Recap – Strategic Planning Process

• Strategic planning process1. Develop/Understand the vision, mission, and core values2. Set objectives3. Analyze the environments (external and internal)4. Formulate strategies to achieve the set objectives5. Implement the strategies6. Monitor, control, evaluate, and adjust

http://www.quickmba.com/strategy/strategic-planning/

1

Recap – Strategic Analysis and Strategy Formulation

Strategic Analysis

External Environment Internal Environment

PESTPorter’s Five Forces

Boston MatrixSWOT

2

Recap – Strategic Analysis – Macro-environment

Company

Political Factors Social Factors

Economic Factors Technological Factors

Macro-environment

Threat of New Entrants

BuyersSuppliers

Threat of Substitute Products/Services

RivalryImmediate Industry and Competitive Environment

3

PESTPorter’s Five Forces

Recap – Strategic Analysis – SWOT

SWOT Analysis

Strengths Weaknesses

Opportunities

Strength

Threats

4

Recap – Formulation of Strategies• Porter’s generic strategies (http://www.quickmba.com/strategy/generic.shtml)

o Cost leadershipo Board differentiationo Focused low costo Focused differentiationo Hybrid approach: the best cost strategy

• Two simple methods to apply the SWOT results to formulate strategies:o Matching: Match strengths to opportunities to gain competitive advantageso Converting: Convert threats or weaknesses into strengths or opportunities

• Value chain analysis• Hierarchical levels of strategies (http://www.quickmba.com/strategy/levels/)

o Corporate – selection of businesseso Business unit – developing and sustaining the competitive advantage for the goods produced

and services provided by the unito Functional or departmental – business processes and value chain

Strategy formulation is an inclusive collaborative activities involving management in all levels

Target ScopeAdvantage

Low Cost Product Uniqueness

Board (Industry Wide)

Cost Leadership

Strategy

Board Differentiation

Strategy

Narrow (Market Segment)

Focused Low-Cost Strategy

Focused Differentiation

Strategy

5

Recap – Tests of Winning Strategies

• The fit testo External (w.r.t. business environment and market conditions) and internal (whether

the strategy can be operated in a competent manner)o Dynamic (evolve as external and internal conditions change)

• The competitive advantage testo Able to achieve a sustainable competitive advantage

• The performance testo Competitive strength and market standingo Profitability and financial strength

6

Porter’s Five Forces Further Details 1/5

Rivalry

Threat of substitute products or services

Buyer power

Supplier power

Threats of New Entrants

Threats of new entrants are low when• Incumbents are likely to make retaliatory moves against new entrants• Incumbents have large cost advantages (e.g. learning curve effects, experience-based

advantages, access to raw materials and/or technologies)• High capital requirements• Customers have strong loyalty to incumbents• Patent and IP protections• Restrictive government policies (e.g. tax, trade, …, rtc)• Strong network effects• Limited access to distribution channels

7

Porter’s Five Forces Further Details 2/5

Threat of New Entrants

Threat of Substitute Products /Services

Buyer Power

Rivalry

Supplier Power

Supplier bargaining power is stronger when

• Suppliers are highly concentrated (there are only a few suppliers or dominated suppliers)

• Supplier’s products/services are in short supply or are differentiated• Substitutes of products/services from the supplier are not available• High supplier switching costs• Backward integration are difficult or not possible• The suppliers only accounts for a small portion of the total costs of the

industry member’s products• Supplier’s sales to industry members only accounts for a small percentages of

the supplier’s total sales

Supplier bargaining power is weaker when the above are in the opposite direction

8

Porter’s Five Forces Further Details 3/5

Threat of New Entrants

Buyer Power

Rivalry

Threats of Substitute Products/Services

Competitive pressures from substitutes are stronger when• Switching costs are low• Good substitutes (e.g. comparable features and performance with attractive

price) are available

Some indicators of increasing competitive pressure from substitutions• Growth in substitute sales is faster than that of the industry• Increases in the profits of the substitutes’ producers• Addition of new capacities by the substitutes’ producers

Supplier Power

9

Porter’s Five Forces Further Details 4/5

Threat of New Entrants

Threat of Substitute Products /Services

Rivalry

Buyer Power

Buyer bargaining power is stronger when

• Buyers are well-informed• Buyer demand is weak compare to that of industry’s supply• Buyer’s are large and few in numbers• Products/services are undifferentiated• Substitutes of products/services are available• Low switching costs• Backward integration is possible• Buyer has power to delay or cancel purchase

