European Business PDF
Document Details
Uploaded by Deleted User
Tags
Summary
These lecture notes cover European business topics like revenue models, profit and costs, value chains, types of businesses (goods/service producing), major functional areas, and factors of production. It touches on macro-environmental factors like political influences.
Full Transcript
Lecture 1: usiness - Any profit seeking organization which aims to create a good or service to satisfy consumer needs. B Also referred to as an enterprise or firm. They sell goods to earn a profit. elling to earn a profit may be difficult for startups and for example how do snapchat/tikto...
Lecture 1: usiness - Any profit seeking organization which aims to create a good or service to satisfy consumer needs. B Also referred to as an enterprise or firm. They sell goods to earn a profit. elling to earn a profit may be difficult for startups and for example how do snapchat/tiktok make profit? What S do they sell? What value do they bring when responding to a need? dding value -the additional features or economicvalue that a company adds to its products and services A before offering them to customers. Business/value chain example: 1. Wheat farm - converts soil, seed and time into wheat 2. Flour mill - converts wheat into flour 3. Bakery - converts flour into bread 4. Grocery store - makes bread easier to purchase 5. Consumer - benefits from value added at every stage Revenue - money that a company brings in through the sale of goods and services. Business model - a concise description of how a business intends to generate revenue. usiness models and revenue models are different. Revenue models explain how a business makes customers B pay e.g. you pay for bread with a paper transaction. Business models show what happens with profit as well. rofit - money left over after all the costs involved in doing business have been deducted from the revenue. P Profits = revenue - costs Competitive advantage - some aspect of a product or company that makes it more appealing to its consumers. Some businesses are nonprofit: Organizations that provide goods and services without having a profit motive. Must operate efficiently and effectively to achieve their goals. E.g. museums, charities, universities Goods producing businesses Service businesses Definition ompanies that create value by C ompanies that create value by C making things most of which are performing activities that deliver tangible some benefit to customers Examples anufacturing, construction, M inance, transportation, F mining, agriculture healthcare, insurance, entertainment Capital or Labour intensive? oods producing businesses are G ervice businesses tend to be S often capital intensive businesses labor intensive businesses. In developed countries, the service sector now accounts for 75% of a nation's economic output Specific Examples Apple (phones), Toyota, Gucci Metro, HSBC, twitter hat is good or difficult in relation W ou can protect the intellectual Y It is more difficult to protect a to the business model? property with patents. service than a good. But you must produce it in There is no inventory cost as it is advance and store it in inventories consumed as it is produced. which is expensive. company needs to see some promise of reward before accepting the risk of creating and selling products. The A risks need to stay attached to their decisions. Meaning if a decision is bad that company would suffer consequences. However, if the risk gets disconnected to the decision meaning someone else will suffer from a bad decision a situation called moral hazard is created. Example of a moral hazard: Mortgage companies lending money to homeowners who were practically guaranteed to default on their loans. They then sold their loans as investments and transferred the risk of nonpayment to someone else. This was the 2008 financial crisis Business Sale Models include: 1. B2B - farmer selling to manufacturers e.g. from wheat grower to flour maker 2. B2C - consumers buying final products e.g. buying phone from Apple 3. C2C - such as ebay 4. C2B - common in energy industry such as selling energy you make from your solar panels to producers Positive Effects of Business Negative Effects of Business Offering valuable goods and services Generating pollution and creating waste Providing employment Creating health and safety risks Paying taxes Disrupting communities Contributing to growth, stability and security Causing financial instability Major functional areas in a business enterprise: Research and Development (R&D) - functional area responsible for conceiving and designing new products. Information technology (IT) - systems that promote communication and information usage through the company or that allow companies to offer new service to their customers. anufacturing/production/operation - an area where the company makes whatever it makes (for goods M producing businesses) or does what it does (for service businesses). It considers purchasing, logistics and facilitates management. arketing - charged with identifying opportunities in the marketplace. Working with R&D o develop products to M address those opportunities. Creating branding and advertising strategies to communicate with potential customers and setting prices. inance and Accounting - Responsible for virtually every aspect of a firm's finances. Ensuring that the company F has the funds it needs to operate. Monitoring and controlling how the funds are spent. Drafting reports for company management and outside audiences such as investors. Human Resources (HR) - responsible for recruiting, hiring, developing and supporting employees. Business Services - Exist to help companies with specific needs in law, banking, real estate etc. Key terms: Economy - the sum total of all the economic activity within a region Economics - the study of how a society uses its scarce resources to produce and distribute goods and services Microeconomics - the study of how consumers, businesses, and industries collectively determine the quantity of goods and services demanded and supplied at different prices Macroeconomics - the study of “big picture” issues in an economy, including competitive behaviour among firms, effects of government policies and overall resource allocation issues Scarcity - a condition of any productive resource that has finite supply Opportunity cost - the value of the most appealing alternative not chosen Economic system - the policies that define a society's particular economic structure; the rules by which a society allocates economic resources. Free market vs planned ○ Free market - companies