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EBBM06 Strategic CaseAnalyses
Introduction and Overview of the StrategicProcess What is strategy?
The strategic management process The creation of strategy Strategy in specific contexts
Andrew Henley 2009
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EBBM06 Introduction
Strategies: actions and activities designedand implemented to achieve designated
purposes
Strategies are means to ends To some extent all managers are involved
in the strategy process
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EBBM06 Introduction
Mintzberg five perspectives on strategy
Strategy
Vision
Plan
TacticPosition
Pattern
Source: T&M,Fig 1.1
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EBBM06 Introduction
Three distinct themes within the study ofstrategic management How do factors acting on the organisation from
outside determine the choice of strategy? - Thestrategic environment How do the actions of other organisations
determine the choice of strategy? - The
competing organisation How does the nature of leadership in the
organisation affect the choice of strategy? The individual strategist
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EBBM06 Introduction Environment Values - Resources
Environment-market
-competition
Values-of the leader
-of stakeholders
Resources-competencies
-capabilities
SWOT
Creation ofstrategies
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EBBM06 Introduction
Strategic fit
Values
EnvironmentResources
Strengthsand
weaknesses
Opportunitiesand threats
Leadershipand culture
Thompson, p. 54,T&M, pp125-30describe non-congruentexamples
Strategic fit orcongruency
Competition
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EBBM06 Introduction
Levels of strategy
The search for competitive advantage inparticular business functions or activitieswhich comprise elements of the valuechain
Functionalstrategy
The market positioning of a particularproduct or service line, in the search forcompetitive advantage
Competitivestrategy
The strategic approach of the organisation
as a whole
Corporate
strategy
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EBBM06 Introduction
The purpose of strategy to exploit synergybetween functions and
business units within the organisation in order to change for the better.
So functional strategies must fit with theorganisations competitive position, and mustcomplement each other
Outcome a stronger competitive position,sustained by innovation and improvement
Achieving change depends on the qualities ofthe strategic leader
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Adaptive strategiesin a dynamicenvironment
EBBM06
Discarded(inappropriate)
strategies
Implementation ofintended strategies but with incremental
changes
Actualstrategiespursued
Emergentstrategy with
learning
Intendedstrategies
Formallyplanned
strategies
Leadership
vision
Strategy Creation (source T&M Fig 1.8)
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EBBM06
Situation appraisal:review of objectives
Situationassessment:
SWOT
Clarification ofobjectives
Corporatestrategy
Competitivestrategies
Strategicdecisions
Implementation
Monitorprogress
Where are we?
Whereare wegoing?
Howare wegetting
there?
Howarewedoing?
Leadershipand culture
The Strategy Cycle (source T&M Fig 1.5)
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EBBM06 Mission and Objectives
Analysing the Organisations Mission andObjectives The Business Model
Mission, vision and objectives Objectives: models of the organisation Social responsibility objectives and business
ethics
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EBBM06 Mission and Objectives
The Business Model The organisations recipe for success Key components:
Products/services
Customers Competitive logic the reason for buying
Could be based on price or on difference
Market positioning Narrow product/service; broad customer range
Board product/service; narrow customer segment
Narrow range for a targeted niche
Broad range; broad customer range
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EBMR06
Where do vision andmission fit into strategy?
Long-term
objectives
Strategies
Short-termobjectives
Standards ofbehaviour
Values
Vision
MissionPurpose why orgn
exists
Strategicparadigm
how the orgn
adds value, forwhom
Source: T&M, Fig 2.2
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EBBM06 Mission and Objectives
A vision statement describes what organisationaspires to become in the futureWe are the worlds local bank (HSBC)Our global quest is to improve the quality of human
life by enabling people to do more, feel better andlive longer (GlaxoSmithKline)
Sony doesnt serve markets; Sony makes marketsThe worlds favourite airline (British Airways)
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EBBM06 Mission and Objectives
A mission statement describes the reason anorganisation exists, what it does and who itseeks to produce for/serve.To provide our customers with safe, good value,
point-to-point air services. To effect and to offer aconsistent and reliable product and fares appealing toleisure and business markets on a range of Europeanroutes. To achieve this we will develop our peopleand establish lasting relationships with our
suppliers. (EasyJet)
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EBMR06 Mission and Objectives Characteristics of good mission statements (Ackoff
1986): Formulation of objectives that enable progress to be
measured
Differentiate organisation from competitors
Define the business that the organisation wants to bein (but isnt necessarily in)
Relevant to all stakeholders
Exciting and inspiring
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EBBM06 Mission and Objectives
Objectives Key questions:
What objectives is the organisation actually followingand achieving?
