Week 4: Company Analysis
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,
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
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
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
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
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
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
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
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
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
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
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
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
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
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)
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
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
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
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!
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
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
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
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)
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
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)
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
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
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
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
