MGT Review

Innovation dilemmas

Technology push or market pull Product or process innovation Open or closed innovation Technological or business-model innovation Pace of diffusion First or second mover

The growth share (or BCG) matrix

The BCG matrix uses market share and market growth criteria for determining the attractiveness and balance of a business portfolio.

strategy canvas

compares competitors according to their performance on key success factors in order to develop strategies based on creating new market spaces.

Four international strategies

pg. 287

Three strategy methods

pg. 339

Key success factors

pg. 360

Strategic alliances

1. A strategic alliance is where two or more organizations share resources and activities to pursue a strategy. 2. Collective strategy is about how the whole network of alliances of which an organization is a member competes against rival networks of alliances. 3. Collaborative advantage is about managing alliances better than competitors. There are two main kinds of ownership in strategic alliances: 1. Equity alliances involve the creation of a new entity that is owned separately by the partners involved. 2. Non-equity alliances are typically looser, without the commitment implied by ownership.

Integration

1. Horizontal integration- diversification into other products. 2. Vertical integration- describes entering activities where organization is its own supplier or customer. 3. Backward integration- activities concerned with inputs to company's current business. 4. Forward integration-activities concerned with outputs to company's current business.

Non-equity alliances

1. Non-equity alliances are often based on contracts. 2. Common forms of non-equity alliance: a. Franchising. b. Licensing. c. Contracts

Motives for alliances

1. Scale alliances - lower costs, more bargaining power and sharing risks. 2. Access alliances - partners provide needed capabilities (e.g. distribution outlets or licenses to brands) 3. Complementary alliances - bringing together complementary strengths to offset the other partner's weaknesses. 4. Collusive alliances - to increase market power. Usually kept secret to evade competition regulations.

Mergers and acquisitions

A merger is the combination of two previously separate organizations, typically as more or less equal partners. An acquisition involves one firm taking over the ownership ('equity') of another, hence the alternative term 'takeover'. Strategic motives can be categorized in three ways: 1. Extension - of scope in terms of geography, products or markets. 2. Consolidation -increasing scale, efficiency and market power. 3. Capabilities - enhancing technological know-how (or other competences). There are three main financial motives: 1. Financial efficiency - a company with a strong balance sheet (cash rich) may acquire/merge with a company with a weak balance sheet (high debt). 2. Tax efficiency - reducing the combined tax burden. 3. Asset stripping or unbundling - selling off bits of the acquired company to maximise asset values. M&A may serve managerial self-interest for two reasons: 1. Personal ambition -financial incentives tied to short-term growth or share-price targets; boosting personal reputations; giving friends and colleagues greater responsibility or better jobs. 2. Bandwagon effects - managers may be branded as conservative if they don't follow a M&A trend; shareholder pressure to merge or acquire; the company may itself become a takeover target.

Competitive strategy

concerned with how a company, business unit or organisation achieves competitive advantage in its domain of activity. competitive advantage is about how a company, business unit or organisation creates value for its users which is both greater than the costs of supplying them and superior to that of rivals

Technology development.

All value activities have a 'technology', even if it is just knowhow. Technologies may be concerned directly with a product (e.g. R&D, product design) or with processes (e.g. process development) or with a particular resource (e.g. raw materials improvements).

Integration in M&A

Approaches to integration: 1. Absorption -strong strategic interdependence and little need for organizational autonomy. Rapid adjustment of the acquired company's strategies, culture and systems. 2. Preservation-little interdependence and a high need for autonomy. Old strategies, cultures and systems can be continued much as before. 3. Symbiosis-strong strategic interdependence, but a high need for autonomy. Both the acquired firm and acquiring firm learn and adopt the best qualities from each other. 4. Intensive Care-a residual category - with little to gain by integration. The acquisition will be 'held' temporarily before being sold on, so the acquired unit is left largely alone.

