Notes - Sumaiya Haque PDF

What is Strategy? A strategy is a plan of action or policy designed to achieve a particular goal or set of goals. It is a long-term approach to decision-making and resource allocation that is intended to guide an organization or individual in achieving their objectives. Strategies can be developed f...

What is Strategy? A strategy is a plan of action or policy designed to achieve a particular goal or set of goals. It is a long-term approach to decision-making and resource allocation that is intended to guide an organization or individual in achieving their objectives. Strategies can be developed for a variety of purposes, including business, military, political, and personal matters. Strategy, from Mission to Action Mission: A firm’s values and purpose and the scope of its operations in product and market terms. Plan: How a firm positions itself in the market and develops leverages, internal resources and capabilities to accomplish strategic mission. Action: Individual actions taken to execute the strategic plan in pursuit of strategic mission. Three horizons for strategy H1: current core activities which is focused on maintaining and growing the company's existing products and markets. H2: develop emerging activities which are emerging markets or new products that have the potential to become significant sources of revenue in the future. H3: create viable strategic options for future new ideas that have the potential to disrupt existing markets or create entirely new ones. The idea is that a company should balance its focus and resources across all three horizons to ensure long- term success. It is important to note that each horizon has a different time horizon and different level of uncertainty and risk involved. A company's mission, vision, and values are key components of its overall strategy and guide its decision- making and actions. Mission: A statement that defines the purpose and scope of a company's operations. It answers the question "Why do we exist?" Vision: A statement that describes the company's aspirations and long-term goals. It answers the question "Where do we want to be in the future?" Values: The principles and beliefs that guide a company's behaviour and decision-making. They reflect the company's culture and shape its interactions with employees, customers, and other stakeholders. Together, the mission, vision, and values provide a clear and consistent framework for decision-making and help to align employees and other stakeholders around a shared set of goals and principles. A company's mission, vision and values can be used to create a sense of purpose and direction for employees, and they can be used to communicate to customers, investors, and other stakeholders what the company stands for and what kind of experience they can expect when working with the company. Level of Strategy Strategy is composed of three levels : 1) Corporate-level strategy is concerned with the overall scope of an organisation and how value is added to the constituent business units. 2) Business level is concerned with the way a business seeks to compete successfully in its particular market. 3) Functional strategy is concerned with how different parts of the organisation deliver the strategy effectively in terms of managing resources, processes and people. The Exploring Strategy Framework has three major elements: 1. understanding the strategic position 2. making strategic choices for the future 3. managing strategy in action. Who works with Strategy? 1) All managers concerned with strategy: Top level managers frequently formulate and control strategy Middle and lower-Level managers all must meet the objectives and deal with the constraints. 2) Organizations may use strategic specialists: *Large org has in-house strategic planning or analysts *Strategic consultants can be engaged from management firms *Increasing number of specialist strategy consulting firms  Chapter 2- Introduction to Digital Transformation Digital transformation refers to the process of using digital technologies to fundamentally change how an organization operates and delivers value to its customers. It involves the integration of digital technology into all aspects of a business, resulting in significant changes to processes, culture, and customer experiences. The main concepts and goals of digital transformation are: Automation: The use of digital technologies to automate and streamline business processes, reducing costs and increasing efficiency. Digitization: The conversion of analog information into digital format, allowing for improved data analysis and decision-making. Digitalization: The use of digital technologies to create new and improved products, services, and business models. Connectivity: The use of digital technologies to connect people, systems, and devices, enabling new forms of communication and collaboration. Customer-centricity: The use of digital technologies to improve customer experiences and build deeper, more personalized relationships. Innovation: The use of digital technologies to create new products, services, and business models, to test and iterate quickly. Digital Transformation can be applied to any industry and sector, and it can have a significant impact on an organization's competitiveness, efficiency, and ability to innovate. Digitalization vs Digitization Digital transformation refers to the integration of digital technologies into all areas of a business, fundamentally changing how it operates and delivers value to customers. Digitization, on the other hand, refers to the process of converting analog information into digital format. While digitization is a necessary step in digital transformation, it is not