are free to decide what, how and who to sell products to. They succeed or fail by their own decisions. Capitalism and private enterprise are the terms most often used to describe the free market system. ○ Planned system - government controls the distribution of economic resources and limits freedom of choice to accomplish their goals. Factors of Production: 1. Natural resources - tangible assets that are useful in their natural state e.g. land, water, minerals 2. Human resources - people who work in or for an organisation and the talents they bring 3. Knowledge - the collective experience and wisdom of an organisation 4. Capital -funds that finance the operations of a business as well as the physical, human-made elements used to produce goods and services e.g. factories, tools, money 5. Entrepreneurship - innovation, initiative and willingness to take on risk to create new businesses Lecture 2: Layers of the business environment: Industry - is a group of firms producing products and services that are essentially the same e.g. airline industry. arket - group of customers for specific products or M services that are essentially the same e.g. market for luxury cars in Germany. ector - a broad industry group (or group of S markets) especially in the public sector e.g. health sector. ESTEL - a framework or tool used to analyse andmonitor the macro-environmental factors that may have a P profound impact on an organisation’s performance. P - Political ighlights the role of the state e.g. H overnment stability G as an owner, customer or supplier Taxation policy of a business. Or political groups. Foreign trade regulations These factors are all about how Social welfare policy and to what degree a government intervenes in the economy or a certain industry. E - Economic he economic environment can T conomic growth E affect customers' willingness and Inflation ability to spend their money on Interest rates products. Government can create Unemployment economic incentives e.g. to buy Disposable income more electric cars. S - Socio-cultural his dimension of the general T emographics D environment represents the Income distribution demographic characteristics, Lifestyle norms, customs and values of the Education population within which the Age organization operates. E.g. change Growth rate of lifestyle to healthier. T - Technology hese factors pertain to T Innovation innovations in technology that R&D (industry and may affect the operations of the government spending on industry and the market favorably it) or unfavorably. E.g. 3D printing Automation dvances in A communication E - Environment hey have become important due T nergy consumption E to the increasing scarcity of raw Waste materials, pollution targets and carbon footprint targets set by governments. These factors include ecological and environmental. L - Legal lthough these factors may have A ompetition law C some overlap with the political Health policy factors, they include more specific Safety regulations laws. xample of a PESTEL framework (threats and opportunities): E Oil company: ESTEL focuses on market and P non-market factors. Organizations can use it to anticipate decisions and forecast to make decisions. They can identify megatrends, weak signals, inflexion points and more. They can also allow for scenario analysis (creating a scenario and learning from it. egatrends - large scale changes M that are slow to form but influence many aspects. Inflexion points -a time of significant change ina situation; a turning point. Weak signals - advanced signs of future trends and can help identify inflexion points, they are fragmented by little bits of information. argets of external analysis - forces likely to affect the structure of an industry, sector or market. T Specialised newspapers/press can help collect data e.g. Globalization : A lot of different information sources identifying different things such as ○ Interdependence ○ Trade policies ○ Costs (economies of scale) cenario based analysis - scenarios introduce details and playsialble views of how the business environment S may develop in the future based on key influences. emand - buyers willingness and ability to purchase D products at various price points. upply - a specific quantity of a product that the seller is S able and willing to provide at various prices. emand curve - a graph of the quantities of a product D that buyers will purchase at various prices. upply curve - a graph of the quantities of a product that S sellers will offer for sale, regardless of demand, at various prices. Equilibrium - The point at which quantity supplied equals quantity demanded Because the supply and demand curves are dynamic, so is the equilibrium point As variables affecting supply and demand change, so will the equilibrium price Competition in a Free Market system: ompetition - rivalry among businesses for the same C customers e.g. apple/samsung. Categories of Competition: Type: Characteristics: ure Competition - a situation in which so many P any small suppliers M buyers and sellers exist that no single buyer or seller Identical products can individually influence market prices Low barriers to entry No single firm can grow large enough to influence prices across the market Buyers choice is extensive Homogeneous product (no product differentiation) Perfect information flow onopolistic Competition - a situation in which many M an I have a few are many suppliers of C sellers differentiate their products from those of varying size competitors in at least some small ways Products can be distinguished but are similar enough to be replacements Variable Barriers to entry but market open to all Firms that excel in one or more aspects can gain some control over pricing Buyers choice is extensive Imperfect availability of information Potential for product differentiation ligopoly - a market situation in which a very small O small number of suppliers even if he was number of suppliers, sometimes only two (duopoly), just to [duopoly] provide a particular good or service Products can be distinguish in important ways but replacements are still available new entry barriers to entry tend to be high making entering the market difficult Individual firms can have considerable control over pricing Buyers choices are limited Potential for product differentiation Imperfect availability of information Pure Monopoly - a single seller with no competitors. only one supplier in a given market onopoly achieved without government M intervention by innovation, specialization, exclusive contracts, or simple lack of competitors Products are unique with no direct replacements available