Business Strategy Hnd 2nd
Transcript of Business Strategy Hnd 2nd
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HND
BUSINESS STRATEGY
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Functional Strategies
Functional strategies or operationalstrategies are goal oriented plans andactions of the functional areas of anorganization, they include:
Production-Operations Marketing
Research & Development
Human Resources Financial-Accounting
Information Technology & Support
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Competitive Strategies
Competitive strategies or businessstrategies are goal directed plans andactions concerned with how an organization
competes in a specific business or industry Looks at all aspects of strategies and actions
Seeks to determine what the company
currently can do and what it wants to do Focus is on how it might more effectively
compete
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CORPORATE STRATEGY
Corporate strategies are goal directedplans and actions that are concerned withwhat business or businesses a firm wants
to be in and what to do with thosebusinesses; for example
FedExs decision to acquire Kinko's
PepsiCos decision to spin off their fast-fooddivision
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STRATEGYIMPLEMENTATION
It is not enough to formulate greatstrategies, they must be implemented
Strategy implementation is putting the various
stages of strategies into action
How a strategy is implemented must beconsidered
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Competitive Advantage
The key to strategic management, the challenge
is getting and keeping competitive advantage It is about doing something others cannot or doing it
better (distinctive capability)
Or, the organization has something others do not
(unique resource) An organizations competitive strategies are
designed to exploit its competitive advantage
However, other organizations are attempting todevelop their own competitive advantage in orderto compete.
Competition is in all markets and industries
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What an External Analysis Is?
External analysis is the process of scanning andevaluating an organizations external environment It is how strategic managers evaluate the threats and
opportunities facing their organization
Opportunities Positive external trends or changes that may help an
organization improve performance
Threats
Are negative external trends or changes that mayhinder an organizations performance
Understanding the external environment isessential to creating adaptive strategies
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What an External Analysis Is?
Opportunities Positive external trends or changes that may
help an organization improve performance
ThreatsAre negative external trends or changes that
may hinder an organizations performance
Understanding the external environment isessential to creating adaptive strategies
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WHAT IS AN EXTERNAL ANALYSIS?
An external analysisis the process of scanning andevaluating an organization's external environment todetermine the opportunities and threats facing theirorganizations.
Opportunitiesare positive external trends or changesthat may help an organization improve itsperformance.
Threatsare negative external trends or changes thatmay hinder an organization's performance.
Its important to know whats happening in the external
environment so new strategies can be formulated or currentstrategies changed in response to the opportunities orthreats.
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Environmental Scanning and
External Analysis
Environmental scanning allows strategic decisionmakers to know what's happening in the externalenvironment so they can identify and anticipateenvironmental changes. This means scanning the
environment and evaluating what the various data andtrends mean to the organization.
Note that it's not enough just to know what'shappening in an organization's environmenttheinformational needs of an organization also need to beassessed. In other words, an external analysis isneeded to determine the opportunities and threats
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n rgan za on s x ernaEnvironment
General environmentrefers to those externalenvironmental sectors that indirectly affect theorganizations strategic decisions and actions and
may pose opportunities or threats (e.g., economic,
demographic, sociocultural, political-legal andtechnological sectors).
Specific environment describes those externalenvironmental sectors that directly impact the
organization's decisions and actions by opening upopportunities or threats. (e.g., customers,competitors, suppliers and other industry-competitivevariables).
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An Organizations External
Environment
Id tif i i t l
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Identifying environmentalinfluencesPESTEL
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General Environment
The general environment includes thoseexternal environmental sectors thatindirectly affect the organization's strategic
decisions and actions and may poseopportunities or threats. The five maingeneral environment sectors:
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Economic The economic sector encompasses all the
macroeconomic data (i.e., current statistics,forecasted trends and changes) that reflect whats
happening with the economy. It doesn't include theeconomic statistics of an organizations industry.
For instance, industry sales forecasts and trendsaren't part of the general economic sector. However,you would look at those statistics in evaluating theindustry and competitive environment.
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Economic The economic sector includes:
Interest rates
Exchange rates and the value of the dollar
Budget deficit or surplus
Trade deficit or surplus Inflation rates
Gross National Product (GNP) or Gross Domestic Product(GDP) levels and resulting stage of the economic cycle
Consumer income, spending and debt levelsEmployment-unemployment levels
Consumer confidence levels
Workforce productivity rates16
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Evaluating the effect on theorganization:
Look at current information as well as forecastedtrends, and determine how the change may or maynot affect your organization.
International considerations:An additional challenge is to find convenient and
reliable information.
Most critical economic information may be theinflation rates, interest rates, currency exchangerates, and consumer-income-spending-debtlevels because these tend to be the most volatile
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Demographics
The demographic sector evaluates current statistical dataand trends in population characteristics.
Gender
Age
Income levels Ethnic makeup
Education
Family composition
Geographic location
Birthrates
Employment status
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Demographics
Evaluate changes and trends, and how the trendswould affect the organization. Also consider theinteraction of these variables, e.g., What is the
trend of the geographic location of baby boomers?Will this affect marketing?
International considerations: Demographics oncurrent or target customers is relevant regardless
of location. It may be difficult to find this informationin some of the semi-industrialized countries, butindustrialized and most larger semi-industrialized
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Demographics
What the country's culture is like and is it changing?What are society's traditions, values, attitudes, beliefs,tastes, patterns of behavior and how are thesechanging?
Evaluating shifts in beliefs, opinions, values, etc. todetermine how these values may influence peoples
behavior in shop, work, family rearing, etc. (e.g., Howhas the fear of terrorism influenced buyers? What about
low carb diet fads?) International Considerations: Important to understand
each countrys culture, and try to uncover any trends or
changes within the culture.
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Political-Legal
The various laws, regulations, judicial decisions, and political
forces that are currently in effect at the federal, state, and locallevels of government. It might also include regulations enacted by professional
associations
Potential legal, regulatory, and political changes, or pending
judicial decisions that might take place and could impact yourorganization.
Evaluate the impact regulations may have on the organizationand the industry. Also consider how consumer attitudes may
change toward the industry/organization due to regulation (e.g.,vices [tobacco, alcoholic beverages, gambling]).
International Considerations: If operating in another country,your organization needs to know the relevant laws andregulations, and abide by them. It is also important to be awareof political changes. 21
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Political-Legal Various trade alliances among countries are easing
political and economic restrictions on trade andcreating numerous opportunities and threats.