the only step and does not fully encompass the scope of digital transformation. “Effects” of digital transformation. Positive Negative *Increased efficiency and productivity *Job loss or disruption due to automation *Improved customer experience *Increased cybersecurity risks *Enhanced decision making through access to data and analytics. *Dependence on technology and potential for system failures *Increased agility and adaptability *Difficulty in keeping up with rapidly changing *Greater flexibility in terms of work location and hours technology. *Overload of information and data management Privacy and security concerns  Analysing the Macro-Environment PESTEL analysis Political Economical Social Technological Ecological Legal Pestel analysis consists of both market and non-market factors. The market environment consists mainly of suppliers, customers, and competitors. These are environmental participants with whom interactions are primarily economic. Here companies typically compete for resources, revenues, and profits. Pricing and innovation are often key strategies here. the nonmarket environment relates primarily to social, political, legal, and ecological factors, but can also be impacted by economic factors. The nonmarket environment typically involves interactions with non- governmental organisations (NGOs), politicians, government departments, regulators, political activists, campaign groups and the media. In the nonmarket environment, organisations need to build reputation, connections, influence, and legitimacy. Lobbying, public relations, networking and collaboration are key nonmarket strategies. Political: The impact of government policies, regulations, and legal frameworks on the organization. Economic: The impact of economic conditions, such as inflation, unemployment, and interest rates, on the organization. Social: The impact of societal norms, values, and demographics on the organization. Technological: The impact of technological advances on the organization's products, services, and processes. Ecological: The impact of physical and ecological factors on the organization. Legal: The impact of laws and regulations on the organization. PESTEL analysis can be used by organizations to identify potential opportunities and threats in their external environment, and to inform strategic decision-making. PESTEL analysis is a useful tool for both internal and external analysis, it can help an organization to understand the impact of its environment on its performance and to understand the impact of its activities on the environment. PESTEL and SWOT In SWOT Strengths and Weaknesses are Internal factors Opportunities and Threats are External Factors Know this: PESTEL is a tool for External analysis So, PESTEL leads to the identification of the O and T (opportunities and threats) When you list the PESTEL factors: + factors are considered Opportunities - factors are considered Threats Key drivers for change Key drivers for change are the environmental factors likely to have a high impact on industries and sectors, and the success or failure of strategies within them. Identifying key drivers for change in an industry or sector helps managers to focus on the PESTEL factors that are most important, and which must be addressed most urgently. Without a clear sense of the key drivers for change, managers will not be able to take the strategic decisions that allow for effective responses. Forecasting Macro-environmental trends can be forecast according to different levels of uncertainty, from single-point → through ranges → multiple-futures. Single-point forecasting is where organisations have such confidence about the future that they will provide just one forecast number. This kind of single-point forecasting implies a great degree of certainty. They are also often attractive to organisations because they are easy to translate into budgets: a single sales forecast figure is useful for motivating managers and for holding them accountable. Range forecasting where organisations have less certainty, suggesting a range of possible outcomes. These different outcomes may be expressed with different degrees of probability, with a central projection identified as the most probable (the darkest shaded area) and then a range of more remote outcomes given decreasing degrees of likelihood (the more lightly shaded areas). Alternative futures forecasting typically involves even less certainty, focusing on a set of possible yet distinct futures. Instead of a continuously graduated range of likelihoods, alternative futures are discontinuous: they happen, or they do not, with radically different outcomes. Directions of change Megatrends – large-scale changes that are slow to form but influence other activities over decades to come. Inflexion points – when trends shift sharply upwards or downwards. Weak signals – advanced signs of future trends that may help to identify inflexion points – often unstructured and fragmented bits of information. Industry and Sectorial Analysis An Industry is a group of firms producing products and services that are essentially the same. A market is a group of customers for specific products or services that are essentially the same. A sector is a broad industry group especially in the public sector. Industry and sector environments: the key topics.  