Lesson 1: Introduction to Strategic Process PDF

a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658805 LESSON 1. INTRODUCTION TO THE STRATEGIC PROCESS. 1. THE START OF STRATEGIC MANAGEMENT AND STRATEGIC ATTITUDE....

a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658805 LESSON 1. INTRODUCTION TO THE STRATEGIC PROCESS. 1. THE START OF STRATEGIC MANAGEMENT AND STRATEGIC ATTITUDE. 3 variables that define a turbulent environment: Complexity: diversity and difficulty of controlling changes. Dynamism: speed and depth of changes. Uncertainty: difficulty in forecasting future developments. Hostile There is a need to consider the type of response a firm should provide for its 1) survival and 2) increased performance, and which will enable it to constantly adapt to the ever-changing environment. TURBULENT-stable; COMPLEX-simple; DYNAMIC-static; UNCERTAIN-certain Strategic attitude (for the entrepreneur, manager or CEO to have): EXTROVERTED ○ A person concerned with the physical and social environment. (PRO)ACTIVE AND VOLUNTARISTIC ANTICIPATORY ○ A person who anticipates changes. OPEN TO CHANGE (SELF)CRITICAL ○ Capable of criticising oneself objectively. 1 Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658805 Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. What is strategy? STRATEGY is about key issues for the future organization. Strategy question: How should GOOGLE - originally a search company - manage its entry into the market for mobile phones? Strategic decisions imply/consist of: ○ A long-term management of the firm. ○ The attainment of an advantage with regard to the competitors. ○ To face up to environmental changes affecting the firm. ○ To grow taking organisational resources and capabilities as a starting point (strategic capability). ○ Values and expectations of organisational stakeholders. 2. STRATEGY: CONCEPT AND COMPONENTS. Concept: ○ “The determination of the long-run goals and objectives of an enterprise and the adoption of courses of action and the allocation of resource necessary for carrying out these goals.” - Alfred D. Chandler ○ “Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.” - Michael Porter ○ “A pattern in a stream of decisions” - Henry Mintzberg ○ “The dynamics of the firm’s relation with its environment for which ⬇️ the necessary actions are taken to achieve its goals and/or to increase its performance by means of the rational use of resources.” - Ronda and Guerras ○ Strategy is the long-term direction of an organization (Johnson, Whittington & Scholes: 2011: 3). Through the strategy, the firm is able to achieve an advantage in a changing environment through the configuration of its resources and capabilities and, in so doing, satisfy its stakeholders’ needs and expectations. 2 Abre tu Cuenta NoCuenta con el código WUOLAH10 y llévate 10 € al hacer tu primer pago a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658805 2 advantages with respect to traditional definitions: 1. Can include both deliberate, logical strategy and more incremental, emergent patterns of strategy. 2. Can include both, strategies that emphasise difference and competition and strategies that recognise the roles of cooperation and even imitation. Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. 3 elements of the definition: 1. Long-term: strategies are typically measured over years (even a decade or more). 2. Direction: strategies follow some kind of long-term direction or trajectory. 3. Organization: organizations involve complex relationships, both internally and externally (internal and external stakeholders). [Strategy] Components: Different names but same concepts. 1. SCOPE OF ACTIVITY = Arenas DEF.: The set of activities or business in which a firm operates and wants to operate in the future. Dynamic concept DEF.: current and future fields of activity, the set of businesses or business/activity portfolio in which the company operates (now) and wants to operate (in the future). Business = Product + Market Product = Technology + Functions (Needs) Business = Technology + Functions (Needs) + Market ○ Technology: way of doing things (manufacturing, selling, using…) ○ Functions: customer needs satisfied. ○ Market: type of customer. Dynamic perspective (Ansoff Matrix, 1976) 3 Abre tu Cuenta NoCuenta con el código WUOLAH10 y llévate 10 € al hacer tu primer pago a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658805 ○ Penetration: Zara opens a store in Colon. Where to compete 2. RESOURCES & CAPABILITIES - DISTINCTIVE CAPABILITIES (core competences) How to compete They are a key element of the set of resources and capabilities, current and potential, that a company owns and controls, and thus a key driver of competitive advantage. 3. COMPETITIVE ADVANTAGES To use your resources and capabilities to try to produce something better than your opponents. What I do better than my competitors. DISTINCTIVE CAPABILITIES - What you do with what you have. How to compete Competitive advantage does not apply to the overall firm but to a functional activity. It is built by the key distinctive capabilities that help a company achieve an advantageous position relative to competitors, 2 types: ○ Offering products or services that are are differentiated () from the ones offered by competitors: Differentiation Competitive Advantage D: innovation Rolex 4 Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658805 It is created when a company offers a product or service that the buyer perceives as unique in some of its defining attributes, so that such a product or service can be more highly priced: ○ Any tangible or intangible feature of the product or service that is relevant in the customer’s purchase decision-making process. Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. ○ Offering products or services with lower cost that competitors can achieve: Cost Competitive Advantage (I can do it cheaper) C: economisation aliexpress It is created when a firm’s cost structure leads that firm to have overall lower costs than competitors, in principle for similar - or comparable in quality - products or services: ○ 1) Economies of scale; 2) learning and experience effects; 3) optimization of the use of the installed capacity; 4) access to raw materials; 5) geographical location; exclusive technologies. 4. SYNERGY Organisational capab. 2 + 2 is not 4. Fundamental characteristic of systems: the value of the system as a whole is different than the added separate value of its parts. Function: improve management by coordinating - in a positive synergistic way - the choice of activity scope, distinctive capability development, and competitive advantage building. Coopetition (cooperation + competition): they compete but cooperate in certain matters they are interested in 3. THE STRATEGIC MANAGEMENT PROCESS. 5 Abre tu Cuenta NoCuenta con el código WUOLAH10 y llévate 10 € al hacer tu primer pago a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658805 Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. ⬇️⬇️⬇️⬇️⬇️⬇️ Strategic analysis - 5 lessons Obj., goal of the company, future, what the company wants to become Analysis (interanalysis, extranalysis) 6 Abre tu Cuenta NoCuenta con el código WUOLAH10 y llévate 10 € al hacer tu primer pago a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658805 Strategy + its formulation ○ SAFe analysis Are the strategies suitable for the organisation? If they fit, they are put into practice Organisational fit Strategy analysis - Strategy - Does strategy fit in my org.? - Into practice How do we choose the strategy? rational process emergence ○ Analyse; then - select better and most suitable strategy 4. LEVELS OF STRATEGY AND STRATEGIC BUSINESS UNITS. 1. CORPORATE [Strategy] Aims at defining the relationship of the company with the environment. ○ How? By specifying the activity scope and the distinctive capabilities required. Where to compete The scope of the company, the different businesses the company will offer strategy, growth 2. BUSINESS [Strategy] Aims at defining how to compete and the distinctive capabilities necessary to sustain an advantageous position in each of the businesses. How I want to compete 3. FUNCTIONAL [Strategy] Aims at defining how to optimise resources and capabilities within each of the business functions. ○ Why? To deploy business and corporate strategies. 7 Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658805 Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. STRATEGIC BUSINESS UNIT (SBU) P&G: synergy, strategy business unit, good for diversified companies DEF.: ○ Homogeneous set of activities or businesses from a strategic point of view. ○ Set of activities for which it is possible to formulate a common strategy and at the same time different from the strategy established for other activities and/or SBUs. ○ Similar parts of the company that follow the same strategy. Reasons to create SBUs: ○ In a firm with multiple businesses there is no competitive global position, but there is a different competitive position for each business or activity. ○ Each activity is developed in a particular competitive environment that requires specific capabilities. ○ Certain activities share success factors; therefore they share similar sources of competitive advantage, and grouping them facilitates the development of competitive advantages. 8 Abre tu Cuenta NoCuenta con el código WUOLAH10 y llévate 10 € al hacer tu primer pago a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658801 LESSON 2. STRATEGIC PURPOSE. 1. MISSION, VISION, VALUES AND OBJECTIVES. MISSION Def.: the identity and personality of the company, in the present and future, from a very general perspective. It should collect the organization’s reason for being and therefore justify its existence, forming something like a declaration of principles by which the company presents to society. ○ It provides the company and its members as a valid reference to its own identity, so it is important to be known by all members of the organization, as it serves as an element of identification with the company philosophy and cohesion among all participants. It tends to be stable over time. ○ In any case, it should be understood as a dynamic concept that evolves as the other components of the organization. ○ It can be restated as a result of environmental changes, or changes in the top management of the company. Usually based on the following variables: 1. The definition of the activity scope of the company. In practice, this definition has to do with the products or services offered, markets served or geographical area covered. 2. The identification of the essential capabilities that the company developed or may develop in the future, which show how to compete in the markets. Based on them, the company achieves sustainable competitive advantages. 