Trade alliances among countries include: the North
American Free Trade Agreement (NAFTA), theEuropean Union, the Central America Free TradeAgreement, the Association of Southeast AsianNations (ASEAN) and the African Union
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Technological Scientific or technological improvements,
advancements and innovations create opportunitiesand threats for an organization, such as:
Communications
Computing
Transportation
Manufacturing
Robotics
BiotechnologyMedicine and medical
Telecommunications
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Technological Two organizational areas impacted most by technological
innovations concern the product research anddevelopment and organizational work processes.
In evaluating this sector, consider how technologicalchanges will affect your organizations products (positively
or negatively) or how the changes will affect how youproduce your product (the process) (e.g., computerizationof an organizations activities).
International Considerations: a countrys level of
technological advancement is going to affect theassessment (e.g., Infrastructure required fortelecommunications).
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Specific Environment
The specific environment consists of those externalsectors with which the organization directly interacts.In other words, the specific environment includesindustry and competitive variables.
Industryis a group(s) of organizations producingsimilar or identical products. These organizationscompete for customers to purchase their products andmust secure the necessary resources that areconverted into products.
The strategic manager can use Porters model to
determine external opportunities and threats by
evaluating the five forces. 25
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Porter's Five Forces Model
Some industries are inherently more attractivethan others (i.e., the profit potential forcompanies in those industries is greater).
The strength and interaction of the five forcesare what influence profit potential
The existing firms in an industry are anorganization's current competitors. The moreintense the rivalry among existing firms, themore profitability will suffer.
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Business Strategy
Unit 7aExternal Analysis
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The five forces of industry competitionSource : Adapted with the permission of The Free Press, a Division of Simon & Schuster Adult Publishing Group, from COMPETITIVE STRATEGY:
Techniques for analyzing industries and competitors by Michael E. Porter. Copy right 1980,1998 by The Free Press. All rights reserved.
Current Rivalry Among Existing
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Current Rivalry Among ExistingFirms
Porter lists eight conditions that contribute to intense rivalryamong existing competitors:
1. Numerous or equally balanced competitorsa. Constant competitive turmoil , constantly jockeying for position
2. Slow industry growthI. Battle for the limited market share
3. High fixed or storage costsa. e.g., Price cutting strategy keeps profits low
4. Lack of differentiation or switching costsa. Commodity-like product leads to differentiation by price and service
5. Addition of capacity in large incrementsa. Adding capacity is costly so competitors will cut prices to attract customers
6. Diverse competitorsa. Differing philosophies or circumstances between competitors make it difficult to predict strategies in the
market, which increases rivalry.
7. High strategic stakesa. Short run profitability may be sacrificed to succeed
8. High exit barriersa. Factors that keep companies competing even though they may be earning low or negative returns on
investment. Extreme tactics may be used to compete
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Potential Entrants
In addition to current competitors,organizations should also be on the lookoutfor organizations moving into their industry.
Why?:
Bring new capacity to the industry Want to gain customers (market share)
May possess substantial resources that can be used tolaunch attacks against current competitors
Threat of potential entrants depends on thebarriers to entry and the reaction by currentcompetitors to entrants
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Barriers to entry
Are obstacles to entering an industry. When barriers are high orcurrent competitors can be expected to take significant actionsto keep newcomers out, then the threat of entry is low.
A low threat of potential entrants is positive for an industrybecause profitability wont be divided up among more
competitors.
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What are the major entry
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What are the major entrybarriers?
Porter described seven:
1. Economies of scale2. Cost disadvantages from other than scale(e.g., favorable
access to raw materials, favorable location; governmentsubsidies, human resource advantages from cumulativeknowledge, learning and experience).
3. Product differentiation (e.g., brand loyalty with customers createsa high barrier).
4. Capital requirements: high initial investment will discouragenewcomers.
5. Switching costs: One-time cost facing the buyer who switchesfrom one suppliers product to anothers, may be monetary or
psychological (e.g., mobile phone or Internet service providers;new software).
6. Access to distribution channels: costs associated withdistributing the product such as price breaks to distributors. 31
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Barriers to entry
Government policy: Licensing and otherstandards can be costly in time andmoney. The more government
regulations, the higher the barrier
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Bargaining Power of Buyers
Buyers are the seller's customers. If they havea lot of bargaining power, they can force pricesdown, bargain for higher quality or moreservices, or even play competitors against
each other trying to see who will give them thebest deal.
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The factors of buyer power are:1. Large volume purchasescustomer is more important to the seller than
seller is to the customer.
2. Products purchased represent a significant portion of the buyer's costs orpurchasescustomer is more likely to bargain hunt.
3. Products are standard or undifferentiatedthe customer sees littledifference in the sellers (competitors) products with customer likely to
play one supplier against another to find the best deal.
4. Buyer faces few switching coststhis does not encourage brand loyalty.
5. Buyer has low profits (or has low income levels)if the customer isearning low profits, the customers will be looking for ways to reduce costs,hence reduce purchasing costs.
6. Buyer's ability and resources to produce the products themselvesifcustomer can make the product its buying, then its in a powerful position
to ask for concessions from the supplier.
7. Product's quality isnt important to the quality of the buyer's products orservices.
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The factors of buyer power are: If buyers dont need the industrys products to
get desired levels in their products or services,they have the power to bargain with theindustry over prices and services offered.
Buyer has full information/knowledge aboutproduct demand, market prices, and suppliercostsgives the customer good ammunition to getthe best possible prices from suppliers.
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Bargaining Power of Suppliers
If an industry's suppliers have bargainingpower, they can raise prices or reduce thequality of products that an industry purchases.
An industry's suppliers include any of the
providers of resources or inputs: raw materialssources, equipment manufacturers, financialinstitutions and even labor sources.
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The factors of supplier power are:
Domination by a few suppliers and moreconcentration than the industry
Availability of substitute products (inputs)
Multiple industries demanding the products of
suppliers Importance of the product (input) to the industry
Suppliers products are differentiated or if customer
has switching costsavailability of substitute orundifferentiated products
Ability of the supplier to enter the customer's industryand start making the product that the customer
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Substitute Products
The best way to evaluate the threat ofsubstitute products is to ask whether otherindustries can satisfy the consumer need thatour industry is satisfying.
