manager, HR lead, marketing lead so the focus is on the function and the product/service. Very flexible structure and easy to assign people to work on projects and promotes innovation. Hard for employees to determine who is the boss and decision making is decentralized.
strategic business leader
aka a manager Needs to decide which strategies would be best to use to achieve a Sustainable Competitive Advantage and bring Value Proposition to Customers by providing Products/ Services that are Unique and have the Best Cost by deciding on the following: 1.Which Customer Segment 2.What Unique Products/Services to match Customer Segments 3.What will be the Best Cost Strategy *ways they need to achieve this* 1.Ensure that all strategies are communicated consistently thru-out the organization including Vision, Mission, Ethics, Values, Goals as well as establish an overall direction for the business unit. 2.Conduct a SWOT Analysis and determine if resources are available 3.Decide on a Business Model that will enable the organization to deliver to customers effectively and efficiently - and make $$$$$ for the organization 4.The Business Strategy should be reflected in the organizational Business Model 5.The Business Model is a framework that is part of the overall business strategy. It is the manner in which the organization delivers value to customers and profits from payments with a focus on: a.Markets - Focus on which customer segments or broad market b.Assets - Services or products c.Value Creation - Unique features and best cost d.Value Capture - Capture revenue & profits 6.Decide on Competitive Tactics including a.Internal Growth Strategies -Vertical Integration (eliminate supplier, move closer to customer) -Increase market share in current business via marketing strategy - promotions, advertising thru existing products/services b.Level of Aggressiveness - External Growth Strategies -Increase market share immediately by 1.Alliances/Joint Ventures 2.Acquisitions 3.Horizontal Integration (acquire a company in the same line of business to reduce cost & increase market share) 7.Decide on Functional Strategies to support all of the above
minimum effect scale
aka mes output range needed to bring down cost per unit as much as possible, allowing a firm to stake out the lowest cost position that is achievable through economies of scale
tapered integration
alternative to vertical integration -backwardly integrated but also relies on outside market firms for some of its supplies and/or is forwardly integrated but relies on outside market firms for some if its distribution -allows for performance comparsions -enhances firms flexibility -combines external and internal knowledge
strategic outsourcing
alternative to vertical integration -involves moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain
benefits and risks of vertical integration
benefits and risks of ______ integration 1) benefits a) lowering costs, improving quality, facilitating scheduling and planning, facilitating investments in specialized assets, securing critical supplies and distribution channels. b) specialized assets= have high opportunity cost and have significantly more value than their intended use than in their next best use. Can allow for opportunism of partners. -site specificity=assets required by collocated c) physical asset specificity= physical and engineering properties design to satisfy a particular customer ex: custom wine bottling machine d) human asset specificity= investments made in human capital to acquire knowledge and skills such as mastering the routines and procedure of a specific org that are hard to transfer to a diff employee 2) risks increasing costs a) higher costs b/c not exposed to market comp -knowing there are buyers reduces the incentive to lower costs -increases internal transaction costs b) reducing quality -no incentive to create better quality b/c no comp in house c) reducing flexibility -not focused on external factors so they are not able to quickly adjust d) increasing the potential for legal reprecussions -not illegal but push back because of monopolies
building blocks of organizational structure
building blocks of _________ -key to determining how the work effort of individuals and teams are orchestrated and how resources are distributed 1) specialization= an organizational element that describes the degree to which a task is divided into specific jobs (divisions of labor) -large firms have more (increases productivity, decreases employee satisfaction) , and small firms have less 2) formalization= the extent to which employee behavior is steered by explicit and codified rules and procedures ex: mcd's , airlines -zappos did not 3) centralization= the degree to which decision making is concentrated at the top of the org (aka top down) -slow response time, and customer disatisfaction -planned emergence is decentralized 4) hierarchy= formal, position based reporting lines and thus stipulates who reports to whom. -tall structure= many levels b/w top and bottom -flat structure= min levels b/w top and bottom -span of control= how many employees directly report to a manager
organizational culture
collective and shared values and norms of an org's memembers -values= what is considered important -norms= define appropriate employee attitudes and behaviors -socialization= employees internalize norms and values through day to day operations. -strong cultures emerge when they are widely spread among employees -artifacts= elements such as the design and layout of physical space, symbols, vocab -come from founder imprinting= founders set the strategy, strucuture, and culture by turning a vision into reality -groupthink happens when no one challenges the founders ideas or thinks critically -can it be a comp advantage? Yes if it creates value -valuable, rare, diff to imitate, and organized (vrio)
mckinsey on implementation
company initially only did strategy and not implementation -now does both -70% of program changes fail -transformation is necessary -set a target -have employees reason to want to change -leader is responsible if the implementation fails, not the consultant
value innovation
create demand & profitability and growth by eliminating & reducing what's not needed
economies of scale
decreasing in cost per unit as output increases -ex: airbus vs. boeing -related to cost leadership strategy and cost position of an org 1) spread fixed costs over larger output -ex: Microsoft with r and d 2) employ specialized systems and equipment ex: erp and manufacturing robots specific ex: tesla 3) taking advantage of certain physical properties -by having more space and more merch they have greater cost selection which gives them a compa advantage -mes (minimum efficient scale)= cost competitive.