3. Elements of company culture, values, beliefs, philosophy. Mission and culture are interdependent in the sense that it can promote certain orientation of the company, but in turn, the mission determines and influences the system of values and behaviours required. VISION The answer to the question of, how we should be or, what we want to be in the future. It reflects the mental image of the trajectory of the company. ○ It refers to the current perception of what should be the company’s future and establishes the criteria that the organization has to use to set the way forward. Its definition must be the one of the central roles of the leader. ○ It should be a reference for all actions of individuals so, when various alternatives arise to them on how to perform tasks, all members should choose those that best suit the company’s vision. VALUES Principles that guide the actions of an organization. ○ Values and beliefs conform to organisational culture, and provide a clear reference to stakeholders (internal and external) about questions like, how are we? or how to behave? 9 Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658801 ○ They can be an expression of how the organisation behaves and/or refer to values that are intended to achieve. OBJECTIVES Two broad types of objectives: ○ General objectives: Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. Corporate goals: usually defined in financial terms for each type of stakeholder. SBU’s goals. ○ Operational objectives: Specification of general goals and the ways to achieve them. Usually measurable (use of indicators) in order to facilitate implementation. 2. CORPORATE GOVERNANCE. Corporate governance: a set of mechanisms that allow owners (shareholders) to exercise control over managers in order to ensure the confluence of interests between both. Mechanisms of control: ○ External: business market, capital market, managerial labor market and goods and services markets. ○ Internal: Incentive system. Direct supervision: Board of Directors, control of the majority shareholders, hiring of external auditors or consultants, and supervision among managers. 10 Abre tu Cuenta NoCuenta con el código WUOLAH10 y llévate 10 € al hacer tu primer pago a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658801 Corporate governance is created due to the separation between owners and managers and the emergence of conflicts of interest between both. The management of a company can be entrusted to a single administrator or multiple administrators. Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. Special features: ○ In SL (Limited company): if there are + than 2 administrators, the administration is the responsibility of the Board of Directors. ○ In the quoted/listed SL (Public Limited company), the management is mandatory of the Board of Directors. BOARD OF DIRECTORS Board of Directors: body responsible for the administration of a company. The interaction between management and owners takes place at the board of directors. Board member or director: the natural or legal person that belongs to the Board of Directors. Types of board members (Ley de sociedades de Capital. Art 529 duodecies - Spanish Law): ○ Insider directors: top managers of the company, executive directors ○ Outsider directs/Non-executive directors or supervisory directors: Proprietary directors: those who hold a shareholding equal to or greater than that which is lawfully considered significant. Independent directors: those that may perform their responsibilities without being conditioned by relations with the company, the shareholders or the managers, because of their personal and professional knowledge or background. Other external board members: those who are not executives’ directors but neither proprietary or independent directors. The Board of directors fulfill the dual function of: 1. Advise, support, provide information, networks… that improve the strategic decisions of the company. 2. Monitor and supervise that executive’s actions create value for the company. Responsibilities/obligations of the Board of Directors: ○ Strategic: approve and determine the strategy and policies of the company. ○ Monitoring: management control formulate annual accounts, appoint and dismiss of top management… ○ Communication: they serve as a liaison with shareholders (1) presents the accounts to the General Meeting, 2) convenes the General Meeting of shareholders, 3) the agenda proposes agreements to be reached) CODES OF BEST PRACTICE They appear in different countries due to the need of improving corporate governance. Problems: 1. Increase in business size, leading to greater separation between ownership and management. Multiple shareholder groups with different interests to be considered. 2. Unequal power distribution (power asymmetries). 11 Abre tu Cuenta NoCuenta con el código WUOLAH10 y llévate 10 € al hacer tu primer pago a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658801 3. Self-interest maximising behavior. 4. Well-known cases of fraud or bad governance. 