1405+UF1+(part+2+as+presented)

Anna Rosinus

Strategic management Process (2)

Mission Reason for existence

Objectives What results to accomplish by when

Strategies Plan to achieve the mission & objectives

Policies broad guidelines for decision-making

Environmental Scanning

Strategy Formulation Strategy Implementation

Evaluation and Control

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Anna Rosinus

Strategy Formulation: Situation Analysis & Business Strategy

the SWOT Analysis Vision, Mission and Objectives generating alternative strategies (TOWS) Business Strategies

Porter’s Generic Strategies Competitive Tactics Cooperation

„what to expect?“

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Anna Rosinus

Situation Analysis: SWOT Analysis analysis of external opportunities and threats as well as internal

strengths and weaknesses in order to…

find a strategic fit between a company and its environment = matching external opportunities and internal strengths while

working around external threats and internal weaknesses

how to analyse a company’s environment?

65

Anna Rosinus

SWOT-Matrix opportunities threats ... ... ...

... ... ...

strengths ... ... ...

weaknesses ... ... ...

what are a company’s strengths & weaknesses, opportunities & threats?

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Anna Rosinus

SWOT-Matrix Starbucks (1) practical application: Starbucks

strengths

No1 coffee house worldwide (market share & growth)

strong brand image high quality of products service level atmosphere (“Starbucks experience”) customer loyalty prime locations reliable, committed employees corporate social responsibility (fair

trade products etc.)

weaknesses

high price level “American” image (in some

international markets) still strong US focus (~60%) unhealthy products, rich in sugar and

fat strong focus on adults limited menu (small range of food,

few non-coffee beverages, no alcoholic beverages)

dependency on franchisees

Anna Rosinus

SWOT-Matrix Starbucks (2) practical application: Starbucks

Opportunities

globalisation leads to an harmonisation of consumer tastes (in particular Europe, but also Asia, Latin America)

take away-trend (“time is money”) trend towards outside office-work

(freelancers, self-employed people) home consumption, supermarket

purchases of well-known brands, “familiar & trusted tastes”

availability of strategic partnerships, cross-selling opportunities

Threats

shortages in coffee supply rising commodity prices and labour

cost (fluctuations in general) insufficient purchasing power (crises,

slowing US economy, etc.) increasing competition, in particular

from low-price competitors (with still good quality level)

rising health awareness

Anna Rosinus


... ... ...



group work: analyse S, W, O, and T for Fielmann

67 - 1

Anna Rosinus


... ... ...



group work: analyse S, W, O, and T for Fielmann

Fielmann AG is a German optics company focusing on retail eyewear as a producer, broker and service provider, Fielmann covers the entire

supply chain of the optometry branch glasses, sunglasses and contact lenses but also hearing aids are offered 671 branches in Germany, Austria, Switzerland, Poland, Luxembourg and

the Netherlands (including franchises and industries) €1.29 billion in sales and 7.1 million glasses in 2012 With its 572 stores in Germany Fielmann enjoys a 50% unit market share

of the industry, a 20% sales market share, as well as 5% of all German optometric stores

company is seen as the market leader in Germany and largest optical chain in Europe

15,494 employees, 2,779 of whom were in training, Fielmann trains 37% of all optometrist apprentices in Germany

still no webshop/eBusiness

67 - 2

Anna Rosinus

Vision, Mission and Objectives what does a company want to achieve (today & tomorrow)?

mission who are we? what do

we do (and why)?

strategies how can we turn our vision into reality?

short-term objectives, milestones, actions & KPI’s how exactly do we proceed? what are our intermediate goals?

vision what do we aim at?

values what do we stand for?

achievable, tangible, specific

long-term objectives what do we want to achieve (performance targets)?

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we do (and why)?







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Anna Rosinus

Mission and Vision Statement: Lego practical application

Mission: ‘Inspire and develop the builders of tomorrow’ Our ultimate purpose is to inspire and develop children to think creatively, reason systematically and release their potential to shape their own future - experiencing the endless human possibility.

Vision: ‘Inventing the future of play’ We want to pioneer new ways of playing, play materials and the business models of play - leveraging globalisation and digitalisation...it is not just about products, it is about realising the human possibility.