Market Characteristics

At least four elements of the PESTAL framework are particularly important to comparing countries for entry: Political Economic Social Legal

The bargaining power of buyers

Buyers are the organization's immediate customers, not necessarily the ultimate consumers. If buyers are powerful, then they can demand cheap prices or product / service improvements to reduce profits.Buyer power is likely to be high when: 1. Buyers are concentrated 2. Buyers have low switching costs 3. Buyers can supply their own inputs (backward vertical integration)

Business strategy

Choices about business positioning relative to competitors A strategic business unit (SBU) supplies goods or services for a distinct domain of activity

Strategic directions

Choices of products, industries and markets to pursue

Competitive rivalry

Competitive rivals are organizations with similar products and services aimed at the same customer group and are direct competitors in the same industry/market (they are distinct from substitutes).The degree of rivalry is increased when : 1. Competitors are of roughly equal size 2. Competitors are aggressive in seeking leadership 3. The market is mature or declining 4. There are high fixed costs 5. The exit barriers are high 6. There is a low level of differentiation

Conglomerate diversification

Conglomerate (unrelated) diversification takes the organization beyond both its existing markets and its existing products and radically increases the organization's scope. Exploiting economies of scope -efficiency gains through applying the organization's existing resources or competences to new markets or services. Stretching corporate management competences. Exploiting superior internal processes. Increasing market power

Corporate entrepreneurship

Corporate entrepreneurship refers to radical change in the organization's business, driven principally by the organization's own capabilities.For example, Amazon'sdevelopment of Kindle using its own in house development .

Disruptive innovation

Disruptive innovation creates substantial growth by offering a new performance trajectory that, even if initially inferior to the performance of existing technologies, has the potential to become markedly superior. Incumbents can follow two policies to help keep them responsive to potentially disruptive innovations: 1. Develop a portfolio of real options (limited investments that keep opportunities open for the future);2. Develop new venture units - small, innovative businesses with relative autonomy. 3. Intrapreneurship—performing entrepreneurial activities within a large organization. pg. 329

Diversification

Diversification involves increasing the range of products or markets served by an organisation. Diversification Drivers 1. Economies of scope-efficiency 2. Gains applying existing resources to new markets or products 3. Synergies-activities and assets complement each other

Comparing acquisitions, alliances and organic development

Four key factors in choosing the method of strategy development : 1•Urgency - internal development may be too slow, alliances can accelerate the process but acquisitions are quickest. 2•Uncertainty - an alliance means risks are shared and thus a failure does not mean the full cost is lost. 3•Type of capabilities - acquisitions work best with 'hard' resources (e.g. production units) rather than 'soft' resources (e.g. people). Culture clash is the big issue. 4•Modularity of capabilities - if the needed capabilities can be clearly separated from the rest of the organization an alliance may be best.

External Environment(Organization's means of survival)

Frameworks PESTEL Porter's five forces Threat of entry Threat of substitution Power of buyers Power of suppliers Competitive rivalry Industry life cycle grid

market development

Market development refers to a strategy by which an organization offers existing products to new markets may also entail some product development (e.g. new styling or packaging); can take the form of attracting new users (e.g. extending the use of aluminium to the automobile industry); can take the form of new geographies (e.g. extending the market covered to new areas - international markets being the most important); must meet the critical success factors of the new market if it is to succeed; may require new strategic capabilities especially in marketing.

Market penetration

Market penetration refers to a strategy of increasing share of current markets with the current product range. This strategy: strategic capabilities; builds on established scope is unchanged; increased power; leads to greater market share and with buyers and suppliers; economies of scale; and provides greater and experience curve benefits.

Functional strategies

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, Tesla continues to raise external finance to fund its rapid growth: its functional strategy is partly geared to meeting investment needs.

Strategic capabilities

Resources & competencies in organization that can provide competitive advantage & superior performance of an organization. Resources- assets (what we have) Competencies- how we use them (what we do well) Dynamic capacities- are those that change over time to meet changes in environment. Can become "rigidities"

Threat of Substitutes

Substitutes are products or services that offer a similar benefit to an industry's products or services, but by a different process.Customers will switch to alternatives (and thus the threat increases) if: •The price/performance ratio of the substitute is superior (e.g. aluminium maybe more expensive than steel but it is more cost efficient for some car parts) •The substitute benefits from an innovation that improves customer satisfaction (e.g. high speed trains can be quicker than airlines from city centre to city centre)

strategic position

concerned with the impact on strategy of the macro-environment, the industry environment, the organisation's strategic capability (resources and competences), the organisation's stakeholders and the organisation's culture

The bargaining power of suppliers

Suppliers are those who supply what organizations need to produce the product or service. Powerful suppliers can eat into an organization's profits. Supplier power is likely to be high when: The suppliers are concentrated (few of them). Suppliers provide a specialist or rare input. Switching costs are high (it is disruptive or expensive to change suppliers). Suppliers can integrate forwards (e.g. low cost airlines have cut out the use of travel agents).

