Strategic management 1,2,4,5,7.

What is strategy?

"Corporate strategy is the pattern of major objectives, purposes or goals... and essential policies or plans for achieving these goals ....stated in such a way as to define what business the company is in and...the kind of company it is or is to be" - Strategy is the overall plan...to deploy resources...to achieve a favourable position - Are important, the 'bigger picture' - Involve significant resources

The SAFe criteria

*SAFe*: Success criteria for evaluating strategic options *Suitability*: •Does the strategy address the key opportunities and constraints? *Acceptability*: •Does the strategy meet stake holder expectations? •Is the level risk acceptable? •Is the likely return acceptable? *Feasibility*: •Would it work in practice? •Can it be financed? •Do the people and skills exist or can they be obtained? •Can the resources be obtained and integrated?

What are the strategic options available to the firm? What is this group of models called?

*The x6 Framework* of models 1. Environment-based (External) strategies •*Porters generic strategies* - Strategies for competitive advantage: -Cost leadership -Differentiation -Focus • *Ansoff Matrix* - Strategies for market growth - -Market penetration -Market development -Product development -Diversification •*Expansion strategies* 2. Resource based (Internal) strategies • *Value chain*: Support activities, primary activities. Can value be added upstream or downstream. • *Capabilities + value chain*: Where can value be added? • *Cost reduction strategies*: Implementing Value chain (essential part of the cost leadership strategy)

Give a in depth analysis of the Resource-based (internal) Strategies

*Value chain*: With aid of value chain identify the support activities (Horizontal)and the primary activities (Vertical) within an organization . Evaluate this in order to identify where value can be added •Upstream -Component purchasing (standardise across range, reduce no. of suppliers, global sourcing) -Process improvements •Downstream -Distribution changes -Search for differentiation (e.g. on-line vs physical outlets) -Outsourcing (secondary activities) *Resources/competencies- Strategic capabilities * 1. Identify the firm's core resources and capabilities and identify the activities these provide value to. 2. Explore the linkages between resources and capabilities 3. Appraise the firm's resources and capabilities in terms of: (a) strategic importance VRIN (b) relative strength 4. Develop strategy implications: (a) In relation to strengths (b) In relation to weaknesses- Develop strategies? Internal development/external sourcing *Cost reduction Strategies* VALUE CHAIN 1.Identify the firm's principal activities 2.Allocate total costs across the principal activities 3.Identify the cost drivers (what these costs depend on) 4.Identify linkages: The costs of one activity may be determined in part by the way that other activities are performed 5.Recommendations for cost reductions

Which is the framework for analyzing resources and capabilities? 4

1. Identify the firm's core resources and capabilities and identify the activities these provide value to. 2. Explore the linkages between resources and capabilities 3. Appraise the firm's resources and capabilities in terms of: (a) strategic importance (b) relative strength 4. Develop strategy implications: (a) In relation to strengths--How can these be exploited more effectively and fully? (b) In relation to weaknesses --Identify opportunities to outsourcing activities that can be better performed by other organizations. --How can weaknesses be corrected through acquiring and developing resources and capabilities?

Which are the two tools for the analysis of the external environment? Describe them

1. PESTEL analysis is a framework or tool used by marketers to analyze and monitor the macro-environmental (external marketing environment) factors that have an impact on an organization. •Political •Economic (macro) -stage of economic cycle -major macro-economic factors: Inflation, exchange rates. •Socio-Cultural analysis -Cultural distance •Technological -Potential for cost and value added innovation •Environmental •Legal 2. Swot analysis: Opportunities and Threats facing all firms in an industry sector.

Which are the 3 core stages of strategic planing?

1. Strategic analysis - Profiling the business - External & internal environment - Organisational purpose - Competitive environment 2. Strategy development - Generation of strategic options - Evaluation & ranking of options - Choice of strategy 3. Strategy implementation

Which are the 3 different types of resources (+ their subtypes)

1. Tangible assets: • Financial: Borrowing capacity •Physical 2.Intangible assets: • Technological: Patents, intellectual property, knowhow • Reputation: Brands, customer loyalty 3. Human resources: Training, experience, loyalty of employees.

