Corporate Strategy Study Notes PDF

Corporate Strategy Study Note Year 3 Semester 1  Key Concepts in Strategic Management Definition of Strategy Strategy originates from the Greek "stratos" (army) and "ag" (to lead) and involves: o Direction and scope of an organization over the long term....

Corporate Strategy Study Note Year 3 Semester 1  Key Concepts in Strategic Management Definition of Strategy Strategy originates from the Greek "stratos" (army) and "ag" (to lead) and involves: o Direction and scope of an organization over the long term. o Achieving competitive advantage in a dynamic environment. o Aligning resources and competencies to fulfill stakeholder expectations. Levels of Strategy 1. Corporate Level: Overall direction for multi-business firms (e.g., resource allocation). 2. Business Level: Competitive strategy within specific markets or business units. 3. Functional Level: Coordination of individual functions (e.g., marketing, finance) to support business-level strategy. Why Strategy Matters Encourages a holistic view of the organization. Helps organizations plan for the future and adapt to changes. Aids in developing competitive advantages and ensuring long-term sustainability. Key Components of Strategic Decisions 1. Context: External environment and industry dynamics. 2. Content: Specific strategic actions and plans. 3. Process: Implementation and development of strategies. Strategic Fit Ensures alignment between: o Firm’s goals and values.  o External environment. o Internal resources, capabilities, and systems. Adding Value Defined as the market value of output minus the cost of inputs (Lynch, 2018). Central to strategy: creating and sustaining value amid change (e.g., McDonald's case study). Skills for Strategic Thinking Integrating diverse knowledge. Simplifying complexity and addressing uncertainty. Evaluating options and implementing decisions effectively.  Competitive Advantage Definition of Competitive Advantage (CA) Competitive advantage refers to the significant benefits an organization has over its competitors, enabling it to add more value within the same market (Lynch, 2018). Porter’s Generic Strategies 1. Cost Advantage: o Focus on becoming the lowest-cost producer. o Risks: Price wars and margin erosion. 2. Differentiation Advantage: o Offer unique products or services (e.g., quality, branding, design). o Aim: Higher prices justified by perceived uniqueness. 3. Focus Strategy: o Target a specific market segment to achieve a cost or differentiation advantage. 4. Hybrid Strategies: o Combine cost and differentiation strategies effectively. o Examples: IKEA (design + cost-efficiency), Dell (customization + mass production). Sustainable Competitive Advantage (SCA) Defined as an advantage that competitors find difficult to imitate (Lynch, 2018). Dependent on: o Environmental Consonance: Adapting to external changes.  o Competitive Defendability: Protecting the advantage from imitation. Conditions for Sustainable Competitive Advantage 1. Recognition of Change: Monitoring market shifts and responding flexibly. 2. Innovation: Internal creativity to maintain relevance. 3. Isolating Mechanisms: Barriers to imitation, such as: o Non-disclosure of key information. o Patents and intellectual property. o Strong supplier and customer relationships.  Approaches to Strategy, Environment-Based View (EBV), and Environmental Analysis Key Concepts 1. Prescriptive vs. Emergent Strategies Prescriptive Strategy: o Defined objectives and pre-planned processes. o Logical, sequential planning (e.g., Ansoff, Chandler). o Limitations: inflexible, mismatches between intended and realized strategies. Emergent Strategy: o Adaptive and evolves during implementation (e.g., Mintzberg, Pettigrew). o Incorporates culture, politics, and bounded rationality. o Limitations: less control, challenges in resource allocation. 2. Environment-Based vs. Resource-Based Views Environment-Based View: o Strategy focuses on external opportunities and threats. o Tools: PESTEL analysis, Porter’s Five Forces. o Key idea: "Fit" resources to market needs. Resource-Based View: o Strategy leverages internal resources and competencies. o Focus on unique strengths (e.g., core competencies, knowledge management). o Key idea: "Stretch" resources to shape markets 3. Environmental Analysis Purpose: o Anticipate opportunities and threats. o Devise strategies to address them proactively. Levels: 1. Macro-Environmental Analysis: ▪ Tool: PESTEL (Political, Economic, Socio-Cultural, Technological, Environmental, Legal). ▪ Scenario Analysis: Models of potential futures (e.g., Shell’s New Lens Scenarios). 