What objectives might it follow, and what scope does ithave to follow these?
What specific objectives should it follow in the future?
Objectives should be SMART: Specific
Measurable Achievable
Realistic
Time-led (when is the objective to be achieved?)
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EBBM06 Mission and Objectives Objectives: Market models of profit maximisation
Notapplicable
BlockedConsiderableUniqueOnePureMonopoly
YesDifficultDepends ondegree of
collusion
Standardisedor
differentiated
FewOligopoly
YesFairly easySomeDifferentiatedManyMonopolisticcompetition
NoneFreeNoneStandardizedor almost
identical
ManyPurecompetition
Non-pricecompetition
Entryconditions
Control overprice
Product typeNumberof firms
Market
Source: adapted from T&M Table 2.1
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EBBM06 Mission and Objectives Objectives: stakeholder models
Under theories based on profit-maximisation, theshareholder is paramount (The social responsibility ofbusiness is to make profit Milton Friedman)
Stakeholder models consider the roles and interests of
all involved in or affected by the performance of thebusiness: employees, managers, suppliers, distributors,customers, government as well as investors
Some are internal and some external
Both can affect current and future strategy
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EBBM06 Stakeholder objectives can be
complementary or conflicting
Satisfiedcustomers
Motivatedemployees
Highfinancialreturns
enable
reward
create
Competitor-driven need to
cut costs
Source: T&M Fig 2.4(adapted)
Market-drivenexpectations
Short- andlong-termfinancialexpectations
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EBBM06 Mission and Objectives Objectives: the goals of the strategic leader
May be crucial in determining objectives, especially inSMEs (small and medium-sized enterprises)
Entrepreneurial leaders
lifestyle businesses
Strategic leaders may pursue personal objectives,rather than allowing managers and/or stakeholders toshape objectives
The ethical stance of the leader
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EBBM06 Mission and Objectives
Social responsibility objectives and businessethics Can cover a wide range of contemporary issues
Product safety and treatment of customers
Treatment of employees non-discrimination Honesty policies regarding the acceptance of bribes
Protection of the nature environment carbon footprint
Social responsibility in the community
Corporate social responsibility (CSR)
Corporate citizenship (CC) Some of these are internal some are external
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EBBM06 Mission and Objectives Good business ethics may just be good business, and
not necessarily in conflict with financial/profitobjectives But many organisations do see such responsibilities as
a threat
Compliance adds to unit cost and so underminescompetitive position
An alternative view is that CSR is enlightened self-interest
Indirect evidence (from the financial performance of
ethical managed investment funds) provides somesupport for the second view
Ethically managed investments do notunderperform relative to non-ethical, but may bemore risky
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EBBM06 Mission and Objectives Ethical stance
Offensive:Ethical demands threaten
the business
Defensive:Ethical demands undermine
profitability
Indifferent:
Ignore ethical demandsand they will go away
Innovative:Seek ways to capitalise on
ethical demands
Thedevelopm
ento
f
theethical
organis
ation
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EBBM06 Mission and Objectives For example Porter (1995) suggests that many
companies mistake compliance with environmentalregulation as a threat, rather than as an opportunityto develop efficient ways of using resources
But multinational companies may strategicallyrelocate to countries with the lowest environmentalregulation For example the Union Carbide disaster in Bhopal in
1984
For the engaged organisation social responsibilitycan become part of corporate culture
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EBBM06 Environmental context
Analysing the Business Environment Purpose
To understand in detail the environment in whichthe organisation operates
To consider how the forces present in theenvironment pose opportunities and threats
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EBBM06 Environmental Context
The organisation has to maintain fit orcongruence between its externalenvironment and its resources Ability to make this match is a reflection of the
organisations capacity for strategic thinking
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EBBM06 Environmental Context
Synergy Ansoff (1987): resources combined and managed so that
the sum is greater than the sum of the parts (2+2=5) Three basic synergy opportunities:
Functional
Strategic complementary strategies across the organisation
Managerial
