Strategic Management - Management Strategic Chapter 1 to 6 PDF

Strategic Management Session 1  Diplomas International Conferences PhD In strategic Management from Paris Saclay – France Dr. Imane...

Strategic Management Session 1  Diplomas International Conferences PhD In strategic Management from Paris Saclay – France Dr. Imane BOUTERFAS Master. In Organisational Transformation from University of Research Topics Versailles Saint-Quentin en Yvelines - Strategic management - Corporate social responsibility - Sustainable innovation Professional Experiences - Dynamic Capabilities Methods of Teaching workshop method Case-study method  Task (1) Prepare a brief Self-Introduction, highlighting your unique skills and career aspirations? Course Overview This course focuses on the business as a whole and the inter-relationship between its various activities; we will introduce you to the strategic challenges faced by CEOs, especially those running multi-business companies, as well as an appropriate toolkit that can be useful in analyzing and addressing these challenges.  History and definitions of strategy Introduction to Business Strategy Foundations of Strategy 1 strategy (Strategy 1) This first part of the course will be Dynamic Capabilities devoted to an introduction to business strategy to familiarize you with the main concepts of strategy and the main tools Pyramid of strategies that will allow you to carry out a strategic diagnosis in the company. Strategic diagnosis  goal planning the strategic Strategy 2 From Analytical to Strategic management process Approach (Strategy 2) portfolio matrices Part Two presents concepts and strategies for creating a sustainable advantage in difficult competitive environments. Portfolio strategies Transition management Source: Fred R. David, “How Companies Define Their Mission,” Case Studies : Kodak and the digital revolution: the walt Disney company A misunderstanding of the market the entertainment king case Toyota’s strategic transformation Mattel and the Challenges of of the Mobility Sector Influence: Barbie in China … and more Assessment methods : Continuous Assessment (50%) : Report (25%) + Presentation (25%) ( Group Work ) Using the course materials, your knowledge, and online resources, you will conduct a strategic diagnosis of a company of your choice and provide strategic recommendations for its development. You'll deploy analysis tools covered in this class (PESTEL, market and sector factors, scenario method, Penrose, SWOT, etc.) to create a 10 to 15-page report. This is a group project, with 4 or 5 people per group. Final Exam (50%)  Task (2) Constitute the groups (4 to 5 students per group) Choose a Company ( Write in a paper , the name of the company + the names of the group members ) Some Examples ! Microsoft Walmart Disney Starbucks Zara (Inditex) Toyota SpaceX Airbnb Production Problem solving Alibaba Unilever IKEA Coca-Cola Spotify IBM Procter & Gamble McDonald's Nike Facebook (Meta) Platform/network Salesforce Sony Amazon Nestlé Tesla Samsung Apple Adidas Netflix Uber Google (Alphabet) L'Oréal Diversify your Choices ! … Strategy formulation includes developing a vision and mission, identifying an organization’s external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue. Strategy-implementation activities affect all employees and managers in an organization. Every division and department must decide on answers to questions, such as “What must we do to implement our part of the organization’s strategy?” and “How best can we get the job done?” The challenge of implementation is to stimulate managers and employees throughout an organization to work with pride and enthusiasm toward achieving stated objectives. Strategy evaluation is the final stage in strategic management. Managers desperately need to know when particular strategies are not working well; strategy evaluation is the primary means for obtaining this information. All strategies are subject to future modification because external and internal factors are constantly changing What does strategy mean ?  Strategy Definitions 1. For Chandler ("Strategy and 2. Johnson, Scholes, and Whittington (2008) structure", 1989), strategy is "the state: determination of the long-term goals "Corporate strategy is concerned with the and objectives of an enterprise and the overall purpose and scope of an organisation choice of actions and allocation of and how value will be added to the different resources necessary to achieve them". parts (business units) of the organisation." 3. Collis and Montgomery (1997) 4. “The key to investing define it as: is...determining the competitive "Corporate strategy is the way a advantage of any given company and company creates value through the above all, the durability of that configuration and coordination of its advantage” Warren Buffett, Fortune, multimarket activities." 