2008 Leham Brothers, 2012 CSSM & BANCAJA Codes of Best Practice. Spanish reports. ○ Olivencia Report (February, 1998) ○ Aldana Report (January, 2003) ○ Conthe Report (2006) ○ Rodríguez Report: Código Unificado de Buen Gobierno de las Sociedades Cotizadas (published on February 2015 and revised on June 2020) Codes of Best Practice. Other countries. ○ Recommendations of EU ○ Cadbury Report (1992), UK ○ Vienot Report (1995), France Unified Code of Good Governance or Code of Best Practices of Listed Companies (2020): Some of the recommendations of previous codes have been incorporated into mandatory legal regulations, mainly to the “Ley de Sociedades de Capital”. The definition of the type of directors, the duration of the directors’ mandates. ○ Characteristics: No mandatory or Voluntarista, using the “comply or explain” approach (whereby companies are required to explain their practices by reference to a set of designated best practice recommendations). Assessment of compliance by the capital market. Application to the quoted/listed companies. ○ It contains: 25 general principles, 17 of them referring to the Board of Directors. 64 recommendations. Recommendations CUBG (2015): ○ Recommendation 13. The Board of directors size must help the efficiency and participation of board members, being advisable to be between 5 and 15 members. ○ Recommendation 14. The policy for selection of board members: a) need to be clear and reliable, b) needs to ensure that profiles of candidates fit with the board needs c) favor diversity of knowledge, experience and gender. Measures that encourage the company to have a significant number of women senior managers are considered to favor gender diversity. ○ Recommendation 15. A clear majority of board directors must be outsider directors. The number of exclusive directors must be as low as possible. And that the number of female directors represents, at least, 40% of the members of the board of directors before the end of 2022 and onwards, not previously being less than 30%. ○ Recommendation 17. Independent directors must be at least half of the total board. 12 Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658801 ○ Recommendation 18. Web page must give information about directors: professional profile and background, other boards of directors, date of first appointment, shares of the company… ○ Recommendation 26. The frequency of meetings must allow board efficiency and at least there must be 8 meetings. Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. 3. STAKEHOLDERS AND POWER/INTEREST MATRIX. Mission, vision and goals need to take into account shareholders' interests but also the interest of other groups that can be affected by the behavior of the firm. Stakeholders: ○ DEF: Groups of people who depend on an organization to achieve their own goals and on whom, in its turn, an organisation depends. They can be affected by the goals, actions or behaviours of them. ○ Types: Internal: shareholders, directors, employees, managers… External: clients, suppliers, government, competitors, NGOs, local associations, customers… ○ ○ STAKEHOLDER MAPPING: THE POWER/INTEREST MATRIX (A. MENDELOW - 1986) Tool for identifying stakeholders. It identifies stakeholder expectations and power and helps in understanding political priorities. Goals: 1. Describe and analyse the stakeholders that can affect a firm's strategy. 2. Analyse the game of power. 3. Manage the power and behavior of stakeholders. Stages: 1. Describe stakeholders. 2. Assess the power of each stakeholder and potential coalitions. 13 Abre tu Cuenta NoCuenta con el código WUOLAH10 y llévate 10 € al hacer tu primer pago a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658801 3. Describe the interest of each stakeholder in each strategy. 4. Make specific proposals in order to manage stakeholders interests. Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. SOURCES OF POWER: Power: ability of individuals or groups to persuade, induce or coerce others into following certain courses of action. 4. CORPORATE SOCIAL RESPONSIBILITY: INITIATIVES AND TOOLS. Ethics: Cortina, A. (2014) ¿Qué es la ética? Ethics comes from the Greek term ethos, which means character (a set of qualities that morally differentiate a group of people or a person’s peculiar way of being). They are acquired by persistent behaviour, by habit, and generate tendencies to respond in a certain way and expectations of response in others. Business ethics focuses on the study and moral judgement of the decisions and actions that a company carries out within the scope of its freedom. They help a company develop a good character, which predisposes it to act in an excellent way and which distinguishes it from other companies. 14 Abre tu Cuenta NoCuenta con el código WUOLAH10 y llévate 10 € al hacer tu primer pago a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658801 Corporate Social Responsibility (CSR) includes the set of obligations of a company derived from imperatives of an ethical nature, which the company imposes itself and which go beyond what is required by current legislation. ○ Why is CSR important? In the interest of enterprises: CSR provides important benefits to companies in risk management, cost savings, access to capital, customer relationships, HHRR management, and their ability to innovate. In the interest of the EU economy: CSR makes companies more sustainable and innovative, which contributes to a more sustainable economy. In the interest of society: CSR offers a set of values on which we can build a more cohesive society and base the