Competitiveness is from different functions and activitiesand the effectiveness of linking these together
It is also derived from the interdependency of difference
products, services, businesses within the organisation
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EBBM06 Environmental Context
Organisational learning Strategic thinking considers past, present and future
but past may not be a good indicator of futuretrends
Organisational learning the ability to learn from thepast, be aware of current competencies and gainfuture insight
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EBBM06
Experience,Emergenceof currentstrategies
Futurestrategies
Learning fromexternal
sources
Synthesisinginternal
changes andlearning
Awareness ofcompetitor
activity
Awareness ofenvironmentaldevelopments
Organisationallearning
The strategically successful organisationlearns how to synthesise these varioussources of information in order to dealwith future uncertainty
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EBBM06 Environmental Context
Changing business environments Becoming more turbulent Managing them is demanding, requires flexibility, and
ability to break with the past
Global organisations must understand the globalcontext relying on the home market for bothcustomers and production is no longer feasible formany
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EBBM06 Environmental Context
The environment is: Uncertain requires risk-taking and entrepreneurial
leadership past strategies may no longer work Complex organisations have to become more
complex to respond; entails awareness of changeand ability to manage change
Dynamic organisations face rapid technologicalchange (in both products and processes)
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EBBM06 Environmental Context
Theorganisation
The businessenvironment
Political
Econ
omicSocial
Suppliers
Custo
mers
Industry
competito
rs
Tec
hn
ica
l/
Tec
hno
log
ica
l
Source: T&M,Fig 3.1
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EBBM06 Tools for Analysis
Analysis of Stakeholders
Should be kept fullyinformed of events
and progress
Should not beprioritised at
expense of otherstakeholders
Low
Top priority essential they areboth informed and
satisfied
Should be satisfieddespite lack of
stakeholder interestHigh
Relative
power
HighLow
Strength of active interest in organisationStakeholder significancegrid (Mendelow, 1991)
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EBBM06 Tools for Analysis PEST(EL) Analysis focus on different
environmental forces (shocks) Political Economic Sociocultural Technological
(Environmental/Ecological Legal)
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EBBM06
TheOrganisation
Johnson, Scholes and Whittington, p. 68Which are affecting the organisation?Which are the most important? nowand in the future
PoliticalGovernment stabilityTaxation policyForeign trade regulationsSocial welfare policies
LegalCompetition lawEmployment lawHealth and safetyProduct safety
Environmental/Ecological
Env. protection lawsWaste disposalEnergy consumption
TechnologicalGovt spending on researchGovt and industry focus ontechnological effortInnovations and discoveriesSpeed of technology transferRates of obsolescence
EconomicBusiness cyclesGNP trendsInterest ratesInflationUnemploymentDisposable incomes
Socio-culturalDemographicsIncome distributionSocial mobilityLifestyle changesAttitudes to work andleisureConsumerism
Education levels
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EBBM06 Tools for Analysis
Ansoffs six factors (1987) Factors determining the degree of turbulence in the
business environment Changeability of the market environment
Speed of change
Intensity of competition
Fertility of technology
Discrimination by customers
Pressures from governments and influence groups
By attaching scores to each we can get on overallmeasure
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EBBM06 Tools for Analysis
Ansoff (continued) The more turbulent the business environment, the
more aggressive the firm will have to be in terms of: Competitive strategies
Entrepreneurialism
Change orientation
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EBBM06 Tools for Analysis Porters Five Forces: analysing the competitive
environment
Rivalry amongstexisting firms in
the industry
Threat of newentrants
Bargaining powerof suppliers
Threat ofsubstitute
products orservices
Bargaining powerof buyers
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EBBM06 Tools for Analysis The threat of entry
Sources of barriers to entry Economies of scale new entrants need to make
substantial investment to achieve scale Product differentiation new entrants need to make
substantial investment in advertising and promotionto establish brand identity Capital requirements - new entrants need substantial
capital investment to establishment market presence(specialised equipment, R&D, marketing)
Switching costs new entrants need to persuade