1999  History of strategy (military) Ancient Greece Strategy comes from the Greek Word Stratos Agein Strategos: the function of strategist Sun TZU and the "Art of War" - 5th century BC Strategèmes, "Soft Power" ”The best strategy is the one that allows you to achieve your goals without having to fight” the emergence of non-military strategies, Concept of "grand strategy" by the British Basil Liddell Hart General strategy as "the art of leading, in times of war and in times of peace, all the forces and means of struggle of a nation" - Castex Whats the difference between (Strategy) and (Tactics) ? To do the right things To do things right Whats the difference between (Strategy) and (Tactics) ? The foundations of strategy (Part 1) Strategic management is the set of decisions and actions aimed at creating a sustainable competitive advantage. Competitive advantage is not necessarily being number one, it is in fact about positioning oneself in relation to the competition in order to create added value. The goal of the strategy is not to make a passing action, opportunism, but to build the survival of the company in a competitive world. For this purpose, there must be two inseparable creations: A formula of differentiation compared to competitors. The protection of this differentiation In other words, without competitive advantage, there is no creation of value. And without protection of this advantage, there is no sustainability. Creating a competitive advantage with sustainable profitability requires finding compromises between often contradictory requirements: Standardize or adapt products to markets. Invest alone or share risks and gains in an alliance Reward individual initiative or team spirit Stand out from the competition or copy the competition. Business strategy consists of defining objectives and the means to achieve them, but in a complicated and difficult situation where the objectives are shared between several competing companies, and/or the means are difficult to control and conquer in an environment where these resources are often rare and difficult to acquire. In other words, in defining the strategy, the definition of the competitive advantage intervenes. It is considered that the strategy consists of determining the competitive advantages that the company will be able to acquire through its investments in order to maintain a sustainable lead over its competitors. In the strategy, we will look for the way to achieve a competitive advantage that will allow the company to distance itself from its competitors and this in a sustainable way over the long term.  Evolution of strategic thinking Positioning Movement Competitive Resource-Based Permanent SWOT Advantage Strategies Transformation Strategic Fit Strategic Intent Strategy involves adapting to the environment In this case, the strategy aims at the permanent to acquire and defend a dominant position. transformation of the competitive game as well as of the company.  Task (3) Look at the diagram below and explain what it tells you Dynamic Capabilities and Strategy (WHAT?) “Dynamic capabilities are a set of intentional organizational and managerial capabilities that enable a firm to resolve mismatches between its resource base and changes in the environment, with the aim of increasing its resilience” (Labrouche 2014). (WHY?) Dynamic capabilities are crucial for an organization's survival and success in a rapidly changing environment (Eisenhardt & Martin 2000, Teece 2007, Teece 2017) (HOW?) Adapt to changing circumstances Seize new opportunities Adjust strategies accordingly, while transforming resources and competences to align with the evolving Labrouche Model 2014 environment. Example Company Vision Toyota "Mobility for All" Patagonia "We are in business to save our home planet" Danone "Bringing health through food to as many people as possible" Michelin "A better way forward" Company Vision Core Values "Safety, comfort, ease of movement, and Toyota "Mobility for All" sustainable development" "We are in business to save our home "Quality, integrity, environmentalism, and Patagonia planet" innovation" "Bringing health through food to as "Product excellence and their roots, and Danone many people as possible" sustainability of commitments" "Safety, efficiency, environmentalism, Michelin "A better way forward" accessibility" Company Vision Core Values Strategic Objectives related to Sustainability -Manufacture vehicles with zero environmental impact. "Safety, comfort, ease -Reduce to zero the CO2 emissions generated throughout a car's of movement, and life cycle. Toyota "Mobility for All" sustainable -Reduce CO2 emissions generated by factories. development" -Minimize and optimize water usage. -Establish a recycling-based system. "Quality, integrity, -Renovate product or service offerings. "We are in business to Patagonia environmentalism, and -Align business model with ecological transition. save our home planet" innovation" -Introduce green supply chain management in the company. "Product excellence and -Manufacture products that address environmental and public "Bringing health through their roots, and health challenges. Danone food to as many people sustainability of -Establish a business model shifted towards social objectives. as possible" commitments" -Build inclusive growth. Michelin's objectives are based on 4 axes: "reduce, reuse, recycle, and renew". "Safety, efficiency, -Reduce weight, CO2 emissions, and the number of tires used. Michelin "A better way forward" environmentalism, -Reuse by repairing. accessibility" -Recycle tires at the end of their life cycle. -Renew by using an increasing amount of renewable raw materials in the production process.  