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Anna Rosinus

Mission Statements: further Examples McDonald's mission is to be our customers' favorite place and way to eat with inspired people who delight each customer with unmatched quality, service, cleanliness and value every time our mission statement up to the year 2020 is clearly defined: the BMW Group is the world’s leading provider of premium products and premium services for individual mobility. Facebook’s mission is to give people the power to share and make the world more open and connected.

Starbucks Our mission: to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.

Audi vision “the premium brand” (becoming the leading brand worldwide in the premium car segment), mission: “we delight customers worldwide”

Nike our mission: to bring inspiration and innovation to every athlete* in the world (*if you have a body, you are an athlete)

Amazon Corporate mission: We seek to be Earth’s most customer-centric company for four primary customer sets: consumers, sellers, enterprises, and content creators.

practical application

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Anna Rosinus



we do (and why)?







69

Anna Rosinus

Hierarchy of Strategy what is the relationship between different types of strategies?

adapted from Wheelen, Hunger (2012)

Corporate Strategy: what do we want to do? in which industries do we want to be?

overall direction

industries & markets to

target

Business Strategy how can we outpace our competitors?

competitive strategies

cooperative strategies

Functional Strategies which resources shall we use, where&how?

Resource Allocation

Maximisation of Productivity

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Anna Rosinus

Strategy Formulation strategic planning or long-range planning

development of mission, objectives, strategies and policies

tools facilitating strategy formulation:

TOWS-model

Porter’s generic or competitive strategy model

what is strategy formulation - and how is it done?

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Anna Rosinus

Making Strengths even Stronger or Weaknesses at Least Competitive?

your team “the offenders” strongest = 5, weakest =1 strongest/most relevant

opposing team “the wall”

4 3

4 3

1 4

4 5

how would you react?

Anna Rosinus

TOWS Matrix how to deal with strengths & weaknesses, opportunities & threats?

opportunities threats generating strategies that…

... ... ...

... ... ...

strengths SO strategies ST strategies

... ... ...

use strengths to take advantage of opportunities

use strengths to avoid threats

weaknesses WO strategies WT strategies

... ... ...

take advantage of opportunities in order to reduce weaknesses

minimise weaknesses AND avoid threats

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Anna Rosinus

TOWS Matrix: Starbucks practical application: Starbucks

opportunities threats consumer tastes harmonisation take away-trend outside office-work “familiar & trusted tastes” strategic partnerships

coffee supply and price purchasing power (crises etc.) increasing competition rising health awareness

strengths SO strategies ST strategies No1 worldwide, strong brand high quality of products,

service atmosphere, locations customer loyalty reliable, committed

employees corporate social responsibility

making use of customer loyalty leveraging the strong brand by

introducing further take-away products (home consumption, supermarket)

strategic partnerships free WiFi (combined with price

differentiation take away – to sit)

increase number of strategic partnerships ( coffe supply, fair trade etc.)

home/office deliveries brand development/stretching

towards sustainable, healthy colour codes for sugar/fat

weaknesses WO strategies WT strategies high price level “American” image, US focus unhealthy products focus on adults, limited menu dependency on franchisees

international expansion shifting focus from stores to other

distribution channels, in-store, supermarket, eCommerce

target younger customers

increase product portfolio more healthy products, offerings for children, after work drinks …

Marketing: link fair trade coffee to product price (policy)

Anna Rosinus

TOWS Matrix

group work: please use the TOWS approach to develop 2 strategies of your choice (e.g. SW and OT ) for

opportunities threats generating strategies that…

... ... ...

... ... ...

strengths SO strategies ST strategies

... ... ...

use strengths to take advantage of opportunities

use strengths to avoid threats

weaknesses WO strategies WT strategies

... ... ...

take advantage of opportunities in order to reduce weaknesses

minimise weaknesses AND avoid threats

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Anna Rosinus

Business Strategy/Competitive Strategy

low cost? differentiation?

how to formulate business level strategy?

compete in large market? focus on niche?

design, produce and market more

efficiently than competitors

(not necessarily low price)

unique and superior value in terms of quality, features, and/or service

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Anna Rosinus

Porter’s Generic or Competitive Strategies (1)

cost leadership differentiation

cost focus differentiation focus

how to formulate business level strategy?