potential customers to incur switching costs to theirbrand Access to distribution channels new entrants may
not have access to current distribution channels Cost advantages independent of scale patents, raw
materials supply
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EBBM06 Tools for Analysis Bargaining power of suppliers/vertical integration
Affected by Concentration amongst suppliers Degree ofsubstitutabilitybetween suppliers Amount of/potential for vertical integration
Extent to which the buyer is ofimportance to thesupplier Switching costs to alternative suppliers
Bargaining power of buyers Affected by
Concentration and size of the buyer Importance to the buyer of the purchase Degree ofproduct standardisation, affecting
substitutability Ease with which buyers can switch switching costs Possibility ofvertical integration between buyer and
supplier
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EBBM06 Tools for Analysis Threat of product substitutes
Determines the elasticity of demand(sensitivity ofdemand to price)
And so limits freedom for price changes
And makes price changes by rivals more likely
Can be reduced by establishing differentiation
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EBBM06 Tools for Analysis Rivalry amongst existing competitors
Interdependencyleads to the risk ofretaliation
Affected by
Extent to which competitors are in balance
Industry growth rates slow growth increasepressure to fight over market share
High fixed costs may result in price wars as firmsseek to use spare capacity
High exit barriers leads to pressure to compete
Differentiation low differentiation increases rivalry
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EBBM06 Tools for Analysis
SWOT Analysis Strengths Weaknesses Opportunities Threats Opportunities presented by the external environment
only have potential if the organisation can
strategically deploy resources to take advantage ofthem SWOT analysis focuses on strengths and weaknesses
in the organisations resources in order to evaluateits potential to take advantage of opportunities or to
be blown off course by threats SWOT analysis should always go alongside a SWOT
analysis of principal competitors
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EBBM06 SWOT analysis of Swansea University
ThreatsUncertainty about UK undergraduatefinanceQuality Assurance Agency
Research Assessment ExerciseVolatile international marketsLack of space inability to extendcampus/develop new campus
WeaknessesVariable research performance comparedto competitors (Cardiff)Poor fit between student demand and
subject provision in some areasLack of strong international brandSocial facilities in need of upgradingRemote from London and internationalairports
OpportunitiesMedical and health research fundingGrowing demand from internationalstudentsExternal funding for new studentaccommodationCommitment from City and Welsh
AssemblyEU Convergence funding
StrengthsAttractive locationHigh staff expertiseGood sports facilitiesWide range of programmesStrong engineering and technology baseMedical school
Strong engagement with industry andgovernment
Note: the above reflects the opinions of Professor Henley and not
Swansea University!!
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EBBM06 Tools for Analysis Notice that S and W relate to existing resources (or
lack of them) Notice that O and T are all external to the organisation SWOT analysis proceeds by identifying key strategic
issues from the lists: Questions:
How can the organisation neutralise critical weaknessesor convert them to strengths?
How can the organisation neutralise critical threats orconvert them to potential opportunities?
How can the organisation best exploit resource strengthsin relation to opportunities?
What new markets and market segments might be metusing existing strengths?
Given changing current demands, what changes areneeded to current products, processes and services?
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EBBM06 Tools for Analysis
Opportunities Threats
Deploy strengthsto meet
opportunities
Strengths Weaknesses
to convert themto opportunities
Invest in resources toconvert weaknesses to
strengths
Marshall existing resourcesto neutralise threats
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EBBM06 Analysing the future Forecasting the future environment driving
forces General principles
Analyse the business environment to identify which
forces are most important, and why they are critical Forecast how these forces might change in the future
(many alternative forecasting methods are availableranging from the highly quantitative to qualitativemethods)
Incorporate future expectations and predictions into
management thinking, including lower level managers(closer to the ground)
Be honest and realistic about relative strengths andweaknesses
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EBBM06 Analysing the future What needs to be forecast?
