MGMT344

Strategic Groups Analysis

- represents the competitive structure of an industry - identifies which firms are strategically similar strategic groups can be important because = the map can reveal strategic spaces with no current competitors

PESTEL political

- Policy Shifts

Bargaining Power of Buyers

Buyers (customers) are most powerful when: - there are small sellers and few large buyers - buyers purchase in large quantities - a single buyer is a large customer to a firm - buyers purchase from multiple sellers at once

The Industry Life Cycle

Development - Low rivalry: High Differentiation innovation key Growth - Low rivalry: High Growth and weak buyers, but low entry barriers, Growth ability key Shake-out - Increasing rivalry: slower growth and some exits, managerial and financial strength key Maturity - Stronger buyers: low growth and standard products, but higher entry barriers, marker share and cost key Decline - Extreme rivalry: Typically many exits and price competition, cost and commitment key

Hybrid Strategy

Hybrid strategies involve both lower prices than differentiation strategies, and higher benefits than low-price strategies. Hybrid strategies are often used to make aggressive bids for increased market share. They can also be an effective way of entering a new market, for instance overseas. for example, furniture store IKEA, which uses scale advantages to combine relatively low prices with differentiated Swedish design

Why should firms invest in analysis of their external environment

The need for an organisation to be a good 'fit' with conditions ○ Evolving competition, demand, technology, etc. The potential to benefit from ○ an attractive industry ○ or a favourable position in an industry value chain The need to adapt to environmental change ○ change is often discontinuous ○ change can make firm capabilities valueless.

Business Model Innovation

• The concept of a business model • How an organisation manages incomes and costs through the structural arrangement of its activities. ○ How it delivers value to users ○ How it generates income ○ What parts of the industry value chain it occupies • Strategies based on new business models: • Disintermediation (Dell, Amazon) • 'Open source' (linux variants, Android) • Advertising-driven internet businesses (Google, Facebook) • The shift from physical product to electronic delivery and streaming (Blockbuster to Netflix)

Firms Mover advantage

• The initial occupant of a strategic position or niche gains numerous advantages that a follower cannot match: • Finds itself further down the experience curve • Gains scale benefits sooner • Pre-empts scarce resources (if applicable) • Gains customers who face high costs if they switch to new entrant • Establishes reputation early • But: • 'First mover' doesn't mean 'first inventor' or 'first to market' .... • There can also be Second (or late) Mover Advantage: ○ Free-riding on the original innovation costs ~65% as much. Second movers can learn from first movers' mistakes.

Criticism of Generic Strategy Frameworks

• They focus attention too narrowly: • Good competitive strategy is typically more complex and multi-dimensional ○ Use generic strategy model in conjunction with complementary perspectives • They are too static for dynamic competitive conditions: • May be better to focus on continued evolution than present competitive position ○ Use generic strategy model in conjunction with life cycle and dynamic competition models ○ Look inside the firm for sources of more sustained advantage.

Hybrid Strategies may work when

• When a firm's distinctive competence supports a hybrid strategy ○ E.g. a new more efficient business model • When the middle ground constitutes the major market ○ "Good food costs less at Sainsbury's" • When cost efficiency and differentiation are pursued through different business functions • BUT: • 'Stuck in the middle' strategy is ineffective • A clear, positive strategy is beneficial: ○ Helps ensure incremental decisions are all aligned with the strategy

Tragic Analysis is Supposed To:

○ Reveal diverse contingencies, opportunities, and threats ○ Correct misperceptions about trends and casual relations, ○ Weaken commitments to outdates strategies - But if biased towards status-quo cognition and power structure it might ○ Conceal diverse contingencies, opportunities, and threats ○ Create or reinforce misperceptions about trends and casual relations, ○ Reinforce commitments to outdated strategies

PESTEL economic

- refers to macro-environment - exchange rates - business cycles - differential economic growth rates around the world

Consolidated industry conditions

- relatively few industry competitors -significant entry barriers - established basis for comparison of competing products

Vulnerability in Boards

- often the same person is Board chair and CEO (especially in USA) Effectiveness of independent directors is sometimes questioned: ability to combine - independence - knowledge - leadership

Types of control systems

- Planning based system * units only weakly accountable for performance * often regarded by firms as too ridge - culture based approaches * collaborative development of plans and centre and units * accountability via trust and understanding - performance targeting systems *Strong performance targeting *often seen as too short-term in outlook