What does Internal analysis underlie, which models are useful?

Analyzing the resources and capabilities of a firm •Resource based view • Value chain

Illustrate the features of cost leadership and differentiation strategies

COST LEADERSHIP •Key strategy elements: -Scale efficient plants -Control overheads (additional costs) and R&D. •Resources and Organisational requirements: -Access to capital -Process engineering skills -Tight costs control DIFFERENTIATION •Key strategy elements: -Emphasis on branding and brand advertising, design, service and quality •Resources and Organisational requirements: -Marketing -Creative product engineering -Product R&D -Strong cross-functional coordination

Which are the two methods of strategic capability development available to firms? What may cause firms to choose one over another? - Who conducted the study that demonstrated this?

Capron: "How firms change: Internal development versus external capability sourcing" *Internal Development*: Changes that a firm undertakes by recombining its existing resources or developing new resources on its own. E.g. •Internal training •Internal product development •Building new plants Firms tend to develop capabilities internally when they face: •High contractual hazards (intelligence leakage), •Small capability gaps •High internal legitimacy (degree to which a capability will fit with a firm's existing) institutions). *External Sourcing*: Gaining strategic capabilities that stem from external sources. 3 options: •Purchase of a resource or service from the firm that possesses it. •Collaborate ventures that transfer skills and organizational routines. •Acquisition of firms (entire or partial) in which the resource resides. Firms tend to source capabilities externally when they face: •Low contractual hazards •Large capability gaps •Low internal legitimacy

What is competitive advantage, how does it emerge?

Competitive advantage: A set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition. Changes that generate competitive advantage can be either internal or external: •External sources of change: For an external change to create a competitive advantage, the change must have differential effects on the companies because of their different resources and capabilities or strategic positioning. This highly depends of firm's ability to respond to change •Internal sources of change: Creating competitive advantage through innovation. In some cases, in which whole new markets are created - this is the purest form of blue-ocean strategy

Define Competitive advantage. What are KSFs ? How does one identify them?

Competitive advantage: Doing something that the customer values but.... doing it better than competitors Key Success factors - Sources of competitive advantage: 'resources, skills and capabilities of companies (in an industry) ...that are essential to deliver success.... profitably' (Also called Critical success factors CSFs) Identifying KSFs: 1. What is the Basis of Competition (BoC) - What is in the mind of customers in choosing between you & your competitors? 2. Given the BoC, what do you (and your competitors) have to do to be successful?

What is Hamel & Prahalad description of a firm's"core competences" in 'The core competence of the corporation'?

Core competences are the linked set of skills, activities and resources that, together: •deliver customer value •differentiate a business from its competitors •potentially, can be extended and developed as markets change or new opportunities arise. - Core competence = Strategic capability that grants a competitive advantage to a firm

What's the difference between corporate and business strategy?

Corporate strategy: Industry attractiveness • Which business should we be in? •Where do we compete? •'Big' decisions: -Diversification (new products and markets) -Vertical integration (expanding the range of activities) -Acquisitions -New ventures -Or maybe... SBU (Entry/Exit) Business strategy: Establishing competitive advantage •How should we compete within a particular industry or market?

Describe the cost leadership strategy

Cost-leadership strategy involves becoming the lowest-cost organisation in a domain of activity. •Finding and exploiting all sources of cost advantage and selling a standard no-frills (without unnecessary extras) product. •Traditionally about deriving economies of scale and scope through in investment in mass production and mass distribution •More recently extended to out-sourcing, off-shoring, process re-engineering, lean production, organisational delayering, etc.

In what dimensions can this differentiation occur? What does the sum of these differentiation's equate to?

Differentiation can occur in 2 dimensions: 1) Tangible: Product characteristics, including performance attributes and packaging 2) Intangible: Unobservable and subjective characteristics that appeal to customer's image, status, identity and desire for exclusivity These determine the total customer responsiveness - Thus differentiation embraces no only the product, but the whole relationship between the supplier and the customer

What is differentiation's relationship to segmentation?