The foundations of strategy (Part 2) Planning and controlling objectives Budget planning: use of accounting and financial dashboards Strategic planning: use of experience curves and portfolio matrices. Soft planning: use of informal non-quantifiable models (decision trees, DTs), based on the construction of scenarios and the probability of occurrence of scenarios. Strategic vision: intuition of the manager  The foundations of strategy (Part 2) Planning and controlling objectives Planning is a management tool that is used to motivate actors and to align actions with the manager’s discourses Planning does not eliminate risk and does not serve as a prediction Planning sometimes leads to formalization errors: by wanting to express and quantify everything, we kill intuition and free will, sources of progress and innovation.  The foundations of strategy (Part 2) Planning and controlling objectives Control over Input: the implementation of financial dashboards in analytical accounting; Significant power of managers. Control over Output: control over value creation, competitiveness and results; Significant power of shareholders.  The foundations of strategy (Part 2) The strategic management process To implement an effective strategy, the manager must set objectives following a diagnosis and make an effort to structure the action implemented. There is thus a logical link between the choice of a strategy and the choice of a structure, since the structure serves the strategy, but in return it conditions subsequent strategic choices.  The foundations of strategy (Part 2) The Strategic Management Process For the manager, Strategic management is a work that is both: Cognitive: the manager must understand the structure in which he finds himself as well as the culture and history. Introspective: this leads to a personal conception of the manager's role ("What will this bring me?", "How will I go about it?") Communicational: this conception allows the manager to pass on information to the other actors.  The foundations of strategy (Part 2) The strategic management process The manager is faced with three strategic issues: The strategic task: it is building strategies, deciding on objectives, establishing priorities, seeking adequacy, etc. The relationship to the social system: It is ensuring that the company produces collaboration and action. The relationship to power: it is controlling enough resources to ensure a certain stability in the face of counter-powers. The foundations of strategy (Part 2) The stages of the strategic audit. Environmental analysis: competitive study, value chain analysis Business analysis: strategic segmentation, definition of DAS, generic strategy, portfolio strategy, value chain analysis Business-environment fit SWOT matrix: strength/weaknesses-opportunities/constraints Strategic recommendations, validate or invalidate strategic positioning to obtain a competitive advantage Implementation of recommendations: internal/external growth - refocusing/diversification - internationalization - strategic alliance.  Task Constitute the groups (4 to 5 students per group) Choose a Company To analyze your chosen company, please research and identify the following key elements: Vision: What is the company's long-term aspirational goal or purpose? Core Values: What are the fundamental beliefs and principles that guide the company's actions and decision-making? Strategic Objectives: What are the specific, measurable goals the company aims to achieve to fulfill its vision and uphold its values?  The role of managers 17 5 8  The 10 roles of the manager: Interpersonal roles - The manager represents the company, he fulfills “ceremonial obligations” - He recruits, directs, motivates and encourages his team members Information roles - The manager is looking for information from inside and outside the organization - The information he perceives as important is distributed and disseminated to organizational actors Decision-making - The manager seeks to improve the organization, to adapt it to changes in its environment. He continually initiates new projects and launches new ideas - He intervenes when the situation gets confused and does not hesitate to make corrections if necessary 20 5 9  The 10 roles of the manager: Interpersonal roles Figurehead Leader Liaison role Information roles Monitor Disseminator Spokesperson Decision-making Entrepreneur Regulator Resource allocator Negotiator 21 6 0 Environment, context, factors and constraints. A strategy is always designed and deployed in a given environment. Acquiring a good knowledge of the company's environment allows for the design of more solid, more competitive economic models. Given the increasing complexity and uncertainty of the markets, active listening to the environment is, more than ever, essential. Understanding the changes at work will help companies better adapt their economic model to unstable external forces. Strategic diagnosis Environment, context, factors and constraints Market strengths : Challenges Market segments Needs and demands Costs of change Income Sector strengths : Competitors New entrants Substitute products and services Suppliers and other players in the value chain  1. Market forces 1) The key issues that guide and transform Challenges your market. 