StraMa Finals PDF

StraMa Module 1 - Directs the organization toward overall goals and The importance of Leadership objectives. - Maintaining competitive - Includes multiple success or ev...

StraMa Module 1 - Directs the organization toward overall goals and The importance of Leadership objectives. - Maintaining competitive - Includes multiple success or even surviving stakeholders in decision over long periods of time is making. difficult for companies of any - Needs to incorporate short- size term and long- term Two perspectives of leadership perspectives. Romantic view - Recognizes trade-offs - Leader is the key force in the between efficiency and organization’s success effectiveness. - i.e. steve jobs Strategic Management Trade- offs external control perspective Managers need to be ambidextrous - external forces determine the - Focusing on short- term organization’s success efficiency - i.e. economic downturns - Aligning resources to take Defining Strategic Management advantage of existing product Strategic Management involves markets Analysis - Focusing on long- term - Strategic goals (vision, effectiveness mission, strategic objectives) - Expanding product-market - Internal and external scope by proactively exploring environment new opportunities Decisions - Formulation Intended vs Realized Strategies - What industries should we The Business Environment is far from compete in? predictable. - How should we compete in Intended Strategy those industries? - Organizational decisions are Actions - Implementation determined only by analysis - Allocate necessary resources - Intended strategy rarely - Design the organization to survives in its original form bring intended strategies to Realized Strategy reality - Decisions are determined by Two Fundamental Questions both analysis (deliberate) 1. How should we compete in &unforeseen environmental order to create competitive developments, unanticipated advantages in the resource constraints, and/or marketplace? changes in managerial 2. How can we create preferences (emergent) competitive advantages in the marketplace that are unique, valuable, and difficult for rivals to copy or substitute? Strategic Management Key Attributes of strategic management Strategic Management Process - Requires a thorough analysis of the organization’s external and internal environment Analyzing Organizational Goals & Objectives - Establish a hierarchy of goals Vision Mission Strategic Objectives BORDERS bookstore focused on its Analyzing the External intended strategy – a physical retail Environment of the Firm presence. - Managers must monitor & - Sticking to what you know scan the environment as well best can be very dangerous. as analyze competitors - BORDERS found the The General Environment consumer shift away from The Industry Environment brick & mortar book stores to online book buying and digital Strategy Formulation books an overwhelming - Based on strategy analysis environmental force against - Developed at several levels which they had few defenses. - Involves decisions that can - Unanticipated developments create and sustain competitive can often have very negative advantage consequences for businesses o Investment decisions regardless of how well o Commitment of formulated their strategies are. resources o Operational synergies o Recognizing viable opportunities - Formulating Business-Level Strategy o Successful firms develop bases for sustainable competitive advantage through Strategy Analysis ▪ Cost leadership Starting point in the strategic and/or management process ▪ Differentiation, as - Precedes effective formulation well as and implementation of ▪ Focusing on a strategies narrow or - Involves careful analysis of industrywide the overarching goals of the market segment organization - Formulating Corporate- Level Strategy  o Addresses a firm’s o Promotes learning & portfolio (or group) of continuous businesses improvement What business(es) o Acts entrepreneurially should we compete in creating new in? opportunities How can we - Strategic Control & manage this Corporate Governance portfolio of o Informational control businesses to create Monitor & scan the synergies? environment - Formulating International Respond Strategy effectively to What is the appropriate threats & entry strategy? opportunities How do we go about o Behavioral control attaining competitive Proper balance of advantage in rewards & international markets? incentives - Entrepreneurial Strategy Appropriate and Competitive Dynamics cultures & How do we recognize boundaries (or viable opportunities? constraints) How do we formulate o Effective corporate effective strategies? governance - Fostering Corporate Strategy Implementation Entrepreneurship - Implements the formulated o Firms must continually strategy improve & grow o Ensures proper o Firms must find new strategic control ways to renew systems themselves o Establishes an o Entrepreneurship & appropriate innovation provide for organizational design - new opportunities coordinates & ▪ Enhance a firm’s integrates activities innovative capacity within the firm ▪ Allow o Coordinates activities autonomous with suppliers, entrepreneurial customers, alliance behavior partners o Leadership ensures Corporate Governance & organizational Stakeholder Management commitment to - Corporate Governance: the excellence & ethical relationship among various behavior participants in determining the  