Industry analysis Industries vary widely in terms of their long-term attractiveness, as measured by how easy it is for participating firms to earn high profits. A key determinant of profitability is the extent of competition and the strength of buyers and suppliers, and this varies between industries. Where competition of buyer and supplier strengths are low, and there is little threat of new competitors, participating firms should normally expect good profits. Profitability between industries can thus vary considerably. Porter’s Five Forces Framework assists industry analysis and helps to identify industry attractiveness in terms of five competitive forces: * extent of rivalry between competitors- the intensity of competition among existing firms in the market * threat of entry- the ease with which new competitors can enter the market * threat of substitutes- the availability of products or services that can be used in place of the industry's offerings * power of buyers- the ability of customers to negotiate lower prices or higher quality from the industry's products or services * power of suppliers- the ability of suppliers to charge higher prices or reduce the quality of their inputs. The framework is used to assess the competitiveness and potential profitability of an industry and can help companies identify areas where they can improve their competitive position. Fundamental industry structures and dynamics which include examinations of underlying economic industry types and how industries evolve through industry life cycles, which might influence changes in the five forces that can be examined with a comparative five force analysis. Competitor groups and segments including examinations of strategic groups, groups of organisations with similar strategies and of market segments, groups of customers with similar needs. This focus provides a more fine-grained understanding of competition within an industry or sector. Issues in the 5-force analysis Limited scope: Five forces analysis focuses on a specific industry or market and may not consider broader macroeconomic or global factors that could affect the industry. Assumes equilibrium: The model assumes that the forces in the industry are in equilibrium, which may not always be the case in real-world markets. Lack of precision: The model is qualitative in nature and does not provide precise measurements or predictions. Limited time frame: The model does not account for changes over time and may not be useful for predicting future market conditions.  Industry types Monopoly industries – an industry with one firm and therefore no competitive rivalry. A firm has “monopoly power” if it has a dominant position in the market. Oligopoly industries – an industry dominated by a few firms with limited rivalry and in which firms have power over buyers and suppliers. Perfectly competitive industries – where barriers to entry are low, there are many equal rivals each with very similar products, and information about competitors is freely available. Competitive Groups and Segments Market Segment: A group of customers who have similar needs that are different from customer needs in other parts of the market. Where these customer groups are relatively small, such market segments are often called ‘niches’. Critical success factors (CSFs) are those factors that are either particularly valued by the customers or have a significant advantage over the cost. Critical success factors are likely to be an important source of competitive advantage if an organisation has them (or a disadvantage if an organisation lacks them). ‘Blue Ocean’ Thinking Blue Oceans are new market spaces where competition is minimised. ‘Red Oceans’ are where industries are already well defined, and rivalry is intense. Blue Ocean thinking might reveal where companies can create new market spaces; alternatively, it could help identify success factors which new entrants might attack to turn ‘Blue Oceans’ into ‘Red Oceans’. Blue Oceans evoke wide empty seas. Red Oceans are associated with bloody competition and ‘red ink’, in other words financial losses. The Blue Ocean concept is thus useful for identifying potential spaces in the environment with little competition. These Blue Oceans are strategic gaps in the marketplace. Resources and Capabilities The resources and capabilities of an organisation contribute to its long-term survival and potentially to Competitive Advantage. Resources are the assets that organisations have or can call upon (e.g., from partners or suppliers), that is “what we have”. Capabilities are the ways those assets are used or deployed, that is “what we do”. Threshold resources and capabilities are those needed for an organisation to meet the necessary requirements to compete at all in a given market and achieve parity with competitors in that market. While threshold resources and capabilities are important, they do not themselves create competitive advantage or the basis of superior performance. They can be thought of as ‘qualifiers’ to be able to compete at all with competitors while distinctive resources and capabilities are ‘winners’ required to triumph over competitors. Distinctive resources and capabilities are required to achieve competitive advantage. Strategic capabilities and competitive advantage The four key criteria by which resources and capabilities can be assessed in terms of providing a basis for achieving sustainable competitive advantage are: V – Value of resources and capabilities Strategic capabilities are of value when they: take advantage of opportunities and neutralise threats; provide value to customers; are provided at a cost that still allows to make an acceptable return. R – Rarity are those possessed uniquely by one organisation or only by a few others. (For example, a company may have patented products, have supremely talented people, or a powerful brand.) Rarity could be temporary. (For example, Patents expire, key individuals can leave, or brands can be de- valued by adverse publicity.) I – Inimitability are those that competitors find difficult and costly to imitate, to obtain