5) Identify elements regarding income attractiveness and pricing power 2) Identify the main market Market segments, describe their Income segments attractions and seek to identify new segments Market forces 4) Describe the elements 3) Highlight market needs and concerning customer attrition to Change Needs and evaluate the responses provided competitors. costs Demand to them. The Demand Based on: the identification of the characteristics of current demand, for example: What quantities are sold? Who buys? Who consumes? Who prescribes? When do we buy and consume? On what occasion? What need? What motivation? What price elasticity? What sensitivity to advertising, promotions What places of purchase? What distribution channels? What market segments? etc. 2. Sector strengths Competitors Stakehold New ers entrants Sector strengths Substitute Suppliers products and services The offer This diagnosis apprehends, in its entirety, the structure of the sector and not the products offered by the company. It consists in questioning the current situation and the possible developments of the following elements: The capacity of the sector The cost structure The economy of the sector The distribution channel The financing of the sector And the technology  Task Do a market analysis on the example of the pharmaceutical industry, based on Market forces and Sector strengths.  - Exploding healthcare costs. 1. Market forces - Increase in prevention (vs. treatment). - Convergence of treatments, diagnostics, devices and support services. - High margins on patented Challenges - Emerging markets are gaining in importance. drugs. - Low margins on generics - Health providers, public - Doctors and healthcare authorities have more and providers more influence on prices - Public authorities/regulators Market - Distributors - Patients still have only Income segments - Patients limited influence on prices. - Strong potential in emerging Market forces markets - Monopoly on patented medicines - Low switching costs for drugs - Important. whose patent has expired, Change Needs and - Unmet needs very important in replaceable by generics. costs emerging markets and developing Demand - Increasing volume of quality countries. information available online. - Better informed consumers.  - Several large and medium-sized players - Most 2. Sector strengths players are facing a shortage of products and low R&D productivity - The consolidation of the sector - Shareholder pressure forces is confirmed, with mergers and acquisitions - laboratories to focus on short-term Competitors Several players are starting to rely on open financial results. innovation processes. - Public authorities/regulators have a significant influence on the actions of pharmaceutical laboratories due to their central role in health policies. Stakehold New - The main new entrants are - Researchers and scientists, who ers entrants generic manufacturers, are the key and central human particularly Indian ones. resource of the pharmaceutical Sector industry. strengths - Physicians and healthcare providers - Insurance companies - Laboratories - Increasing use of external research - To some extent, prevention is a Substitute providers. Suppliers products and substitute for treatment. services - Medicines that have fallen into the public - Biotechnology companies and specialty domain are replaced by inexpensive drug developers are new major players in product creation. generics The scenario method Scenario building consists of constructing plausible representations of the evolution of an industry's environment, in order to anticipate which strategy might prove relevant there. It is a form of strategic planning, in which rather than determining a single plan, it is accepted that several futures are acceptable. Step 1: The PESTEL model The PESTEL model has a dual objective: - Describe the macro-environment; - Understand its future evolution and predict associated changes. A PESTEL analysis is a tool used to analyze and monitor external environmental factors that impact an organization. The result is used to identify threats and weaknesses, strengths and opportunities that can be considered or used in a SWOT analysis.  