The economy changes to key economic variables(forecasts are regularly published by government andinternational agencies)
Demographics changes in population and household
structure (market research often seeks to categorisepeople by demographic characteristics)
Political influences changes in government prioritiesand legislative programmes (often relies on opinionpolls and expert opinion)
Technology possible impact of future innovations
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EBBM06 Summary
SWOT
Genericstrategies
(competitiveadvantage)
Value ChainAnalysis /
Activity Maps
Businessenvironment
(PEST)
Competitor/Industry
Environment 5 forces
Resource Auditand Analysis
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EBBM06 Strategic Resources
Auditing and Analysing the OrganisationsStrategic Resources The resource-based view of strategy Strategic competencies Understanding the Value Chain
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EBBM06 Auditing Resources
Resources are evaluated in terms of theirstrategic significance
5 dimensions Competitive superiority does the organisation
possess something of value that rivals do not have? Barriers to replication how easily can rivals replicate
this resource? Durability how long can the first two advantages be
maintained? Substitutability can rivals neutralise the value of a
resource by substituting an alternative? Appropriability does the organisation get the real
benefits of the resource, or do they flow to suppliersor distributors?
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EBBM06 Auditing Resources Auditing the organisations strategic resources
Evaluate the profile of the principal skills andresources of the organisation
Compare the resource base with what is needed for
competitive success in the industry Compare (benchmark) with competitors to identify
relative strengths and weaknesses, and to identify(any) significant comparative advantage
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EBBM06 Auditing Resources Resources derived from key operating
elements Marketing Organisational structure
Finance Manufacturing Research and Development Human Resources
For audit purposes each of these should beconsidered in the S&W of the SWOT analysis as levels relative to competitors
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EBBM06 Auditing Resources Strategic architecture a key resource (Kay
1993) Emphasises the importance of corporate networks
and relationships External architecture
Customers Supply chain network Distributors
Internal architecture Vertical and horizontal co-operation between
managers and employees Success can be enhanced if people devote energy to
managing external demands, rather than internalconflict
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EBBM06 Resources and Competencies
Competencies and capabilities Competency an activity or process through which
the organisation deploys its resources effectively Capability the adequacy of the resources and
competencies of the organisation for it to survive andgrow Thresholdresources/competencies/capabilities
those which are essential for the organisation tocompete in a particular market
Necessary for survival
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EBBM06 Resources and Competencies
Issues Threshold levels of capability will change, as critical
success factor changes, and as competitors enter andchange activities
Firms face trade-offs in meeting threshold capabilityfor different customer segments The problem ofredundantcapabilities to free up
funds to invest in new capabilities Threshold levels may involve complementary
resources and competencies
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EBBM06 Resources and Competencies
Unique resources resources that critically support competitive
advantage, and that others cannot imitate or acquire
Core competencies (Hamel and Prahalad, HBR 1990)
Activities and processes through which resourcesare deployed in such a way as to achieve competitiveadvantage in ways that others cannot imitate orobtain (Johnson et al.)
Examples: a powerful brand, effective ways of
servicing retailers, effective ways of motivating asales force
More likely than unique resources
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EBBM06 Resources and Competencies
Core competencies
Unique resources
-Tangible
-Intangible
Capabilities forcompetitiveadvantage
Thresholdcompetencies
Threshold resources
-Tangible
-Intangible
Threshold capabilities
CompetenciesResources
Strategic capabilities and competitive advantage:
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EBBM06 Value Chain Analysis The Value Chain is a means of identifying
opportunities for competitive advantage withinthe architecture of the organisation Competitive advantage created by performing critical
activities more cheaply or better (differently) thancompetitors
Questions: What are the critical activities? How can costs in these be reduced? How can differentiation be achieved?
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EBBM06 Value Chain Analysis
Primary activities
Service
Marketin
g
andsales
Outbound
logistics
Operations
Inbound
logistics
Procurement
Technology development
Human resource management
Margin
Firm infrastructure
Support
activities
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EBBM06 Value Chain Analysis Cost leadership and differentiation strategies
Cost leadership achieved by effective management ofthe key determinants of costs Acceptable quality
Sustained cost gap Differentiation achieved by
Selection of key product/service characteristics whichconsumers value (depends of how the market issegmented)
Adding costs selectively, and charging a premium price
Costs not significant to buyers must be controlled
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EBBM06 Value Chain Analysis
Primary activities
Marketing
andsales
14%
Outbound
logistics
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EBBM06 Other Key Resources
Additionalproduct or
service lines
Brand image
Customer
loyalty andrepeatpurchasing
Higher prices
and margins
Brandinvestment
Branding andreputation Key intangible
resource Customerperception of
difference Reputation relates
to customerexperience, orperception of othercustomersexperiences
Branding conveysimage to customers
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EBBM06 Other Key Resources
Information and IT Information helps decision-making by reducing
uncertainty Organisations need to get the right information (and
only the right information) to the appropriatedecision-makers Provision of hardware and software systems is not in
itself a strategic resource it is the organisationsability to use those systems effectively and efficiently
IT systems can lead to bureaucratic, formal systemsand information overload a strategicdisadvantage rather than a resource.