Barriers to entry are extremely high making entering the market difficult to impossible Suppliers can change as much as they want the pricing at least until people stop buying Buyers choices or none Potential for product differentiation Imperfect availability of information egulated Monopoly - offers a specific product or R nly one supplier in a given market O service at a regulated price. Monopoly granted by government mandate, such as license to provide cable TV and Internet service No product competition is allowed Barriers to entry or infinitely high new competitors are not allowed Prices are set by government mandate Buyers choices are none Potential for product differentiation Imperfect availability of information Profitability in an industry and attractiveness of an industry or key questions for a business. Factors influencing profit earning: The value of the product or service to customers The intensity of the competition The relative bargaining power at different levels in the production chain orter's 5 forces: P The bargaining power of buyers - Buyers - are the organization's immediate customers, not necessarily the ultimate consumers. If buyers are powerful then they can demand cheap prices or products and services improvements to reduce profits Buyer powers likely to be high when: Buyers are concentrated uyers have a low switching costs B Buyers can supply their own inputs, backward vertical integration he bargaining power of suppliers - T Suppliers - are those who supply what organizations need to produce the product or service. Powerful suppliers can reduce organizations profit. Supplier power is likely to be high when: Suppliers are concentrated, a few of them Suppliers provide a specialist or rare input Switching costs are high, it is disruptive or expensive to change suppliers Suppliers can integrate forwards, e.g. low-cost airlines have cut out the use of travel agents he threat of entry - T Berries and she are the factors that need to be overcome by new entrance if they are to compete. The stress of entry is low and the barriers to entry are high and vice versa. The main barriers to entry are: Economies of scale, I fixed costs Experience and learning Access to supply and distribution channels Differentiation and market penetration costs Legislation or government restriction e.g. licensing hreat of substitutes - T Substitutes - or products or services to offer a similar benefit to an industry‘s products or services but have a different nature e.g. they are from outside the industry. Customers will switch to alternatives and thus the threat increases if: The price or performance ratio of the substitute is superior e.g. aluminum is more expensive than steel but as more weight efficient for carports The substitute benefits from an innovation that improves customer satisfaction e.g. high speed train can be quicker than airlines from city center to city center on short haul routes ivalry between existing competitors - R Competitive rivals are organizations with similar products and services aimed at the same customer group and or direct competitors in the same industry or market distinct from substitutes. The degree of rivalry increases when: Competitors are roughly equal size Competitors are aggressive in seeking leadership The market is mature or declining There are high fix costs The exit barriers are high There is low level of differentiation Summary - Implications of 5 forces - It helps identify the attractiveness of industries, which industries or markets to enter and leave Identify strategies that and can influence the impact of the five forces e.g. building barriers to entry by becoming more vertically integrated The forces may have a different impact on different organizations e.g. large firms can deal with bears and treat more easily than small firms Issues in 5 forces analysis: Defining the right industry. Applying the model at the most appropriate level, not necessarily the whole industry. E.g. the European low-cost airline industry rather than the airlines globally Converging industries, particularly in the high-tech arenas, or industries overlap e.g. digital industries, mobile phones, cameras. Considered a static model versus rapid changes enabled by technology alue net - is a map of organizations in a business environment V demonstrating opportunities for value creating cooperation as as well as competition. An organization is acomplementorif: Customers value your product more when they have the other organizations product than when they have your product alone e.g. sausages and mustard It is more attractive for suppliers to provide resources to you when it is also supplying the other organization than when it is supplying you alone e.g. Boeing and airlines Lecture 3: Characteristics of Small Businesses: 1. Have a narrow focus 2. Limited resources 3. Have more freedom to innovate 4. Entrepreneurial firms find it easier to make decisions quickly and react to changes in the marketplace Economic role of small/entrepreneurial businesses: 1. Provide jobs 2. Introduce new products 3. Meet the needs of larger organizations 4. Take risks that larger companies sometimes avoid . 5 rovide specialized goods and services P 6. They inject a considerable amount of money into the economy What is Entrepreneurship? There are many different definitions to it. ○ Entrepreneurs assemble and then integrate all the resources needed – the money, the people, the business model, the strategy – to transform an invention or an idea into a viable business. ○ Entrepreneurship is the process by which individuals pursue opportunities without regard to resources they currently control. ○ It solves users problems and unmet needs Increased interest in Entrepreneurship Books: College courses: A mazon.com lists over 36,900 books dealing In 1985, there were about 250 with entrepreneurship and 89,900 focused on entrepreneurship courses offered across all small businesses colleges in the USA. Today, more than 2000 colleges and universities in the USA offer at least one course in entrepreneurship. pportunity - is a favorable set of circumstances that creates a need for a new product, service, or business. O An opportunity has 4 essential qualities: 1. Attractive 2. Timely 3. Durable 4. Anchored in a product, service or business that creates or adds value for its buyer or end user “Window of opportunity” - metaphor to showing the perfect timing to for example enter a market The Theoretical Foundations of Entrepreneurship as a Research Field xample 1: Shane E efined it as - D and Venkataraman Entrepreneurial (2000) opportunities exist and (some) entrepreneurs