Horizon 1

Horizon 1 businesses are basically the current core activities. In the case of Tesla Motors, Horizon 1 includes the original Tesla Roadster car and subsequent models. Horizon 1 businesses need defending and extending, but the expectation is that in the long term they will likely be flat or declining in terms of profits (or whatever else the organisation values). Horizon 1> defend and extend core business

Horizon 2

Horizon 2 businesses are emerging activities that should provide new sources of profit. For Tesla, that might include the new mega-battery business. Horizon 2> build emerging business

Horizon 3

Horizon 3 possibilities, for which nothing is sure. These are typically risky research and development (R&D) projects, start-up ventures, test-market pilots or similar. Horizon 3> create viable options

Strategic Choices

How organizations relate to competitors in terms of their competitive business strategies for growth. How broad and diverse organizations should be in terms of their corporate portfolios. How far organizations should extend themselves internationally. How organizations create and innovate. How to build an organization—build, borrow or buy resources.

Strategy methods

How to pursue strategies: organic, acquisition or alliance

Disruptive innovation

Incumbents can follow two policies to help keep them responsive to potentially disruptive innovations: 1. Develop a portfolio of real options (limited investments that keep opportunities open for the future); 2. Develop new venture units - small, innovative businesses with relative autonomy.

Strategic Capabilities

Organizational knowledge is the collective intelligence, specific to an organization. Value chain describes the categories of activities within an organization which, together, create a product or service—if part of larger value network inter-organization links and relationships can be important to competitive advantage.

Procurement

Processes that occur in many parts of the organisation for acquiring the various resource inputs to the primary activities. These can be vitally important in achieving scale advantages. So, for example, many large consumer goods companies with multiple businesses nonetheless procure advertising centrally

Product development

Product development refers to a strategy by which an organization delivers modified or new products to existing markets. This strategy : involves varying degrees of related diversification (in terms of products); can be an expensive and high risk may require new strategic capabilities typically involves project management risks.

Infrastructure

The formal systems of planning, finance, quality control, information management and the structure of an organisation.

Layers of the business environment

The macro-environment The industry, or sector Specific competitors and markets The organization

Equity alliances

The most common form of equity alliance is the joint venture, where two organizations remain independent but set up a new organization jointly owned by the parents.

The Threat of Entry & Barriers to Entry

The threat of entry is low when the barriers to entry are high and vice versa.•The main barriers to entry are:1. Economies of scale/high fixed costs 2. Experience and learning 3. Access to supply and distribution channels 4. Differentiation and market penetration costs 5. Government restrictions (e.g. licensing) •Entrants must also consider the expected retaliation from organizations already in the market

Three horizons framework

The three-horizons framework suggests organisations should think of themselves as comprising three types of business or activity, defined by their 'horizons' in terms of years.

corporate-level strategy

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. For Tesla, moving from car manufacture to battery production for homes and businesses is a corporate-level strategy.

The macro-environment

consists of broad environmental factors that impact to a greater or lesser extent many organisations, industries and sectors.

Human resource management

This transcends all primary activities and is concerned with recruiting, managing, training, developing and rewarding people within the organisation.

Strategic Capabilities

Threshold capabilities- are those needed for an organization to meet the necessary requirements to compete in a given market and achieve parity with competitors in that market—will change as critical success factors change. Core competences- emphasize the linked set of skills, activities and resources that, together, deliver customer value, differentiate a business from its competitors.

Hypercompetition

describes markets with continuous disequilibrium and change e.g. popular music or consumer electronics. Successful hypercompetition demands speed and initiative rather than defensiveness.

Value chain

describes the categories of activities within an organisation which, together, create a product or service. Most organisations are also part of a wider value system, the set of inter-organisational links and relationships that are necessary to create a product or service.

