Strategy24_slides_session4.pptx

Strategic Management Session 4 What capabilities need to be in place FHRMBA August 29th, 2024 dr. Boris Blumberg How to move to the right end? Power Curve of Economic Profit 10000...

Strategic Management Session 4 What capabilities need to be in place FHRMBA August 29th, 2024 dr. Boris Blumberg How to move to the right end? Power Curve of Economic Profit 10000 Bottom Top Quintile Quintile Economic Profit (million $) 5000 8 78 0 S e r i -5000 e s 14 1 -10000 Invested Capital (million $) The Odds of Moving on the Power Curve New Position (10 years later) Bottom Middle Bottom Top 15 26 59 Old Position Middle 14 78 8 Bottom 43 40 17 Hockey sticks and hairy beasts Chart Title 140 15 20 an 16 18 Pl 20 20 an 17 an 19 120 Pl 20 Pl 20 an an 20 Pl Pl 20 an Pl 100 80 60 40 20 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 10 Variables that drive performance Endowments Trends Moves Programmatic Size Industry Dynamic Resources Allocation M&A Debt Level Past R&D Geography Strong Capex Productivity Differentation 10 Variables that drive performance Endowments Trends Moves Programmatic Size Industry Dynamic Resources Allocation M&A Debt Level Past R&D Geography Strong Capex Productivity Differentation Systematic of VCA Value Chain Analysis  The term value chain describes a way of looking at a business as a chain of activities that transform inputs into outputs that customers value  Value chain analysis (VCA) attempts to understand how a business creates customer value by examining the contributions of different activities within the business to that value  VCA takes a process point of view Value Chain in Fashion Retaiing Marketing and Branding Human Resource Management Design and Development Procurement and Logistics Cotton Farming / Fabric Production Jeans Design and Cut and Sew Retail Chemical Fibre Sample Sewing Manufacturing Competitive Competitive Segmented Competitive Power of Retailers market Market market (Top Market Entry barriers Basic Basic Designers) Basic (Capex) Technologies Technologies Creativity Technologies Limited Many / medium Many Few to many Many mainly in actors Asia Break Out Group  Use the value chain to think about possibilities how a fashion retailer could improve margins and/or reduce costs  Identify those possibilities for the primary and secondary activities Value Chain in Fashion Retaiing General Administration Marketing and Branding Core of our company / online shopping / use of influencers / multiple brands low and high brand, webshops Human Resource Management Efficient use of time Design and Development Core of our company, investment in research – different kind cotton Procurement and Logistics Good relations in supply chain supplier management Cotton Farming / Fabric Production Design and Sample Cut and Sew Retail Chemical Fibre Sewing Manufacturing Organic cotton Responsible Outsource to low CO2-emissions Sourcing Exclusive wage countries Focus on Diversification Diversification contracts with Outsourcing of Retailing supply streams Supply Streams designers low brand Distribution and warehousing Stock reduction Store foodprint Online as a new channel Exclusive distribution channels Inditex Performance 2020 2019 2018 2017 Revenues 20.4 28.2 26.1 25.3 Operating Priofit 1.5 4.8 4.3 4.3 (EBIT) Cost of Capital (8 2.1 2.3 1.7 1.6 %) Economic Profit -0.6 2.5 2.6 2.7 ROIC 7.35 % 17.02% 16.48% 17.00% Inditex Share Price Performance compared to GAP and H&M since 2017 Inditex Marketing and Branding no marketing, different shop brands for different age categories Human Resource Management Design and Development Inhouse design with short cycles of a few weeks and direct feedback Procurement and Logistics World Class Logistics Information System Cotton Farming / Fabric Production Jeans Design and Cut and Sew Retail Chemical Fibre Sample Sewing Manufacturing Out-sourced Out-sourced In Spain For basic clothes Own Retail stores, In house in SE Asia no other brands For more Own shops if advanced clothes possible (Capex) in own Spanish factory VRIO Framework Is a resource a strength or weakness? Value Rarity Imitability Organization Does it enable Do others Do firms Is the firm able to respond to control it as without it face to exploit it or threats and well? If yes, a is that opportunities? how many? disadvantage obstructed by Be aware of in obtaining or policies or value developing it. procedures? deterioration How VRIO are Inditex resources and capabilities Resource Valueable Rare Non- Organization imitable Brand (Zara, Pull&Bear, Berksha …) Yes No No Yes Logistic Information System Yes Yes Difficult Yes Production facilities close to consumers Yes Yes Difficult Yes Own Design Teams Yes No No No Ownership of stores Yes No No No Identifying Core Competences  Insight / Foresight - technical knowledge - information base - superior analysis - creativity  Frontline - product quality can differ depending on activities of frontline personnel - product quality is close to craftmen  Core Competencies Concept D E F G H I J A B C Business II K L Business III Business I Business IV Core Product A Core Product B Competence 4 Competence 2 Competence 1 Competence 3 LVMH: Louis Vuitton Moet Hennesy D E F G H I J A B C Fragances K L Wines & Spirits Fashion Watches Brands Brands.... Luxury Differentation Brand Building Distribution Mgmt How to identify core competences  1. Revisit your mission statement  2. Find out what makes your company important  3. Consider your current competencies  4. Measure your competencies against the VRIO criteria  5. Focus on your core competencies Breakout Group  Discuss in small groups whether your organisation has a core competence and if it has one what ist core competence is.  Discuss how your organization could leverage the core competence even more.