2. Industry Analysis: ▪ Tool: Porter’s Five Forces (e.g., buyer/supplier power, competition). 3. Intra-Industry Analysis: ▪ Competitor Profiling. ▪ Strategic Group Analysis.  PESTLE Analysis What is PESTLE Analysis? PESTLE is a strategic tool used to analyze the external macro-environmental factors that can influence an organization. It helps identify opportunities and threats in the environment. Key Components of PESTLE 1. Political: o Government type and stability. o Freedom of the press and legal framework (rule of law, bureaucracy). o Tax policies, trade tariffs, and consumer protection laws. o Trends in regulation and deregulation. o Changes in political landscape and their impacts. o 2. Economic: o Business cycle stage (growth, recession). o Economic indicators: GDP growth, inflation, interest rates. o Labor market dynamics: unemployment, labor costs. o Globalization impacts and economic projections. o Income distribution and disposable income levels. 3. Social: o Demographic changes: age, gender, family size. o Cultural trends, education, and attitudes toward work. o Ethical issues, diversity, immigration trends. o Public health consciousness and media influence. o Shifts in lifestyle and consumer preferences.  4. Technological: o State of technology and research funding. o Advances in IT, communications, and energy tech. o Intellectual property issues and invention rates. o Rates of technological obsolescence. o Impacts of emerging technologies on industries. 5. Legal: o National, international, and industry-specific regulations. o Consumer protection, environmental, and employment laws. o Future legislative changes and regulatory bodies’ roles. o Competitive regulations impacting business practices. 6. Environmental: o Climate change and sustainability concerns. o Pollution, resource degradation, and waste management. o Energy availability and transitions to renewable sources. o Industry-specific environmental issues. Application PESTLE analysis is instrumental for: Strategic Planning: Helps identify external factors affecting long-term decisions. Risk Management: Prepares for external threats. Market Analysis: Understands socio-economic and technological dynamics.  Resource-Based View (RBV) and Resource Analysis 1. Resource-Based View (RBV) Definition: Successful companies develop a strong resource base that supports market opportunities. Key Concepts: o Fit: Aligning resources with external opportunities. o Stretch: Leveraging unique resources to create opportunities and competitive advantages. o Resource Development: Focus on building and managing assets like physical assets, human resources, and knowledge. 2. Categorization of Resources Types of Resources: o Tangible Resources: Physical assets (e.g., equipment, finances). o Intangible Resources: ▪ Relational: Relationships and reputation. ▪ Competencies: Knowledge, skills, and attitudes. Hierarchy of Resources (Lynch, 2018): o Peripheral Resources: Non-core but useful (e.g., legal services). o Base Resources: Fundamental but common (e.g., IT skills). o Core Resources: Unique and critical (e.g., brand reputation). o Breakthrough Resources: Drive industry shifts (e.g., innovation). 3. VRIO Framework (Barney, 2002) Purpose: Evaluate how resources contribute to competitive advantage (CA). Criteria: o Valuable: Contributes to cost or differentiation advantage.  o Rare: Limited availability among competitors. o Costly to Imitate: Difficult for competitors to replicate. o Organization: Ability to exploit resources effectively. Outcomes: o Sustained CA: Meets all VRIO criteria. o Temporary CA: Lacks some elements like organization or imitability. 4. Core Competence Analysis Definition: Skills, knowledge, and technologies that deliver unique customer value. Characteristics: o Adds customer value. o Differentiates from competitors. o Is transferable across the organization. Strategic Implications: o Focus on competencies essential for future goals. o Identify and address gaps between current and required competencies. 5. Value Chain Analysis Purpose: Analyze how activities add value and contribute to CA. Components: o Primary Activities: Inbound logistics, operations, outbound logistics, marketing, and service. o Support Activities: Infrastructure, HR, technology, procurement. Strategic Use: o Examine internal activity efficiency and linkages. o Integrate supplier and distributor activities for greater CA.  Strategic Choice (TOWS and SAFe Frameworks) 1. Approaches to Strategic Choice Prescriptive Approach: o Uses predefined criteria to evaluate and select strategic options. o Ensures alignment with organizational mission and objectives. Emergent Approach: o Flexible and adaptive, allowing strategy to evolve from ongoing analysis. 