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EBBM06 Competitive Dynamics
What is competition? Industrial structure and rivalry Competitive strategies Competitor benchmarking
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EBBM06 What is competition?
What is competition? Very few, if any companies, have no
competitors some have only one maincompetitor (e.g. Coca Cola)
Competition can range from few to many, andthe nature of competition will affect the waythe organisation responds strategically
Where competitors are few, organisations must
understand whether and how their rivals willrespond to their changes in strategy -interdependency
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EBBM06 What is competition?
Two types of decisions Some actions which are innovatory one competitor
acting on a perceived opportunity ahead of its rivals;other actions are reactive to such initiatives of rivals
Some actions represent incremental strategic changeto existing strategic intentions; other actions are whenorganisations are adapting strategies adaptivestrategic change
Constant or
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EBBM06
The CompetitiveCycle (source T&M Fig6.2)
New capacityand capabilities
as required
Reinvestmentof profits
in organisation
Productivityimprovements
Higherprices
Lowerprices
Increasedprofits
Cost reductions
Economies ofscale
growing salesand market
share
New sources of value added
Innovations to existingproducts and services
New products and services
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EBBM06 I d t i l St t &
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EBBM06 Industrial Structure &Rivalry
Is it a well knownproduct/brand?
Is it a high growthindustry?
No
No
No
Does it faceimminentcompetition?
Yes
Unlikely tooffer growthprospects
Yes
NoYes
Does it have realor perceiveddifferentiation?
Yes
Greaterpotential forgrowth
No
Is thereactive pricecompetition?
Yes
Source:T&M Fig
6.3
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EBBM06 Industrial Structure & Rivalry The most successful competitors
Create value
Create competitive advantage in delivering value
Sustain competitive advantage
Operate effectively and efficiently
Sustaining competitive advantage (Heller 1998) Supplying the right things?
in the most effective way?
at the lower possible economic cost?
and as good, if not better, than the strongestcompetitor?
targeting and serving the widest possible market?
with a unique selling proposition (USP)?
and innovating enough to make sure the answers allstay yes
EBBM06 (5) I d t i l St t &
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EBBM06 (5) Industrial Structure &Rivalry
Product differentiation and marketsegmentation Differentiation occurs if consumers perceive a
product or service to have different properties fromrivals
Differentiation is most valuable when consumersvalue the difference and will pay a premium for it
Market segments are groups of customers withbroadly similar needs/tastes
Recognises that consumers have heterogeneousneeds and preferences which cannot be met by asingle, undifferentiated product or service
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EBBM06 Industrial Structure & Rivalry Sources of differentiation
Speed of service
Reliability
Service level/product support
Design and features
Technology
Brand/corporate personality
Relationships with customers (if in a supply chain)
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EBBM06 Competitive Strategies
Competitive strategy concerns the wayinwhich organisations choose to compete andposition themselves competitive advantage isthe intended outcome of this
Porters two basic strategy parameters (1985) Parameter 1 (competitive advantage): eitherachieve
lower costs than rivals at a comparable price, or,through differentiation, add value and charge apremium price
Parameter 2 (competitive scope): the range ofmarket segments (from broad to narrow) in whichthe company seeks to compete
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EBBM06 Competitive Strategies
The two parameters lead to three genericstrategies
3b
Differentiationfocus
3a
Cost focusNarrow
2
Differentiation
1
Cost leadershipBroad
Competitive scope
DifferentiationLower cost
Competitive advantage
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EBBM06 Competitive Strategies
For example
Differentiationfocus
BMW/MercedesM&S/Waitrose
Cost focus
HyundaiLidl/Iceland
Narrow
Differentiation
General Motors
Tesco
Cost leadership
Toyota
Asda/Walmart
Broad
Competitive scope
DifferentiationLower cost
Competitive advantage
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EBBM06 Competitive Strategies Cost leadership
Porter argues that there can be only one cost leader
The cost-leader doesnt charge the cheapest price aslow price may be perceived as low quality
If applied across a broad range of segments turnover
and market share should be high above averageprofits with industry average prices
Differentiation Adds cost in order to add value
Market must be capable of segmentation
Superior performance is achieved by serving customerneeds differently
Focus Must find a distinct group of customers in the case of
cost focus, customers with needs below average
From competitive strategy to profitability,
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EBBM06
Cost
P
rofit
Superior
profit
Costleadership/
cost focus:averageprice,
Lowercosts
From competitive strategy to profitability,Thompson, p. 304
profit
Differentia-tion focus:
Low cost,
Low quality
Low price
Inferiorprofit
Theaverage
No realdifferentia-
tion,
Poor costmanage-
ment
Average price
Superiorprofit
Differentia-tion:
Addedvalue,
highercosts buthigherprices
Premium price
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EBBM06 Competitive Strategies
Critique Some companies appear to be capable of pursuing for
cost-based and differentiation strategies at the sametime
Cost-leadership may be more of a position than a
strategy (Hendry 1990) Costs must still be managed in an organisation
pursuing differentiation. Only costs that can berecouped through premium prices should be added.