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Evaluating the Five Forces
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Evaluating the Five Forces
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Finding Information on the ExternalEnvironment and Evaluating it
Finding valuable information andinterpreting it is essential to organizationalsuccess. Examples include:
Data specific to the context Statistics
Analyses
Trends
Predictions and forecasts
Inferences or statements by experts
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Finding Information on the ExternalEnvironment and Evaluating itcontd
External information can be found usinginformal and unscientific observations; aswell as formal and systematic searches
Examples of informal approaches Discussions with customers and suppliers
Reading industry journals or news periodicals
Examples of formal approaches Surveys Scientific analysis
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Finding Information on the ExternalEnvironment and Evaluating itcontd
External information system
Is information system that provides managerswith needed external information on regular basis
Purpose is to identify potential trends andchanges that might positively or negatively impactorganizational performance
Information is valuable because external
environment is complex and dynamic The challenge: having enough, but not too much
information
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For Your Information
Spotting Trends: The art of picking up onwhat is hot or popular
Suggestions for trend spotting:
Remember that valuable information can befound anywhere
Gather information and file it away for later use
Determine whether something is a fad or a trend;trends have staying power
Trends are not obvious, require effective analysis
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Responsibilities for External Analysis atDifferent Managerial Levels
In smaller and medium sized companies,all employees should monitor changes inthe specific industry and competitive
environment In small companies, front line employees
have the greatest interaction with customers
and suppliers Such interactions provide valuable information
for strategic decision makers
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Responsibilities for External Analysis atDifferent Managerial Levelscontd
In large organizations, doing a singleanalysis for the entire organization can beinsufficient
The large structure, with its many units andfunctions, creates varying needs for information
The value of the information will depend on theorganizational level and function
The role of different level managers will varybased on whether their role is to gather,disseminate, or utilize the information gathered
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For Your Information
Competitor Intelligence, a form ofenvironmental scanning
Seeks to identify who competitors are, what
they are doing, how their actions will affectyour firm
It does not involve spying or illegal actions
It can involve buying competitors products to
understand them, accessing publishedmaterials, interacting at trade shows
What role does this place in external
analysis?
L i R i
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Learning Review:
What does the five-forces model look at andhow is it used?
What is examined in each of the fivecomponents and the general environment?
How is external analysis done for a companythat is doing business globally?
How is information on the externalenvironment found and evaluated?
Describe the different responsibilities fordoing an external analysis.
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Benefits of Doing anExternal Analysis
Enables managers to be proactive, notreactive
Anticipate change
Create plans for those changes
Influence the organizational performance
External analysis is key
To providing information to use in planning,decision making, and strategy formulation
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Benefits of Doing anExternal Analysiscontd
External analysis enables strategies toAdapt to opportunities and threats
Neutralize competitor moves
Improve organizational opportunities Altering strategies should align the
organization based on information about:
Markets Customers
Technology
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Benefits of Doing anExternal Analysiscontd
Environment is a source of resource
The ability to acquire and control neededresources depends on understanding the
environment and taking advantage of theresources available
Dynamic environment requires awareness
of Turbulent and fragmented markets
Changing customer tastes
Innovative technologies
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Benefits of Doing anExternal Analysiscontd
Intense global competition makes itimperative to complete an externalanalysis
Research shows that firms doing anexternal analysis have higher performance
Performance evaluated on financial
measures like return on assets or increasedprofit
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Challenges of Doing anExternal Analysis
Rapidly changing environment
Keeping track of current situation andchanging trends can be a challenge
New technology New competitors
New laws
New customers
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Challenges of Doing anExternal Analysiscontd
Doing an external analysis is time consuming
Key is making the process efficient and effective
Requires making value judgments about what to
monitor and evaluate No process of analysis provides perfect
information
Forecasts are not factAnalysis that is flexible and open is more likely tobe able to create adaptive strategies
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Review
Describe what an external analysis is
External analysis
Process of scanning and evaluating the
external environment in order to identifyopportunities and threats
Opportunities
Positive external trends or changes that mayhelp to improve the organizations
performance
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Review
Threats Negative trends or changes that may hinder
the organizations performance
Open systems The concept that organizations interact with
and respond to their environment
Environmental uncertainty The greater the change and complexity in the
environment, the greater need for information
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Review: Learning Outcome
Environment is a source of resources
The more hostile the environment, the greaterthe need to obtain and control resources
Managers monitor the environment in order toacquire and control those needed resources
It is important to scan and evaluate the
external environment
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Review: Learning Outcome
Explain how to do an external analysis of
an organizations specific and general
environments
Specific external environments include: Customers
Competitors
Suppliers
Other industry-competitive variables
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Review: Learning Outcome contd
General external environments include:
Economic
Demographic
Sociocultural
Political-Legal
Technological
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Review: Learning Outcome
Specific environment analyzed usingPorters five-forces model
Current rivalry
Potential entrants
Bargaining power of buyers
Bargaining power of suppliers
Threat of substitute products
Review: Learning Outcome
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Review: Learning Outcomecontd
The general environment requires lookingat:
Economic data
Demographic characteristics
Sociocultural values, attitudes, behavior
Political-Legal regulations, decisions, forces
Technological innovations
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Review: Learning Outcome
External information Includes data, analyses, trends, forecasts,
inferences, expert opinions
External analysis Formal or informal
Provides managers with needed information
In small companies, analysis done by all
In larger companies, analysis more oftendone by management or special groups
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Review: Learning Outcome
Discuss the benefits and challenges ofdoing an external analysis
Benefits
Makes managers proactive, anticipating andplanning for change instead of reacting
Provides information for planning, decisionmaking, and formulating strategy
Helps get needed resources Helps cope with uncertainty
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Review: Learning Outcome
Challenges
Rapidly changing environment is hard to keepup with
The process of analysis is time consuming Forecasts and trend analysis are not perfect
Building Your Skills as Strategic
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Building Your Skills as StrategicDecision Maker
1. Looking at the US/UK Census data, howmight this benefit strategic decision makers?
2. What is the value of the following questions/
What is happening in the world today? What does it mean for us? For others?
What would have to happen for us to achievethe desired results?
What do we have to do? Whats next?
Is our external analysis good? Why?
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Building Your Skills as StrategicDecision Makercontd
3. Find three different sources of onlineeconomic data. Are they valuable? Why?
4. What strategic implications
(positive/negative) do trends toward aUS/UK workforce that is smaller, movediverse, more mobile, and more
vulnerable to global competition?
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Building Your Skills as StrategicDecision Makercontd
5. What opportunities and threats might arisefor companies, in light of the aging babyboomers and struggling financial markets?
6. Two of the major competitors in fast-foodWendys and McDonalds have positionedthemselves differently. How would theirunique interpretation of trends and changesaffect their choice of strategy? Which mightbe better positioned? Why?