competitive advantage co

mpe

titiv

e sc

ope

quality, features, services

cost br

oad

narr

ow

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Anna Rosinus

Porter’s Generic or Competitive Strategies (2) what means cost leadership? how to achieve?

targets broad mass market

aiming at lowest cost in the industry

focus on scale economies & efficiency

avoidance of overhead costs

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Anna Rosinus

Porter’s Generic or Competitive Strategies (3) what means differentiation? how to achieve?

targets broad mass market

unique product with superior quality, product features, technology or additional services

aims at charging premiums

customers should have a lower sensitivity to price

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Anna Rosinus

Porter’s Generic or Competitive Strategies (4) what means focus? how to achieve?

focus on a market niche, i.e. a particular buyer group or market segment, region etc.

(“segmentation Strategy”, “niche strategy”) aiming at expertise and advantage in the

target market COST FOCUS

cost leadership in market niche seeks cost advantage in target market

DIFFERENTIATION FOCUS differentiation in targeted market segment serves special needs in its narrow target market

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Anna Rosinus

Risks for the 3 Generic Strategies COST LEADERSHIP DIFFERENTIATION FOCUS

competition over price – competitors imitate cost advantages

image problems – low quality, unethical behaviour (bad CSR)

low margins cost leadership is no

longer sufficient to attract customer

technological progress ( production efficiency) or other changes that erode basis for cost advantages

customers no longer value the basis for differentiation (e.g. brand), lack of willingness to pay the premium

imitation by competitors

high costs no clear USP external influences

might be more harmful

changes in segments, in particular segments are getting too small or segments align to broad market

copying new segmentation,

which is better/more appropriate

what are potential risks for the 3 generic strategies

Anna Rosinus

Porter’s Generic or Competitive Strategies (5) what do we think about the generic strategies today?

* Porter (1980) “Competitive Strategy: Techniques for Analyzing Industries and Competitors”

Porter originally analysed 3 dimensions: level of differentiation, relative product cost, and scope of target market

he combined these dimensions (and their ranking: low, medium, or high) in a 3 dimensional matrix most of the 27 combinations were not viable => reduction to cost leadership, differentiation, and focus*

conclusion: any other combination = “stuck in the middle” today: combinations “in the middle” can be quite attractive

“hybrid strategies” “strategy clock”

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Anna Rosinus

The Strategy Clock what about newer concepts?

Johnson et al. (2011)

86 - 1

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price higher than average

price lower than average

86 - 2

Anna Rosinus



above average benefits

below average benefits

86 - 3

Anna Rosinus



price higher than average

above average benefits

price lower than average

below average benefits

86 - 4

Anna Rosinus


& gyms bookstores


Anna Rosinus

& gyms


bookstores

Anna Rosinus

practical application & gyms


bookstores

Anna Rosinus

Porter’s Generic Strategies for Bookstores




competitive advantage

com

petit

ive

scop

e

Anna Rosinus




com

petit

ive

scop

e

WHAT ABOUT AMAZON?

Anna Rosinus




com

petit

ive

scop

e

Anna Rosinus

Industry Structure and Competitive Strategy fragmented industries: many small- and medium-sized companies

compete for relatively small shares of the total market products are typically in early stages of product life cycle no industry standards (so far) often focus strategies are used

consolidated industries: dominated by a few large companies typically mature industries and/or products knowledgeable buyers regional, national or even international competitors fight for market share emphasis on cost (economies of scale) OR in case of slower growth, overcapacity, additional services are used (i.e.

differentiation)

how does the industry structure limit the range of viable business strategies?

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Anna Rosinus

Competitive Tactics (1) tactics are specific operating plans that…

detail how a strategy is going to be implemented, particularly in terms of timing and location of actions (“when and where”)

are narrower in scope and shorter in time horizon than strategies timing tactics: when a company implements a strategy

(often: enters/develops a market) first movers/pioneers early seconds late movers/entrants

how can a strategy be detailed?

89

Anna Rosinus

Innovation Adoption Curve how fast do customers “buy into” innovations?