industry value chain
depicts the transformation from raw materials to finished goods and services -dimension of corporate strategy 1) raw materials=raw goods 2) intermediate goods and components= circuits, touch screens,etc. 3) final assembly and manufacturing= actual assembly companies 4) marketing sales, after sales and support= service provider for phones promotes it
transaction cost
economics that provides useful theoretical guidance to explain and predict boundaries of the firm -what to do in house vs. out of house -transaction cost= same def as abobe external transaction cost= cost of finding outside contractors internal transaction cost= economic exchange internally ex: recruiting and maintaining employees
strategic position
element of business strategy -diff b/w perceived value and value created -v-c -higher value creation= higher cost -have to address strategic tradeoffs (choice b/w value and cost) *types* 1) cost leadership 2) differentiation
global/national context
first competitive tactic impacts impacting actors as well as them impacting these strategies 1.Glocalization (global and localization) - know your local environment when expanding globally -ex: Howard Schultz Video above 2.Minimize Risk -helps optimize profit in the long run -ex: open starbucks in china b/c the city is growing 3.Optimize Profits & Opportunities 4.Pilot first aka try then buy 5.Operational stability in the organization that is based in your home country -operational stability= value chain internally is working effectively 6.Control -can make changes if need be -save money, efficient in customer satisfaction
proactive strategies
fourth competitive tactic 1.Avoidance (Blue Ocean) New Market Space ex: amazon went to the book online market so they didn't need a store front 2.Collaboration Tactics (Joint Venture, Research Group) -partner with orgs to get things done -ex: get regulations changed 3.Political Tactics (Lobbying) -same as above 4.Strategic Flexibility (manage risk) -What if scenarios -Alternatives -Contingencies -Avoid high exist barriers (subcontracting, leasing)
strategic control and rewards system
internal governance mechanism put in place to align incentives of principals and agents (shareholders align w/ employees) -measure progress and provide performance feed back -input controls= seek to define and direct employee behavior through a set of explicit, codified rules, and standard operating procedures -set when you want to reach a goal or specific outcome -budgets standard operating procedures
organizational structure
is critical for the success of strategy implementation 1)The organizational design should show predictability of how work gets done and it should include an organizational structure that defines: a.Distribution of Power b.Position c.Responsibility & Accountability -- Entrepreneurship d.Promotion e.Hierarchy f.Working together - collaboration g.Rewards h.Empowerment i.Decision Making j.Information sharing -- Innovation 2)Align with corporate strategy and include the functions 3)The structure should not be too detailed - let managers have autonomy of their department design 4)Structure needs to reflect the change in strategy 5)Structure should help employees interact & serve clients effectively and efficiently 6)Your strategic priorities should be on the organizational chart 7)Design structure with fluidity to enable innovation 8)Define ground rules of how the organization needs to operate, serve customers and treat employees as well as have leaders that encourage innovation. 9)The building blocks of the organizational structure are: a.Specialization b.Formalization c.Centralization d.Hierarchy 10)Organizational structures
alternatives to vertical integration
look at why you want to _____ integrate and look at if it is too risky and costly -if so then 1) tapered integration 2) strategic outsourcing
diseconomies of scale
more ouput= higher price. -happens when firms get to big -inflexible and are slow at making changes
merger
occur when 2 organizations combine into one - organizational development is required which makes it more likely to fail -advisory team-1st step -team consists of both companies and they need internal and external advisors -trying to blend cutlures with change management plan -long time and more complex ex: etna and cvs *keys to success* 1.Warren Buffet recommends to hire 2 separate consultants to tell you why or why not to merge 2.Common purpose in both companies 3.Identify stakeholders in both companies 4.Stakeholder analysis 5.Create advisory committee with members from both organizations to advise & be on the governance board (must have governance model) 6.Communication strategy - informing both internal & external stakeholders 7.Change management strategy - avoid organizational inertia 8.Implementation/integration strategy/functional strategies
information asymmetry
one party is more informed than the other. -can lead to lemons problem
mechanistic org