or to substitute. Competitive advantage can be built on unique resources (a key individual or IT system) but these may not always be sustainable (key people leave, or others acquire the same systems). Sustainable advantage is more often found in competences (the way resources are managed, developed, and deployed) and the way competences are linked together and integrated. O – Organisational support The organisation must be suitably organised to support the valuable, rare and inimitable capabilities that it has. This includes appropriate processes and systems. The Value Chain The Value Chain describes the categories of activities within an organisation, which, together, create a product or service. The Value Chain consists of five primary activities (which are directly concerned with the creation or delivery of a product or service) and four support activities (which help to improve the effectiveness or efficiency of primary activities). Primary Activities Inbound logistics are activities concerned with receiving, storing, and distributing inputs to the product or service including materials handling, stock control, transport. Operations transform these inputs into the final product or service: machining, packaging, assembly, testing. Outbound logistics collect, store and distribute the product or service to customers; for example, warehousing, materials handling, distribution. Marketing and sales provide the means whereby consumers or users are made aware of the product or service and are able to purchase it. This includes sales administration, advertising and selling. Service includes those activities that enhance or maintain the value of a product or service, such as installation, repair, training, and spares. The Value System Value CHAIN Value SYSTEM the activities a company performs to create and comprises the set of inter-organisational links deliver a product or service to customers. It is a and relationships that are necessary to create a way to analyse a company's internal processes product or service. and identify areas where it can improve efficiency or reduce costs. USES: USES: Identifying activities where the organisation has Understanding cost/price structures across the strengths or weaknesses. value system – analysing the best area of focus and the best business model. Analysing the competitive position of the organisation using the VRIO criteria – thus Identifying “profit pools” (i.e. the levels of profit in identifying sources of sustainable competitive different parts of the system) – seeking ways to use advantage. existing capabilities in order to exploit these. Looking for ways to enhance value or decrease Partnering – deciding who to work with and the cost in value activities (e.g. outsourcing). nature of these relationships. Benchmarking Benchmarking is used as a means of understanding how an organisation compares with others. It may be organisations that compete in the same industry or sectors, typically competitors, or other organisations that perform the same or similar functions. Many benchmarking exercises focus on outputs such as standards of product or service, but others do attempt to take account of organisational capabilities. Two approaches to benchmarking: Industry/sector benchmarking – comparing performance against other organisations in the same industry/sector on a set of performance indicators. Best-in-class benchmarking – comparing an organisation’s performance or capabilities against “best-in-class” performance – wherever that is found even in a very different industry. SWOT analysis The aim is to identify the extent to which strengths and weaknesses are relevant to, or capable of dealing with, the changes taking place in the business environment. SWOT analysis is a strategic planning tool that helps businesses identify their strengths, weaknesses, opportunities, and threats. It can be used to evaluate a company's internal and external factors and can help inform decision-making and strategic planning. Some common uses of SWOT analysis include: Identifying areas of the business that are performing well and those that need improvement. Identifying opportunities for growth and expansion, such as new markets or products. Identifying and addressing potential threats, such as changes in the market or new competition. Developing a strategic plan that considers the company's SWOT Assessing the potential success of a new venture or project. Prioritizing areas for improvement and investment. Benchmarking a company’s performance against competitors. Dynamic capabilities Dynamic capabilities are how an organisation has the ability to renew and recreate its strategic capabilities to meet the needs of changing environments. Sensing capabilities – constantly scanning and exploring new opportunities across markets and technologies (e.g., R&D and market research). Seizing capabilities – addressing opportunities through new products, processes, and activities. Re-configuring capabilities – new products and processes may require renewal and re-configuration of capabilities and investment in new technologies.  