Strategic management is

- Setting objectives for the organisation, planning and implementing the necessary changes and measuring the outcome. - Setting the direction and scope of an organisation : o Over the long term o To achieve advantage - By: o Configuring its resources o To adapt to a changing environment o To meet the needs of markets

Benefits of Effective Governance

- lower cost of capital due to access to capital markets - stronger corporate reputation (greater trust and confidence of investors and customers - more effective strategic oversight (more sustainable business)

3 Generic Types of Dynamic Capabilities

- Sensing = sensing issues in an evolving strategic environment =organisations must constantly scan, search and explore opportunities across various markets and technologies. e.g. companies in the PC operating systems industry, like Microsoft, have clearly sensed the opportunities in and threats from tablets and smart phones. - Seizing = Making Opportune, timely strategic choices =Once an opportunity is sensed it must be seized and addressed through new products or services, processes, activities E.G Microsoft, for example, has started to seize opportunities by developing its own tablet device and software and by acquiring the mobile company Nokia. - Re-configuring =To seize an opportunity may require renewal and reconfiguration of organisational capabilities and investments in technologies, manufacturing, markets, etc. e.g. Microsoft's inroad into tablets and smart phones requires major changes in its current strategic capabilities. The company must discard some of its old capabilities, acquire and build new ones and recombine them.

PESTEL technological

- refers to influences such as the internet, nano technology or the rise of new composite materials.

Example Application of the Value Chain

- A newspaper company used the value chain to help align internal processes around a consistent strategy. - steps already undertaken include *Adopted simplified version *Interpreted generic activity labels to the business * Evaluated each activity relative to = alternative choices e.g. cost vs meeting needs = An implied sense of good proactive Possible next steps: - identify the general problem - specify a clear strategy to address it - draw up a new value chain to communicate/ implement the strategy

Potential recommendations from PESTEL

- Adapt to expected changes - develop new capabilities (e.g. technological) - develop new markets - Try to influence the environment - lobby to influence political/ legal developments - engage with stakeholders

Related diversification

- All the businesses are strategically related - The value of the whole is greater than that of the parts - Synergy logic ○ Tangible (shared resources/capabilities, one-stop service) ○ Intangible (new opportunities, new culture) - BUT synergy can be elusive ○ Intangible resources are sensitive to context ○ Integrating activities across business units is challenging ○ Negative synergy often results - In Practice ○ Found to be only marginally more profitable than unrelated Bureaucratic costs increase more than in unrelated diversification

Strategy in Embryonic Industry

- Differentiation is usually a priority - invest in product innovation to generate gains in perceived performance and quality - consider the dynamics of industry standards, lock in and relate drivers - firms may benefit from strategic alliances

Operational Perspective

- Discipline Specific - operationally specific - with a defined context - lower ambiguity - more amenable to systematic approaches

Successful focus strategies demand on at least three key factors

- Distinct segment needs e.g.For example, when the boundaries blurred between smart phones used by general consumers and smart phones used by business people, it has become easier for Apple to attack the distinctive niche once dominated by BlackBerry's business phones. - Distinct segment value chains Focus strategies are strengthened if they have distinctive value chains that will be difficult or costly for rivals to construct. If the production processes and distribution channels are very similar, it is easy for a broad-based differentiator to push a specialised product through its own standardised value chain at a lower cost than a rival focuser - Viable segment Economics Segments can easily become too small to serve economically as demand or supply conditions change. e.g. changing economies of scale and greater competition have eliminated from many smaller cities the traditional town-centre department stores, with their wider ranges of different kinds of goods from hardware to clothing.

Features of Declining Industries

- Excess capacity - Lack of technical change ○ Lack of new product introduction ○ Stability of process technology - Declining Number of competitors ○ Some entry as new companies acquire the assets of exiting companies cheaply - High average age of both physical and human resources Aggressive price competition

Power-Interest Matrix

- HIGH POWER- HIGH INTEREST:KEY PLAYERS ○ Example : major investors, major funding agency ○ Likely blockers or facilitators of a strategy - HIGH POWER - LOW INTERESTS: KEEP SATISFIED ○ Example: passive investors ○ If unsatisfied, raise their interest levels and become key players - LOW POWER - HIGH INTEREST: KEEP INFORMED ○ Example : community group ○ Actively provide information ○ Avoid alienating - view as potential allies - LOW POWER - LOW INTEREST MINIMAL EFFORT

PETEL social

- Includes changing cultures and demographics e.g. for example, the ageing populations in many Western societies create opportunities and threats for both private and public sectors.