org characterized by high degree of specialization and formalization and by a tall hierarchy that relies on centralized decision making
organic organizatioun
orgs characterized by low specialization and formalization, a flat org structure, and decentralized decision making -fluid and flexible info flow among employees both horizontal and vertically. -faster decision making, more employee motivation, retention, satisfaction, and creativity -entrepreneurial behavior
ceo
person in charge -fomulation of tactics for growth -sets direction and formulation of corporate strategy -look at org and figure out how to allocate resources
strategic management process
process where leadership→ formulation→ implementation -implementation is key -pick lower hanging fruit (under promise over deliver) -implementation is the graveyard of strategy -can't implement→ strategy dies -must get functions involved -org design has to align with desired change -culture has to be consistent with change ex: customeroriented→inclusive and innovative
diversification performance relationship
relationship that is a function of the underlying type of diversification. -single companies or companies that do unrelated diversification normally fail -takes on the shape of an inverted u -normally individual sbu's stocks are higher than the sum of all of the sbu's
economies of scope
savings that come from producing 2 or more outputs at less cost than producing each output individually. Even though you are using the same tech and resources ex : Dasani and coke use same machine but create different products coke and water -related to both differentiation strategy and organizatioanal effect
impacting factors
second competitive tactic 1)Hypercompetition-where and when is your comp 2) Creative Destruction (Joseph Schumpeter, Economist 1950's) -newer piece destroys old piece -concept to think about when investing in new tech 3) World Unrest -who will buy and is it safe ex: terroism 4) Life Cycle -everything has a beginning and end -is there a demand for the product -build and appropriate strategy to accommodate Steps 1) Introduction 2) Growth 3) Maturity 4) Decline
output controls
seek to guide employee behavior by defining expected results (outputs) but leave the means to those results open to individual employees, groups, or sbus. -use with predetermined goals -results only work environments = make the work more meaningful for employees (opposite of extrinsic)
create a board
step 1 of governance model -CEO - Corporate Strategy -VP - Business Strategy -Authorize & Accountable for Strategic Change -actually makes the changes -Program Executive--Leads the Strategy Implementation -hires their own team and has authority -Note: Program and Project Management is a must for Strategy Implementation
functional strategy led by c level
step 2 of governance model 1) This is the architectural foundation of the organization that enables it to achieve its business and corporate strategies 2) Conduct a functional audit to evaluate strategic fit of each department as it relates to the new strategic plan 3) Evaluate current environment; to-be (or needed) environment; the Gap or difference between the 2 environments 4) Assign people and timely communication 5) Decisions in each function must be consistent within & across functions as well as consistent with business and corporate strategy plans
functional audit
step 3 of governance model -committed needs to see strategy the same way -what is happening now and what needs to happen -gap= implementation
strategy implementation
step 4 of governance model -key to success 1.Strategy implementation goes hand-in-hand with strategy formulation 2.Business level & corporate level strategies are implemented thru functional strategies 3.Functional strategies define the day-to-day decisions made at the operating level 4.Skills, resources and capabilities are in the functions. These give the organization competitive advantage & unique competencies when they are matched with business & corporate strategies. 5.The executive office (CEO & VP's) identify person in charge to lead the implementation - that person is given the authority and accountability for the change 6.The person in charge gets an implementation team 7.Clear documented corporate and business strategies are incorporated into the communication strategy and shared with "C" level executives. Communication Strategy should state how often & to whom (audience) 8.Perform an audit of the organization's functional strategies to see what is needed for the new strategy, what it has now & what needs to change 9.The organization needs to capitalize on the strengths & minimize the weaknesses in your plans 10.Implementation must be Top Down process 11. Hold people accountable for goals, updates, reviews 12. Measuring change - often 13. Timeline - to review what is accomplished to date 14.You should conduct a strategy review session - lessons learned 15. Must design the right organizational structure to implement strategy. The organizational structure should support an inclusive and participative culture that includes artifacts, values and norms as well as employee behaviors that lead to innovation and high performance
