Strategic Management PDF

STRATEGIC MANAGEMENT 1. Porter's Five Forces Model and Its Usefulness Porter's Five Forces model is a framework for analyzing the competitive forces that shape every industry and help determine its attractiveness. It is useful because it helps businesses understand the competitive dynamics of their...

STRATEGIC MANAGEMENT 1. Porter's Five Forces Model and Its Usefulness Porter's Five Forces model is a framework for analyzing the competitive forces that shape every industry and help determine its attractiveness. It is useful because it helps businesses understand the competitive dynamics of their industry, identify potential threats, and develop strategies to achieve a sustainable competitive advantage. The Five Forces: 1. Rivalry among existing competitors: o Characteristic: High rivalry occurs when there are many competitors of similar size and power, or when the industry is growing slowly. o Example: In the soft drink industry, Coca-Cola and Pepsi engage in intense competition through advertising, pricing, and product differentiation. 2. Threat of new entrants: o Characteristic: Barriers to entry such as high capital requirements, economies of scale, or strong brand loyalty can deter new competitors. o Example: The pharmaceutical industry has high barriers to entry due to the need for significant R&D investment and regulatory approvals. 3. Threat of substitutes: o Characteristic: The threat is high if there are many alternative products or services that can satisfy the same customer needs. o Example: In the beverage industry, bottled water and energy drinks are substitutes for traditional sodas. 4. Bargaining power of suppliers: o Characteristic: Suppliers have strong bargaining power if they are few in number, offer unique products, or if switching costs are high. o Example: In the electronics industry, suppliers of specialized semiconductor chips have significant power over manufacturers. 5. Bargaining power of buyers: o Characteristic: Buyers have strong bargaining power if they purchase in large volumes, the product is undifferentiated, or switching costs are low. o Example: In the retail industry, large supermarket chains like Walmart have significant bargaining power over suppliers due to their large purchase volumes. 2. Porter's Value Chain Model and Its Usefulness Porter's Value Chain model is a tool for analyzing the activities that a company performs to deliver a valuable product or service to the market. It is useful because it helps companies identify areas where they can create value, reduce costs, and improve efficiency. Support Activity Example: Technology Development: o What it consists of: This activity involves research and development (R&D), technological innovation, and the development of new processes, products, or services. o Example: A company like Apple invests heavily in R&D to develop new technologies for its products, such as the iPhone's facial recognition system. Primary Activity Example: Marketing and Sales: o What it consists of: This activity involves promoting and selling the company's products or services, including advertising, pricing, and distribution. o Example: Coca-Cola's marketing and sales activities include global advertising campaigns, sponsorships, and partnerships with retailers to ensure widespread distribution. 3. Resource-Based View: Classification of Resources In the resource-based view (RBV), resources are classified into four main types: 1. Tangible Assets: o Definition: Physical and financial assets that can be easily identified and valued. o Example: Manufacturing equipment, real estate, and cash reserves. 2. Intangible Assets: o Definition: Non-physical assets that are often more valuable than tangible resources, such as brand reputation, patents, and trademarks. o Example: Coca-Cola's brand recognition and trademark are key intangible assets that contribute to its competitive advantage. 3. Human Resources: o Definition: The skills, knowledge, and expertise of the company's employees. o Example: A company like Google relies heavily on its highly skilled engineers and data scientists to maintain its leadership in search technology.  4. Organizational Capabilities: o Definition: The ability of the organization to combine resources, processes, and people to achieve desired outcomes. o Example: Toyota's lean manufacturing system is an organizational capability that allows it to produce high-quality vehicles efficiently. 4. Three Main Factors Contributing to the Profit Potential of a Resource 1. Scarcity: o Explanation: A resource must be rare or not widely available to competitors to provide a competitive advantage. o Example: A patented technology, like Pfizer's exclusive rights to produce a specific drug, is scarce and provides a significant profit potential. 2. Relevance: o Explanation: The resource must be relevant to the key success factors in the market. o Example: In the tech industry, having a highly skilled R&D team is relevant because innovation is a key driver of success. 