Competitive Strategies and Business Models A strategic business unit (SBU) supplies goods or services for a distinct domain of activity. Another important choice is to identify the relationship between the value created for customers and other participants, the organisational activities that create this value and how the organisation and other participants can capture value from this – a business model. Generic competitive strategies is concerned with how a company, business unit or organisation achieves competitive advantage in its domain of activity. Competitive strategy therefore involves issues such as costs, product and service features and branding. In turn, competitive advantage is about how a company, business unit or organisation creates value for its users both greater than the costs of supplying them and superior to that of rivals. Two fundamental means of achieving competitive advantage: 1) An organisation can have structurally lower costs than its competitors; 2) Have products or services that are differentiated from competitors’ products or services in ways that are so valued by customers that it can charge higher prices that cover the additional costs of the differentiation. Cost-leadership strategy involves becoming the systematically lowest-cost organisation in a domain of activity. Four key cost drivers that can help deliver cost leadership: Lower input costs. Economies of scale. Experience. Product/process design. Cost- leadership strategy Low cost should not be pursued in total disregard for quality. Businesses have two options here: Parity – equivalent quality in terms of product or service features. The cost leader can then charge the same price as rivals and make higher profits. Proximity – only slightly lower quality allows the cost leader to offer a slightly lower price and still make higher profits. Differentiation strategy involves uniqueness along some dimension that is sufficiently valued by customers to allow a price premium. Within each market, businesses may differentiate along different dimensions. Two key issues to consider: The strategic customer on whose needs the differentiation is based. Key competitors – who are the rivals and who may become a rival. The key drivers of differentiation are: Product and service attributes – providing better or unique features. Customer relationships – customer service and responsiveness, customisation or marketing & reputation Complements – building on linkages with other products/services. Focus strategy targets a narrow segment or domain of activity and tailors its products or services to the needs of that specific segment to the exclusion of others. Two types of Focus Strategy: Cost-focus strategy -identify areas where broader cost based strategies fail because of the added cost of trying to satisfy a wide range of needs Differentiation focus strategy- look for specific needs that broad differentiators do not satisfy so well The focuser achieves competitive advantage by dedicating itself to serving its target segments better than others that are trying to cover a wider range of segments. Combining generic strategies A company can create separate business units each pursuing different generic strategies and with different cost structures. Technological or managerial innovations where both cost efficiency and quality are improved. Competitive failures – if rivals are similarly ‘stuck in the middle’ or if there is no significant competition then middle strategies may work. Business models A business model describes a value proposition for customers and other participants, an arrangement of activities that produces value, associated revenue and with cost structures. New entrants with new business models can radically change the dynamics and competition in a market and establish superior positions (e.g., Uber, Spotify). There are three essential elements in a business model: Value creation – a proposition that addresses a customer segment’s needs. Value configuration – the way resources and activities are organised to produce this value. Value capture – the way the cost structures and revenue streams create added value for stakeholders. Three typical business model patterns are: Razor and blade – where one item is sold at a low price in order to increase sales of a complementary good, such as consumable supplies. Freemium – named by combining ‘free’ and ‘premium’. Basic services are free to attract customers who then upgrade to expensive premium services (e.g. Spotify). Peer-to-peer – brings together people and/or businesses without having to go through a middleman  Digital Transformation and its impact on strategy formulation Digital transformation refers to the process of using digital technologies to fundamentally change how an organization operates and delivers value to its customers. Digital transformation Drivers Customers: Digital transformation can mean improved experiences through personalized and convenient interactions with businesses, greater access to information and services, and increased transparency and control over their interactions with companies. Additionally, digital technologies can enable customers to have more influence over the products and services they consume, through things like social media feedback and online reviews. Changes in assumptions from the Analog to the Digital Age from: Mass market to a dynamic network Communications broadcast to communications 2 way Firm as the key influencer to Customer as the key influencer Marketing to persuade to Marketing to inspire purchase, loyalty, advocacy One way value flows to Reciprocal value flows Economies of (firm) scale to Economies of (Customer) value Competition and Platforms: “The advantage of platforms is that a network of small firms remains entrepreneurial and creative and can make quick decisions, while profiting from leveraging the tangible and intangible assets of the large firm.” How important are platform as a digital transformation driver Platforms are an important driver of digital transformation as they provide the infrastructure and tools needed for organizations to build and deploy digital products and services. They can also enable new business models, such as on-demand services, and support the development of ecosystems of partners and developers. Platforms can also provide access to a large user base