Moore und Rogers, via wikipedia.de

61

successive groups of consumers adopting the new technology its market share

“the chasm“

90

Anna Rosinus

Competitive Tactics (2) – Market Location Tactics

offensive tactics

frontal assault

flanking maneuver

bypass attack

encirclement

guerrilla warfare

defensive tactics

raise structural barriers

increase expected retaliation

lower the inducement for attack

where does a company implement a strategy?

91

Anna Rosinus

Cooperative Strategies gaining a competitive advantage within an industry by working

together with other firms examples of cooperation types:

mutual service agreements licensing arrangements, Joint Ventures value-chain partnerships

strategic alliances: long-term cooperative arrangements between at least two independent companies in order to: acquire new capabilities obtain access to specific markets reduce financial and/or political risk

collusion: active cooperation of firms within an industry to reduce output and/or raise prices, e.g. oil & gas, coffee etc.

is fighting other organisations the only viable option?

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Anna Rosinus

Strategic Groups groups of organisations within an industry/sector with…

similar characteristics, following similar strategies, or competing on similar bases

characteristics of organisations in this group are different from those in other strategic groups in the same industry/sector

characteristics refer to the scope of activities and the resource commitment

useful for the analysis of strategic groups are two-dimensional charts/maps

criteria should be not/little correlated

what if competitors seem pretty similar regarding their strategies?

chart: example of strategic groups in the Indian pharmaceutical industry, taken from Johnson et al. (2014)

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Anna Rosinus

Example Strategic Groups: Fast-food in Germany group work

abc xyz

abc

xyz

criterion 2

crite

rion

1

please analyse the German fast-food market for strategic groups? 1. define appropriate criteria

upon which to base your analysis (e.g. breadth of menu/product portfolio, price)

2. rate the 5-10 companies you consider most important in that market (e.g. KFC, McDonald’s, Subways, Pizza Hut, Vapiano, Pizza Pepe, Mensa etc.)

3. visualise your results and search for clusters, i.e. strategic groups

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Anna Rosinus

Example Strategic Groups: Fast-food in Germany group work

Anna Rosinus

Hierarchy of Strategy what is the relationship between different types of strategies?

adapted from Wheelen, Hunger (2012)

Corporate Strategy: what do we want to do? in which industries do we want to be?

overall direction

industries & markets to

target

Business Strategy how can we outpace our competitors?

competitive strategies

cooperative strategies

Functional Strategies which resources shall we use, where&how?

Resource Allocation

Maximisation of Productivity

97

Anna Rosinus

Corporate Strategy Dimensions what has to be decided?

directional strategy

growth

stability

retrenchment

portfolio analysis

corporate parenting

99

Anna Rosinus

Directional Strategies towards which alternative directions can a company orientate?


growth

stability

retrenchment

pause/proceed with caution no change profit

turnaround captive company sell-out/divestment bankruptcy/liquidation

concentration diversification vertical concentric horizontal conglomerate

100

Anna Rosinus

Growth Strategies (1 – how?) how can a company achieve growth?


growth

stability

retrenchment

internal innovation, creativity and product

development (R&D)

external mergers acquisitions strategic

alliances

101

Anna Rosinus

Growth Strategies (2 – where?) how can a company achieve growth?


growth

stability

retrenchment

concentration current

product lines current

markets/ industries

diversification other product

lines new markets/

industries

102

Anna Rosinus

Basic Concentration Strategies what does “concentration” mean?

VALUE CHAIN

intermediate product 1

distribution/retail

end/final product A


raw material

end/final product B

vertically backward

horizontal

vertically forward

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Anna Rosinus

Example Horizontal Integration (Partnership): Star Alliance practical application

Anna Rosinus

Basic Concentration & Diversification Strategies

VALUE CHAIN


distribution/ retail

end/final product


raw material

Anna Rosinus

Example Full Vertical Integration: British Petroleum (BP) practical application

Anna Rosinus

Example Full Vertical Integration: Wineries practical application

planting and maintenance of grape-bearing vines, harvesting of grapes, etc.

winemaking, i.e. primary fermentation (and bottling)

a second alcoholic fermentation in bottle / tank

riddling, disgorging, dosage or bottling (tank)

sales, marketing & distribution

Anna Rosinus

Basic Diversification Strategies

concentric diversification

= growth into related industry

goal? search for synergies

who? firms with a strong competitive position …

…and outstanding, transferable skills

conglomerate diversification

growth into unrelated industries

goal? financial considerations

(cash flow/risk reduction)

who? current industry lacking attractiveness…

…transferable skills missing

how can companies diversify?