Dimensions Characteristics Step 1: The PESTEL model - Criteria of stability or instability; - The role of the state in the economic sphere Political (interventionism, liberalism); - Political risk, and terrorist risk; - Laws: tax legislation, contract law,... - International laws: WTO, UN, World Bank,... Legal - Regional legislation, e.g.: European Union or NAFTA (North American Free Trade Agreement). - Economic system, Economic stability, monetary and fiscal policies, interest rates, unemployment... Economic - Economic risk: monetary or fiscal, financial risk, - Development of information technologies; - The technological level of the country, the availability of technical skills at the local level Technological The risk: technology transfer and piracy, and legal restrictions... - Global warming, Pollution, waste treatment, - The natural environment, availability of water Ecological and Societal resources and raw materials, and the risk of natural disasters Step 2: pivot variables Identification of pivot variables Understand and identify the factors likely to significantly affect the structure of an industry or market For example: The technological trends identified as the most decisive for the mobility Sector. - Autonomization - Vehicle sharing Scenario building consists of constructing plausible representations of the evolution of an industry's environment, in order to anticipate which strategy might prove relevant there; it is a form of strategic planning, in which rather than determining a single plan, we accept that several futures are acceptable. Scenario building is based on previously identified pivot variables. Pivot variables are factors that are likely to significantly affect an organization's strategy, the structure of a market or an industry. In concrete terms, this involves crossing the most important macro-environment variables two by two. The Scenario Method: The Pharmaceutical Industry Prevention becomes the main generator of income The The healthy pharmaceutical patient industry reinvented. Personalized medicine becomes a Personalized medicine is just a fad. pillar of the market Nothing changes Personalized medicine Treatment becomes the main revenue generator The Scenario Method: The Pharmaceutical Industry Prevention becomes the main generator of income C) Who are the main actors D) Should we develop certain that we should involve in activities, such as bioinformatics developing our economic and genome sequencing for model for preventive The example, internally or through The healthy pharmaceutical medicine? patient industry partnerships? reinvented. Personalized medicine becomes a Personalized medicine is just a fad. pillar of the market A) What will our economic Nothing changes Personalized B) What type of relationships will medicine model look like in the future we need to establish with patients? if these two factors do not Which distribution channels are change? best suited to personalized medicine? Treatment becomes the main revenue generator Strategic diagnosis Value propositions The value proposition describes the combination of products and services that creates value for a given customer segment. What value do we bring to the customer? What problem do we help solve? What needs do we meet? What combinations of products and services do we offer to each customer segment? The list of elements that can contribute to creating value for the customer: Novelty Performance Personalization Design Brand/status Price Convenience/Ergonomics Value propositions Novelty: Some value propositions provide a response to a completely new set of needs that customers had not perceived because there was no similar offer. Technology often, but not always, plays an important role. Cell phones, for example, have given rise to an entire industry around mobile telecommunications. There is also the example of ethical investment funds. Performance: Improving the performance of a product or service is a common way to create value. The personal computer industry, for example, has long used this by regularly releasing more powerful machines. Personalization: Adapting products or services to the specific needs of customers or customer segments creates value. This is why the concepts of mass customization or co-creation with the customer, for example, continue to gain in importance. This approach allows for personalization while retaining the benefit of economies of scale. Value propositions Design is important but difficult to measure. A product can be differentiated by its design. In the fashion and consumer electronics industries, it is not uncommon for design to be a major component of the value proposition. Brand/Status: Consumers can find value in simply using and wearing a given brand, to show that they are “hip.” Wearing a Rolex, for example, is a sign of wealth. Price: Offering similar value at a lower price is a classic way to satisfy the needs of customer segments that are sensitive to this aspect. But value propositions based on low prices have significant implications for other components of the business model. Convenience/Ergonomics: Making things more convenient or easier to use can create substantial value. With the iPod and iTunes, Apple has made it unprecedentedly easy for consumers to find, buy, download, and listen to digital music. Brand rules. Channels Communication, sales distribution channels are the interface between the company and its customers. It is a point of contact with customers, the channels partly determine the quality of their interactions with the company. Channels fulfill several functions: Let customers know that the company's products and services exist. Help customers evaluate the company's value proposition. Enable customers to purchase given