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EBBM06 Competitive Strategies
Sustaining competitive advantage Need to continually look for improvement Need to look for discrete opportunities to effect
change on industries and markets
Competitive advantage can be rooted in product andprocess technology, organisation and people All of these can be matched or overcome by
competitors, but people and people-driven processesare the most difficult to copy
Speed of competitive response is becomingincreasingly important speed depends onorganisational structure and flexibility Shorter product development
just-in-time management
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EBBM06 Competitive Strategies
Technology
Organisation
People
Origin of competitive advantage
Sustainability of competitive
advantage
Time
ProductPatents can beovercome
ManufacturingTechniques andsystems can be learnt
Organisational processes Organisations canbe restructured
People/people drivenprocesses
Peopleprovideservice
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EBBM06 Formulating Strategy
Three key elements Planning styles and procedures Leadership vision/entrepreneurship
Innovation - intrapreneurship
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EBBM06 Formulating Strategy
Strategy creation involves: vision, planning, adaptation Vision: pulls the organisation
(entrepreneurship) Planning: pushes the organisation (for example
by setting targets and goals) Systematic and formal Informal cerebral
Adaptation: supports and completes strategythrough intrapreneurship Emergentstrategies
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EBBM06 Formulating Strategy
PlanningVisionary
ideas
Emergentstrategies
ImprovementsAdjustments
Source: T&M, Fig 8.1
Competitiveadvantage
Corporate-levelstrategy
Portfolio ofbusinesses
Competitivepositioning
The Organisation
Activities
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EBBM06 Formulating Strategy
Mintzberg (1989) Importance of strategic leader Strategy process should be explicit, conscious and
controlled Strategy process must consider strategy
implementation Visionarymode places less emphasis on choiceAdaptive and incrementalmodes place less emphasis
on analysis
Analysis Choice Implementation
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EBBM06 Formulating Strategy
Strategy
Entrepreneur-ship
Intrapreneur-ship
Analysis andPlanning
Source: T&M, Fig 8.2
Different organisationswill have a differentbalance across thesethree dimensions ofstrategy creation
Successfulorganisations willmaintain abalance, and will
haveentrepreneurs,intrapreneursand planners inthe mostappropriate place
Vision
Adaptatio
nPlanning
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EBBM06 Formulating Strategy
Company growth over time
Vision
Emergent
strategicchange
Formal strategy,especially planning
Crisis
New vision
Renewedemphasis onemergence
StrategicChange source: T&MFig 8.4
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EBBM06 Planning
Strategic Planning Key distinction: informal(cerebral) planning vs.