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risk reduction through diversification – a classical example

0

200

400 totalturnover

0

200

400

umbrellaturnover

0

200

400

icecreamturnover

Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13

weather(sunshine)

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Anna Rosinus

Examples Concentric Diversification practical application

Anna Rosinus

Examples Concentric Diversification practical application

Anna Rosinus














Anna Rosinus

Examples Conglomerate Diversification practical application

further examples: http://www.ge.com/products http://en.wikipedia.org/wiki/Berks

http://www.ge.com/products

http://en.wikipedia.org/wiki/Berkshire_Hathaway%23Businesses

http://en.wikipedia.org/wiki/Berkshire_Hathaway%23Businesses

Anna Rosinus

Examples Conglomerate Diversification practical application

Anna Rosinus

Growth Strategies – Ansoff Matrix how can a company extend its activities?

adapted from Ansoff (1988)

Market Penetration

Product Development

Market Development Diversification

new existing ne

w

exis

ting

products m

arke

ts

106 - 1

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Market Penetration

Product Development


new existing ne

w

exis

ting

products m

arke

ts

Anna Rosinus



Market Penetration

Product Development


new existing ne

w

exis

ting

products m

arke

ts

Anna Rosinus

3D-diversification: an Extension of ‘Ansoff’ how can a company extend its activities?

example: Daimler sells the new E-smart (new product/ technology) in the US (international market), whereby they tackle a) the segment of small cars & b) those of electronically powered vehicles (new use/value)

Anna Rosinus

Controversies in Directional Strategies is concentric diversification better than conglomerate diversification?


107

Anna Rosinus

Outsourcing = “opposite” of vertical Integration (“insourcing”) activities previously carried out internally are subcontracted to

external suppliers examples:

subcontracting the production of components to a specialist supplier Outsourcing of after-sales services to a cheaper location (e.g. call centres)

drivers/motivation: cost reduction quality improvements focus on core competencies/ distinctive capabilities, externalising non-

core activities, e.g. (professor CEO = world-champion in typewriting, nonetheless most writing is done by its secretary; having a housekeeper…)

insourcing or outsourcing – what should a company do?

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Anna Rosinus

Stability Strategies in general: no significant changes in direction

is changing the status quo always the best solution?

pause/proceed with caution might be followed by a growth/ retrenchment strategy

no change profit strategies no change in strategic direction

despite a worsening situation only changes: reduction of investment

and/or short-term expenditures might be reasonable if environmental

challenges are only temporary

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turnaround when a corporation’s

problems are not yet critical

improvement of operational efficiency (“diet”)

contraction: “stop the bleeding”, general cutback in size and costs

consolidation: streamlining, reduction in overheads in order to stabilise the now leaner corporation

captive company giving up independence in exchange for security

sell-out/ divestment selling the entire

company/ selected business units to another corporation

losses can be minimised if the buyer’s resources/ capabilities can improve the company’s/ selected business units’ situation

bankruptcy management of the firm is given to the courts in return for some settlement of the corporation’s obligations

liquidation turning assets into cash, settle obligations “paying off” investors

Retrenchment Strategies what to do when serious problems arise?

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growth

stability

retrenchment

portfolio analysis

corporate parenting

112

Anna Rosinus

Portfolio Analyses categorisation of business units (SBUs) on portfolio matrices,

i.e. 2-dimensional charts/maps prioritisation tool:

identification of business units that merit further investment (or not) identification of further investment needs (e.g. product development)

popular examples are the BCG and the GE–McKinsey-matrix BCG matrix:

developed by Boston Consulting Group in 1970 (Bruce D. Henderson, CEO) also known as growth/share-matrix

GE–McKinsey-matrix developed by McKinsey for GE in 1970 facing the main critics of the BCG-matrix broader dimensions on the axes directional policy

how to?