Five Forces Framework

helps to analyse an industry and identify the attractiveness of it in terms of five competitive forces:

M&A 2

Two main criteria apply: 1, Strategic fit - does the target firm strengthen or complement the acquiring firm's strategy? (N.B. It is easy to over-estimate this potential synergy). 2. Organizational fit - is there a match between the management practices, cultural practices and staff characteristics of the target and the acquiring firm? Valuation in M&A Getting the offer price correct is essential: 1. Offer the target too little, and the bid will be unsuccessful. 2. Pay too much and the acquisition is unlikely to make a profit net of the original acquisition price. ('the winner's curse'). 3. Acquirers do not simply pay the current market value of the target, but also pay a 'premium for control'.

Strategic alliance processes

Two themes are vital to success in alliances: 1. Co-evolution - the need for flexibility and change as the environment, competition and strategies of the partners evolve. 2. Trust - partners need to behave in a trustworthy fashion throughout the alliance.

VRIN

Value- Do the capabilities exist that are valued by customers and provide potential competitive advantage? Rare-Do the capabilities exist that no (of few) competitors possess?Inimitability- Are capabilities difficult for competitors to market? Organizational- Is the organization structured so that it can take advantage of this strength? NEED ALL FOUR FOR COMPETITIVE ADVANTAGE

Ansoff's product/market growth matrix

a classic corporate strategy framework for generating four basic directions for organisational growth.

Market segments

a group of customers who have similar needs that are different from customer needs in other parts of the market.

Corporate Governance

a systems which holds managers accountable to those who have an interest and stakes in the organization. concerned with the structures and systems of control by which managers are held accountable to those who have a legitimate stake in an organisation.

strategy in action

about how strategies are formed and how they are implemented.

Business-level strategy

about how the individual businesses should compete in their particular markets Business-level strategy typically concerns issues such as innovation, appropriate scale and response to competitors' moves. For Tesla this means rolling out a lower cost electric car to build volume and capture market share in advance of potential competitor entry.

Inbound logistics

activities concerned with receiving, storing and distributing inputs to the product or service including materials handling, stock control, transport, etc.

Culture

basic assumptions and beliefs shared by members of an organization.

Outbound logistics

collect, store and distribute the product or service to customers; for example, warehousing, materials handling, distribution, etc.

hybrid strategy

combines different generic strategies. For example, American Southwest Airlines pursues a low-cost strategy with their budget and no-frills offering. However, its brand also signals differentiation based on convenience including frequent departures and friendly service.

Stakeholder mapping

identifies stakeholder power and attention in order to understand political priorities. power is the ability of individuals or groups to persuade, induce or coerce others into following certain courses of action. In assessing the attention that stakeholders are likely to pay, three factors are particularly important: Criticality Channels Cognitive capacity

specific competitors and markets

immediately surrounding organisations. For a company like Nissan, this layer would include competitors such as Ford and Volkswagen; for a hospital, it would include similar facilities and particular groups of patients.

Service

includes those activities that enhance or maintain the value of a product or service, such as installation, repair, training and spares.

Red Oceans

industries are already well defined and rivalry is intense.

Strategic choices

involve the options for strategy in terms of both the directions in which strategy might move and the methods by which strategy might be pursued

Related diversification

involves expanding into products or services with relationships to the existing business. conglomerate (unrelated) diversification involves diversifying into products or services with no relationships to existing businesses.

The industry, or sector

makes up the next layer within this broad macro-environment. This layer consists of organisations producing the same sorts of products or services, for example the automobile industry or the healthcare sector.

Blue Oceans

new market spaces where competition is minimised Blue Ocean thinking encourages entrepreneurs and managers to be different by finding or creating market spaces that are not currently being served.

Organic Development

organic development is where a strategy is pursued by building on and developing an organization's own capabilities. This is essentially the 'do it yourself' method. Advantages of organic development 1. Knowledge and learning can be enhanced. 2. Spreading investment over time - easier to finance. 3. No availability constraints - no need to search for suitable partners or acquisition targets. 4. Strategic independence - less need to make compromises or accept strategic constraints. 5. Culture management- reduces risk of culture clash. Disadvantages of Organic Development Slow May require "big" leap in strategic capabilities

Strategic groups

organisations within the same industry or sector with similar strategic characteristics, following similar strategies or competing on similar bases.

Strategic directions and corporate-level strategy

p.243 Scope is concerned with how far an organisation should be diversified in terms of two different dimensions: products and markets. The value-adding effect of head office to individual SBUs, that make up the organisation's portfolio, is termed parenting advantage.