Differentiation does not necessarily imply segmentation, it depends upon the differentiation strategy: •Broad scope differentiation = appealing to what is common between different customers (e.g. McDonalds, Honda, Gillette) •Focused differentiation = appealing to what distinguishes different segments of customers (e.g. Harley-Davidson)

Which is the basis of Differentiation strategies for competitive advantage?

Differentiation: "Providing something unique that is valuable to the buyer beyond simply offering a low price." (M. Porter) •Involves uniqueness along some dimension that is sufficiently valued by customers to allow a price premium. •Encompasses everything about a product or service that influences the value that the customer derives from it. •Includes every aspect of the way in which a company relates to its customers (e.g. the 'Starbucks Experience'). •Differentiation is a more secure basis for competitive advantage than low cost, which is more vulnerable to imitation

Describe Ansoff Matrix, what are the framework parameters? Describe the benefits for each proposed strategy

Environment-based strategy for growth: a framework to help executives, senior managers, and marketers devise strategies for future growth Parameters: Products & Services - Existing, New; Market - Existing,New •Market penetration (Existing products & services/Existing markets): grow using its existing offerings in existing markets, by increased promotion and distribution. May involve *Cost leadership* strategy. *Economies of scale benefits* •Market development (Existing products & services/New markets): offers existing products to new markets - Adaptation of existing products may be necessary. *Economies of scope benefits* •Product development (New products & services/Existing markets): Delivery of modified or new products to existing markets. May involve *Differentiation* •Diversification (New products & services/New markets): Takes the organisation beyond both its existing markets and its existing products and radically increases the organisation's scope. *Economies of scope benefits* . *Blue ocean strategy if new market is created*

Which are the levels of strategy?

Levels of strategy • Corporate strategies: -Strategies for the whole business • Strategic Business Unit (SBU) • Functional - - Depends on organisational structure, for example: Marketing; Production; HR; IT.

Environment based strategies: Porter's generic strategies - Narrow focus (already discussed cost leadership and differentiation)

Narrow Focus (Niche/segmentation strategies) •Focus on narrow sectors (niches) - Niche = customer segment with differentiated needs •Seek competitive advantage in this -possibly too small for larger players to bother (e.g. Morgan Cars, Ferrari) Either: •Differentiation focus:Premium position (high price) •Cost Focus: low cost (& cheap) Porter: Rarely pays to be in the middle! - Blue ocean?

What model describes how a company pursues competitive advantage across its market scope?

Porter's Generic strategies: There are three/four generic strategies, either lower cost, differentiated, or focus (segmentation strategy)

Which is the key tool for the analysis of the competitive environment?

Porters 5 forces The state of competition depends upon 5 basic competitive forces. Together these factors determine the competition intensity and thus attractiveness of an industry. Attractiveness in this context refers to the overall industry profitability. Higher factor (which may also mean more competitiveness) = Less attractive •Threat of established rivals - Intensity of rivalry between existing competitors depends on: -Rate of market growth: Slower growth = greater rivalry -Degree of product/service differentiation: Greater differentiation= Less intensity -Concentration within the industry: Equal sized competitors will lead to more intense rivalry •Bargaining power of suppliers - Higher when: -Supply is dominated by few companies -Products are unique •Bargaining power of buyers - Higher when: -Buyers are concentrated and/or purchase in large volumes. -Products they purchase are standard of undifferentiated - Many suppliers of the product •Threat of substitutes: The presence of substitutes can reduce industry attractiveness and profitability because they put a constrain on price levels. Determinant factors -Buyers willingness to substitute -The relative price and performance of substitutes - Cost of switching •Threat of new entrants: New entrants= more competition. Threat of new entrants is largely a function to entry barriers to the market: •Economies of scale •Product differentiation and brand identity - which give existing firms customer loyalty •Access to distribution channels