113

Anna Rosinus

Product Life-Cycle Theory repetition

introduction growth decline maturity

“as the product progresses through its life cycle, changes in the marketing mix usually are required”

Theodore Levitt firstly described the product life cycle in 1965

Anna Rosinus

Learning/Experience Curve & Economies of Scale repetition

HORIZONTAL AXIS: experience curve:

accumulated production volume over time

economies of scale: production volume per period

-10

-5

0

5

10

15

20

0 5 10 15 20

€

costs per unit price per unit profit per unit

Anna Rosinus

BCG Matrix market growth (market

attractiveness) product-life-cycle theory the younger the product

the higher the growth relative market share

(competitive position): the SBU’s market share

divided by the market share of the biggest competitor

experience curve the higher the production

volume the lower the per unit-cost

what does a Portfolio Matrix look like?

mar

ket g

row

th

high

„question marks“ „stars“

low

„poor dogs“ „cash cows“

low high market share

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BCG Matrix implications:

cash generation (highest for stars & cash cows)

investment needs (highest for question marks & cash cows stars)

what does a Portfolio Matrix look like?

mar

ket g

row

th

high


low


low high

market share

Anna Rosinus

Example BCG Matrix: Hewlett Packard practical application

seven business segments 2013: 1) Personal Systems

(here PCs) 2) Printing 3) the Enterprise

Group (‘‘EG’’) 4) Enterprise

Services (‘‘ES’’) 5) Software 6) HP Financial

Services (‘‘HPFS 7) Corporate

Investments

Anna Rosinus

Group Work BCG Matrix 1) Please illustrate the portfolio of Corporation ‘ABCD’ with a BCG matrix

2) What are your recommendations?


brands, SBUs

revenues % of corporate revenues

largest competitor’s market share

your brand’s market share

relative market share

market growth rate

A $500,000 54% 25% 25% 1 3% B $350,000 38% 30% 5% 0,17 12% C $50,000 6% 45% 30% 0,67 13% D $20,000 2% 10% 1% 0,1 15%

medium growth

10%

mar

ket g

row

th

high


low


low high

market share

Anna Rosinus

BCG Matrix what does a Portfolio Matrix look like?

mar

ket g

row

th high

(20%

) lo

w (0

%)

1

0%

low (0) medium (~1) high


brands, SBUs

% of corporate revenues


market growth

rate

A 54% 1 3% B 38% 0,17 12% C 6% 0,67 13% D 2% 0,1 15%

medium growth

10%

A

B C

D

Anna Rosinus

McKinsey-Matrix (1) what does a Portfolio Matrix look like?

(long-term) industry attractiveness: market size & growth rate demand variability industry profitability & rivalry global opportunities macroenvironmental factors (PEST)

strength of the business unit / competitive position: market share + growth brand equity access to distribution channels production capacity profit margins relative to

competitors

A winners winners

B

C

question marks

D

F

average businesses

E winners

Losers

G losers H

losers

profit producers

strong weak

low

hi

gh

business strength

indu

stry

att

ract

iven

ess

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Anna Rosinus

McKinsey-Matrix (2): Implications what does a Portfolio Matrix imply?

indu

stry

att

ract

iven

ess

high

!

low

low high

business strength

116

Anna Rosinus

Portfolio Analysis – Pro’s & Con’s

ADVANTAGES

sound evaluation of a firm’s SBUs (1: all of them, 2: definition of SBUs needed)

management judgment as well as externally oriented data is used

analysis of cash flow availability: generation vs. consumption

one page overview facilitates communication

DISADVANTAGES

definition of appropriate product/market segments (in order to compare SBUs with competition)

standard strategies (implications) can miss opportunities

illusion of scientific rigor value-laden terms

how to rate portfolio analyses?

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growth

stability

retrenchment

portfolio analysis

corporate parenting

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Corporate Parenting value creation from the relationship between the parent and its

businesses ( core competencies of the parent corporation) build/enhance business unit value synergies across business units

possible corporate strategies acc. to Porter (1987) portfolio management restructuring transferring skills sharing activities (listed in ascending order in terms of parental influence and use of synergies)

what are the different roles in diversified companies?

119

Documents

1405+UF1+(part+2+as+presented)