diversification discount
stock price of highly diversified firms is valued at less than the sum of their individual business unites -opposite effect in emerging markets like tata group -often the result of unrelated diversification
generic business strategies
strategic approach to satisfy customers. can be used by any org. allows a comp advantage if the firm either performs similar activities differently or performs different activities than comp. 1) Differentiation strategy= seeks to create higher value for customers than their competition. Create value with products with unique features but keep the costs about the same. This allows them to charge higher prices 2) cost leadership strategy= create the same or similar value for customers by delivering products or service at a lower cost than competitiors, enabling the firm to offer lower prices. must also define the scope of competition= the decision to go for a broad part of the market or a narrow part
business level strategy
strategy based on core competencies that determines a firms strategic position in its quest for competitive advantage when competing in a single industry or product market. -single product or similar products using the same distribution channel -determine the firm strategic position -effected by the firm and the industry -can have as many strategies as many businesses as it has -can they be the same of as the corporate strategy? Yes if there is only one business -Formulation- all important b/c they are interrelated -Customers- who they are? -Products and Services -How are you going to make money -more value= more money *key elements* 1. Part of Strategic Formulation 2. Business Strategy - Plan or Approach to Growth & Competition in chosen business segment or markets 3. Org. can have MULTIPLE business strategies depending on how many lines of business 4. Each business strategy can be UNIQUE but they all must align under ONE corporate strategy which weaves thru each business strategy (example: audit, tax, advisory) 5) Business strategy is developed based on Core Competencies of org. that enable it to serve customers by delivering value-add thru products and services *bonus* 4)Describes How to Compete a.which Customer Segment b.What Customer Needs Will We Satisfy? c.Why Do We Want to Satisfy Them? d.How Will We Satisfy Our Customers' Needs? 5)Sets Strategic Position to Achieve Competitive Advantage: a.Cost Leadership - similar value to competitor but lower price. Org. able to do it by optimizing value chain b.Differentiation - high value; unique features; high price Blue Ocean (Avoidance Strategy) - 1) New market space to avoid existing cut-throat competition in Red-oceans. 2) Value innovation - create demand & profitability and growth by eliminating & reducing what's not needed
Blue Ocean Strategy
strategy combining differentiation and cost leadership activities using value innovation to reconcile the inherent trade offs in those two distinct strategic categories -blue is new territory, red ocean is old territory -value innovation (eliminate-reduce-raise-create) -innovation with total perceived consumer benefits, price, cost 1) lower costs -eliminate. Which of the factors that the industry takes for granted should be eliminated? Ex: eliminate sales people at ikea -reduce= which of the factors should be reduced well below industry standard ex: reduced staff 2) increased perceived consumer benefits -raise= which factors should be raised well above industry std -ex: offer more items. Manufactures all its own goods -create= which factors should the industry creat that have never been offered -ex: stroll through show rooms at ikea
corporate strategy
strategy comprises the decisions that leaders make and the goal directed actions they take in the quest for competitive advantage in several industries and markets simultaneously. -where to compete? (business strategy addresses how to compete) *parts/dimensions* 1)vertical integration/value chain- in what stages of the industry value chain should the company participate? The industry value chain describes the transformation of raw materials into finished goods and services along distinct vertical stages. 2)Diversification= what range of products and services should the company offer? 3)Geographic scope= where should the compete geographically in terms of region, national, and international markets? goals 1)unification of business 2)1 strategy for the org Elements -Must have for every organization -Must be incorporated into every business strategy -Also referred to as Enterprise Strategy in a non-corporate environment -Have less power - often too bureaucratic and creates a burden for the businesses if not implemented appropriately Examples: Best Ethical Company; Best CRM Company; Number 1 of the Big 4; Best Company to work for; etc.