successfully exploit them! xample 2: E efined it as - D he researched 27 entrepreneurs and identified a S Sarasvathy (2001) Entrepreneurs create pattern in mindset and 5 principles and called it: opportunities ○ Effectuation Effectuation (Entrepreneurial thinking) - Sarasvathy - They start with what they have at hand and don’t ask for money straight away - Imagining possible new ends using a given set of means - Effects can turn into new means - « To the extent that we can control the future, we do not need to predict it » This is true when the level of uncertainty is high Causation (Managerial thinking) - Venkataraman - Selecting between given means to achieve a given goal - “To the extent we can predict the future, we can control it. » This is true when the uncertainty is low The Effectual Cycle The 5 principles Driving Entrepreneurs Actions tart with who you are, what you know and S whom you know Not with pre-set goals Invest what you can afford to lose - extreme case $0 Not with expected return uild a network of self selected stakeholders B Not with competitive analysis mbrace and leverage surprises, E contingencies and failures Not to avoid them he future comes from what people do T Not with inevitable trends Why become an entrepreneur? 1. Decide to be their own boss 2. Desire to pursue their own ideas 3. Financial rewards Successful entrepreneurs characteristics: 1. Passion for the business a. The number one characteristic shared by successful entrepreneurs is a passion for the business. b. This passion typically stems from the entrepreneur’s belief that the business will positively influence people’s lives. 2. Product/customer focus a. A second defining characteristic of successful entrepreneurs is a product/customer focus. b. An entrepreneur’s keen focus on products and customers typically stems from the fact that most entrepreneurs are, at heart, craftspeople. 3. Execution intelligence a. The ability to fashion a solid business idea into a viable business is a key characteristic of successful entrepreneurs 4. Tenacity despite failure a. Because entrepreneurs are typically trying something new, the failure rate is naturally high. b. A defining characteristic for successful entrepreneurs is their ability to persevere through setbacks and failures. Common Myths About Entrepreneurs 1. Entrepreneurs are born not made ○ Whether someone does or doesn’t become an entrepreneur is a function of their environment, life experiences, and personal choices. 2. Entrepreneurs are visionary heroes ○ An innovative entrepreneur is generally not visionary. He/she works out his/her marketing project of his/her invention with the means that he/she has at hand: Who is he/she as a person? What does he/she know? What are his/her skills? Who does he/she know? . Entrepreneurs are gamblers 3 ○ Most entrepreneurs are moderate risk takers. ○ The idea that entrepreneurs are gamblers originates from two sources: Entrepreneurs typically have jobs that are less structured, and so they face a more uncertain set of possibilities than people in traditional jobs. Many entrepreneurs have a strong need to achieve and set challenging goals, a behavior that is often equated with risk taking. 4. Entrepreneurs are lonesome cowboys ○ Entrepreneurs do not waste time to plan everything ○ They build their project and make third parties interested in it so much that they commit themselves to participate in it. ○ Entrepreneurs determine with them the direction of the project 5. Entrepreneurs are extraordinary forecasters ○ Surprises always occur! ○ Entrepreneurs do not try to protect themselves from all the risks: this bears a significant cost! ○ Entrepreneurs consider surprises as resources: how can I make profit out of them? ○ All surprises are opportunities - leverage contingencies Different mindset between managers and entrepreneurs: Managers mindset - Pain Reduction - For a given level of RETURN, managers feel they can reduce the problem space and decrease risk Entrepreneurs mindset - Pleasure Increase - For a given level of RISK, entrepreneurs feel they can expand the problem space and increase returns Type of Start Up Firms Salary Substitute Firms firms that basically provide their owner or owners a s imilar level of income to what they would be able to earn in a conventional job (freelancers) Lifestyle Firms irms that provide their owner or owners the F opportunity to pursue a particular lifestyle, and make a living at it (dancer). Entrepreneurial Firms firms that bring new products and services to the arket by creating and seizing opportunities m regardless of the resources they currently control. Corporate Entrepreneurship - Conceptualization of intrapreneurship at the firm level All firms fall along a conceptual continuum that ranges from highly conservative to highly entrepreneurial The position of a frame on the continuum is referred to as entrepreneurial intensity Entrepreneurial Firms Conservative Firms roactive P ake a more “wait and see” posture T Innovative Less innovative Risk-taking Risk-averse Changing Demographics of Entrepreneurs Women Entrepreneurs Number of women owned businesses is increasing There were 8.6 women owned businesses in the US in 2013 generating over $1.3 trillion in revenue and employing nearly 7.8 million people In some industries women control a significant share of the business ○ Women owned businesses account for 52% of all businesses in healthcare Minority Entrepreneurs substantial increase in minority ntrepreneurs in the US e Between 2002 and 2007 minority owned firms outpaced the growth of non-minority firms in gross receipts, employment a number of firms In thousand seven there were about 1.9 million African-American owned firms in the US, 1.5 million Asian American owned firms and 2.3 million Hispanic owned firms Senior Entrepreneurs The number of seniors [50 years or older] s tarting businesses substantial and growing In 2012, 20% of new businesses were started by people between 50 and 59, well another 12.5% were founded by individuals 60 years or older This increase is attributed to corporate downsizing, and increase desire among older people from more personal fulfillment in their lives, growing worries about the cost of healthcare and similar factors Young Entrepreneurs A desire to pursue an entrepreneurial career is high among young people According to recent Gallup survey about four and 10 kids in grades 5 to 11 safety plan to start their own business About 59% of students in grades 5 to 12 say their school office classes and how to start a business About 1/3 of young people say their parents or guardians of start a business which