transition to a sustainable economic system. ○ Dimensions of CSR: Economic: related to the own activity of the firm (production of goods and services needed by society and creation of value for stakeholders). Social: related to the concern about the community where the firm operates, respecting its traditions & culture and involving in beneficial actions to it. Environmental: concern of the firm about its relationship to its environment (environmental management, sustainability…). ○ CSR: regulatory questions. Scope of application of Ley 11/2018: Companies with the following characteristics must include in the management report a statement of non-financial information: Companies considered Public Interest Entities listed companies, financial entities Companies in which the average number of workers employed during the year is greater than 500 and also during two consecutive years meet, at the closing date of each of them, at least two of the following circumstances: 1. That the total of the asset items exceeds 20,000,000 euros. 2. That the net amount of its annual turnover exceeds 40,000,000 euros. 3. That the average number of workers employed during the year is greater than 250. What’s new: Until now, the information related to CSR campaigns in Spain was outside the legal standards. With this measure, investors and other stakeholders will have full access to company information, both fiscal and non-fiscal. Objectives: 1. To help measure, monitor and manage the performance of companies and their impact on society. 15 Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658801 2. Contribute to the management of the transition towards a sustainable economy that can combine long-term profitability with the protection of the environment. 3. Increase non-financial information by companies as a crucial factor in ensuring a more long-term approach. What information should be included? Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. In accordance with Ley 11/2018, the Non-Financial Information Statement (Estado de Información No Financiera - EINF) will include significant information on the following issues: 1. Business model, 2. Environmental management and performance, 3. Social and personnel-related issues wage gap, average wages, organisation of work and working time, 4. Respect for human rights, 5. Fight against corruption and bribery, 6. Information about the company relationships with suppliers, purchasing policy. 5. CULTURAL CONTEXT. Culture: set of values, beliefs and assumptions that are shared by the members of a group and are taught to new members as the correct forms of behaviour in the social group. The corporate culture is demonstrated in symbols, rites, legends, architecture… and is generated through values that sometimes become underlying beliefs or assumptions (paradigm). Ethics deals with normative issues. Must be. Culture deals with positive issues. What is. 16 Abre tu Cuenta NoCuenta con el código WUOLAH10 y llévate 10 € al hacer tu primer pago a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658802 LESSON 3. EXTERNAL ANALYSIS. 1. ADVANCED ENVIRONMENTAL ANALYSIS: GENERAL AND COMPETITIVE ENVIRONMENT. INTRODUCTION What is the environment? A set of external and uncontrollable factors of the company that may have an influence on its success or failure. What is the purpose of external analysis? Analysis of current and potential influence of the environment on the activity and the results of the company (strategic factors). Threats and opportunities - Identification: ○ Threat: negative exogenous influence ○ Opportunity: positive exogenous influence Environment types: general & specific GENERAL: ○ What is the general environment? A set of external factors of the socioeconomic system that surrounds the company. What general factors are strategic? What influence do they have on the company now? What influence will they have on the company in the long term? ○ General environmental factors: PESTEL ANALYSIS 17 Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658802 SPECIFIC OR COMPETITIVE: ○ What is the specific or competitive environment? A set of external factors specific of a sector (or economic activity) to which the company belongs The attractiveness of a sector as a key determinant of company profit THE 5 FORCES FRAMEWORK, Michael Porter (1982) Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. [Porter’s 5 forces framework] helps identify the attractiveness of an industry in terms of 5 competitive forces that constitute an industry’s structure. 1. THE THREAT OF ENTRY Low when the barriers to entry are high and vice-versa The main barriers to entry are: ○ Economies of scale/high fixed costs ○ Experience and learning ○ Access to supply and distribution channels ○ Differentiation and market penetration costs ○ Government restrictions Licensing Entrants must also consider the specked retaliation from organisations already in the market 2. THE THREAT OF SUBSTITUTES Substitutes: products or services that offer a similar benefit to an industry’s products or services, but by a different process. ○ Different product. coffee-tea; laptop-tablet; hotel-AirBnb. Customers will switch to alternatives (and thus the threat increases) if: ○ The price/performance ratio of the substitute is superior. Aluminium may be more expensive than steel but it is more cost efficient for some car parts. ○ The substitute benefits from an innovation that improves customer satisfaction. High speed trains 18 Abre tu Cuenta NoCuenta con el código WUOLAH10 y llévate 10 € al hacer tu primer pago a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658802 can be quicker than airlines from city center to city center. 