Vulnerable links in the governance chain

- Investment institutions • Historically accused of being inactive shareholders who do not challenge the board and CEO • Have recently tended to become more active - Information intermediaries • Social norms among analysts ... • How independent is much of the information accessed by small investors? • Over-reliance on ratings agencies (2008 crisis) - Investor knowledge limitations Feltex, NZ finance company cases, Dick Smith

Potential Competitors

- New entrants threaten incumbent companies in a profitable industry - Entry barriers reduce the threat of additional competition • But can be reduced by innovation - Barriers to entry: • Product differentiation/brand loyalty • Absolute cost advantages • Economies of scale • Switching costs • Capital requirements • Government regulation • Threat of retaliation

Managing prive and competition in mature industries

- PRICE SIGNALLING OPTIONS • Aggressive signal ○ Matching competitor price cuts threatens price war • Collusive signal ○ Rapidly follow competitor price increase ○ Firms attempt to avoid price war and improve profitability • Price Leadership ○ All firms follow procing decisions of one firm ○ Keeps prices profitable for the least efficient competitor ○ Maintains stability in the industry ○ Reduces incentives to improve efficiency • Non-price Competition ○ Firms compete aggressively on everything except price

Industry and capacity demand

- Smooth adjustment of industry capacity is key to stability and profitability ○ Excess capacity results in destructive competition - Ease of adjustment of industry capacity depends on: ○ Predictability of decline (more volatile = harder to predict) ○ Exit barriers § Durable, specialised assets § Restructuring, decommissioning costs Emotional attachment to the industry

PESTEL Analysis

- Specific future times relevant to setting strategy - factors likely to change in ways that have significant impact on the firm EXAMPLES - Political - Economical - Socio-cultural - Technological - Environmental - Legal

Who 'does' strategy in business?

- The CEO and top management teams - Board of directors - Strategic planners - Middle managers Strategy consultants

Pressure for Disintegration

- The parts of a corporation may be worth more than the whole because ○ There may be no real gains (synergies) from common ownership ○ It may be hard for one management team to have the optimum skills for managing diverse businesses ○ Different financial profiles may make it hard for the share market to respond e.g. - FISHER AND PAYKEL 2001: ○ Two divisions with radically different characteristics: ○ Healthcare - fast-growing, high margins, untapped global market, R&D intensive. ○ Appliances - competitive market, low margins, capital intensive. ○ The divisions each required different management skills ○ Value in the healthcare business not reflected in share price

Strategy Development Processes

- Typically combine some emergent and some deliberate elements: - Mostly Deliberate: Strategic Planning • Mostly Emergent: Logical incrementalism - Participation and activities vary according to decision significance and urgency: • Immediate actions (e.g. corporate acquisition) ○ Project teams, task-forces, meetings • Longer term strategic shifts (e.g. growth opportunities, understanding competition) Strategy workshops and on going strategic conversation.

Potential Uses of the Value System

- Understanding cost Structures in different parts of the system - identifying 'profit pools' in the system and seeking to exploit them. - the 'make or buy' decision: deciding which activity to do 'in house' and what to outsource - partnering and relationships - deciding who to work with and the nature of these relationships.

Uses of The Value Chain:

- Uses based on integration • Facilitating cross-functional thinking • Aligning the focus or purpose of activities - Uses based on breakdown • Benchmarking individual activities • Recognising fragmentation of activities across organisational boundaries • Calculating operating costs and assets employed by activities - Notes about 'breakdown' based analysis: • It facilitates data-driven work. • It down-plays holistic qualities such as routines, tacit knowledge, and complex combinations.

Emergent Strategy

- a flexible approach is needed for an unpredictable world. - makes good use of autonomous action by lower level - managers

Steps in Applying 5 forces

- define the industry - determine whether each force is strong or weak (strong forces are unfavourable towards the industry) conclude overall: - how competitive is the industry - what is the profit potential for industry competitors - how is this evolving - how can the firm manage the sources in its favour

Scenario Planning

- develop and plan for several alternative possible futures - effective when: the dynamics affecting the success of strategies - can be reasonable understood - help build plausible different futures - if not effective: a flexible, adaptive organisation is required instead e.g. - Scenarios were notably used by Shell from 1970s • Sub-$20/barrel oil price • Still used widely by oil companies The process is often as valuable as the outcome.