Supplier bargaining power is weaker when the above are in the opposite direction

Supplier Power

10

Porter’s Five Forces Further Details 5/5Threat of New Entrants

Rivalry

Rivalry pressure increases when• Industry members have excess supply (e.g. too much inventory, over production capacity)• Industry members have high fixed/storage costs• Products are commodities or are weakly differentiated• Buyer demands are declining or growing slowly• Switch costs are low• Competitors are numerous and are more or less equal in size and competitive strength• Competitors are divers (in terms of strategies, objectives, and countries of origin)• Exit barriers are high

Rivalry pressure decreases when the above are in the opposite direction

Threat of Substitute Products /Services

Buyer Power

Supplier Power

11

Competitive Conditions and Company Strategy

• Why analyzing competitive conditionsoTo evaluate whether there is good profitability under the competitive

conditionsoTo Match the company’s strategy to the specific market’s competitive

characteristics§ Shield the company from as many of the competitive pressures as possible§ Shift the competitive forces in the company’s favor (e.g. change the factors of

the five factors)

12

Competing with Rivals – Examples• Offer coupons/advertising sales items

o Lower P to increase market share and total sales volume (profit will be lower if price cuts are not offset by the increases sales)

• Discount/clearance saleso Increase sales volume and total revenue (lower P, increase C and so lower P – C,

profit margins per unit sold)• Improve product through innovation/introduce new features

o Increase product value V and differentiation to increase customer demand, possibly increase unit costs C

• Build a bigger dealer networko Increase accessibility to customers to increase market share and sales volume,

possibly increase unit costs• Advertise products/services to enhance company image

o Increase customer demand, differentiation, and perceived value V to increase market share and sales volume, possibly increase unit costs C and lower profit margin per unit

13

Strategic Analysis – SWOTSWOT Analysis

• Strong brand identity/reputation• Ample financial resources• Cost advantages over rivals• Strong and unique core competencies• Patents, proprietary knowledge with unique skills• Superior product quality• Good customer base• Good distribution capability and wide geographical

coverage• Good partnership/alliance to gain access to

invaluable resources

• Weak brand identity/reputation• Weak financial position (e.g. in debt)• Higher cost compared to that of rivals• Lack of unique core competencies• Inferior product quality• Lack of customer relationship management• Lack of distribution capability • Existence of operation issues (underutilized

resources, lack of good management)

• Rising customer demand• Potential new market/product• Falling trade barriers in foreign markets• Emerge of new technologies• Adverse changes in rival firms• Potential partnership/alliance opportunities to gain

access to invaluable resources• Acquisition of rival firms or firms with attractive

technologies/competencies

• Increase in competition• Entry of capable new competitors• Decrease in demands/slowdown in market growth• Grow in customers’ or suppliers’ bargaining powers• Adverse economic/demographic changes• Changes in technologies that can undermine the

company’s unique competencies• Restrictive policies (e.g. trade policies)• Adverse change in regulations (e.g. costly new

requirements• Rising prices on key inputs

Strengths

Opportunities

Weaknesses

Threats

14

SWOT – Conclusions and Implications

• Conclusionso The attractiveness or unattractiveness of the companyo The reasons for the successfulness or failure of the company’s strategy

• Implicationso Leverage the strengths of the company

o Formulate the company’s strategy and purse market opportunities based on the strengths

o Use the strengths to reduce the impacts of external threatsoCorrect/fix weaknesses that will jeopardize the company’s success, impair the

company’s pursuit of opportunities, or heighten vulnerabilities of external threats

15

Resources and Capabilities

• A company’s competitive assets = resources + capabilities• Resources are competitive assets owned/controlled by a company

• Tangible: physical resources, financial resources, technological assets (e.g. technological know-hows), and organizational resources (e.g. communications and control systems)

• Intangible: Human, brand identity/reputation, relationships (e.g. alliance), and company culture (e.g. innovative culture, motivation)

• Capabilities is the ability of a company to perform some internal activities competently

16

Competitive Power Tests of the Resources and Capabilities

• Is the resources or capabilities valuable?• Do they contribute directly to the effectiveness of the strategy?

• Is the resources or capabilities rare?• Is the resources or capabilities easy to imitate?• Is the resources or capabilities sustainable (e.g. substitution available)?