2. TOWS Matrix Purpose: Extends the SWOT analysis by identifying actionable strategies from internal and external factors. Components: o Strengths (S) and Opportunities (O): Exploit these to develop strategies. o Strengths and Threats (T): Use strengths to counteract threats. o Weaknesses (W) and Opportunities: Overcome weaknesses to leverage opportunities. o Weaknesses and Threats: Mitigate weaknesses to reduce threats. Application: Generates strategic options by mapping internal and external factors. 3. SAFe Framework Purpose: Evaluate strategic options based on suitability, acceptability, and feasibility. Criteria: o Suitability: Does the strategy address organizational circumstances and add value?  o Acceptability: Are risks manageable, and does the strategy meet stakeholder expectations? o Feasibility: Can the strategy be implemented with existing resources and capabilities? Process: o Use SAFe to prioritize strategic options by systematically assessing each criterion. 4. Strategic Choice Criteria (Lynch, 2018) Factors for Evaluation: 1. Consistency: Aligns with mission and objectives. 2. Suitability: Builds on strengths, addresses opportunities, and mitigates weaknesses and threats. 3. Validity: Based on sound analysis and assumptions. 4. Feasibility: Practical implementation with available resources. 5. Risk/Return: Balances acceptable risks with potential returns. 6. Stakeholders: Acceptable to internal and external stakeholders.  Strategic Change 1. Pressures for Strategic Change Drivers of change include: o Environment: Economic shifts, competition, legislation. o Business Relationships: Mergers, partnerships. o Technology: Product viability and work processes. o People: Cultural shifts, expectations, and work methods. 2. Kurt Lewin’s Change Model Stages: 1. Unfreezing: Recognizing the need for change. 2. Moving: Transitioning to new behaviors and processes. 3. Refreezing: Stabilizing changes as the new norm. Challenges: o Resistance during transitions. o Prolonged flux if changes take time to stabilize. 3. Resistance to Change Common Reasons: o Anxiety (fear of the unknown or loss of position). o Opposition to strategy or personal ambitions. o Lack of interest or perceived increase in workload. Overcoming Resistance: o Open communication and discussion. o Involving stakeholders in the change process. o Offering support, incentives, and using symbols of change.  o Building support networks and leveraging managerial authority. 4. Perspectives on Change Discontinuous Change: o Radical, organization-wide, and swift. o Suitable for addressing crises or significant misalignment with the environment. o Risks: Disruption, low morale, and potential conflict. Continuous Change: o Gradual and evolutionary, focusing on constant improvement and learning. o Avoids major disruptions and enables long-term benefits. o Challenges: Managers may prioritize short-term gains over long-term improvements. 5. International Differences in Change Approaches Discontinuous (USA/UK): o Top-down, bureaucratic, and reactive to short-term pressures. Continuous (Japan/China): o Team-oriented, long-term focus with greater employee involvement. Key Factors: o Organizational structure (mechanistic vs. organic). o People management and cultural attitudes towards change. o Time orientation (short-term vs. long-term focus).  Innovation Strategy 1. Types of Innovation Invention: Creation of entirely new ideas or technologies (e.g., Edison’s lightbulb). Extension: New uses for existing technologies (e.g., CDs for data storage). Duplication: Repackaging or slight variation of existing products (e.g., flavored snacks). Synthesis: Combining ideas to create new solutions (e.g., Sainsbury’s Bank, Post-it Notes). 2. Sources of Innovation Market Pull: Driven by market needs and opportunities (e.g., neglected segments). Technology Push: Emerging technologies applied to create marketable products. Specific Sources (Drucker, 1985): o Unexpected successes or failures (e.g., IBM mainframes). o Process needs or discrepancies (e.g., sugar-free products). o Industry or demographic shifts (e.g., aging populations). o New knowledge or perceptions (e.g., robotics, health-conscious foods). 3. Innovation Strategy Perspectives Planned/Prescriptive Approach: o Focuses on analyzing major changes and resource allocation for breakthroughs. o Emphasizes structured processes and strategic foresight. Emergent/Controlled Chaos Approach: o Encourages free generation of ideas, akin to small entrepreneurial firms. o Advocates for adaptive and flexible innovation practices. 