IBUS5002 Week 4 Lecture Notes

8/18/2019 IBUS5002 Week 4 Lecture Notes

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SECTION DIVIDER [1 line only]

Week 4 -

Frameworks to understand the internal &

external factors impacting business

Dr Richard Seymour1

IBUS 5002

Strategy, Innovation &

Entrepreneurship


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outline

• This week we’re going to cover strategic issues

associated with entrepreneurial activity, including thetools for understanding the external:

1. environment

2. industry3. consumers

2


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your Mission

- Fundamental

purpose- Values & vision

your Objectives

- Specific

-Measurable

- Achievable

-

based on Hambrick & Fredrickson (2001)

the internal

- Resources

- Capabilities

- People

- Leadership

- SW(OT) etc.

the External

- Environment

- Industry- Consumers

- (SW)OT etc.

your Strategy

(holding this all

together!)


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nature of change is shifting

• nature of competition ischanging

- technological changes

- technological diffusion- information &

communication

technologies

- importance ofknowledge• pace of change is

relentless…

- and increasing• traditional industry

boundaries are blurring:

- computers &telecommunications

- product & service- service & experience


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new competitive landscape

• global economy ischanging

- people, goods services& ideas move freelyacross geographical

boundaries

- new opportunitiesemerge in multiple

global markets

- markets and industriesbecome more globalised

• traditional sources ofcompetitive advantage no

longer guarantee success

• new keys to successinclude:

- flexibility- innovation

- speed- integration


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what does it mean for you?

• competitive landscape is more volatile & unpredictable

• environmental changes are likely to be discontinuous

• a declining emphasis on single domestic markets as moreindustries globalise

• firms must compete differently to achieve strategic

competitiveness & earn above-average or superior returns

• managers must make significant and sometimes painfuldecisions to achieve strategic/sustained competitiveness


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a) environment

• standard framework

- PESTLN

• focus on the long term (usually) - look as far back asyou do forward

• these factors will not be present around all industriesin equal importance

• as well as identifying them, consider their significance

• allow for ‘shocks’ that occur irregularly, likeearthquakes and tsunamis (radical & incremental)


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as examples…

Political• stability• rent-seeking• activism

Social structure• Consumer preferences• Cultural shifts

• Value changes

Technological• Communication• Information• Physical• transport (?)

Economic• Interest rates• Inflation• Cost of key inputs• Disposable income• Unemployment

Natural environment• Resources

• Weather• Seasonality

Demographic structure• Population growth• Age distribution

• Ethnic mix• Gender mix

industry

Legal• Consumer laws• Competition laws


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b) industry

• standard frameworks include

- five-forces (see your readings) & value net- value chains and eco-systems

- strategic groups & mobility

- structure, conduct, performance

- etc. etc.


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define your industry

• define industry boundaries by identifying the relevantmarket

- define the boundary by substitutability on thedemand side

- geographical boundaries may also apply to amarket

• remain wary of external influences

• be conscious of purpose of classification


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five forces (not so helpful)

SUPPLIERS

BUYERS

POTENTIAL

ENTRANTS SUBSTITUTES

INDUSTRY

COMPETITORS

Rivalryamong

existing firms

Threat of newentrants

Threat ofsubstitutes

Bargainingpower of buyers

Bargainingpower ofsuppliers


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criticisms of 5-forces?

• based on structure-conduct-performance approach that

has been largely replaced by game theory

•

assumptions may not always hold (businessrelationships are not always at arms length)

• static nature of analysis (competitive interactions are

not well managed - e.g. complementors)

• sometimes blind to complementors & dynamics of of

markets

• ‘power’ & ‘threats’ not so useful for entrepreneurial firms


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External

shocks

Industry Firms’ strategy

S C PChanges in

structure

Changes in

conduct

Changes in

performance

Structure-Conduct-Performance

Framework (not so useful)

Technology

breakthroughs

Changes in

government policy

Changes in tastes

or lifestyles

Demand

economics

Supply

economics

Industry value

chain

Finance

• Profitability

• EVA

Technological

progress

Employment

Sales & Marketing

Capacity changes

Vertical

integration

Operational

efficiency


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External

shocks

Industry Firms’ strategy

S C PChanges in

structure

Changes in

conduct

Changes in

performance

Structure-Conduct-Performance

Framework (yawn)

Technology

breakthroughs

Changes in

government policy

Changes in tastes

or lifestyles

Demand

economics

Supply

economics

Industry value

chain

Finance

• Profitability

• EVA

Technological

progress

Employment

Sales & Marketing

Capacity changes

Vertical

integration

Operational

efficiency


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the value net (useful)

you

customers

suppliers

substitutors complementors

Source: Brandenburger & Nalebuff (1995)


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the game of business

Utilise the value net to identify

• substitutors (alternative players from whom

customers may purchase products or to whomsuppliers may sell their resources)

• complementors (players from whom customers buy

complementary products or to whom suppliers sell

complementary resources)

• customers & suppliers (parties with whom the

company transacts)


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changing the game

1. explore the interdependencies (draw the value net)

2. identify all the elements of the game

- Players (none are fixed)- Added values (what each player brings to the game,

raise yours, lower others)

- Rules (structures for the game)

- Tactics (moves to shape the way players perceive thegame, reduce misconceptions or create uncertainty)

- Scope (the boundaries of the game)


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traps of co-optation strategy

• don’t think you have to accept the game you find yourself in

• changing the game must not come at the expense ofothers

• don’t believe everything done has to be unique

• ensure you see the whole game (particularly in relation tocomplementors)

• ensure you think methodically about changing the game(allocentric not egocentric)

• there is no ‘silver bullet’ for changing the game of business(it is ongoing)


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value chain analysis (bottom drawing)

Source:

Porter, 1985,Competitiveadvantage


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your Mission

- Fundamental

purpose- Values & vision

your Objectives

- Specific

- Measurable

- Achievable

-

based on Hambrick & Fredrickson (2001)

the Internal

- Resources

- Capabilities

- People- Leadership

- SW(OT) etc.

the External

- Environment

- Industry- Consumers

- (SW)OT etc.

your Strategy

(holding this all

together!)


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resources & capabilities

• standard frameworks include- resources (stuff you have)

- capabilities (what you do with that stuff)

- competencies (?)


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Source:

Porter, 1985,Competitiveadvantage

internal value chain (top half of drawing)

(c) Dr Richard Seymour 2010


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resources & capabilities

Resources & capabilities lead to competitive advantage when they are:

valuableThey allow the firm to exploit opportunities or neutralise

threats in external environment

rarePossessed by few if any current and potential

competitors

costly to

imitate

When other firms either cannot obtain the resources/

capabilities or must obtain them at a much higher cost

non-

substitutable

The firm must be organised appropriately to obtain the

full benefits of the resources in order to realise a

competitive advantage

(c) Dr Richard Seymour, 2010

(c) Dr Richard Seymour 2011


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competencies

• when resources & capabilities are valuable, rare, costlyto imitate, & non-substituatable, they become a core

competency

• core competencies are resources & capabilities that canserve as sources of sustained competitive advantage

• resource-based model argues that core competenciesare the basis for a firm’s competitive advantage,strategic competitiveness & ability to earn above

average returns

(c) Dr Richard Seymour, 2011


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portfolios of competencies

• The diversified corporation is a large tree:

- The leaves, flowers, fruit are end products- Smaller branches are business units

- Trunk & major limbs are core products

- Root system that provides nourishment andstability is the core competence

Documents

IBUS5002 Week 4 Lecture Notes