and enable new ways of capturing and analysing data to gain insights and improve customer experiences. Data: Data is a key driver of digital transformation as it allows organizations to gain insights into customer behaviour and preferences, improve decision-making, and optimize operations. By leveraging data, organizations can create more personalized and relevant experiences for customers, improve the efficiency of their operations and supply chains, and gain a competitive advantage in the market. Data can be used in various ways in digital transformation. For example, organizations can use data to: Personalize products and services to individual customer needs Optimize the customer journey Create new revenue streams through data products and services Improve the efficiency of their operations and supply chain Identify new market opportunities Enhance security and compliance Innovation: Innovation is a critical driver of digital transformation as it allows organizations to create new prod- ucts, services, and business models that can differentiate them from their competitors and create new opportunities for growth. Innovation is also critical to staying competitive in the digital economy and staying relevant to cus- tomer's needs. Organizations that continuously innovate, and adapt to changing market conditions, are more likely to succeed in the long term. Value: Value is a key driver of digital transformation as it helps organizations to create new and improved products and services that meet the needs of customers and create a competitive advantage in the market. The ability to create and deliver value to customers is at the heart of digital transformation and can be achieved by leveraging digital technologies to improve customer experiences, optimize operations, and create new revenue streams. Transformation Capabilities and Challenges WHY: triggers for transformations WHAT Transformation to do? revenue opportunities of emerging markets or significant changes to the business model new technologies mergers and acquisitions market threats introductions and replacements of enterprise IT internal crisis, within the enterprise systems. transformation initiatives of main competitors Summary  Innovation as a strategic choice Innovation vs Invention Invention→ conversion of new knowledge into a new product, process or service; Innovation→ conversion of new knowledge into a new product, process or service And putting it for actual commercial use. Innovation Dilemmas: Technology push or market pull Technology Push→ new knowledge created by technologist or scientist pushes the innovation process Market Pull→ Pulling users in markets that is responsible for innovation Product or process innovation Product→ final product/service to be sold, especially regarding to its features Process→ the way the product is produced/distributed, regarding its improvement of cost/reliability. Open or closed innovation Open→ deliberate import and export of knowledge by an organisation to accelerate and enhance its innovation. Exchanging ideas openly is seen as likely to produce better products/services more quickly Closed→ traditional approach relying on own internal resources (e.g., laboratories and marketing departments). Innovation is secretive; anxious to protect intellectual property and avoid competitors free riding on their ideas. Innovation diffusion. Diffusion is the process by which innovations spread amongst users. This can vary with respect to both speed and extent. Determinants of diffusion - Supply side: Determinants of diffusion - Demand side: The diffusion S-curve Decision points along the S-curve The tipping point is where demand for a product or service suddenly takes off, with explosive growth. The tripping point is the opposite of the tipping point, when demand collapses – sometimes drastically but often more gradually. The S-curve reflects a process of initial slow adoption of innovation, followed by a rapid acceleration in diffusion leading to a plateau representing the limit to demand. Innovators and Imitators First -mover advantage → exists where an organisation is better off than its competitors as a result of being first to market with a new product, process or service. Last mover advantage → the advantage that a company has when it is the last to introduce a new product, service, or technology Free-riding – imitating pioneer’s strategies but more cheaply Learning – from the mistakes made by pioneers. Summary  Methodologies for support implementation of a BSDT Critical Success Factors for digital transformation Digital transformation refers to the process of using technology to fundamentally change how an organization operates and delivers value to its customers. The critical success factors listed are key elements that organizations need to consider and implement to successfully navigate digital transformation. 1. Strong leadership and commitment from top management 2. Clear vision and strategy for digital transformation 3. Investment in technology and resources 4. Focus on customer needs and user experience. 5. Agile and flexible organizational structure 6. Strong data management and analysis capabilities 7. Employee training and upskilling 8. Collaboration and partnerships with other organizations and companies 9. Continuous monitoring and adaptation of the transformation process. Summary Interaction of Business Strategy with Digital Transformation is in 2-ways Methodologies are necessary to handle large/complex transformation projects All methodologies (presented) start with looking at the Business Strategy – analysis/definition Digital technologies interact with Business Strategy to achieve Competitive Advantage in the medium and long term.