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Business Strategy
Unit 7bInternal Analysis
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Th L i O
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Three Learning Outcomes
1. Describe what an internal analysis is
2. Explain how to do an internal analysis
3. Discuss why an internal analysis is
important
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Learning Outcome
Describe What an Internal Analysis Is
To formulate appropriate and effectivestrategies, it is important to know what an
organization can and cannot doparticularly well and what assets it does ordoes not have
Internal analysis is the process of evaluatingan organizations assets, skills, and work
activities; what it does well or what is lacking
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Organizational Resources
Resources are simply the assets anorganization has for doing whatever it is inbusiness to do (e.g., make burgers, providehealthcare, create and sell greetings cards)
Resources can be financial, physical, human,tangible, intangible, structural-cultural
Among the financial resources are debt
capacity, credit lines, available equity, cashreserves
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Organizational Resourcescontd
Other examples of Resources Human resources, which include experiences,
knowledge, judgment, skills, accumulated
wisdom, competencies of employees The value of resources is context
dependent; based on it seeks to do to
make money Resources can be a source of competitive
advantage for a company
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The Strategic Role of Organizational
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The Strategic Role of OrganizationalResources and Organizational Capabilities
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From Resources to
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From Resources toOrganizational Capabilities
An organizations resources are that which
are needed to perform its work
For example: A top chef needs pots, pans,
utensils, spices, raw food materials to do theirjob
To reach its goals an organization must
generate value from its resources anddoes so through capabilities
Using the same example: A chef needs skillsto combine ingredients to create a qualitymeal
From Resources to
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Organizational Capabilitiescontd
Organizational capabilitiesAre the various routines and processes that
transform resources (inputs) into
products/services (outputs) Organizational routines and processes
Are regular, predictable, sequential workactivities done by organizational members
Complex network of these routines andprocesses encompass all work activities
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rom esources o
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Organizational Capabilities
contd Employees learn how to best use organizationalresources and processes, creating corecompetencies and distinctive organizational
capabilities Capabilities result from learning and are more than
the mere possession of resources
Some organizations do it better than others; theyare unable to develop capabilities to survive in anincreasingly dynamic and competitive marketplace
From Resources to
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Organizational Capabilities
contd Southwest Airlines is an example of a firmthat has developed valuable capabilitiesand competitive advantages
Loading, unloading planes Reservations
Safety inspections
Customer service
rom esources oO C
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Organizational Capabilities
contd Capabilities are not self-sustaining intodays complex and dynamic environment
Future conditions and competitors change
Todays environment demands dynamiccapabilities
The ability to build, integrate, and reconfigure
capabilities to address the rapidly changingenvironment
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Characteristics of Distinctive
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Characteristics of DistinctiveOrganizational Capabilities
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From Capabilities to Core
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Competencies and DistinctiveCapabilities
Core competencies Value creating capabilities that an
organization possesses that are essential to
their business Contribute to improving and enhancing other
organizational capabilities
They are the result of accumulated knowledgeand actual work activities
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From Capabilities to Core
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Competencies and DistinctiveCapabilitiescontd
Examples of usable core competencies Product design and customer research
(Nokia)
Organizational capabilitiesAre fundamental building blocks of core
competencies that are created out of
processes and routines
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From Capabilities to Core
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Competencies and DistinctiveCapabilitiescontd
Distinctive organizational capabilities These are special and unique organizational
capabilities that distinguish an organization
from its competitors Examples of distinctive capabilities
Southwest Airlines: gate turnaround, ticketing,
and employee-customer interactions Hallmark: creative product design
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Characteristics of
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Characteristics ofDistinctive Capabilities
1. Must contribute to superior customervalue and offer real benefits to customers
Being good at what customers value
Requires adaptiveness
2. Must be difficult for competitors to imitate
Requires balancing a complex array of
employee skills and knowledge Harnessing learning in the organization
Utilizing cross-functional interaction4- 83
Characteristics of
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Characteristics ofDistinctive Capabilities
3. A distinctive capability should be used ina variety of ways
Organizational routines and processes
developed in one area should be transferableto other areas
Examples of transferred capabilities
Reliable, fuel efficient drive trains for cars,motorcycles, boats, lawnmowers, snowblowers, power generators (Honda)
Energy conservation (United Technologies)4- 84
Competitive Advantage and
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Competitive Advantage andPerformance Results
Competitive advantage Sets the organization apart from competitors
Must come from unique resources or
distinctive capabilities Will positively affect performance results
Benefits may be short or long term
Demands that decision makers know thestrengths and weaknesses of its resources,capabilities, and competencies
4- 85
The Role of Strengths and
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The Role of Strengths andWeaknesses
Strengths
These are resources that the organizationpossesses and capabilities that is has
developed These can be exploited and developed into a
sustainable competitive advantage
Not all strengths will lead to competitiveadvantage, but they can be competitiveweapons if nurtured and reinforced
4- 86
The Role of Strengths and
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gWeaknessescontd
Weaknesses Are resources and capabilities that are lacking
or deficient and prevent the organization from
developing competitive advantage Organizational weaknesses must be corrected ifthey are in critical areas that prevent theorganization from competing effectively
Organization with limited resources to correct theproblem will simply seek to minimize the impact
87
Value Chain Analysis
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Value Chain Analysis
Every organization (for profit or not-for-
profit) needs customers to survive The premise is that there is a demand for some
type of value in the goods/services they
purchase or obtain To assess the ability to provide value it is
important that strategic decision makers use
a systematic process to examineorganizational activities and how theyproduce value
4- 88
V l Ch i A l i td
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Value Chain Analysiscontd
Value chain activities are specificorganizational routines and processes thatcreate varying levels of customer value
and organizational costs The concern for organizations is that the
value created outweighs the cost of creatingthat value (often referred to as the margin)
The effort is to assess the organizations
ability to create value through its workactivities
V l Ch i A l i td
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Value Chain Analysiscontd
Value chain analysis evaluates the internalenvironment, the organizations strengths
and weaknesses
Value chain analysis assesses nineactivities
Five primary
Four support
Val e Chain Anal sis
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Value Chain Analysis
91
Value Chain Analysis contd
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Value Chain Analysiscontd
Primary activitiescreate customervalue
Inbound logisticsroutines and processes that
bring resources into the organization Operationsprocessing the resources into
goods and services
Outbound logisticsphysically distributing theseto customers
Marketing/Salesappealing to customers
Customer serviceserving customer needs 4- 92
Value Chain Analysis contd
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Value Chain Analysiscontd
Support activitiessupport primaryactivities and each other
Procurementgathering resources
Technologyprovide efficiencies and improveoperational efforts
Human Resourcesrecruit, select, train, retain
employees Infrastructurecapabilities to identify externalopportunities and threats
4- 93
Value Chain Analysis contd
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Value Chain Analysiscont d
Assessment of both primary and supportactivities is essential
The effective or efficient performance of these
activities helps create potential competitiveadvantage
This analysis is not easily done becauseorganizational activities do not always fitnicely and neatly into the analytical framework
4- 94
Assessing the Primary Activities
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g yof the Value Chain
4- 95
Assessing the Support Activities
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g ppof the Value Chain
4- 96
Product Life Cycle
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Product Life Cycle
The product life cycle is the natural lifespan of a particular product or service.