17

Value Chain Analysis

• The activities that a company perform to create value for customers is the value chain• There are two types of activities

• Primary activities: directly related to the creation of customer value• Secondary activities: support activities that facilitate and enhance the performance

of the primary activities• The kind of primary activities and secondary activities vary depending on the

company’s specific business• For hotels: check-in/check-out, housekeeping, dining and room services are examples of primary

activities; training, administration, and human resources management are examples of secondary activities

• Supply chain management is a crucial primary activity for Amazon but not for WhatsApp

http://www.quickmba.com/strategy/value-chain/

18

Value Chain Analysis – Porter’s Model 1/3

Infrastructure

Human Resource Management

Technology Development

ProcurementIn

boun

d Lo

gist

ic

Ope

ratio

ns

Out

boun

d Lo

gist

ic

Mar

ketin

g an

d Sa

les

Serv

ice

Mar

gin

Primary Activities

Seco

ndar

y Ac

tiviti

es

19

Value Chain Analysis – Porter’s Model 2/3

• Primary activities• Inbound Logistics - relationships with suppliers and activities required to receive,

store, and disseminate inputs• Operations - activities required to transform inputs into outputs (i.e. products and

services)• Outbound Logistics - activities required to collect, store, and distribute the output• Marketing and Sales - activities inform buyers about products and services, induce

and facilitate buyers to purchase them• Service - activities required to keep the product or service working effectively for the

buyer after sales

20

Value Chain Analysis – Porter’s Model 3/3

• Secondary activities• Procurement - is the acquisition of inputs or resources• Human Resource management - activities involved in recruiting, hiring, training, developing,

compensating and terminating personnel• Technological Development - pertains to the equipment, hardware, software, procedures

and technical knowledge for the transformation of inputs into outputs• Infrastructure - serves the company's needs and ties different parts of the company together

(e.g. functions or departments such as accounting, legal, finance, planning, public affairs, government relations, quality assurance and general management)

• Margin - realize a profit margin that depends on the company’s ability to manage the activities in the value chain. • able to deliver a product/service for which the customer is willing to pay more than the total

cost of all activities in the value chain

• Example – Refer to the Starbuck example in the previous notes

21

Benchmarking 1/2

• Benchmarking is a strategy tool used to compare the performance of business processes/products/activities with the best performance of other companies inside or outside the industry• Learn how others perform in search of the best practices• Best practices – a method to perform an activity that consistently delivers superior

results compared to other approaches• Can be used to benchmark the value chain activities or the various business activities

to see if the company is cost competitive• Issue: how to perform reliable benchmarking?• Value chain analysis and benchmarking may reveal value disadvantages relative to

key rivals

22

Benchmarking 2/2

• Strategic options for remedying value disadvantages• Improve internal value chain activities (e.g. implement best practices, adopt new

technologies, redesign products)• Improve supplier related value chain activities (e.g. close collaboration with suppliers

to identify mutual cost-saving possibilities, switch to lower cost substitutes)• Improve distribution related value chain activities (e.g. collaboration, change

distribution methods/strategies)

23

Boston Matrix

• Use when a company has many different products/lines of business to determine which ones warrant focus and investment• Categorize products/lines of businesses into four areas based on

• Market share• Market growth

24

Cash cows: Low market growth/high market share- Mature products/business lines that

requires little investments- Cash generating (harvest or milk)

Star: High market growth/high market share- Need Heavy investment to maintain growth- Hold

Dogs: Low market growth/low market share- Sold or closed

Question marks: High market growth/Low market share- Need substantial investment to gain market

share- Build

Market Growth

Market Share

Boston Matrix

• Some of the Criticisms• Only provides a snapshot of the current situation with little or no predictive value• Does not consider issues such as sustainable competitive advantages• Does not take into account of the environmental factors• Only emphasizes on high market growth but ignores the potentials of declining

markets• The link between market share and profitability is questionable

http://www.quickmba.com/strategy/matrix/bcg/https://www.youtube.com/watch?v=JrQfcVoNXvA

25

Uber Technologies, Inc. 1/5

• Company background: Reference links• https://www.uber.com/about• http://time.com/3556741/uber/• http://www.bloomberg.com/profiles/companies/0084207D:US-uber-technologies-

inc• http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=14452

4848• http://www.businessinsider.com/history-of-uber-and-its-rise-to-become-the-most-

valuable-startup-in-the-world-2015-9

26

Uber Technologies, Inc. 2/5

Political:- Conflicts with local authorities due to

the constraints of local legislation and regulations

- Pressure from taxi drivers and legislators who may pass new legislations against Uber

Economical:- A large group of middle class people

who can afford to pay for such services

- Possible downturn of economy

Socio-cultural:- Middle class are willing to “buy”

convenience- Cost vs value is still an important

consideration factor- Car sharing is becoming more

popular.- People may not always use their own

car due to the lack of parking spaces- Convenience and cost are in general

more important than classy

Technological:- Smartphone penetration and usage

rate is high

PEST

Opportunities:• High smartphone penetration and

usage rate• A large group of middle class

people who can afford and willing to pay for convenience

• Lack of parking spaces encourage the use of other transport services

Threats:• Legislation and regulation

constraints• Uncertain economic condition.• Costs and value consideration is

important

27

Uber Technologies, Inc. 3/5

Intensity of competitive rivalry:- Kuaidi, backed by Alibaba, currently dominates the scene. It has