PESTEL legal

- embraces legislative and regulatory constraints or changes e.g.For example, legal changes might include restrictions on company mergers and acquisitions or new tax treat- ments of profits earned overseas. On the other hand, legal changes can provide opportuni- ties, as for example the liberalisation of foreign investment in India.

Types of Strategic Alliance

- equity alliance involves joint ownership between parties -Non-equity alliance looser alliance based on contracts includes franchising, licensing, sub-contracting agreements

Strategy in Growth Industry

- expect new entrants - establish entry barriers - build quality, brands, capacity - seep up with industry growth - continue to innovate - anticipate and lead change

Steps in Applying Scenario Analysis

- identify driver - Specify ranges of possible outcomes for each driver base the outcomes on actual research as far as possible -

Managing Stakeholders

- individuals or groups that - have an interest, claim or stake in an organisation

Resources Satisfying RBV (resource based view of the firm) conditions

- intangible linked to company history - embedded in social systems/ company culture - causally ambiguous

Strategic Perspective

- integrates multiple disciplines - organisation wide - big picture - defines the context - higher ambiguity and uncertainty - non-routine, non-programmable, unique, creative

Business - Level Strategy

- is about how the individual business should compete in their particular markets -Business-level strategy typically concerns issues such as innovation, appropriate scale and response to competitors' moves.

Corporate Level Strategy

- is concerned with the overall scope of an organisation and how value is added to the constituent businesses of the organisational whole. -Corporate-level strategy issues include geographical scope, diversity of products or services, acquisitions of new businesses, and how resources are allocated between the different elements of the organisation.

Criticisms of the Environment-Led Approach

- leads to predictable strategies -competitive environment changes rapidly - advantages based on internal characteristics often more robust -

Steps in Strategic Group Analysis

- select appropriate axes ○ Typically differ for each industry • Should not be correlated • Should distinguish between companies in the industry • Should help represent the structure of the industry • Plot companies • Interpret • Identify groups • Analyse relative performance, mobility barriers, and usefulness of any unoccupied positions • Consider alternative axes

PESTEL ecological

- specifically for 'green' environmental issues, such as pollution, waste and climate change. e.g. with pollution controls, but they can also be a source of opportunity, for example the new busi- nesses that emerged around mobile phone recycling.

Substitute Products

- substitute products are produced from outside the industry as defined, but meet the same or similar needs e.g. mobile vs fixed line vs postal letter - in the absence of close substitutes, customers are less sensitive to price - the competitive threat of substitute products increases as they come closer to serving similar customer needs.

Cost leadership success factors

- the firm must have lower internal costs than other competitors - cost leadership must pervade the organisation - its cost advantage must be sustainable against attempts to imitate it - the market must be price sensitive RISK: the firms product or service comes to have a low perceived value consumer preference moves towards higher added value

2 Key dimensions to the parenting matrix

-Feel This is a measure of the fit between each business unit's critical success factors (see section 2.4.3) and the capabilities (in terms of competences and resources) of the corporate parent. - Benefit This measures the fit between the parenting opportunities, or needs, of business units and the capabilities of the parent

Dynamic Capabilities

= An organisations ability to renew and recreate strategic capabilities to meet the needs of changing environments Dynamic capabilities are directed towards that strategic change. They are dynamic in the sense that they can create, extend or modify an organisation's existing operational capabilities. Dynamic capabilities may also take the form of relatively formal organisational systems, such as recruit- ment and management development processes and cooperating with others through alliances or acquisitions, by which new skills are learned and developed

VRIO Analysis I

= INIMITABILITY those that competitors find difficult and costly to imitate or obtain or substitute. If an organisation has a competitive advantage because of its particular marketing and sales skills it can only sustain this if com- petitors cannot imitate, obtain or substitute for them or if the costs to do so would eliminate any gains made.