3. THE BARGAINING POWERS OF BUYERS Buyers: the organisation’s immediate customers, not necessarily the ultimate consumers. Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. If buyers are powerful, then they can demand cheap prices or product/service improvements to reduce profits. Buyer power is likely to be high when: ○ Buyers are concentrated (few of them) ○ Buyers have low switching costs ○ Buyers can supply their own inputs (backward vertical integration) 4. THE BARGAINING POWER OF SUPPLIERS Suppliers: those who supply what organisations need to produce the product or service. Supplier power is likely to be high when: ○ Suppliers are concentrated (few of them) ○ Suppliers provide a strange rare input ○ Switching costs are high (it is disruptive or expensive to change suppliers) ○ Suppliers can integrate forwards 5. THE EXTENT OF RIVALRY BETWEEN COMPETITORS Competitive rivals: organisations with similar products and services aimed at the same customer groups and are direct competitors in the same industry/market (they are distinct form substitutes). The degree of rivalry is increased when: 19 Abre tu Cuenta NoCuenta con el código WUOLAH10 y llévate 10 € al hacer tu primer pago a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658802 ○ Competitors are roughly equal size ○ Competitors are aggressive in seeking leadership - more costly to exit the market. ○ The market is mature or declining ○ There are high fixed costs ○ The exit barriers are high ○ There is a low level of differentiation IMPLICATIONS OF 5 FORCES ANALYSIS: ○ Identifies the attractiveness of industries - which industries/markets to enter or leave. ○ Identifies the strategies to influence the impact of the forces. Building barriers to entry by becoming more vertically integrated. ○ The forces may have a different impact on different organisations. Large firms can deal with barriers to entry more easily than small firms. ○ Apply at the most appropriate level - not necessarily the whole industry. ○ Note the convergence of industries - particularly in the high tech sectors. ○ Note the importance of complementary products. This can almost be considered a 6th FORCE. 2. INTRA-INDUSTRY ANALYSIS: STRATEGIC GROUPS. Strategic groups: organisations within an industry or sector with similar strategic characteristics, following similar strategies or competitions on similar basis. ○ These characteristics are different from those in other strategic groups in the same industry or sector. ○ There are many different characteristics that distinguish between strategic groups. ○ Strategic groups can be mapped ina. 2 dimensional map. These can be useful tools of analysis. ○ Steps: 1. Identify the key elements for the segmentation (competitive dimensions): Geographical area Number of products Quality Prices Marketing Distribution channels Degree of innovation Size Segments Hotels: Quality & Price 20 Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658802 2. Choose 2 competitive dimensions and draw the matrix (each strategic group will be drawn with a circle depending on they company sales) Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. ANALYSIS of strategic groups: intermediate character between business and industry ○ Concept: groups of companies within an industry sector remain similar behavior to each other (similar strategies). Strategic Group 1: Mercadona, Consum, Carrefour… Strategic Group 2: Lidl, Dia… (discount) ○ Implication for the analysis: Intragroup competition: competitive behavior of companies within the same group. Inter group competition: competitive behavior of firms located in different groups. Mobility barriers: determine the permeability between the different strategic groups and be seen as “access barriers” specific for each strategic group. ○ Uses: Understanding competition: enables focus on direct competitors within a strategic group, rather than the whole industry. Analysis of strategic opportunities: helps identify attractive “strategic spaces” within an industry. “Mobility barriers”: obstacles to movement from one strategic group to another. Analysis: can be overcome d to enter more attractive groups + can be built to defend an attractive position in a strategic¡tic group MARKET SEGMENTS ○ Def.: 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. “Niches”. small segment with very specific characteristics Customer needs vary. Focusing on customer needs that are highly distinctive is one means of building a secure segment strategy. Customer needs vary for a variety of reasons - these factors can be used to identify distinct market segments. Not all segments are attractive or viable market opportunities - evaluation is essential. 