products and services. Deliver a value proposition to customers. Provide customers with after-sales service. Channel Types Phases Internal Sales force How can we How do we How do we How do we How do we make our help provide deliver a provide Online sale company's customers customers value customer External Partner stores products and evaluate our with the proposition to support after services value opportunity customers? purchase? Wholesaler better proposition? to purchase known? given products and services? Key Resources What key resources do our value propositions require? What about our distribution channels? Our customer relationships? Our revenue streams? Resources enable a company to create and deliver a value proposition, reach markets, maintain relationships with customer segments, and generate revenue. Resource theory emerged in the second half of the 20th century with Edith Penrose's 1959 book, The theory of the growth of the firm. There are different categories of key resources: (PENROSE, 1959) Physical Intangible Human Financial Key Resources This identification is done by analyzing the resources in relation to two criteria: Their value for customers: this is their capacity to create a difference in the eyes of customers compared to competitors resources. Their exclusivity for the organization: this is linked to the scarcity of the resources, their difficulty of imitation and their non-substitutability with those of competitors. Key activities What key activities do our value propositions require? What about our distribution channels? Our customer relationships? Our revenue streams? Key activities vary depending on the type of business model. Key activities can be categorized as follows: Production Problem solving Platform/network The cost structure The cost structure describes all the costs inherent in a business model. What are the most important costs inherent in our business model? Which key resources are the most expensive? Which key activities are the most expensive? We can distinguish two main categories of cost structures: those based on a cost logic (cost-driven) and those based on a value logic (value-driven) Portfolio strategies Portfolio Matrices BCG McKinsey Portfolio Strategies Refocusing (Specialization) Diversification Internationalization Integration Portfolio strategies - A decision-making tool. - Synthetic view of activities. - Clear graphic representation. - Identification of portfolio strategies. The BCG Matrix o Model objective: helps in decision-making by highlighting the different possible situations of the company at a given time on all of its Business Units (BUs). This allows it to assess the situation of each of its BUs and to set up an adapted business portfolio strategy based on the findings. Analysis criteria selected: the competitive position of the company on each DAS by highlighting the company's strengths and weaknesses.. The BCG Matrix o Variables taken into account: the competitive position of the company is evaluated using two criteria which are the market share of the company in the DAS studied and the overall Market growth rate of the DAS analyzed. Faced with these two variables, the position of the company can be weak or strong. These notions are interpreted in terms of competitiveness of the product analyzed on its market. The BCG Matrix Such a model therefore provides indications to the company on how it should direct the allocation of these available resources according to the competitive positioning of the different products which constitute its present and future portfolio of activities. The BCG Matrix Breakdown of the DAS portfolio into 4 categories: Cash cows: DAS with reduced growth and strong sources of revenue (budget surplus) Stars: DAS in growth phase, future cash cows (budget balance) Dog : DAS in stagnation or decline phase (budget balance) Question Mark : DAS with high growth future stars or future Dog (budget deficit) The McKinsey Matrix Model objective: to allow a more nuanced positioning of the company in relation to the market analyzed. Analysis criterion retained: the model is based on the same criterion as the BCG matrix, the situation of the company in relation to its direct competitors. Variables taken into account: the competitive position of the company is evaluated based on a set of qualitative and quantitative criteria that give a broader vision of the competitive position of the company compared to a BCG analysis focused on the market share of the company. The McKinsey Matrix o Company strengths: competitive position on the DAS Ability to control costs and offer competitive prices (costs) Ability to control the supply chain and meet deadlines (deadlines) Ability to control and provide the expected quality (quality) Ability to locate or relocate depending on the market (location) Ability to react to changes in orders, planning (reactivity) o Attractiveness of the DAS: interest for the company Growth potential Margin or profitability potential Risk inherent in the market, technology, competition, etc. The McKinsey Matrix o Company strengths: competitive position on the DAS Ability to control costs and offer competitive prices (costs) Ability to control the supply chain and meet deadlines (deadlines) Ability to control and provide the expected quality (quality) Ability to locate or relocate depending on the market (location) Ability to react to changes in orders, planning (reactivity) o Attractiveness of the DAS: interest for the company Growth potential Margin or profitability potential Risk inherent in the market, technology, competition, etc. The McKinsey Matrix KODAK. Case Study Kodak and the digital revolution: A misunderstanding of the market Questions 1) Identify Kodak’s Vision, and core values. 