VRIO analysis V

= Value of strategic competition - Taking advantage of opportunities and neutralising threats: the most fundamental issue is that to be valuable capabilities need to provide the potential to address the opportunities and threats that arise in the organisation's environment, which points to an important comple- mentarity with the external environment of an organisation For example, IKEA's cost-conscious culture, size and its intricate configuration of interlinked activities lower its costs compared to competitors and addresses opportunities of low-priced furniture that competitors do not attend to. - value to customer - cost

Focus Strategies

A focus strategy targets a narrow segment or domain of activity and tailors its products or services to the needs of that specific segment to the exclusion of others. Cost focusers - identify areas where broader cost-based strategies fail because of the added costs of trying to satisfy a wide range of needs. e.gIceland Foods has a cost-focused strategy concentrated on frozen and chilled foods, reducing costs against generalist discount food retailers such as Aldi which have all the complexity of fresh foods and groceries as well as their own frozen and chilled food ranges. Differentiation Focusers - look for specific needs that broader differentiators do not serve so well. Focus on one particular need helps to build specialist knowledge and technology, increases commitment to service and can improve brand recognition and customer loyalty. e.g. ARM Holdings dominates the world market for mobile phone chips, despite being only a fraction of the size of the leading microprocessor manufacturers, AMD and Intel, which also make chips for a wide range of computers.

Strategy VS Control Style

Cost Leader - efficient process - detailed budget - quantitive target Differentiator - innovativeness - loose control - emphasis on culture and values - market-based incentives - quality goals

GAP Analysis

Compares achieved or projected performance with desired performance It is par- ticularly useful for identifying performance shortfalls ('gaps') and, when involving projections, can help in anticipating future problems. The size of the gap provides a guide to the extent to which strategy needs to be changed. The upper line represents the organisation's desired performance, perhaps a set of targets or the standard set by competitor organisations. The lower line represents both achieved performance to today and projected performance based on a continuation of the existing strategy into the future (this is necessarily an estimate).

Strategic Control:

Controls and incentives can include: - direct supervision - peer pressure - operating and capital expenditure budgets - targets and measures - Under the strategic control style, the centre will typically act as coach to its business unit managers, helping them to see and seize opportunities in a supportive manner. This style often relies on strong cultural systems to foster trust and mutual understanding The strategic control style is suitable where there are opportunities for collaborating across busi- nesses and there is a need to nurture new ones.

Cost Leadership

Cost-leadership strategy involves becoming the lowest-cost organisation in a domain of activity. There are four key cost drivers that can help deliver cost leadership 1. Input cost e.g about and raw materials E.G the Brazilian steel producer CSN which benefits from its own local iron-ore facilities 2. Economies of Scale - how increasing scale usually reduces the average cost of operation over a particular time e.g. The large airlines, for example, are able to negotiate steep discounts from aircraft manufacturers. 3. Experience : key source of cost efficiency -The experience curve implies that the cumu- lative experience gained by an organisation with each unit of output leads to reductions in unit costs - simply the more experience an organisation has in an activity, the more efficient it gets at doing it. 4. Product process design For example, engineers can choose to build a product from cheap standard components rather than expensive specialised components. Organisations can choose to interact with customers exclusively through cheap web-based methods, rather than via telephone or stores.

4 key perspectives in Strategy

ENVIRONMENT-LED PERSPECTIVE - based on adapting to external opportunities and threats - enter attractive markets and niches - manage portfolios of businesses and products RESOURCE-LED PERSPECTIVE - based on exploiting unique and valuable resources - create new markets and niches - enter markets in which the firm's resources give it advantage - manage portfolios of resources and competences PROACTIVE STRATEGY - emphasis on new markets or new products/services - constant search for new strategic position - advocated even for public sector/not-for-profit REACTIVE STRATEGY - emphasis on protecting market share on margins - global markets and information flow render this often unsuccessful

Types of performance Measures

Economic Performance Measures - Sales Volumes, Sales growth - Market share - Revenues - Profits Effectiveness Measures - Needed to give full picture of performance - narrow economic measures can be short-term in focus E.G Balanced score card - triple bottom line (where firms seek to report on social and environmental measures )

Pittfalls in Evaluating Performances

Effective Performance measures are characterised by - flexibility - accuracy of information - timely provision

Complexities of Performance analysis

First, organisations are liable to manipulate outcomes in order to meet key performance indicators.7 For example, organisations can defer non-urgent expenditures or book sales-orders early in order to meet short-term earnings targets. Second, organisations can legitimately manage performance perceptions and expectations: they are not wholly objective and fixed. For example, CEOs frequently communicate with key investors, financial analysts and the media so as to ensure favourable interpretations of strategies and results.8 Finally, what matters in terms of perform- ance often changes over time. For example, measures of corporate social responsibility such as the triple bottom line have become more important in recent times and, since the financial crisis starting 2008, banks have had to attend more to measures of capital adequacy to prove they are secure against bad debts.