Yip's globalisation framework International drivers

pg. 280 Yip's globalisation framework sees international strategy potential as determined by market drivers, cost drivers, government drivers and competitive drivers

Locational advantage: Porter's Diamond

pg. 282 Porter's Diamond suggests that locational advantages may stem from local factor conditions; local demand conditions; local related and supporting industries; and from local firm strategy, industry structure and rivalry. Porter's Diamond - explains why some locations tend to produce firms with sustained competitive advantages in some industries more than others. The four drivers in Porter's Diamond stem from: local factor conditions local demand conditions local related and supporting industries local firm strategy structure and rivalry.

Modes of International Market Entry

pg. 295 The staged international expansion model proposes a sequential process whereby companies gradually increase their commitment to newly entered markets, as they build knowledge and capabilities. Export: low cost and risks; disadvantages: transportation costs and possibility that products can be manufactured cheaper locally. Licensing or franchising: involves a contractual agreement whereby a local firm receives the right to exploit a product technology or a service concept commercially for a fee during a specific time period. The main disadvantage with this entry mode is potential lack of control over technologies and product and service quality with an apparent risk of technological leakage and poor quality. Joint ventures: are jointly owned companies where the international investor shares assets, equity and risk with a local partner. Advantages: financial and political risks are also reduced.Another advantage is the ability to build on the local partner's knowledge of customer needs and local institutions. Disadvantages: the risk of losing control over technologies to the partner; disagreements and conflicts between the partners Wholly owned subsidiaries involve 100 per cent control through setting up entirely new greenfield operations or by acquiring a local firm. Advantage: giving the company strong control over technologies, operations, sales and financial results. It also allows for exploiting production and coordination economies among diverse units globally. Disadvantage: substantial commitment of resources and costs and also significant risks; eg: acquisition

Marketing and sales

provide the means whereby consumers or users are made aware of the product or service and are able to purchase it. This includes sales administration, advertising and selling.

Interactive price and quality strategies

shows different organisations competing by emphasising either low prices or high quality or some mixture of the two. Graph (i) starts with a 'first value line', describing various trade-offs in terms of price and perceived quality that are acceptable to customers. The cost-leading firm (here L) offers relatively poor perceived quality, but customers accept this because of the lower price. The differentiator (D) has a higher price, but much better quality. There are a range of perfectly acceptable combinations, with the mid-point firm (M) offering a combination of reasonable prices and reasonable quality. graph (i) of Figure 7.6, the differentiator (D) makes an aggressive move by substantially improving its perceived quality while holding its prices. This improvement in quality shifts customer expectations of quality right across the market. These changed expectations are reflected by the new, second value line (in green). With the second value line, even the cost-leader (L) may have to make some improvement to quality, or accept a small price cut. But the greatest threat is for the mid-point competitor, M. To catch up with the second value line, M must respond either by making a substantial improvement in quality while holding prices, or by slashing prices, or by some combination of the two. mid-point competitor M also has the option of an aggressive counter-attack. Given the necessary capabilities, M might choose to push the value line still further outwards, wrong-footing differentiator D by creating a third value line that is even more demanding in terms of the price-perceived quality trade-off. The starting point in graph (ii) of Figure 7.6 is all three competitors L, M and D successfully reaching the second value line (uncompetitive U has disappeared). However, M's next move is to go beyond the second value line by making radical cuts in price while sustaining its new level of perceived quality. Again, customer expectations are changed and a third value line (in red) is established. Now it is differentiator D that is at most risk of being left behind, and it faces hard choices about how to respond in terms of price and quality.

Strategic drift

tendency for strategies to develop incrementally on the basis of historical and cultural influences. Anchor points in history (significant events) may have long-term impact on organizations.

Critical Success Factors (CSFs)

those factors that either are particularly valued by customers (i.e. strategic customers) or provide a significant advantage in terms of cost. Critical success factors are therefore likely to be an important source of competitive advantage or disadvantage. Different industries and markets will have different critical success factors (e.g. in low cost airlines the CSFs will be punctuality and value for money whereas in full service airlines it is all about quality of service).

stakeholders

those individuals or groups that depend on an organisation to fulfil their own goals and on whom, in turn, the organisation depends. These stakeholders can be very diverse, including owners, customers, suppliers, employees and local communities

Operations

transform these inputs into the final product or service: machining, packaging, assembly, testing, etc.