2) What was Kodak's main business before the digital revolution? 3) What is their initial Business model strategy ? 4) What are Kodak’s Business units ? 5) When did Kodak invent the first digital camera? 6) Why did Kodak fail to capitalize on its digital camera invention? 7) What was the main disruptive technology that challenged Kodak's business model? 8) What are the sources of their resistance to change? 9) What lessons can other established companies learn from Kodak's experience with disruptive innovation? KODAK - Case Study Founded in 1880 by George Eastman Business areas: Photography, cinema, magnetic tape, radiology, digital printing Slogan: "You press the button—we do the rest." Business model: Lower margins on devices, higher margins on consumables (razor-blade strategy) Key principles: Mass production at lower costs International distribution Extensive advertising Customer focus Kodak Vs. Fujifilm: Specialization Strategy Vs. Diversification Strategy Two dominant players in the traditional silver halide photography market (Kodak – Fuji) Fujifilm spent 7 percent of its sales on research and development to maintain a competitive edge. In 1986, Fuji was the first to introduce single-use cameras Portfolio Strategies This involves deciding on the size and diversity of the company’s Business portfolio (DAS), the variety of products and markets. # Dynamic Fit between the resources of this company and the nature of the competition. It is a choice between specialization and diversification. Portfolio Strategies - Specialization strategy: refocusing the portfolio on a single strategic business unit. - Diversification strategy: developing the portfolio in multiple strategic business units - Internationalization strategy: expanding the business portfolio into new markets abroad. Specialization strategy: Definition: - The company aims to achieve the best possible level of competence in a particular activity and to make it a decisive competitive advantage. - Cost or differentiation strategies follow this logic of specialization. Specialization strategy: Types of specialization and product life cycle: - (Extensive specialization), when activities reaches the growth phase, and have significant development prospects by concentrating all its efforts to grow the production. - In the maturity or decline phase, the company has the choice between maintaining specialization (passive specialization), accentuating it or changing its field of activity (diversification). Specialization strategy: Types of specialization - The cost/volume strategy is a danger for a company that does not have the means to defend its initial position or is in an unfavorable competitive position. It is therefore necessary to (re)segment its field of action to have a level of specialization that ensures a minimum level of competitiveness. (This is a restrictive specialization) From specialization to diversification… Companies are very often torn between an investment in specialization which would contribute to strengthening the competitive position and a diversification with high profitability. Diversification strategy: Diversification consists of investing in new (BUs) outside the original business. Advantages: risk reduction, wealth creation through synergy, learning economies, greater flexibility. Disadvantages: scale of investments, dispersion of resources, loss of identity, lack of cohesion between the different activities (DAS) Diversification strategy: Current product New Product Current Market Refocusing (Partial) diversification New Market (Partial) (total) diversification diversification (Partial) diversification Partial diversification: through new product or new market New product: the company develops its activity by selling new products on the market, either by launching new products or by changing the characteristics of the current product. This is marketing diversification. For example, Mont Blanc, a manufacturer of pens and watches, creates diaries and perfumes. New Market: The company expands its business by selling the current product in new markets such as geographic expansion, using a new distribution channel, exploiting a new customer segment, etc. This is also a marketing diversification strategy. (total) diversification The company develops its activity by launching itself into new markets with new products. This is the strategy pursued by General Electric, which operates in areas as diverse as financial services, energy generators, industrial products, household appliances, media, plastics and medical imaging. - Possibility