Corporate Parenting Matrix

Heartland businesses business units are ones which the parent understands well and can continue to add value to. They should be at the core of future strategy. - High high Ballast Businesses units are ones the parent understands well but can do little for. They would probably be at least as successful as independent companies. If not divested, they should be spared as much corporate bureaucracy as possible. - High Low value trap businesses units are dangerous. They appear attractive because there are opportu- nities to add value (for instance, marketing could be improved). But they are deceptively attractive, because the parent's lack of feel will result in more harm than good (i.e. the par- ent lacks the right marketing skills). Low high Alien Businesses units are clear misfits. They offer little opportunity to add value and the par- ent does not understand them anyway. Exit is definitely the best strategy. low low

Forms of Market Pull

Lead user innovation • Build close relationships with 'lead users' whose needs are ahead of the general market • Use the relationship to identify unmet needs • Use feedback to help develop product features and quality • Use the community to promote new products Frugal innovation • Respond to the needs of 'bottom of the pyramid' markets • Typically inexpensive, robust but basic • Creative solutions are needed to retain adequate performance at much lower prices

Strategy in a declining industry

Leadership Strategy - a firms seeks to become dominant in the industry e.g. vacuum tube case Niche Strategy - focuses on demand pockets declining more slowly than the industry as a whole Harvest Strategy - Limits investment and optimises cash flow Divestment Strategy - company exits the industry by selling out early to others, avoiding liquidation

VIRO ANALYSIS O

ORGANISATIONAL SUPPORT the organisation must also be suit- ably organised to support these capabilities including appropriate organisational processes and systems.

The 4Ps of innovation

PARADIGM - changes underlying mental models - A totally new way of operating e.g. Netflix vs Blockbuster POSITION - changes the context in which a product is promoted or used e.g computers Process - changes how the product is created and delivered e.g car PRODUCT - changes the product of service offering e.g.phone

Henry Mintzberg's Five P'S for Strategy

PLAN= consciously intended course action PLAY= specific manoeuvre to outwit opponents PATTERN = pattern in a stream of actions POSITIONS= position in relation to the organisation's environment PERSPECTIVE = the organisation's shared mindset

VRIO ANALYSIS R

RARITY - Rare capabilitiesare those possessed uniquely by one organisation or by a few others. Here competitive advantage is longer-lasting. For example, a company can have patented products or services that give it advantage. - Some libraries have unique collections of books unavailable elsewhere; a company can have a powerful brand - or retail stores can have prime locations

Cognitive biases in strategy making

Recency basis - thinking is dominated by the most recent events - Seismic events, lack of seismic events, financial crises. Escalating commitment - continuing to invest money in a venture "to recoup sunk costs" when better investments are available e.g when to buy/sell us dollars Illusion of control - successful CEO thinks they can make miracles happen but their success is actually contingent on circumstances largely beyond their control (reference to governance cases) Framing effects - can be from the way a CEO frames or orchestrates a strategy workshop or consultation Anchoring Effect - The number or approach first suggested biases the eventual decision outcome even if participants know it is completely wrong

What is meant by Relatedness

Resource allocation - similar sizes of capital investment projects - similar source of risk - similar time spans of investment projects Strategy formulation - similar key success factors -similar stages of the industry life cycle performance management and control - targets defined in terms of similar performance variables - similar time horizons for performance targets

Unrelated diversification

Spread risk; balance portfolio; achieve scale ○ Little synergy logic ○ Businesses from own strategies ○ Corporation typically manages only the financials - Currently out of favour, mostly: ○ Corporate office adds cost but little value ○ Can one head office manage diverse businesses? ○ Investors can build 'balanced' portfolios - GENERAL ELECTRIC a notable remaining example

Strategic Groups

Strategic groups are organisations within an industry or sector with similar strategic charac- teristics, following similar strategies or competing on similar bases For example, in the grocery retailing industry, supermarkets, convenience stores and corner shops each form different strategic groups.

Bargaining Power of Suppliers

Suppliers have bargaining power when: - their products have few substitutes and are important to buyers - the buyers industry is not an important customer to the supplier - differentiation makes it costly for buyers to switch suppliers.