provides them a firsthand look at the entrepreneurial lifestyle The Entrepreneurial Process 1. Deciding to become an entrepreneur 2. Developing successful business ideas 3. Moving from an idea to an entrepreneurial firm 4. Managing and growing the entrepreneurial f deciding to become an entrepreneur Three Startup Options: Why do new businesses fail? 1. #1 reason - The business doesn’t find the market fit for its product or service 2. Managerial incompetence - owner doesn’t know how to plan, lead, control or organize 3. Lack of strategic planning 4. Lack of relevant experience 5. Inability to make the transition from corporate employee to entrepreneur 6. Ineffective marketing 7. Uncontrolled growth 8. Over reliance on a single customer 9. Inadequate financing 10. Poor cash management 11. To much overhead 12. Poor location 13. Poor inventory control usiness Incubators - facilities that have small businesses and provide support services during the companies B early growth phases Financing Options For Small Businesses: seed money - The first infusion of capital used to get a business started micro lenders - organizations, often not-for-profit that lend smaller amounts of money to business owners who might not qualify for conventional bank loans venture capitalists - investors who provide money to finance new businesses or turnarounds in exchange for a portion of ownership, with the objective of reselling the business at a profit angel investors - private individuals who invest money in startups usually earlier in a business life and a smaller amount than VCs are willing to invest or banks are willing to lend initial public offering - corporations first offering of shares to the public crowdfunding - soliciting project funds, business investment or business loans from members of the public epending on where a business is on the life cycle will D change who funds them: ranchise - a business arrangement in which one company (the franchisee) obtains the rights to sell the F products and use various elements of a business system of another company (the franchisor). Franchisee - a business owner who pays for the rights to sell the products and use the business system of a franchisor. Franchisor - a company that licenses elements of its business system to other companies (franchisees). Lecture 4: System - an interconnected and coordinated set of elements and processes that converts inputs into outputs. The resources and capabilities of an organization also called core competences support the generation and preservation of sustainable competitive advantage over time. Resource- assets that organizations have or can call Capabilities (or competences) - are the ways those upon e.g. from suppliers, that is “What we have” assets are used or deployed that is, “What we do well” Tangible resources: Physical competences: Ways of achieving Physical resources (machines, plants, etc.) tilization of plant, efficiency, productivity, u Financial resources (capital, cash flow, flexibility, marketing revenue, etc.) Financial competences: Ability to raise funds Humane resources (skills) and manage cash flows, debtors, creditors, Intellectual capital (patents, brands, etc. databases, etc.) Intangible resources: Human competences: How people gain and Knowledge, Information use experience, skills, knowledge, build Reputation relationships, motivate,others and innovate Core Competencies to achieve competitive advantage: Value Take advantage of opportunities and neutralise threats Provide value to consumers Are provided at a cost that will allows organizations to make an acceptable return Rarity Rare capabilities are those possessed uniquely by 1 organization or only a few e.g. company may have patented products, talented people Rarity could be temporary e.g. patents expire, key individuals leave Inimitability Inimitable capabilities are those that competitors find difficult and costly to imitate, obtain or substitute. Competitive advantage can be built on unique resources but these may not always be sustainable Sustainable advantage is more often found in competencies and how they are linked Robust (organizational support) The organization must be suitably organized to support the valuable, rare and inimitable capabilities it has. This includes appropriate processes and systems. Non-substitutable There’s no strategically equivalent resources available that can be exploited by a competitor firm e.g. a unique top management team IF core competencies are THEN the firm can expect 1. Not Valuable 1. Competitive disadvantage 2. Valuable but not rare 2. Competitive parity 3. Valuable and rare 3. Temporary competitive advantage 4. Valuable, rare, costly to imitate but 4. Temporary competitive advantage substitutes exist 5. Valuable, rare, costly to imitate and without 5. Sustained competitive advantage, as long as direct substitute no disruptive technology arises hesustainablecompetitiveadvantagedoesnotresideinafirm’sproducts,butinitsdynamiccapabilitiesand T core competences. Dynamic capabilities represent the core competences in motion, over time. Core competences are the real sources of advantages. They are to be found in the management’s ability to consolidate corporate-wide corecompetencesandcompetenciesthatempowerthebusinesstoadaptquickly to changing opportunities. Dynamic Capabilities focus on the dynamics of combining, developing and reconfiguring old and new knowledge in order to adapt to the environment, and to the evolution of market forces Dynamic capability attributes: 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 reconfiguration of capabilities and investment in new technologies. hresholdcapabilities-thoseneededforanorganisationtomeetthenecessaryrequirementstocompeteina T given market and achieve parity with competitors in that market istinctive capabilities - required to achieve competitive advantage.Thesearedependentonanorganisation D having distinctive or unique capabilities that are of valuetocustomersandwhichcompetitorsfinddifficultto imitate rganisational knowledge - organisation-specific, collective intelligence, accumulated through both formal O systems and people’s shared experience. ‘Explicit’ knowledge or ‘objective’ knowledge-transmittedinformalsystematicways,e.g.systemsmanualsor market research. ‘Tacit’knowledge-morepersonal,context-specific,hardtoformaliseandcommunicateandisdifficulttoimitate, e.g. the knowledge and relationships in a top R&D team. enchmarking - meansofunderstandinghowanorganizationcompareswithothers-typicallycompetitors.2 B approaches to it are: 1. Industry/sector benchmarking - comparing performance against other organizations in the same