18,000 registered taxi drivers and 20,000 average daily orders as of 10February 2015

- Other smaller competitors: HK Taxi, Fly Taxi, and Fast Taxi all localstart-ups

Bargaining power of buyers:- Buyers have choices due to the existence of several competitors

Buyers are usually indifferent to which companies they choose as longas the cost is reasonable and the app is convenient/user friendly

Bargaining power of suppliers:- Uber relies on the drivers for its business and the drivers can choose

to join the competitors

Threat of substitutes:- There are other convenient choices such as bus, minibus, and MTR.

Threat of new entrants:- Low entrant costs but high maintenance cost.- The highly competitive situation may discourage new comers

Porter’s Five Forces

This is a highly competitive environment in which differentiating one with the other competitors and building strong loyalty relationships with suppliers and buyers is critical.

28

Uber Technologies, Inc. 4/5

SWOTStrength:- Well-recognized.- Quality services- Drivers are not permanently employed and so has no

responsibilities towards them- Low operational costsWeakness:- Conflicts with local legislations and regulations- The idea can be easily copied and very low entrance barrier- Loyalty of drivers is questionable- Low incentives for customers to stay with Uber- Drivers may be not compensated appropriately- Privacy concerns Opportunities:- Locals are not satisfied with the traditional taxi services- Can consider to provide additional services

Threats:- Possible new legislations or regulations that will ban its

operations- Possible price competition that will lower future revenues 29

Uber Technologies, Inc. 5/5

• Recommended Strategies• Seems that the strengths are closely related to opportunities. How and what

are the implications?• Seems that there is a weak connection between strengths and threats. What

does this mean?• How does these affect strategies formulation?

30

IKEA-- China 1/5

• Company background and Referenceo Wu, Yiqiong. (2020). The Marketing Strategies of IKEA in China Using Tools of PESTEL,

Five Forces Model and SWOT Analysis. 10.2991/assehr.k.200207.054. (https://www.researchgate.net/publication/339588816_The_Marketing_Strategies_of_IKEA_in_China_Using_Tools_of_PESTEL_Five_Forces_Model_and_SWOT_Analysis)

31

IKEA-- China 2/5

Political:- Furniture export rebates is reduced

from 14% TO 5% resulting in limited furniture export and high pressure in Chinese furniture manufacturers

- Weak design protection regulations

Economical:- Growing GDP- The government’s marco-control

policy are stimulating national consumption growth

Socio-cultural:- Improved living standard- People likes to present guests with

beautiful furniture- New generation are relatively well

educated with interested in foreign brands

Technological:- Lack of new technology and

qualified standards for domesticfurniture manufacturers comparedto the European counterparts

PEST

32

IKEA-- China 3/5

Intensity of competitive rivalry:- Many small local competitors, only a few have large market share- Market is far from mature with most local manufacturers still using

original equipment manufacturing (OEM)

Bargaining power of buyers:- Customers have many alternative choices

Bargaining power of suppliers:- IKEA have a close relationship with their key supplier- Built new suppliers in China

Threat of substitutes:- Difficult to substitute furniture manufacturing and retailing- Delivery can be substituted with online purchase (IKEA does provide

online purchase platform)Threat of new entrants:- The market is relatively regional, new players are usually focusing on

different areas- Hard for new player to get high profits

Porter’s Five Forces

33

IKEA-- China 4/5

SWOTStrength:- Good brand identity with good reputation- Strong supplier relationship to lower costs

Weakness:- Weak in price advantage due to supplier chain

Opportunities:- Large population with increasing living standards

Threats:- More and more competitors are providing flat-pack low price

furniture- The self-service based on the cost leadership strategy cannot

suit the mainstream Chinese culture

34

IKEA-- China 5/5

• Conclusion• Changed target customers to young customers• Changed suppliers to ones who are based in China for the Chinese market• How to protect their professional design

35

Further Case Studies

• Strategic Analysis of Marks & Spencer Plc (https://www.ivoryresearch.com/samples/strategic-analysis-marks-spencer-plc/#:~:text=A%20general%20overview%20of%20Marks,of%20the%20company%20is%20given)• Aliexpress’s Strategic Choice for Enteringt the E-Commerce Market in

Thailand (https://e-research.siam.edu/wp-content/uploads/2019/08/IMBA-2017-IS-Aliexpresss-Strategic-Choice-for-Entering-the-E-Commerce-Market-in-Thailand_compressed.pdf)

36