There are five (5) stages of the product life
cycle:1. Introduction
2. Growth
3. Maturity4. Saturation
5. Decline.97
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The product lifecycle
Introduction
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Introduction
High costs, low salesand no profit ismade
Aim to recover development costs
Successful new product will move togrowth phase.
Growth
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Growth
Steady costs, sales increase rapidlyand high profits can be made bypioneering firms.
Aim to attract first-time customers andbuild market share.
Maturity
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Maturity
Steady costs, sales increase moreslowly and profits peak
Aim to keep existing customers and
persuade other consumers to switchfrom competing brands.
Saturation
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Saturation
Steady costs, sales peak (no moregrowth) and reasonable profits
Profit margins start to decline, owing
to increased price competition.
Decline
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Decline
Low costs, falling sales and fallingprofitsmaybe loss making
Withdraw loss-making product
Keep decline product if it makes aprofit in a niche market.
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Product lifecycle and extension strategies
Extending the product
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g p
lifecycle (Continued)
product developmentwhich is minor product
modification or improvement
e.g. new model of a carVauxhallCorsa.
Extending the product
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Aim to keep the product in thesaturation phase of lifecycle as:
profits are reasonable
sales peak
costs are steady.
g p
lifecycle (Continued)
Customer growth matrix
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Customer growth matrix
Customer loyalty
Customer extension
Customer acquisition
Customer diversification.
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The customer growth matrixSource: Jenkins, M (1997), The Customer Centred Strategy, Prentice Hall. Reproduced with permission
Customer loyalty
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y y
Loyal customers will bring greaterprofitability by:
making frequent repeat purchases
telling friends of the benefits of thecompanys products.
Customer extension
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Customer extension is: extending the range of products and
services available to customers
achieved via product developmentand diversification.
Customer extension (Continued)
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Product development is used bycompanies:
structured around product divisions
with strong R & D anddesign functions.
( )
Customer extension (Continued)
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whose products have short lifecyclese.g. consumer electronic companieslike SONY.
( )
Customer extension (Continued)
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Product diversification occurs when acompany moves away from currentproducts
Related diversificationremains insame industry
Unrelated diversificationchangesindustry.
( )
Customer acquisition
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q
Customer acquisition is: expanding the number of customers
for existing products
easiest in growing markets
difficult in mature markets.
Customer acquisition (Continued)
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If home markets are mature, thenseek new customers in overseasmarkets
Engage in IB activities, e.g. Exportingor locating production or marketingactivities overseas.
q ( )
Customer diversification
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Customer diversification: is achieved by selling a new product
or service to new customers
often involves innovative use oftechnology.
The BCG matrix
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Question marks
Stars
Cash cows
Dogs.
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The Boston Consulting Group matrixSource: Henderson, B (1970) The Product Portfolio, Boston Consulting Group. Used with permission of The Boston Consulting Group
Question marks
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High growth markets Low market share
Another product is current marketleader.
Unlikely to be profitable
High investment is required if aquestion mark is to become a marketleader
Stars
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Successful question marks becomestars.
Stars are market leaders in growth
markets.
require investment to maintain
market leadership in a high growthmarket
are marginally profitable
Cash cows
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Cash cows: are mature products
occupy slower growth markets
need less investment are the most profitable products in a
portfolio
are used to fund products in otherquadrants.
Dogs
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Dogs: occupy no growth markets
have low market share
may be previous cash cows
may be marginally profitable
should be withdrawn before theybecome loss making.
A successful / unsuccessful product
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A successful
product movesaround the BCGmatrix
A question markto a star to
a cash cow to a dog or back
to a question
mark
A less
successfulproduct remainsin right-hand
side of the BCGmatrix, and istherefore a low
cash generator. A question mark
may move to
a dog
BCG matrix and
d t lif l li k
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product lifecycle links
BCG ----------- plc Q marks ------- introduction
Stars ----------- growth
Cash cow ----- maturity andsaturation
Dogs ---------- decline.
Balanced BCG matrix
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Tomorrow's products: question marks and stars
Today's products:
cash cows
Yesterdays products
Dogs.
The Seven S Model
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126
Describes the interconnectivity of an
organisation by a series of seven elementswithin the organisation.
These elements are mutually independent &
serves as an trigger mechanism to themanagement to coordinate the wholeorganisation.
Structure
The Seven S sModel
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127
Strategy Systems
Super-ordinate
Goals
Skills Style
Staff
The Seven S s Model
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128
Super-ordinate goals
Aspirations of theorganisationvalue,beliefs, principles & aims.
Strategy
The organisations futureplans & directions.
How it will overcomeexternal factors &
competition within theindustry.
Market it operates &products & servicesprovided.
Structure
Organisation structuralframework, decisionmaking process (topdown/bottom up),planning process.
Systems
The organisations
internal process.(operating standards/
working procedures, etc)
The Seven S s Model
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129
Style
Culture of theorganisation.
Belief systems of itsemployees.
Staff Human resources of an
organisation. Capabilities &
competences internally.
HR management policies(bonuses/rewards,compensation,advancement, etc
Skills
Core competence of theorganisation and notskills of staff.
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HND
Business Strategy
Lesson 3
130
SWOT SWOT stands for Strength (internal) Weaknesses
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SWOT stands for Strength (internal), Weaknesses(internal), Opportunities (external) and
Threats(External). The SWOT analysis points to the strategic issues
organizational decision makers need to address intheir pursuit of sustainable competitive advantage and
high performance levels. A swot analysis allows managers to identify key
internal and external issues they need to take intoaccount in order to understand the context in whichthe organisation operates.
By identifying key issues, it begins to focus managerson areas where they need to make choices and helpsto identify some of the constraints and risks involved.131
Competitive Strategies
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p g
Competitive strategyis the wayorganizations set themselves apart tocreate a sustainable competitiveadvantage.
The choice of a competitive strategy isbased on the competitive advantage(s) thatthe organization has been able to develop.
132
Porters Generic Competitive
Strategies (1980)
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Strategies(1980) Porters approach is based on an organizations
competitive advantage.