formalplanning systems Planning is continuous and on-going
Planning at different levels Low level: description of activities and tasks
High level: definition of mission and objectives,establishment of guidelines and policies to alloworganisation to adapt to, shape and exploit itsenvironment
Value of planning lies in the thinking and theprocess,not in the planning document produced
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EBBM06 Planning
The value of strategic planning To give clarity about the nature of the business To increase awareness of strengths and weaknesses To provide recognition of opportunities and threats
To enable effective allocation and use of resources Advantages of planning
Assist in management of complex organisations Allows budget setting
Allows disparate elements to be co-ordinated Disadvantages
Cumbersome and bureaucratic
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EBBM06 Planning
Planning Gap analysis Addresses two key questions
Where does the organisation want to go? (desiredobjectives)
Where realistically can the organisation go? (realistic
objectives) Planning gap analysis addresses the difference
between answers to the two questions
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EBBM06 Planning
Stars
(break-even lowprofits)
Question Marks
(unprofitable, butwith potential for
futureinvestment)
Cash Cows
(profitable)
Dogs
(break-even,marginal profit)
Cash use
Marketgrowth
rate
High
High
Low
LowCash generationRelative market share
Boston Consulting Group Growth-Share Matrix:
Source: T&M,
Fig. 9.6
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EBBM06 Planning
Industry AttractivenessUnattractive Average Attractive
Compet i
tivePosition
Weak
Average
Strong
Cashgenerator
Earnings
generator
Growthgenerator
DirectionalPolicy Matrix:
Source: T&M,Fig. 9.7
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EBBM06 Planning
Competitiveadvantage
Industryattractiveness
Financialstrength
Environment
low
high
high low
low highstable
turbulent
SPACE: StrategicPosition and ActionEvaluation (1)
Source: T&M,Box 9.4
Example shows afinancially strong product
enjoying competitiveadvantage in an attractive
industry and stableenvironment
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EBBM06 Planning
DefensiveConservativeCompetitiveAggressiveStrategic thrust:
Rationalisation
Divestment asappropriate
Cost reductionandproduct/servicerationalisation
Invest in
search for newproducts,services andcompetitiveopportunities
Cost reduction,productivityimprovement,
Raising morecapital to follow
opportunitiesand strengthencompetitiveness
Possibly mergewith cash richcompany
Growth(acquisition)
Capitalise onopportunities
Innovate tosustaincompetitiveadv.
Strategies:
Unstable
Unattractive
Weak
Weak
Stable
Unattractive
Weak
High
Unstable
Attractive
Strong
Weak
Stable
Attractive
Strong
High
Environment:
Industry:
Competitiveness:
Financial strength:
SPACE (2):
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EBBM06 Leadership
Strategic leadership Requires solid awareness of organisations strengths,
weaknesses and capabilities, matching toenvironment, opportunities for change, likelyreactions to change
The visionary finds the ideas and sells them toothers visionary leaders are often bored by thedetail of turning vision into reality
Danger of tunnel vision Difficulty of succession to other managers
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EBBM06 Leadership
De Vries (1996) two keyleadership roles:
Effectivestrategic
leadership
Charismaticrole
Architecturalrole
Vision and direction
Empowered people
Energised people
Organisational structure
Management controland reward systems
Strategies are owned
Customers are satisfied
People enjoy work
Things can happen and changequickly
Source: T&M,Fig. 10.2
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EBBM06 Leadership
Many entrepreneurs struggle to leverage in resourcesto allow business ideas to grow, and to enableorganisations to develop
Successful entrepreneurs promote intrapreneurship(internal entrepreneurship)
Governments increasingly recognise the importanceof entrepreneurship for economic development (e.g.Welsh Development Agencys EntrepreneurshipAction Plan
Can entrepreneurs be made in the classroom?
Does entrepreneurship emerge out of immersion in aparticular business? (Mintzberg et al. 1998)
Are entrepreneurs just borne that way?
From entrepreneurship tointrapreneurship (from visionary
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EBBM06intrapreneurship (from visionaryto incremental change)
Vision
Idea/
opportunityEngagement
Action, acquisition ofresources
Team-building
Outcomeswhich reflectimprovement
Outcomeswhich reflect
difference
Organisationbuilding
Intrapreneur-
ship
Entrepreneur-
ship
Source: T&M,Fig. 10.10
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EBBM06 Intrapreneurship
Strategic leader as a promoter ofintrapreneurship The intrapreneurial organisation (1)
Four key elements (Fradette and Michaud 1998)
Organisational structure appropriate forencouraging innovation and internal networking
Recruitment of enterprising employees, withappropriate reward structure
Employees backed by appropriate support systems teamworking, mentoring
Success is visible and is rewarded, treatment ofmistakes does not discourage further new ideas
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