3. Durability: o Explanation: The resource should maintain its value over time and not be easily eroded by competition or market changes. o Example: A strong brand like Nike has shown remarkable durability over decades, contributing to sustained profitability. These factors help determine whether a resource can provide a sustainable competitive advantage and contribute to long-term profitability. TECHNOLOGY-BASED INNOVATION 1. What is the Technology-Product-Market Linkage? Illustrate with an example. Technology-Product-Market (T-P-M) Linkage: The Technology-Product-Market Linkage is a framework that connects technology (what the product can do), product (features and benefits), and market (customer needs and segments). It ensures that the technological capabilities of a product align with customer needs, creating value for the market. Example: Technology: A new power rectifier technology that operates at frequencies above 20 KHz, reducing energy waste by 60% compared to traditional rectifiers. Product: A chipset for electric motor control that enables silent operation of household appliances. Market: Customers who need quieter appliances, such as electric domestic appliance users who are disturbed by noise. The T-P-M linkage ensures that the technology (silent power rectifier) is developed into a product (chipset) that meets a specific market need (quieter appliances). 2. What is the elevator pitch? How does it express the potential of an opportunity? Illustrate with an example. Elevator Pitch: An elevator pitch is a concise, compelling summary of a business idea or product that can be delivered in the time span of an elevator ride (typically 30-60 seconds). It communicates the problem, solution, target market, and unique value proposition of the opportunity. How it Expresses Potential: The elevator pitch highlights the value of the opportunity by clearly stating: Who the target customer is. What problem the product solves. How the product solves the problem better than alternatives. Example: Problem: In 2006, 70,000 hectares of forest burned in Portugal, costing €210 million. Rapid fire detection is critical but expensive with current solutions.  Solution: Rain Dance, an aerial surveillance system using autonomous small planes, provides permanent, high-resolution fire detection at low cost. Target Market: National Fire Authorities with limited budgets. Value Proposition: Rain Dance offers fast, flexible, and scalable fire detection at an affordable cost, unlike static ground surveillance systems. 3. Define and illustrate with an example the concept of “job-to-be-done”. Job-to-be-Done: The job-to-be-done framework focuses on understanding the specific tasks or problems that customers are trying to solve when they purchase a product or service. It shifts the focus from product features to the customer’s underlying needs. Example: Product: Milkshakes. Job-to-be-Done (Morning): Commuters need a convenient, non-messy breakfast that lasts through their morning commute. Job-to-be-Done (Afternoon): Parents want to placate their children with a treat that makes them feel like good parents. By understanding these jobs, a company can improve the product: Morning: Make the milkshake thicker and add fruit pieces to make it more satisfying and engaging. Afternoon: Make the milkshake less viscous and serve it with entertainment to keep children occupied. 4. Choose and explain one factor that might limit an innovative company's ability to appropriate the returns generated by its innovation. Illustrate the explanation with an example. Factor: Appropriability Regime The appropriability regime refers to the ability of a company to protect its innovation from imitation and capture the economic returns it generates. This depends on: Nature of the Technology: Whether the technology can be kept secret or is easily codified. Legal Protection Mechanisms: The effectiveness of patents, copyrights, and trade secrets. Example:  Pharmaceutical Industry: Innovators can effectively protect their drugs through patents, allowing them to capture significant returns from their innovations. Consumer Electronics: Legal protection is often ineffective, and technologies are easily reverse-engineered. For example, early innovators in personal computers struggled to capture returns because competitors quickly imitated their designs, and distribution channels (e.g., retailers) held significant power. In industries with weak appropriability regimes, innovators may need to rely on other strategies, such as rapid market penetration or control of complementary assets, to capture value. Conclusion: T-P-M Linkage: Connects technology, product, and market to create value (e.g., silent power rectifiers for quieter appliances). Elevator Pitch: Communicates the potential of an opportunity concisely (e.g., Rain Dance for fire detection). Job-to-be-Done: Focuses on customer needs rather than product features (e.g., milkshakes for commuters and parents). Appropriability Regime: Limits an innovator’s ability to capture returns if the technology is easily imitated (e.g., consumer electronics vs. pharmaceuticals). Operations 1. What does an operations strategy consist of? Explain how it relates with the competitive strategy of a company, referring to the principle of alignment. Illustrate this relationship with an example. Operations Strategy: An operations strategy is a plan that outlines how an organization will use its resources, processes, and competencies to support its overall business objectives. It focuses on designing and managing the processes, systems, and resources required to produce and deliver goods or services efficiently and effectively. Relation