4. First-Mover Advantage and Disadvantage Advantages: o Establish technical standards and build market networks. o Gain cost efficiencies through early production learning curves. o Lock-in customers with switching costs (e.g., Microsoft Windows). Disadvantages: o High development costs and market education efforts. o Risk of competitors offering improved versions at lower costs (e.g., Google, Facebook). 5. Strategic Options for Technological Innovation Block Strategy: o Protect intellectual property and stretch product lifecycles. o Limitations: Reverse engineering and technological advances can erode protection. Run Strategy: o Focus on rapid innovation and self-obsolescence (e.g., Apple’s iProducts). o Build competencies aggressively to outpace competitors. Team-Up Strategy: o Collaborate to share technologies, access markets, or build standards (e.g., JVC’s VHS). o Requires careful selection of partners with complementary strengths.  Study Notes: Blue Ocean Strategy Definition Red Oceans: Represent existing industries where companies compete for limited demand, leading to intense competition and shrinking profits. Blue Oceans: Denote untapped market spaces where demand is created, competition is irrelevant, and there is potential for rapid, profitable growth. Key Concepts 1. Red Ocean Strategy: o Compete in existing markets. o Exploit existing demand. o Differentiate or achieve low cost (not both). o Focus on beating the competition. 2. Blue Ocean Strategy: o Create new, uncontested market spaces. o Make competition irrelevant by redefining value. o Achieve both differentiation and low cost. o Align activities to simultaneously increase buyer value and reduce costs. Characteristics of Blue Ocean Strategy Rejects the trade-off between value and cost. Based on a reconstructionist view: Market boundaries can be reshaped. Leverages existing technologies or resources innovatively (e.g., Ford’s assembly line). Requires systematic alignment of organizational activities. Barriers to Imitation Economic: Rapid scale economies create cost disadvantages for competitors. Cognitive: Brand loyalty and unique business models are hard to replicate. Organizational: Imitators struggle to align their systems with the blue ocean model. Strategic Implications Blue ocean strategy is not about being first but about creating and capturing value uniquely. Companies should focus on strategic moves rather than industries or competition alone. Incumbents and new entrants can both create blue oceans. Why Pursue Blue Oceans? Reduces dependence on saturated, hyper-competitive markets. Increases profitability and growth potential. Promotes long-term brand equity.  Entrepreneurial Strategy & Effectuation 1. Differences Between Small and Large Firms Structure: o Small firms: Flat and unstructured; owners often directly manage. o Large firms: Bureaucratic with formalized processes. Resources: o Small firms: Limited financial and human resources, making flexibility essential. o Large firms: Deep resources enable broader strategic options. Implications: o Small firms rely on speed, flexibility, and niche specialization. o Large firms focus on leveraging economies of scale and coordination. 2. Strategic Planning in Small Businesses Challenges: o Lack of resources and expertise for formal planning. o Focus on operational issues over long-term strategy. o Susceptibility to external changes discourages planning. Benefits: o Clarifies objectives and resource allocation. o Improves financial management and performance monitoring. o Helps in securing funding from investors or lenders. Key Insight: While formal planning is less common, the process offers several advantages for growth-oriented small businesses. 3. Effectuation as an Alternative Strategy Definition: Focuses on starting with available means (who you are, what you know, and whom you know) and iterating based on stakeholder commitments and feedback. Difference from Causal Reasoning: o Causal: Predetermined goals drive actions. o Effectuation: Actions and interactions shape goals dynamically. Use Cases: o Particularly effective during the startup phase but applicable across business life cycles. 4. Principles of Effectuation 1. Bird-in-Hand Principle: o Start with available means instead of predefined goals. 2. Affordable Loss Principle: o Commit resources you can afford to lose, minimizing risks. 3. Crazy Quilt Principle: o Build networks of self-selected stakeholders for collaboration. 4. Lemonade Principle: o Embrace surprises and turn unexpected challenges into opportunities. 5. Pilot-in-the-Plane Principle: o Focus on controllable actions rather than inevitable trends.