Competitive advantage can come from only one of twosources:
1. Having the lowest costs in the industry2. Possessing significant and desirable differences
from competitors
Another important strategic factor is the scope of theproduct-market in which the organization wishes tocompetethat is, broad (i.e., all or most marketsegments) or narrow (i.e., only one segment or a fewsegments). 133
Porters Generic Competitive
Strategies (1980)
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Strategies(1980)
He identifies three strategies:(1) cost leadership:a strategy in which an organization strives to
have the lowest costs in its industry and produces products fora broad customer base;
(2) differentiation: a strategy in which an organization competesby providing unique (different) products in the broad market thatcustomers value, perceive as different, and are willing to pay apremium price for; the differentiator works hard to establishbrand loyalty:customers consistently and repeatedly seek out,purchase, and use a particular brand;
(3) focus: a strategy where an organization pursues either a costor differentiation advantage in a limited customer segment.
134
Cost Leadership
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p Cost leader
Chooses to compete on the basis of having the lowest costs. The main goal is to have the lowest (total unit) costs in the
industry (emphasis on costs, not prices).
With the lowest costs in its industry, the cost leader:
Can potentially charge the lowest prices and
Still earn significant profits, even during a price war
135
Cost Leadership
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Successful pursuit of the cost leadership strategy
Everything the cost leader doesevery strategic decision made, every
strategic action takenis aimed at keeping costs as low as possible. Efficiency in all areas of operations is the main objective, and all
resources, distinctive capabilities, and functional strategies are directedat that.
The cost leader isnt going to have deep and wide product lines as
providing these product or service variations is expensive.
The cost leader has chosen to compete on the basis of low costs, not onbeing different than competitors.
The cost leader will market products aimed at the average customer.
Little or no product frills or differences will be available. No fancy artwork orplush office furniture at corporate headquarters and no corporate jets.
Cost leader wont have an elaborate high-tech, multimedia interactive Website unless its an extremely cost effective and efficient way to reach masses
of potential customers. 136
er c arac er s cs o cosleaders include:
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Strict attention to production controls
Rigorous use of budgets
Little product differentiationjust enough tosatisfy what the mass market might demand
Limited market segmentationproducts orservices aimed at the mass market
Emphasis on productivity improvements
Resources, distinctive capabilities and corecompetencies found in production-operationsand materials management 137
raw ac s o e cosleadership strategy:
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The main danger is that competitors mightfind ways of lowering costs even further;taking away the cost leaders cost
advantage.
Competitors might be able to easily imitatewhat the cost leader is doing and erode thecost advantage.
Cost leader, in its all-out pursuit of loweringcosts, might lose sight of changingcustomer tastes and needs.
138
Differentiation Strategy
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Organization competes by providing unique (different) products
with features that: Customers value,
Perceive as different, and
Are willing to pay a premium price for
The main goal of the differentiator is to provide products orservices that are truly unique and different in the eyes ofcustomers.
Doing this, the differentiator can charge a premium price
because customers perceive that the product or service isdifferent and that it uniquely meets their needs.
This premium price provides the profit incentive to compete onthe basis of differentiation.
139
A Successful Differentiator
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All its capabilities, resources and functional strategies are
aimed at isolating and understanding specific market segmentsand developing product features valued by customers in thosevarious segments.
Has broad and wide product linesthat is, many different
models, features, price ranges and so forth. Has countless variations of market segments and product
features so that the customer perceivesthe product or serviceas different and unique and worth the extra price.
Because the differentiation strategy can be expensive, thedifferentiator also needs to control costs to protect profits, butnot to the extent that it loses its source of differentiation.
140
Other characteristics ofdifferentiators include:
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differentiators include:
Differentiating themselves along as manydimensions as possible and segmenting themarket into many niches.
Establish brand loyalty, where customers
consistently and repeatedly seek out, purchaseand use a particular brand. Brand loyalty can be avery powerful competitive weapon for thedifferentiator.
The differentiators distinctive capabilities tend to
be in marketing and research and development.
141
raw ac s o e eren a onstrategy
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Must remain unique in customers eyes,which may be difficult depending oncompetitors abilities to imitate and copy
successful differentiation features. Customers might become more price
sensitive, and product differences might
become less important.
142
Focus Strategy A focuser:
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A focuser:
Concentrates on serving a limited (narrow)customer group or segment known as a marketniche
a. Geographicalniche can be defined in terms of region or
locality.b. Type of customerniche focuses on a specific group of
customers.
c. Product lineniche would focus on a specific and
specialized product line.
143
Focus Strategy Pursues either a cost or differentiation advantage
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Pursues either a cost or differentiation advantage
Cost focuser competes
By having lower costs than the overall industry costleader in specific and narrow niches
Also successful if an organization can produce complexor custom-built products that dont lend themselves easilyto cost efficiencies by the industrys overall cost leaders
Differentiation focuser can use whatever forms ofdifferentiation the broad differentiator might use,
such as:a. Product featuresb. Product innovations
c. Product quality
d. Customer responsiveness
e. Specializes in one or a few segments instead of all market segments.144
Advantages of the focus strategy:
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The focuser knows its market niche well and
can build strong brand loyalty by respondingto changing customers needs
The focuser who can provide products or
services that the broad competitors cant orwont, will have the niche all to itself.
145
Drawbacks of the focus strategy The focuser often operates on a small scale making it difficult to
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The focuser often operates on a small scale making it difficult tolower costs significantly.
However, with technological advancements such as flexiblemanufacturing systems, this drawback is not as critical as itonce was.
As information and computer technology become more
affordable, focusers have discovered that economies (costefficiencies) dont necessarily have to come from large-scaleproduction runs.
The niche customers might change their tastes or needs.
Because it is often difficult for a focuser to change niches easilyand quickly, this could be a serious problem.
In addition, any technological changes that might impact theniche can have a similar effect. 146
Stuck in the Middle Happens when an organization is not
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Happens when an organization is not
successfully pursuing either a low-cost or adifferentiation competitive advantage
Occurs when an organizations:a. Costs are too high to compete with the low-cost leader.
b. Products and services arent differentiated enough tocompete with the differentiator.
This is not a preferred or profitable strategic direction.
Becoming unstuck means making consistentstrategic decisions about what competitive advantageto pursue and then doing so by aligning resources,distinctive capabilities and core competencies. 147
Top down
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By definition, top managers are
ultimately responsible for everydecision and action of everyorganizational employee, thereforewill need to be strategic leaders.
Top managers can also be
strategic leaders through theirability to anticipate, envision,maintain flexibility, thinkstrategically and work with othersin the organization to initiate
changes that will create a viableand valuable future for theorganization.
Specifically top managers can bestrategic leaders by:
Determining the organizations
purpose or vision;
Exploiting and maintaining theorganizations core
competencies;
Developing the organizationshuman capital;
Creating and sustaining astrong organizational culture;Emphasizing ethical
organizational decisions andpractices; and
Establishing appropriatelybalanced organizational control.