with Competitive Strategy: The principle of alignment states that the operations strategy must support and reinforce the company's competitive strategy. The competitive strategy defines how the company aims to compete in the market (e.g., through cost leadership, differentiation, or focus), and the operations strategy ensures that the company's operational capabilities are aligned with this competitive approach. Example: Competitive Strategy: Tesla’s competitive strategy is differentiation through innovation, high-performance electric vehicles, and cutting-edge technology. Operations Strategy: Tesla’s operations strategy focuses on advanced manufacturing techniques, vertical integration of the supply chain, and rapid innovation cycles to deliver high-quality, innovative vehicles that align with its competitive strategy. 2. How does the resource view look at an organisation? What are the four questions that the resource view answers? Give an example of a response to each of the questions. Resource View: The resource view considers an organization as a set of real assets (tangible, intangible, and human) that are used to perform tasks and generate value. It focuses on the types, amounts, and locations of resources needed to achieve operational goals. Four Questions: 1. Sizing: How many resources should we invest in? o Example: Mercedes initially invested in a production capacity of 65,000 vehicles per year for the M-Class. 2. Timing: When should we increase or decrease resources?  o Example: Mercedes expanded its capacity to 80,000 vehicles in 1999 and 160,000 vehicles in 2004 to meet growing demand. 3. Type: What kinds of resources are best? o Example: Mercedes split its capacity between the M-Class and R-Class, using specialized assets for each model. 4. Location: Where should resources be located? o Example: Mercedes built its first passenger car factory outside Germany in Tuscaloosa, Alabama, to avoid import tariffs and be closer to the US market. 3. How does the process view look at an organisation? What are the four questions that the process view answers? Give an example of a response to each of the questions. Process View: The process view focuses on how resources perform activities to transform inputs into outputs. It emphasizes the structured, recurrent activities that add value and the relationships between these activities. Four Questions: 1. Supply: When to outsource and how to manage suppliers? o Example: Mercedes owns engine plants but outsources seat manufacturing to specialized suppliers. 2. Technology: Which technologies do our processes need? o Example: Mercedes uses centralized coordination for components and parts to ensure efficient production. 3. Demand: How do we match demand to available supply? o Example: Mercedes systematically underestimated demand for the M-Class, leading to capacity expansions. 4. Innovation: How and when do we improve and innovate? o Example: Mercedes introduced the R-Class seven years after the M-Class and the C-Class in 2014, demonstrating continuous innovation. 4. What are the competences? What are the four questions that the competences view answers? Give an example of a response to each of the questions. Competencies: Competencies are the abilities of an organization, determined by its resources, processes, and values. They define what the organization can and cannot do, and they influence the types of products and services it can provide effectively. Four Questions: 1. Cost: What is the total cost of operating? o Example: For Mercedes, cost is not a primary concern because it operates in the luxury market with high margins. 2. Time: What is the total time needed to transform inputs into outputs (lead time)? o Example: For Mercedes, time is moderately important, but not as critical as in industries like fast fashion. 3. Quality: What is the ability to deliver quality products? o Example: For Mercedes, quality is essential and a key differentiator in the luxury automotive market. 4. Flexibility: What is the operation's flexibility to change inputs, activities, volumes, or outputs? o Example: Mercedes benefits from volume flexibility, especially for models like the M-Class, where demand is difficult to estimate. Conclusion: Operations Strategy: Aligns with competitive strategy to deliver value (e.g., Tesla’s innovation-driven operations). Resource View: Focuses on the types, amounts, and locations of resources (e.g., Mercedes’ capacity planning). Process View: Emphasizes how activities transform inputs into outputs (e.g., Mercedes’ supply chain and innovation processes). Competencies View: Defines what the organization can do well (e.g., Mercedes’ focus on quality and flexibility). Bulletwhip Effect 1. What is the Bullwhip Effect? Why is this phenomenon undesirable in supply chains? The Bullwhip Effect refers to the phenomenon where small fluctuations in customer demand cause increasingly larger fluctuations in orders as they move up the supply chain (from retailers to wholesalers, distributors, and finally to manufacturers). This results in amplified variability in orders, inventory levels, and production schedules. Why is it undesirable? High Inventory Costs: Companies accumulate excess stock to buffer against demand variability, leading to increased holding costs. Inefficient Resource Use: Production and transportation resources are underutilized during low-demand periods and overburdened during peak times. Increased Operational Costs: Companies incur higher costs due to expedited shipping, overtime labor, and inefficient use of capacity. Poor Customer Service: Stockouts and delays in fulfilling orders can lead to customer dissatisfaction. 