of substantial gains corresponding to the firm's objectives (financial logic) - Potential for significant future gains (growth levers) - Compensation for the decline or seasonality of a DAS (e.g. Bouygues which compensates for the cyclical nature of construction with Telecoms) The dynamics of the company The life cycle of the company. The creation of the company. Internal growth. External growth. The life cycle of the company Growth strategy : Business growth is a movement of development of its activity and the increase of its size over time. The growth of the firm therefore reflects its capacity to maintain or develop its position in a hostile competitive environment. The conditions necessary for the company growth : the company's capacity to finance its development, which assumes a satisfactory financial situation the ability to launch new products (product innovation) or to conquer new markets (new segments) the manager's capacity to motivate his employees, to take risks Internal growth Definition: It is a mode of growth that consists of creating new production, marketing or research capacities within the firm. Example of the growth of demand and sales, as well as by the increase in the number of employees. It can be accelerated by technological advances, innovative marketing, strong demand on the market or the inattention of competitors. - it is a growth within the boundaries of the company, which allows it to adapt its operation to its level of activity. Internal growth Examples: New Airbus assembly line at Aérospatiale = production investment Creation of a bioengineering laboratory at Rhone Poulenc = R&D investment Opening of a new Toyota subsidiary in Africa = commercial investment Other examples: opening of a sales branch, development of new technologies, purchase of production resources (ex: new machines). Causes of internal growth The changing environment The demand in the business market Strengthening organizational identity External growth Definition: external growth is a discontinuous development mode turned towards the outside and involving other firms. It is the complete grouping (merger, acquisition, integration) or partial (cooperation) of two or more firms. External growth can be achieved quickly, it allows to acquire know-how, to achieve synergies (savings of means and / or additional performance) and often reduce the number of competitors. External growth In the case of external growth: the company grows by changing the scope and/or legal characteristics of the company. Growth can be achieved by: merger (two or more companies decide to merge) and a new entity is created and the old entities disappear. Absorption (one company takes over the assets of another and the latter legally disappears). The creation of a business network by developing different forms of partnerships In order to develop over time, the company seeks either to concentrate its development efforts on a single area of activity through ………………………, or to enter new areas of activity through ………………………. The implementation of these two development paths can be carried out by one of the two development modes (…………………………, or ………………………). ………………………: The company is growing by its own means. ………………………: The company is seeking to grow rapidly by means of one of the strategic maneuvers (mergers, acquisitions, etc.). ……………………… Diversification implies that the company is interested in a field of activity in which it has common managerial or functional skills (distribution channels, technologies, opportunities or assets). In the case of ………………………diversification, the company enters areas of activity other than its main activity by practicing a conglomerate policy and relying on common know-how, generally linked to its management and organizational skills. The ……………………… strategy involves two or more dissolved companies in the operation for the benefit of a new company. The ……………………… strategy consists of buying out competitors and thus taking their market share. In order to develop over time, the company seeks either to concentrate its development efforts on a single area of activity through specialization, or to enter new areas of activity through diversification The implementation of these two development paths can be carried out by one of the two development modes (internal or external growth). internal growth : The company is growing by its own means. external growth : The company is seeking to grow rapidly by means of one of the strategic maneuvers (mergers, acquisitions, etc.). Partial diversification implies that the company is interested in a field of activity in which it has common managerial or functional skills (distribution channels, technologies, opportunities or assets). In the case of total diversification the company enters areas of activity other than its main activity by practicing a conglomerate policy and relying on common know-how, generally linked to its management and organizational skills. The merger strategy involves two or more dissolved companies in the operation for the benefit of a new company. The acquisition strategy consists of buying out competitors and thus taking their market share.