148
Strategic Planning Techniques
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PIMS (Profit Impact on MarketingStrategies)
The Growth Share Matrix
The scenario or Vision Building Approach
149
PIMS (Profit Impact on MarketingStrategies)
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The model is based on the belief that there are three major
factors which determines a business unit performance;
It strategy
Its competitive position and
Market or industry characteristics which it competes (Moore1992)
It collects information from member companies relating to suchfactors as market share, profitability, product quality andinvestment.
PIMS, then answers questions such as: What profit rate is normal for a given business?
What strategic changes are likely to improve performance?
What are the likely effects of profitability, cash flow, etc, of adopting a
articular strate ?
151
The Growth Share Matrix
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The BCG is based on the relation between
growth, investment and return. Growth-Shared Matrix is based on two
concepts:
1. The company with the largest market shareshould also have the greatest competitiveadvantage and it follows the highest profitmargin.
2. Also the companies with the highest rate ofreturn on investment can theoretically growththe fastest.
152
BCG GROWTH-SHARE MATRIX
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BCG GROWTH-SHARE MATRIXTh t i th t t
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The matrix pre-supposes that most
organisations are composed of more thanone business.
The collection of businesses within an
organisation is termed business portfolio. It posits that an organisation portfolio can be
classified into stars, cash cows, dogs and
problem children (Smith 1985)
154
Growth Strategies A growth strategy is one that expands
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A growth strategy is one that expands
products offered or markets served orexpands its activities or operations throughcurrent or new businesses
Growth helps achieve goals through increasingrevenues, profits, or other measures
155
Growth Strategies
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156
Possible Growth Strategies
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Concentration
When an organization focuses on its primaryline of business and looks for ways to meet itsgrowth goals by expanding its core business
There are three concentration options Productmarket exploitation
Product development option
Market development option
Concentration Strategies
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Product-Market exploitation
Attempt to increase sales of current productsin current markets and might includeincentives or advertizing
Product development option Creates new products or new features on
current products, which would be sold incurrent markets
Market development option
When selling current products in new markets
Concentration Strategiescontd
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A concentration strategy is one that looks
for ways to grow the core business usingdifferent combinations of products andmarkets
Product market diversification is not usuallyviewed as a concentration option as itinvolves expansion into both new productsand new markets
Concentration Strategiescontd The advantage of a concentration strategy
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The advantage of a concentration strategy
is an organization becomes good at what itdoes
The develop knowledge of the industry and oftheir competitors
Functional and competitive strategies can betuned to know what customers want and howto best provide it
Everyone can concentrate on exploitingresources, competencies, and capabilitiescritical to success
7- 160
Concentration Strategiescontd
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The main drawback is that theorganization is vulnerable to changes inthe industry and the external environment
The key is to recognize significant trends andadjusting the organizations direction
Concentration strategy may be effectivefor small companies, but larger often startoff by this approach and may continueusing it
Concentration Strategy Options
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Concentration Strategy Options
Vertical Integration Is a strategy that grows by gaining control of its
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Is a strategy that grows by gaining control of its
inputs (backward) or its outputs (forward) Backward integration
The organization becomes its own supplier
Example: eBay bought an online payment business Forward integration
The organization becomes its own distributor
Example: Apple Computer opened retail outlets
Vertical Integrationcontd
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Vertical integration strategy is a growthstrategy because an organization expandsits activities and operations by becoming a
source of supply or distribution However, expanding into industries connected
to its primary business means it is still a singlebusiness organization
It is taking another path to meeting growthgoals by controlling different parts of the valuechain
Horizontal Integration
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This strategy is used to grow the organization
by combining operations with its competitors It keeps the organization in the same industry,
but provides a way to expand market share and
strengthen its competitive position In the US, Federal Trade Commission and
Department of Justice regulates such
activities through antitrust laws, assessingthe impact of such combinations to allow faircompetition
7- 165
Horizontal Integrationcontd
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The European Union regulates efforts
toward horizontal integration within membercountries
As a growth strategy, horizontal integration
an be appropriate if: It enables the company to meet growth plans
It can be strategically managed to attain
competitive advantage It satisfies legal and regulatory guidelines
The Global Perspective
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Horizontal integration knows no borders Coca-Cola sought to buy one of Chinas
biggest beverage makers, Huiyuan Juice
Group Ltd for $2.3 Billion It would have given Coke a strong market
presence
The deal was rejected by the Chinese Ministryof Commerce, which indicated it would havehurt competition in the local market
Figure 7.4Types of Related Diversification
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yp
7- 168
Diversification This strategy enables a company to grow
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This strategy enables a company to grow
by moving into a different industry. There are two types of diversification
Related
Unrelated Related Diversification
Is diversifying into a different industry, but
related to the companys current business
7- 169
DiversificationcontdUnrelated diversification
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Unrelated diversification
Diversifying into a completely different industry,not related to the companys current business
Diversification is an attempt at a strategic
fit Effort is to transfer resources, distinctive
capabilities, and core competencies to the newindustry
It is an attempt at synergy that seeks toenhance performance of both businesses
Diversificationcontd
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Synergy occurs when shared resources,capabilities, and competencies enablegreater performance by two entities when
combined. Unrelated diversification is when an
organization seeks growth by moving intoindustries in which there is no strategic fit.
Diversificationcontd
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Unrelated diversification can occur when acompany does not believe its core industryoffers growth potential
This approach is challenging because of theneed to develop an ability to effectivelymanage different businesses
An example is Fortune Brands; which owns
separate business that sell liquor, padlocks,cabinets, and golf balls
7- 172
Diversificationcontd
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Research shows that relateddiversification is superior to unrelateddiversification because it allows the
effective use of current resources,capabilities, and core competencies
However, unrelated diversification can be avaluable strategy at times, depending on how
effectively the diverse operations aremanaged
7- 173
Implementing theGrowth Strategies
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g
There are three basic ways that growthstrategies can be implemented:
Mergers/Acquisitions
Internal development Strategic partnering
Mergers-Acquisitions
Involves the purchase of an organization thatenables a firm to combine operations with thatcompany it has merged with or acquired
Implementing theGrowth Strategies - contd
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Merger is a legal transaction in which twoparties combined operations through anexchange of stock to create a new entity
Usually they take place betweenorganizations of similar size and it isconsidered friendly, it is acceptable to all
parties
Acquisition is an outright purchase of onecompany by another
Can be hostile and involve different sized
firms
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Implementing theGrowth Strategiescontd
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The popularity of mergers and acquisitionsgo in cycles
The main feature of either effort is to implementgrowth strategies
Internal development involves creating anddeveloping new business activities within
Rather than face risks and challenges ofcombining new businesses, a company seeks todevelop crucial capabilities to meet desired goals
For Your InformationThinking Small
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Thinking Small
IBM was reorganized into smaller, integratedglobal enterprise centers of expertise focusedon industries and technical skills
Rather than continuing to use massive divisions,the company create a more nimble globalnetwork that helped improve performance
This effort also included decentralized decision
making that was more conducive to creativity,collaboration, and innovation
Strategic Management in Action
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General Electric (GE) entered the airportsecurity market by purchasing firms
These acquisitions enabled GE to leverage itsbrand, size, and credibility with the acquiredfirms technology
Why do you think GE chose acquisitions as itsway to grow?