21 Abre tu Cuenta NoCuenta con el código WUOLAH10 y llévate 10 € al hacer tu primer pago a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658802 ○ Bases: Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. Segmentation in accordance with x lifestyle, location, whatever (each company chooses). STRATEGIC GROUPS ○ Who are the strategic customers? The persons at whom the strategy is primarily addressed because that have the most influence over which goods or services are purchased. For a food manufacturer it is the multiple retailers that are the strategic customers, not the ultimate consumer. For a pharmaceutical manufacturer it is the health authorities and hospitals, not the final patient. BLUE OCEAN THINKING ○ “Blue oceans”: new market spaces where competition is minimised Segment/part of the market space where the company can focus to have this strategic advantage. ○ “Red oceans”: where industries are already well-defined and rivalry is intense. Blue ocean thinking encourages entrepreneurs and managers to be different by finding or creating market spaces that are not currently being served. ○ A “strategy canvas” compares competitors according to their performance on key success factors in order to develop strategies based on creating new market spaces. STRATEGY CANVAS ELECTRICAL COMPONENTS COMPANIES 22 Abre tu Cuenta NoCuenta con el código WUOLAH10 y llévate 10 € al hacer tu primer pago a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658802 ○ ○ CRITICAL SUCCESS FACTORS: different parts of the company/process with which my company can observe how the other firms are performing. Achieve market leadership. ○ APPLE - design advice ○ A firm can have more than 1 blue ocean (obv.). 3. ADVANCED TECHNIQUES FOR ENVIRONMENTAL ANALYSIS: FORECAST AND FORESIGHT TECHNIQUES AND SCENARIOS METHOD. IRRELEVANT, NOT IMP., NOT EXAM 3 PROJECTION: extension into the future of a past situation in accordance with certain assumptions of tren extrapolation. ○ FORESIGHT: projection accompanied with probability assignment. 23 Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658802 Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. ○ ○ Validity condition: few and slow changes in the environment (structural permanence hypothesis) ○ Types: Statistical (OBJECTIVES): temporal and functional series, set to work… Explanatory (CAUSAL): econometric, analysis of statistical regularities… PROSPECTIVE: overview of possible futures, not unlikely scenarios, taking into account past trends and the confrontation of actors’ projects. ○ ○ Prospective techniques: techniques applied in the present time. ○ Validity condition: risk of abrupt changes and/or the appearance of new nature events. Impossible to predict starting from the past. ○ Types: Scenarios Method Delphi Method SCENARIOS (PROSPECTIVE) Scenarios are detailed and plausible views of how the environment of an organisation might develop in the future based on key drivers of change about which there is a high level of uncertainty. ○ Build on PESTEL analysis. ○ Do NOT offer a single forecast of how the environment will change. ○ An organisation should develop a few alternative scenarios (2-4) to analyse future strategic options. Types: ○ Most likely scenario or trend ○ Less likely or contrasted scenario Design (phases): ○ Identification of environmental factors of high uncertainty and impact ○ Identification of possible futures for each factor ○ Creation of scenarios for the possible configuration of the factors. CARRYING OUT SCENARIO ANALYSIS 24 Abre tu Cuenta NoCuenta con el código WUOLAH10 y llévate 10 € al hacer tu primer pago a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658802 1. Identify the most relevant scope of the study – the relevant product/market and time span. 2. Identify key drivers of change – PESTEL factors that have the most impact in the future but have uncertain outcomes. 3. For each key driver select opposing outcomes where each leads to very different consequences. Reservados todos los derechos. No se permite la explotación económica ni la transformación de esta obra. Queda permitida la impresión en su totalidad. 4. Develop scenario “stories” - That is, coherent and plausible descriptions of the environment that result from opposing outcomes 5. Identify the impact of each scenario on the organisation and evaluate future strategies in the light of the anticipated scenarios. 6. Scenario analysis is used in industries with long planning horizons. the oil industry, airlines CARRYING OUT DELPHI ANALYSIS ○ Carried out with a group of experts. ○ Steps: 1. Choose the group of experts 2. Elaborate the questionnaire 3. Analyse of the information 25 Abre tu Cuenta NoCuenta con el código WUOLAH10 y llévate 10 € al hacer tu primer pago a64b0469ff35958ef4ab887a898bd50bdfbbe91a-7658800 LESSON 4. INTERNAL ANALYSIS. 1. RESOURCES, CAPABILITIES AND COMPETITIVE ADVANTAGE. The internal analysis analyzes the elements of the Resources and Capabilities (R&C) that the company controls to deal with the environment. The internal analysis focuses on identifying the strengths and weaknesses of a firm in order to define a firm's strategies. Its main goal is to identify the company's potential to establish competitive advantages, through the identification, valuation and management of the R&C it owns, control or has access to. Firms/Companies: can be defined as a set of unique resources and heterogeneous capabilities that are generated and extended overtime. Internal analysis premises: FIRMS DIFFER BECAUSE… ○ their heterogeneity in terms of their R&C ○ imperfect mobility of their R&C Resources & Capabilities Typologies 26 Reservados todos los derechos. No se permite la explotación económica ni la transfo