BCG Growth Matrix + Dimensions

Portfolio planning model that Evaluates Business units and product lines, where they stand, where they are moving *Parameters: Market growth, Market share* •A star is a business unit which has a high market share in a growing market. -high growth sector, high market share -investing strongly to build market share (which results in neutral cash -but high share means cash generation -overall: neutral cash generation •A question mark (or problem child) is a business unit in a growing market, but it does not have a high market share. -high growth sector, low market share -not yet in dominant market position, investing to improve position -Maybe can be converted into star, but some doubt? •A cash cow is a business unit that has a high market share in a mature market. -low growth sector (probably mature), high market share -strong cash generators (on back of heavy investment earlier in cycle) -use cash to reinvest in Stars & selectively in Question Marks •A dog is a business unit that has a low market share in a static or declining market. -low growth sector, low market share -> going nowhere; too late to invest -low profits & low capex: cash neutral -Divest? (phased withdrawal, sell off)

The basic GE-McKinsey Directional Policy Matrix + Dimensions

Portfolio planning model that Evaluates Business units and product lines, where they stand, where they are moving *Similar to BCG growth matrix but has multifactorial dimensions* *Dimensions*: •Industry attractiveness: -Market size -Market growth -Industry profitability -etc. •Business unit position: -Market share -Competitive position -Relative profitability

Ashridge Parenting Matrix + Dimensions

Portfolio planning model that evaluates the attractiveness of potential acquisition target or existing business to the parent *Dimensions: (Parents) Ability to add value; (Parents) Opportunities to provide value* •Heartland business units (High A; High O) - the parent understands these well and can add value. The core of future strategy. •Ballast business units (High A; Low O)- the parent understands these well but can do little for them. They could be just as successful as independent companies. If not divested, they should be spared corporate bureaucracy. •Value-trap business units (Low A; High O) are dangerous. There are attractive opportunities to add value but the parent's lack of feel will result in more harm than good. The parent needs new capabilities to move value-trap businesses into the heartland. It is easier to divest to another corporate parent which could add value. •Alien business units (Low A; Low O) are misfits. They offer little opportunity to add value and the parent does not understand them. Exit is the best strategy.

What is the resource-based strategy? How may it trump market focus strategies?

Resource based View (RBV): Asserts that a the competitive advantage of a firm lies in the application (Capability to apply) of valuable tangible and intangible resources at its disposal. - When the external environment is subject to rapid change, internal resources and capabilities offer a more secure basis for strategy than market focus - The RBV golds that each firm possesses a unique collection of resources and capabilities and that the key to profitability is doing things differently, using a strategy that exploits the firm's unique qualities

What are resources and capabilities (aka competences)?

Resources are the assets that organisations have, or can call upon from partners or suppliers -" WHAT WE HAVE" Capabilities (or competences) are the ways those assets are used or deployed effectively. Core competencies are the collective learning in the organisation, especially how to co-ordinate diverse production skills and integrate multiple streams of technologies -"WHAT WE DO WELL"

Which are the two ways a firm can achieve a higher rate of profit (competitive advantage) over a rival?

Sources of competitive advantage: •Cost advantage: Similar product at lower cost •Differentiation advantage: Price premium from unique product.

When it comes to resource and capabilities, what is strategy concerned with?

Strategy is concerned with matching a firm's resources and capabilities to the opportunities that arise in the external environment

What are drivers of cost advantage? - Illustrate the 7 drivers of cost advantage

The seven principal determinants of a firm's unit costs relative to its competitors (i.e. its cost position), which managers can improve upon examination. Cost drivers: PRICPEE •Production techniques •Residual efficiency. •Input costs •Capacity utilization •Product design •Economies of scale •Economies of learning: Experience curve

Which framework can be used to analyse cost? Which is the 5 step process?