Limitations of Industry Analysis Models

They focus on the industry not the firm - industry structure explains about 7-19% of the variance in firm profitability the model provides a fairly static view - innovation can alter the competitive environment - A good firm can make an unattractive position attractive

Macro-Environment (highest level layer) (Middle level layer) (Centre Level layer

This consists of broad environmental fac- tors that impact to a greater or lesser extent on almost all organisations. The Firms industry market The firms internal environment

Stakeholder view of governance

a broader view of which parties contribute to and benefit from the firms prosperity

Strategy at the shakeout stage

characteristics: slowing growth, financial squeeze, mergers and some industry exits - avoid over investing in growth - maintain competitive position over short term profit - invest in process innovation to generate efficiency gains

Strategies in Mature Industries

characteristics: standard products, low growth and margins

Operational Strategy

concerned with how the components of an organisation deliver effectively the corporate- and business-level strategies in terms of resources, processes and people For example, Vice Media had to keep raising external finance to fund its rapid growth: its operational strategy is partly geared to meeting investment needs.

The Value Chain

describes the categories of activities within an organisation which, together, create a product or service. - Links value added by activities to an organisation's competitive strength - Recognises importance of how activities are linked - Advantage can be from: • Performance in individual activities • Performance in linking activities - Advantage can be lost by poor linkage The important point is that the concept of the value chain invites the strategist to think of an organisation in terms of sets of activities.

Pitfalls of Acquisition

difficulty of post-acquisition integration - negative synergy - poor strategic or organisational fit overestimating economic benefits screening of candidates

Rivalry amongst existing firms

e.g. In the European airline industry, Air France and British Airways are rivals; high-speed trains are a 'substitute' the intensity of competitive rivalry in an industry arises from? - degree of product differentiation - demand (growth or decline) conditions in industry - height of industry exit barriers

Source of Cost Advantage

input costs e.g. Taiwan point aluminium smelter (was lower cost) Scale economies - larger product volume can mean - lower fixed costs per unit (e.g. R&D costs) - higher buying power - able to invest in more efficient processes. Experience curve advantages - greater accumulated experience deceases cost per unit - based on labour productivity and improved methods Product/process design - firms may cease efficiencies at the outset by design E.G web interface costs less than call centres or branches Product

Differentiation strategies

involves uniqueness along some dimension that is sufficiently valued by customers to allow a price premium.

Fragmented industry conditions

large number of smaller firms - no one firm able to gain advantage that the firm can both sustain and reproduce - few economic scale opportunities little direct price competition between competing products/ services - high transportation costs of products - individually customised products

the parental developer

parental developer seeks to employ its own central capabilities to add value to its businesses. This is not so much about how the parent can develop benefits across business units or transfer capabilities between business units, as in the case of managing synergy.

Strategies Based on 'Lock-in'

propriety standarts - positive reinforcing cycle of user, complementary, and manufacturers enhances the value of the standard - one standard dominates one or many segments e.g. Microsoft in PC's, office software and PC networking • Dominant exchange • Value grows exponentially with the number of users • One player tends to dominate the market ○ Visa/Mastercard (financial transactions) ○ Trademe or eBay • Restricted access • Exploits constrained distribution and supply chains ○ Coca-Cola dominance of soft drink bottling and retail chiller units Wal-Mart meeting all retail needs within a rural area

Shareholder view of Governance:

responsibility is to shareholders above all other stakeholders

Steps in VRIO Analysis

select candidate resources to test. - may be broad firm characteristics - may be disaggregated resources from value chain analysis - not strategies or product/ service features assess each resource against V,R,I,O Consider the effect of context - resources value or lack of value depends on context - inside the organisation - in the strategic environment - deploy the resources to a market where it is valuable - re-organise to exploit a resources successfully

The Synergy manager

synergy manager is a corporate parent seeking to enhance value for business units by managing synergies across business units.

The Value System

the set of inter-organisational links and relationships that are necessary to create a product or service.

Emergence in Strategy Processes

trategies emerge on the basis of a series of decisions, which a pattern becomes clear over time. This explains an organisation's strategy, not as a 'grand plan', but as a developing 'pattern in a stream of decisions'18 where top managers draw together emerging themes of strategy from lower down in the organisation, rather than direct strategy from the top.