industry/sector against a set of performance indicators 2. Best in class benchmarking - comparing an organization’s performance against best in class performance-whateverisfoundeveninaverydifficult industry e.g. BA benchmarked its refueling operations against Formula 1 SWOT Strengthandweaknessesincorecompetencies(internal nalysis) a Opportunities and threats in the environment (external analysis) SWOT Uses of SWOT To generate strategic options – using a TOWS matrix To examine strengths, weaknesses, in relation to competitors Dangers of SWOT Long lists with no attempt at prioritisation. O vergeneralization – sweeping statements often based on biased and unsupported opinions. SWOT is used as a substitute for analysis – it should result from detailed analysis using the framework SWOT is not used to guide strategy – it is seen as an end in itself. Tows Matrix Lecture 5: trategy - is the direction and scope of an organization over the long term, which achieves advantage in a S changing environment through its configuration of resources and competencies with the aim of fulfilling the stakeholder’s expectations. Example: Strategic Management Process: Elements of Strategic Management Understanding the strategic position of an STRATEGIC DIAGNOSIS: environments, capabilities... organization Making strategic choices for the future STRATEGIC OPTIONS: direction, methods... Turning strategy into action Are strategies suitable, acceptable and feasible? Strategic decisions are about: 1. Long termdirection of a firm 2. Thescopeof an organization's activities 3. Gainingadvantageover competitors 4. Addressing changes in thebusiness environment 5. Building on resources and competencies(capability) 6. Values and expectationsof stakeholders Therefore they are likely to: 1. Becomplexin nature 2. Be made in situations ofuncertainty 3. Affectoperationaldecisions 4. Require anintegratedapproach (both inside and outsidethe firm) 5. Involve considerablechange A brief history - the conceptual framework for corporate strategy A brief history - approaches to corporate strategy Components of Competitive Advantage: 1. Structural Sources- something a company has thatdoesn't let other players enter its competition effectively a. Large customer base (Amazon) b. Superior scale economies (Coca Cola) 2. Insight/Foresight- possession of unique knowledgeor insight (scientific, technical, expertise, creativity) or the ability to recognize patterns and trends a. Insight - Amazon frequently bought together b. Foresight - Madonna - anticipate trends in the music industry 3. Execution- by consistently outperforming their competitorsin the execution of their day to day business a. Overall organizational efficiency (Mcdonalds) 4. Corporate Culture- the attitudes, beliefs, values,norms and custom of a firm may drive the performance of an organization by creating sources in the three previous components Managing the Competitive Advantage Competitive Advantage Categories Cost Leadership Differentiation Hybrid imilar pricing to S ifferent pricing to D ifferent pricing D competitors competitors Different cost structure Different cost structure Similar cost structure to Advantage derived from Advantage derived from competitors both pricing and cost cost - companies try to Advantage derived from structure produce at a low cost pricing E.g. Singapore airlines - E.g. Ryanair E.g. Geox - economies of premium service with low scale, global production costs Porters Matrix ccording to Michael Porter, it is best to adopt a generic strategy and A stick rigorously to it. Failure to do this leads to a danger - “being stuck in the middle” e.g. following no strategy. he argument for pure generic strategies is controversial. Even porter T acknowledges that strategies can be combined e.g. with joint considerations about costs and uniqueness ombining Generic Strategies- a company can createseparate C strategic business units each pursuing different generic strategies and with different cost structures. Technological or managerial innovation where both cost efficiency and quality are improved. ompetitive failures - if rivals are similarly “stuck in the middle” or if there is no significant competition then C middle strategies may work. Hybrid strategies combine different generic strategies. .g. Southwest Airlines famously pioneered low cost airfares but also sought to differentiate on convenience, E frequency departures and friendly service. In other cases, all competitors are “stuck in the middle” and no significant (dis)advantages impact competition. ost Leadership strategy lever- it involves becomingthe C lowest cost organization in a domain activity. 4 key cost drivers that can help deliver cost leadership: 1. Lower input costs 2. Economies of scale 3. Experience, learning curve, better labour productivity 4. Product/process design - cheaper options ifferentiation strategy lever- involves uniquenessalong some dimension that is sufficiently valued by D customers to allow a price premium. The key drivers of differentiation are: 1. Product and service attributes - providing better or unique features 2. Customer relationships - customer service responsiveness, customisation, marketing, reputation 3. Complements - building on linkages between products/services e.g. Apple and iTunes ocus/Niche strategy lever- targets a narrow segment or domain of activity and tailors its products or F services to the need of that specific segment to the exclusion of others. Two types of focus: 1. Cost focus strategy 2. Differentiation focus strategy Successful focus strategies depend on at least one of the following factors: 1. Distinct segment needs 2. Distinct segment value chains 3. Viable segment economics usiness Strategy determines Operations Capabilities. A business delivers products and services to the end B customers. This relies on operations. perations Capability (production capability)- osa special ability that production does especially well to O outperform the competition. Excellent firms learn overtime how to achieve more than one competence to contribute to competitive advantage. he image is a value chain, we are focusing on the T operations area. Competitive Advantage and Capabilities: If the customers value: Operations will need to excel at: Low price Cost High quality Quality Fast delivery Speed Reliable delivery Dependability Innovative products and services Flexibility (products and services) Wide range of products and services Flexibility (mix) bility to change the timing or quantity of products A Flexibility (volume and/or delivery) and services Generic Dimensions of “Capabilities” Quality Advantages “ doing