Mergers-Acquisitions orInternal Development
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Strategic Partnering
Strategic alliance
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Strategic alliance
Two or more organizations share differentresources, capabilities, or competencies topursue some business purpose; requires trust
Different than joint venture because there is noseparate legal entity formed
The effort seeks to encourage productinnovation, bring stability to cyclical
businesses, expand product lines, or cementrelationships with suppliers, distributors, orcompetitors
For Your Information
Wh Alli M k S
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Why Alliances Make Sense
Flexibility and informality of arrangementspromote efficiencies
Provide access to new markets or
technologies Less complexity when creating/disbanding
Risks and expenses are shared
Brand identification is kept and exploited Synergies created
Avoids issues related to antitrust7- 181
Strategic Management in Action
Not all alliances work out
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Not all alliances work out
Amazon.com and Toys R Us created analliance in 2000 that combined the resourcesof a bricks and mortar business with an
internet company
It failed, each party claiming to be deceived bythe other
Amazon violated its promise to only sell those
toys, games, and baby products on its site Toys R Us failed to provide certain items
Signs of Declining Performance
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7- 183
Renewal Strategies There are two main renewal strategies
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There are two main renewal strategies
Retrenchment
Turnaround
Retrenchment
Short run strategy designed to addressweaknesses that are leading to performancedeclines
Not necessary to have negative financialreturns, usually occurs if unable to meetstrategic goals
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Renewal Strategiescontd
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Retrenchment (contd) Is a military term refers to going back to the
trenches to stabilize, revitalize, and prepare
for entering battle again
The point is to address issues before theylead to severe problems
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Renewal Strategiescontd
Turnaround
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Turnaround
Is designed for situations in which theorganizations performance are more serious
Often when the organization is facing severe
external and internal pressures and must makestrategic changes in order to remain viable
There is no guarantee the turnaround willaccomplish the desired results, but without itthe organization will not survive
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Implementing RenewalStrategies
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Cost cutting Reducing costs to bring performance resultsback in line with expectations
It can be across the board or selective
The effort should avoid cutting costs in thoseareas critical to retain or exploitcompetitiveness
Redundancies, inefficiencies, or waste inactivities should be eliminated
Restructuring/downsizing are severeapproaches 7- 187
Restructuring
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This includes refocusing on the primarybusinesses and involve
Selling or divestment
Spin off Liquidation
Downsizing
Divestment might occur when thebusiness is desired by another companyand is no longer a strategic fit
Restructuringcontd
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Spin off Involves removing a business unit and setting
it up as a separate, independent business bydistributing its shares of stock
Liquidation
When no buyer exists or there is nopossible spin off, a business unit will bediscontinued
This is a strategic action of last resort
Restructuringcontd
Downsizing
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Downsizing
Is a quick way to cut costs by elimination jobs It can be effective when done strategically
BENCHMARKING Benchmarkingis the search for the best
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practices inside or outside an organization. Benchmarking is from other leading
organizations (competitors or
noncompetitors) that are believed to havecontributed to their superior performance.
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Common CharacteristicsOf Contemporary Benchmarking
Its key purpose is to gather various types of
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Its key purpose is to gather various types of
business information about other companies; the purpose of this information is to create new
business knowledge;
new business knowledge is gained by analysingand comparing the specifics of various businessfactors of different companies; and
on this basis, companies can make better
business decisions and consequently enjoymore successful and more effective business.
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n erna n x ernaBenchmarking Internal benchmarking focuses on activities within
the organization One area of the organization is
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the organization. One area of the organization is
compared with another.
External benchmarking can either be competitiveor functional.
In competitive benchmarking, an organizationfocuses on companies within their own market,sometimes direct competitors, studying theirbusiness performance and processes.
Functional benchmarking is performed bycompanies wanting to study a particularprocess. They choose organizations with
i il dl f th i i d t
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Internal And ExternalBenchmarking
The goal of benchmarking of strategies is
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The goal of benchmarking of strategies isto create knowledge about the specifics ofstrategies used by competitors and othercompanies that lead to the successful
achievement of objectives. The purpose is to use this knowledge in
order to improve the effectiveness of
strategies that lead to the realization ofstrategic objectives in the long run.
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The Benefits Of Benchmarking In StrategicManagement (Bogan, 1994; Harrington, 1995;Karlof Et Al., 2001; Coers Et Al., 2001)
It enables more effective strategic planning and controlling;
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It enables more effective strategic planning and controlling;
It lowers the costs of incorrect business decisions;
It enables a companys efficiency to increase through the
successful design and Implementation of restructuring businessprocesses and their continuous improvement;
It helps in solving business problems;
It adds an important element to the continuous education ofemployees, encourages their Innovativeness, creativity andcontributes to the creation of new ideas;
It enables a relative assessment of the business success andeffectiveness of diverse business factors; and
It encourages changes and fosters special knowledge, whichenables greater flexibility and faster adaptation to the changing195
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Planning
Eff ti l l if di ti ti t
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Effective plans can clarify direction, motivatepeople, use resources efficiently and allowpeople to measure progress towards objectives.
Plans can be at strategic, tactical and operational
levels; and in new businesses people preparebusiness plans to secure capital.
Strategic business units also prepare plansrelatively independently of the parent.
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The process of planning
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Seven iterative tasks in making a plan
Planning Planning is an iterative task, made up of seven
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g , p
main stepsgathering information; developing amission; setting goals; identifying actions andallocating resources; implementing plans;monitoring progress and evaluating results.
Planners draw information from the competitive andgeneral environments using tools such as Porters
Five Forces analysis.
They can do this within the framework of a SWOTanalysis, and also use forecasting, sensitivityanalysis, critical success factors and scenarioplanning techniques. 199
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Goal-setting theory predicts that goals canbe motivational if people perceive thetargets to be difficult but achievable.
Goals can be evaluated in terms ofwhether they are specific, measurable,attainable, rewarded and timed.