Differentiation Success Factors

• Ability to Achieve Differentiation ○ Clear identification of who the customer is ○ Understanding what is valued by the customer and what they will pay a premium for ○ Clear identification of who the competitors are and the value they offer • Ability to Sustain Differentiation ○ Useful if differentiation is hard to imitate ○ Need to cope with continuously changing basis of differentiation ○ Need to sustain differentiation at a low enough cost

Strategic alliances

• Definition: where two or more organisations share resources and activities to pursue a common strategy - Enable firms to pursue strategies that would not be possible using internal resources - Less expensive to implement than corporate acquisitions

Organising for innovation

• Firms need to balance ongoing exploitation of existing innovation with exploration of new innovations • Effective structures, processes, expectations and cultures differ between these two • Firms struggle to reconcile these differences • The problem is often addressed by separating 'explore' and 'exploit' activity in separate units • Overarching management still needs to achieve a degree of 'ambidexterity' The separate units benefit from close relationships

4 main roles in Strategic planning systems

• Formulating strategy ○ Often using analytical approaches, encouraging long term view etc. ○ This aspect is what MGMT344 focuses on most • Learning ○ Challenge and discovery through participation in the process • Coordinating ○ for example business and corporate level strategies ○ A forum for negotiation, and compromise • Communicating plans, objectives, milestones ○ Hence, implementing.

Business Model Innovation

• How an organisation manages incomes and costs through the structural arrangement of its activities. ○ How it delivers value to users ○ How it generates income ○ What parts of the industry value chain it occupies • A way of articulating radical change. • Strategies based on new business models: • Disintermediation (Dell, Amazon) • 'Open source' (linux variants, Android) • Advertising-driven internet businesses (Google, Facebook) • The shift from physical product to electronic delivery and streaming (Blockbuster to Netflix)

strategies bacon on 'total customer solutions'

• Large horizontal breadth: one-stop-shop • Amazon ○ Leveraging a large customer base ○ Achieving lock-in effect (convenience) • Also Rural Services industry (smaller effect) • Customer integration • Use direct links with customers, integrate ordering processes, use information about customer needs/behaviour ○ Dell custom ordering ○ Managing maintenance and support (medical imaging, aircraft engines) • Redefined customer experience • Wall Street Journal Interactive: ○ Website customised to individual news needs of business people and investors ○ Draws on data/systems from multiple partners

The innovator's Dilemma

• Managers are attached to existing assets and skills • Incumbents can become too close to an existing customer base • Both tend to prefer incremental improvement ('sustaining innovations') • A disruptive innovation offers a new performance trajectory • Potentially (but not initially) offers significant performance or market gains - New entrants often have the advantage in disruptive innovations.

Dimensions for Strategic Group Analysis

• Ownership and financial • Ownership structure • Corporate effects • Size of organisation • Level of gearing Operations and scope • Extent of vertical integration • Geographical coverage • Capacity utilisation • Cost position • R&D or innovation intensity Market orientation • Pricing policy • Product or service diversity • Product or service quality •Distribution channels

Disciplined approach to risk

• Portfolio of innovation projects with limited investments that keep opportunities open. • When uncertainty is high: fail fast, fail cheap, try again Balanced projects according to levels of uncertainty:

Cost Focus Strategy

• Seeks to achieve cost leadership within a specific market niche • Cost savings come from: • Reduced variety and complexity • Concentrated expertise • Examples: grocery stores Aldi, Lidl • Small, inexpensive range (2,500 vs 40,000) • Often home-branded • Limitations: • Scale may be smaller than firms using broad cost leadership or hybrid strategies • Firms that are 'forced into' this strategy perform poorly

' Differentiation Focus' Strategy

• Seeks to serve specific market segments (niches) better than broad differentiators • Variations ○ Focused offering to a global market ○ Propitious niche § Highly specific product or service that is not worthwhile for a new entrant unless they can displace the incumbent ○ May focus on several Niches LIMITATIONS ○ Relies on clear distinction between segments in terms of both customer needs and value chain § Differences between segments may be eroded, making basis of focus redundant. ○ Narrow focus may limit growth § Small sizze may threaten viability Temptation to broaden - risks becoming 'stuck in the middle'

Corporate Acquisitions

• Speed entry • Acquire needed capabilities • Overcome barriers to entry • Obtain market access • Overcomes problems and risks of internal venturing - But introduces others • Other reasons for acquisition: • Removing competitors and increasing market power • Diversification Unbundling or asset stripping