things right” – refers both to the level of performance of the product/service and to the level of conformance to the specifications Speed Advantages “ doing things fast” – It generally refers to the elapsed time between the beginning of an operation process and its end. It includes the actual time to produce the product/service plus other time components like the time to clarify the customers’ needs, the “queuing” time, the delivery time etc. Dependability Advantages “ doing things on-time” – It means honoring the delivery time given to the customers. Dependability = due delivery time – actual delivery time Flexibility Advantages “ being able to change what you do” – It relates to the capability to change the range, the mix, the volume and the delivery of the product/service, but also to the responsiveness (the time necessary for the change) Cost Advantages “ doing things productively” – It refers to any financial inputs to the operations that enables it to produce its product/service. Those inputs can be Operating Expenditure, Capital Expenditure, Working Capital Lecture 6: Strategic business unit (SBU)- supplies goods orservices for a distinct domain of activity. A small business has just one SBU. A large diversified corporation is made of multiple businesses (SBUs). SBUs can be called division or profit centres. SBUs can be identified by: ○ Market based criteria - similar customers, channels and competitors ○ Capabilities based criteria - similar strategic capabilities Bowman’s Strategy Clock: 1. Low price and low utility 2. Low price 3. Hybrid 4. Differentiation 5. Focused differentiation 6. High margins (standard product) 7. Monopoly pricing 8. Low utility and standard pricing 1 to 5 are successful strategies, 6 to 8 are failure strategies hree ` Model: T Strategies are normally long term, as the business grows overtime there are three horizon options/strategies. Strategy Happens at Different Levels Corporate Level Strategy etermines the overall scope of the organization D Adds value to different business units Meets the stakeholder expectations Business Level Strategy How to compete successfully in specific markets Operational Strategy ow the operational parts of the organization implement the strategy H and deliver the outcome expected by stakeholders It is a corporate strategy framework for generating 4 directions for organizational growth. arket Penetration- implies increasing share of currentmarkets with the M current products. Greater economies of scale Builds on establish strategic capabilities There may be retaliation from competitors e.g. price wars nother option to market penetration isretrenchment- a strategy of A withdrawal from marginal activities in order to concentrate on the most valuable products within an existing business. iversification- involves increasing the range ofproducts or markets served by an organization. D Related Diversification- involves diversifying intoproducts/services with relationships to the existing business. Conglomerate/Unrelated Diversification- involvesdiversifying into products/services with no relationships to the existing business. Takes a business beyond both existing markets and products increasing organizations scope Potential lower financing costs Risky - because there are no obvious ways to generate additional value and there are additional bureaucratic costs Why Diversify? -value creating drivers Exploiting economies of scope - efficiency as you use the organization's existing resources/competencies reducing the average total cost of production tretching corporate management competencies - corporate level managerial competencies are S applied across a portfolio of the business Exploiting superior internal processes Increasing market power via mutual forbearance or cross subsidization ynergy - refers to the benefits gained where activities or assets complement each other so that their combined S effect is greater than the sum of the parts. Often referred to as the “2+2=5” effect. Negative synergy - Diversification may also involvevalue destructiondrivers: ○ Spreading risk ○ Responding to market decline ○ Managerial ambition Product Development- where organizations delivermodified or new products to existing markets. Can be expensive and high risk May require new strategic capabilities Typically involves project management risks Market Development- involves offering existing productsto new markets. ritical success factors (CSFs) - factors that are either valued by customers or provide an advantage in terms of C costs and therefore are an important source of competitive advantage. Diversification through: 1. Forward integration - refers to the development into activities concerned with the outputs of a company's current business. Owning and controlling activities further ahead in the value chain. 2. Vertical integration - means entering activities where the organization is its own supplier or customer. 3. Backward integration - development into activities concerned with the inputs into the customers current business. Acquiring a business activity prior to theirs in the value chain. 4. Outsourcing - is the process by which activities previously carried out internally are subcontracted to external suppliers. a. The decision to outsource rests on the balance between 2 factors: i. Relative strategic capabilities: Does the subcontractor have the potential to do the work better? ii. Risk of opportunism: Is the subcontractor likely to take advantage of the relationship over time? orporate parenting: C Corporate parents have to show more value than they cost to have a parenting advantage (similar to SBUs with competitive advantage). 