2. Examples of Rational Decisions That Cause the Bullwhip Effect a. Forecasts and Safety Stocks Rational Decision: Companies use historical demand data to forecast future demand and maintain safety stocks to buffer against demand variability. Contribution to Bullwhip Effect: When demand increases, companies adjust their forecasts upward and order more to replenish safety stocks. Conversely, when demand decreases, they reduce orders. This leads to amplified order variability upstream in the supply chain. b. Order Grouping Rational Decision: Companies group orders to reduce transportation and order processing costs. Contribution to Bullwhip Effect: Instead of placing small, frequent orders, companies place large, infrequent orders. This creates spikes in demand for suppliers, leading to amplified variability. c. Price Fluctuations  Rational Decision: Companies take advantage of lower prices by purchasing in bulk during promotions or discounts. Contribution to Bullwhip Effect: Customers buy more than they need during low-price periods and stop buying during high-price periods. This creates artificial demand spikes and troughs, distorting the true consumption pattern. d. Inflated Orders Rational Decision: During periods of supply shortages, companies inflate their orders to ensure they receive enough stock. Contribution to Bullwhip Effect: When the shortage ends, companies stop placing orders, leading to a sudden drop in demand. This creates a cycle of over-ordering and under- ordering. 3. Examples of Leverage Points for Dealing with the Bullwhip Effect a. Reduce Uncertainty Intervention: Share real-time demand information across the supply chain so all parties can make forecasts based on the same data. Improvement: This reduces the need for each company to independently forecast demand, leading to more accurate and consistent orders. b. Reduce Variability Intervention: Implement consistent pricing strategies to eliminate demand spikes caused by promotions or discounts. Improvement: This stabilizes demand patterns, reducing the need for large safety stocks and minimizing order variability. c. Reduce Delays Intervention: Use information systems to reduce order processing times and improve coordination between supply chain partners. Improvement: Faster processing and delivery times reduce the need for large inventories and help companies respond more quickly to changes in demand. d. Customer-Supplier Collaboration Intervention: Implement vendor-managed inventory (VMI) systems, where suppliers manage inventory levels for their customers. Improvement: This ensures that inventory levels are aligned with actual demand, reducing the need for inflated orders and safety stocks. e. Rationing Based on Past Sales  Intervention: During supply shortages, allocate products based on historical sales rather than inflated orders. Improvement: This prevents companies from over-ordering and reduces the variability in orders placed upstream. ENGINEERING SYSTEMS 1. Example of Interaction Between Technology and Social Aspects Example: Access to Electricity in Rural Areas Technology Side: The development of stand-alone solar power systems provides a sustainable and cost-effective solution for generating electricity in remote areas without access to the central grid. Social Side: Access to electricity improves quality of life by enabling: o Education: Children can study at night with electric lighting. o Healthcare: Medical dispensaries can operate during nighttime, and vaccines can be stored in refrigerators. o Economic Opportunities: Businesses can extend operating hours, and new enterprises can emerge. Impact of the Interaction: On Technology: The need to use local resources and design simple, durable devices drives innovation in renewable energy technologies. For example, solar panels and batteries must be robust and easy to maintain in harsh environments. On Society: Access to electricity transforms communities by improving health, education, and economic opportunities. It also reduces reliance on harmful alternatives like kerosene lamps, which cause indoor air pollution. 2. Example of Interaction Between Technology and Business Aspects Example: Apple’s Retail Stores Technology Side: Apple’s retail stores are designed with advanced technology, such as self-checkout systems, interactive product displays, and Genius Bars for technical support. Business Side: The stores serve as a direct channel for Apple to sell its products, provide customer service, and build brand loyalty. They also act as a marketing tool, showcasing Apple’s innovation and design. Importance of the Interaction: For Technology: The retail environment allows Apple to test and refine new technologies in real-world settings. For example, the integration of iPads for checkout and inventory management improves operational efficiency.  For Business: The stores enhance the customer experience, driving sales and brand loyalty. They also provide valuable customer feedback, which Apple uses to improve its products and services.