VALUE CHAIN 1.Identify the firm's principal activities 2.Allocate total costs across the principal activities 3.Identify the cost drivers (what these costs depend on) 4.Identify linkages: The costs of one activity may be determined in part by the way that other activities are performed 5.Recommendations for cost reductions •Identify opportunities for reducing costs •Areas of comparative inefficiency? •Can volumes be increased to release scale efficiencies? •Can productivity be improved, relocated or outsourced? •Purchasing •Use fewer suppliers to increase volumes? •Use JIT component supply systems? •R&D Design •Fewer models and fewer changes? •Components •Seek economies of scale? •Out-source production if volumes are sub-optimal?

Sustainability of competitive advantage is likely to depend on an organisation's capabilities/resources being of at least threshold value in a market but also being .....

Valuable: A resource/capabillity must enable a firm to employ a value-creating strategy, by either outperforming its competitors or reduce its own weaknesses. Moreover if they: •Take advantage of opportunities and neurealize threats •Provide value to customers •Provide competitive advantage Rare: To be valuable resources/capabilities must be rare by definition (a few others only) In-imitable: • If a valuable resource/capabillity is controlled by only one firm it could be a source of a competitive advantage •This advantage could be sustainable if competitors are not able to duplicate this strategic asset perfectly Non-sustitutability: Competitive advantage may not be sustainable if there is a threat of substitution

Corporate strategies: Illustrate the Portfolio planing tools/models

• BCG Growth- Share matrix (vacagay): Evaluates Business units and product lines, where they stand, where they are moving •Ge-McKinsey Directional policy matrix: BCG with multifactorial dimensions • Ashridge Parenting matrix: evaluates the attractiveness of potential acquisition target or existing business to the parent

What are the uses of the value chain?

•A generic description of activities understanding the discrete activities and how they both contribute to consumer benefit and how they add to cost. •Identifying activities where the organisation has particular strengths or weaknesses •Analysing the competitive position of the organisation using the VRIN criteria - thus identifying sources of sustainable advantage. •Looking for ways to enhance value or decrease cost in value activities (e.g. outsourcing)

Which are the two approaches to identifying, classifying and dis-aggregating a firm's capabilities

•Functional analysis - Identifying capabilities within each of the firm's functional areas •Porters generic Value chain analysis - providing a detailed identification of the firm's activities and the capabilities that correspond to them -The value chain describes the categories of activities within an organisation which, together, create a product or service. -The value chain invites the strategist to think of an organisation in terms of sets of activities - sources of competitive advantage can be analysed in any or all of these activities.

Give 2 examples of capabilities being a foundation for a firms strategy and success

•Honda motor company: Became the worlds biggest motorcycle producer and leading supplier of automobiles as a result of it's Strategy built around its expertise in the development and manufacture of engines. •Canon: After its success producing cameras, used its technological capabilities in: precision mechanics, microelectronics and fine optics to develop fax machines, calculators, copy machines, and many other products.

Industry analysis - Competitive advantage: Which are the determinants of industry profitability?

•Profits for a firm are determined by: -The value of products to customers (i.e. how much they will pay) -Competitive intensity /rivalry -Bargaining power of producers relative to their: >Suppliers >Buyers (customers) -Structure of the industry

The selection of strategies: What have we done so far? What do we need to do now? Which is the key criteria for this step?

•So far we have: -identified strategic options (assuming no constraints) -used one or more portfolio planning models as 'aids to decision-making' •Now we need to: - employ success criteria for evaluating the options: SAFe Criteria -review outcomes against financial objectives and aspirations -consider if any gaps can be filled by other means e.g. M&A, alliances, licencing?

What are strategic capabilities

•Strategic capabilities= Resources + Capabilities/competences (Capabilities=Competences)

What is key to successful differentiation? What model can be implemented to achieve this?

•The key to successful differentiation is matching the firm's capacity for creating differentiation to the attributes that customers value the most. • The value chain can be used to identify potential drivers for uniqueness. Here one identifies the firms primary and secondary activities to assess the firm's capacity for creating differentiation to the attributes that customers value most.

Key environmental (external) questions

•What environmental questions are affecting the organization? •What is the nature of the environment? How is it changing? •What is the competitive structure of an industry? How is it likely to change? •What are likely to be key factors for success?