5 ways to value add: 1. Envisioning - clear overall vision of strategic intent for its business unit 2. Providing central services and resources 3. Facilitating synergies - cooperation and sharing across BUs 4. Coaching - developing strategic capabilities (management) 5. Intervening - control, improve, challenge, develop 3 ways to destroy value: 1. A dding management costs 2. Adding bureaucratic complexity 3. Obscuring financial performance - weak BUs might be cross subsidized by stronger ones Corporate Parenting Roles Portfolio Manager ctive investor A A person/group responsible for investing a mutual, exchange traded or closed-end fund's assets, implementing its investment strategy, and managing day-to-day portfolio trading. Small corporate office Main emphasis: downward, investing and intervening Synergy Manager orporate parent seeking to enhance value for business units by C managing synergies across business units. Large corporate office Main emphasis: across, faciLitating cooperation Parental Developer eeks to employ its own central capabilities to add value to its S businesses. Corporate office: large Main emphasis: downward, providing parental capabilities Boston, Mckinsey and Parental Matrix: All frameworks for managers to determine financial investment within their portfolios of business/ The models have at least 1 of the 3 following criterias: ○ Balance of portfolio ○ Attractiveness - how strong they are individually and how profitable their markets will be ○ The “fit” - potential synergies, extent to which the parent will be good looking after them CG Matrix (Growth/Share B matrix, Boston Matrix) ses market share and market growth to U visualise the needs of all diverse businesses/products. Potential problems: Vagueness - hard to determine whats high or low growth Capital market assumptions - capital cannot be raised in external markets Motivation problems (in dogs) Self fulfilling prophecies - cash cows can become dogs if quickly milked Mckinsey Matrix It positions units according to: 1. How attractive the relevant market they are operating in is 2. The competitive strength of the SBU in that market ttractiveness can be identified by PESTEL or A Porters. Business strength can be identified by competitor analysis. This matrix encourages debate. Potential problems: Vagueness - hard to decide whats high or low strength/attractiveness Capital market assumptions - capital cannot be raised in external markets Motivation problems (in dogs) Self fulfilling prophecies - cash cows can become dogs if quickly milked Parenting Matrix - fit eartland BUs - understand BU well and can H add value, the core of future strategy, allast BUs - understands BU well but can B do little for them. They could be just as successful as independent companies but need to avoid corporate bureaucracy. alue trap BUs - dangerous. Attractive V opportunities to add value but lack of feel will result in more harm. Needs new capabilities to move them to the heartland. lien BUs - misfits. Offer little to no opportunity to add value and the parents A do not understand them, best is an exit strategy. Lecture 7: Marketing- Make you want to buy a product All strategies that allow you to sell a product Promote a product Understanding what a customer wants Use all possible means to sell a product and promote it “ The process of creating value for customers and building relationships with those customers in order to capture value back from them.” “ Marketing is the activity, set of institutions and processes for creating, communicating, delivering and exchanging offerings that have value for customers, clients, partners and society at large.” = right place, right time, right price What can be marketed? Goods Services Events Experiences People Places Organizations Ideas etc arketing concepts exists since the very first translation human made and continues to evolve, the discipline M was born when marketing courses appeared in universities around 1910 4 Eras of Marketing: 1. Production era - a. Mass production with development of new mechanical processes. COmpanies concentrated on producing 1 single item b. Business held the position of power over consumers 2. Sales era - a. Sales campaigns persuade customers or the advantages of the specific product over others b. This era saw the advent of personal selling, print, radion, TV ads 3. Marketing era - a. Saw the advent marketing department within the organization b. The focus is made on the consumer, who is placed at the centre of the business operations 4. Relationship era - a. “Value based era” b. Common marketing practice Change of marketing in the last years: Internet Big data Social media Mass customization Core Marketing Concepts: Needs ○ State of felt deprivation ○ Human needs are the basic requirements and include food, clothing and shelter Wants ○ The form human needs takes as they are shaped by culture and individual personality Demands ○ Human wants that are back by buying power .g. Need - hungry and need food E Wants - you want a burger Demand - depending on your ability to pay you go to a luxury restaurant or mcdonalds ustomer Perceived Value (CPV) - the difference between the C prospective customer's evaluation of all benefits and all the costs of an offerening and the perceived alternatives e.g. Perceived Benefits Perceived Costs roduct benefits P onetary costs M Service benefits Time costs Relational benefits Energy costs Image benefits Psychological costs Utilitarian value - relates to products/services basic edonic value - relates to the product's ability in creating experiences H Symbolic value - is what a product or service can tell about you to others Psychological value - is what a product/service can do to comfort the customer from external or internal threats The Marketing Planning Process: The central instrument for directing and coordinating the marketing efforts Operates at both strategic and tactic level nderstanding customer value = Market Research + Analysis of data U Creating customer value - Strategy Formulation (STP) Delivering customer value = Marketing Mix arket Research - is the systematic design, collection, analysis and reporting of data and findings relevant to a M specific marketing situation facing the company. Primary Data Secondary Data Information you collect yourself by going Includes reports and studies by government directly to the source, for example survey or agencies, trade association or other focus group businesses within your industry Market Analysis - once data have been collected, the next step is analysis, often starting with SWOT. Marketing Strategy: An overall plan for marketing a product Includes the identification of target market segments, a positioning strategy and a marketing mix When to make a marketing strategy? hen planning a new product launch W When establishing the companies annual plans/budgets When a new competitor appears When results are below the objectives/forecasts The STP process: egmentation S Market - a group of customer who need or want a particular product and have the money to buy it arket Segmentation - the division of a diverse market into smaller, relatively homogenous groups with M similar needs, wants and purchase behaviours Segmentation process: 1. Select your segmentation criteria 2. Determine important characteristics of each market segment 3. Study segments you identify Types of Segmentation: Demographics - the study of statistical characteristics of a population ○ Age, gender, income, education, family Psychographic - classification of customers on the basis of their psychological makeup, interests and lifestyles