cost leadership strategy
strategy that seeks to create similar value to competitor but lower price. Org. able to do it by optimizing value chain -achieve lowest cost position which allows firms to offer lower prices *cost drivers* a) input factors=lower cost of raw materials, labor, capital, it, etc. ex: emirates vs. American airline companies b) economies of scale c) learning curve effects -actually goes down because you can make things faster the more practice you have ex: tesla self driving car was not making money until people got over learning curve *types* 80% and 90% *differ b/c* -difference in timing= learning effects occur over time as output accumulates while economies of scale are captured at one point in time when output increase. -difference in complexity= effects of economies of scale can be significant or minimal---same with learning curve ex1: manufacture steel rods (eos is high) and le is min ex2: learning brain surgery (eos is low) and le is high d) experience curve effects -change in underlying tech while holding output constant -process innovation= new method of tech to produce existing product may initiate steeper learning curve
scope of competition
the decision to go for a broad part of the market or a narrow part -part of generic business strategies
implementation
the execution of the strategic plan that has been formulated during the corporate strategy and business strategy initiatives. Organizations have the most difficulty with implementation strategies.
vertical integration
the firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs aka owns its own production -industry value chain
organizational design
the process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization -key components are structure, culture, and control -goal is to design an org that allows managers to effectively translate their chosen strategy into a realized one
organizational innovation
the successful implementation of creative ideas in organizations a) open innovation= framework for r and d that proposes permeable firm boundaries to allow a firm to benefit not only from internal ideas and invenetions but from ideas and innovations from external sources -more likely to lead to comp advantage -absorptive capacity= using external tech to help better your current procedures b) closed innovation= traditional framework where innovations were created internally. Shift away from that method -use when extremely protective of ip -not invented here syndrome- companies don't like ideas unless they were created in house
3 dimensions guides
things that guide ______ -core competencies= unique strengths embedded in a firm -economies of scale= avg cost decreases, output increases -economies of scope= savings that come from producing two or more outputs for the cost of producing one individually aka using the same resources -transactions costs=all costs associated with economic change
reactive strategies
third competitive tactic 1. Internal Growth Strategies -use strategies and products you already have 2. Aggressive Competition - M&A External Growth Strategies (Horizontal Integration) -ex: buy similar company to create a horizontal intergration 4. First Mover in Industry (ex: tesla) -easier to be second b/c you can build on existing tech and it's a cheaper investment 5. Threat of Retaliation -be aware of other threats besides your direct comp 6. Barriers to Imitation (create unique culture which will be hard to imitate) -make sure that your ideas aren't stolen
types of vertical integration
types of ______ integration a) Fully integrate= Economies of scale, lower cost, better quality control -house brands b) not fully integrated= only focus on a few stages of the industry value chain ex: apple only focuses on marketing, design and retail -the temporary comp advantages are the actual product but the long term advantages are marketing and brand image -get better at vertical integration over time once they get the resources. *directions* a) backward vertical integration= moving ownership of activities upstream to the originating inputs of the value chain. b) forward vertical integration= moving ownership of activities closer to the end customer. -economies of scope
strategy canvas
value curve is the basic component of the strategy canvas -strong value curve= focus and divergence ex: high cost airlines are higher on the chart and low cost airlines are lower
market
whether to _____ or create in house' advantages -high power incentives= create a new company with specialized equipment and steal ipo -increased flexibility= can more easily compare prices disadvantages -search costs= hard to find the right company. Doesn't do exactly what you want -opportunism of other parties= self interest -incomplete contracting= hard to specify expectations and don't know what you are going to get -enforcement of contract= hard to enforce
firms
whether to buy or create at the ______- advantages -command and control decisions -coordination -transaction specific investments= specialized for your needs -community of knowledge= build knowledge so that they know the inner workings disadvantages -admin costs -low powered incentives (ex: hourly wages, salaries). Less attractive than advantages from an open market -principal agent problem= pursuing his or her owninterests over the interest of the company
why do firms need to grow?
why do firms need to ______? 1) increase profits -profitable growth allows businesses to provide a higher return for their shareholders or owners if privately hold 2) lower costs -growth allows for lower cost aka economies of scale 3) increase market power -horizontal merger acquisitions happen in order to make companies bigger and give them more market power. This can also help them change the structure of an industry 4) reduce risk -firms might be motivated to grow in order to diversify their product and service portfolio through competing in a number of diff industries 5) motivate management -growing firms allow for profesh development and career opps for employees 1 and 2 are related to a firms comp advantage 3 relates to comp advantage but can have legal ramifications due to anti trust law suits 4 has fallen out of favor w/ investors. diversifying stock porfolio is more effcient than having unrelated business units 5 are not legit reasons according to investors