direction and performance of solely on financial corporations. results - Primary participants: o Firms must create shared value o The shareholders – identify & expand connections o The management (led by between societal & economic the Chief Executive progress Officer) o Firms can measure a o The Board of Directors triple bottom line (BOD) ▪ Assessing financial, - Board of Directors social, AND o Elected representatives of environmental the owners performance o Ensure interests & ▪ Embracing motives of environmental management are sustainability. aligned with those of the owners Empowered Strategic Management Need an effective and - Strategic management engaged Board requires an integrative view of Shareholder activism the organization Proper managerial rewards & - ALL functional areas & incentives activities must fit together to External control mechanisms achieve goals & objectives - Leaders are needed Stakeholder Management throughout: - Two views of stakeholder o Local line leaders – management have profit & loss Zero Sum responsibility - Stakeholders compete for o Executive leaders – attention & resources champion & guide - Gain of one is a loss to the ideas other o Internal networkers – Symbiosis hold little positional - Stakeholders are dependent power, but have upon each other for success & conviction & clarity of well-being ideas - Receive mutual benefits Social Responsibility Coherence in Strategic Direction - Social responsibility: the - Organizations express expectation that businesses or priorities best through stated individuals will strive to goals & objectives that form a improve the overall welfare of hierarchy of goals society. o Vision – evokes powerful & o Firms have multiple compelling mental images of a stakeholders and must shared future go beyond a focus o Mission – encompasses the  organization’s current understanding of that purpose, basis of purpose competition, & o More specific than the competitive advantage vision o Strategic Objectives o Focused on the means – operationalize the by which the firm will mission statement with compete specific yardsticks o Incorporates stakeholder management o Communicates why an organization is special & different o Can & should change when competitive - Organizational Vision conditions change o A “massively inspiring” - Strategic Objectives goal o Used to operationalize o Overarching, long term the mission statement o A destination driven by o Provide guidance on & evoking passion how to fulfill mission & o Developed & vision implemented by o Are measurable, leadership specific, appropriate, o A fundamental realistic & timely statement of an o Can be short-term o organization’s values, “action plans” aspirations, and goals o Can be both financial o Captures both the and nonfinancial minds & hearts of o Should be challenging, employees yet help resolve - Organizational Visions can conflicts backfire o Provide a yardstick for o The Walk Doesn’t rewards & incentives Match the Talk o Irrelevance Analyzing the External Environment o Not the Holy Grail of the Firm: Creating Competitive o Too Much Focus Leads Advantages (Module 2) to Missed Opportunities Creating the Environmentally o An Ideal Future Aware Organization Irreconciled with the Present - Mission Statement o States the purpose of the company & builds a common Environmental Scanning & ◼ Intensity of Monitoring environmental change? - Environmental scanning - Scenario analysis involves involves surveillance of a firm’s detailed assessments of the external environment ways trends may affect an o Predicts environmental issue & development of changes to come alternative futures based on o Detects changes these assessments already under way o Allows firm to be SWOT Analysis proactive - SWOT analysis is a basic - Environmental monitoring technique for analyzing firm tracks evolution of and industry conditions environmental trends - Firm or internal conditions = o Hard trends – Strengths & Weaknesses measurable facts/events ◼ Where the firm excels or o Soft trends – where it may be lacking estimated, probable - Environmental or external events conditions = Opportunities & Threats Competitive Intelligence ◼ Developments that exist in Competitive intelligence the general environment - Helps firms define & ◼ Activities among firms understand their industry competing for the same - Identify rivals’ strengths & customers weaknesses ◼ Collect data on competitors SWOT analysis ◼ Interpret intelligence data - Forces managers to consider - Helps firms avoid surprises both internal & external factors ◼ Anticipate competitors’ simultaneously moves - Makes firms act proactively ◼ Decrease response time - Raises awareness about role of - Beware of the potential for strategy unethical behavior while ◼ A firm’s strategy must build gathering intelligence on its strengths, ◼ Remedy the weaknesses or Environmental Forecasting work around them, Environmental forecasting predicts ◼ Take advantage of the change opportunities presented by - Plausible projections about the environment and ◼ Direction of Protect the firm from the environmental change? threats. ◼ Scope of environmental change? ◼ Speed of environmental change? The General Environment environmental regulations with - The general environment is which industries must comply: composed of factors that are o Tort reform both hard to predict and difficult o Americans with to control: Disabilities Act (ADA) o Demographic o Deregulation of utilities o Sociocultural & other industries o Political/legal o Increases in minimum o Technological wages o Economic o Taxation at local, state, o Global federal levels o Legislation on corporate The Demographic Segment governance reforms - Demographics are easily o Affordable Health Care understandable & quantifiable: Act o Aging population o Rising affluence The Technological Segment o Changes in ethnic - Technological developments composition lead to new products & o Geographic distribution services; can create new of population industries & alter existing ones: o Greater disparities in o Genetic engineering income levels o Computer-aided design/computer-aided The Sociocultural Segment manufacturing systems - Sociocultural forces influence (CAD/CAM) the values, beliefs, and o Research in synthetic & lifestyles of a society: exotic materials o More women in the o Pollution/global warming workforce o Wireless o Dual-income families communications o Increase in temporary o Nanotechnology workers o Greater concern for The Economic Segment healthy diets & physical - Economic forces affect all fitness (increasing industries: levels of obesity) o Interest rates o Greater concern for the o Unemployment environment o Consumer Price Index o Postponement of o Trends in GDP & net marriage & family disposable income formation, having o Changes in stock children market valuations The Political/Legal Segment - Political/Legal processes & legislation influence The Global Segment Porter’s Five-Forces Model of - Global forces offer both Industry Competition opportunities & risks: o Increasing global trade o Currency exchange rates o Emergence of the Indian & Chinese economies o Trade agreements among regional blocs (NAFTA, EU, ASEAN) o Creation of WTO (leading to decreasing The Threat of New Entrants o tariffs/free trade in - The threat of new entrants - services) possibility that the profits of o Increased risks established firms in the industry associated with may be eroded by new terrorism competitors. - Depends on existing barriers to The Competitive Environment entry: - The competitive environment o Economies of scale consists of factors in the task or o Product differentiation industry environment that are o Capital requirements particularly relevant to a firm’s o Switching costs strategy: o Access to distribution o Competitors (existing or channels potential) o Cost disadvantages ▪ Including those independent of scale considering entry into an The Bargaining Power of Buyers entirely new - Buyers have bargaining industry power: o Customers (or buyers) - Buyers can force down prices, o Suppliers bargain for higher quality or ▪ Including those more services, play competitors considering against each other. forward - Buyer groups are powerful integration when: o Purchasing standard products in large volumes o Profits are low & switching costs are few o Backward integration is possible  o Quality is not affected o Numerous or equally by industry product balanced competitors o Slow industry growth The Bargaining Power of Suppliers o High fixed or shortage costs - Suppliers can exert o Lack of differentiation or bargaining power by switching costs threatening to raise prices or o Capacity augmented in large reduce the quality of purchased increments goods and services. o High exit barriers - Supplier groups are powerful when: o Only a few firms dominate How the Internet and Digital the industry Technologies Affect Competitive Forces o No competition from substitute products o Suppliers sell to several industries o Buyer quality is affected by industry product o Products are differentiated & have switching costs o Forward integration is possible The Threat of Substitute Products & The Value Net Services - Substitute products & services limit the potential returns of an industry by placing a ceiling on the prices that firms can profitably charge. - Substitutes come from another industry - Can perform the same function as Doing a Good Industry Analysis the industry’s offerings - Good industry analysis looks - The more attractive the rigorously at the structural price/performance ratio, the more the underpinnings & root causes of substitute erodes industry profits. profitability o Must choose the appropriate The Intensity of Rivalry Among time frame Competitors in an Industry ▪ Consider the industry - Rivalry tactics include price business life cycle competition, advertising battles, new ▪ Average profitability product introductions, increased over 3-5 years or customer service or warranties longer - Interacting factors lead to intense o Must consider quantitative rivalry: factors as well as qualitative  ▪ Get numbers to o Helps to think through the quantify five forces implications of each industry factors trend for the strategic group Percentages as a whole of cost or sales, actual Assessing the Internal Environment of switching the Firm (M3) costs The Importance of the Internal Environment Strategic Groups Within Industries - Which activities must a firm - Two unassailable assumptions in effectively manage and integrate in industry analysis: order to attain competitive o No two firms are totally advantages in the marketplace? different - Which resources and capabilities o No two firms are exactly the must a firm create and nurture in same order to sustain a competitive - Strategic groups – clusters of firms advantage? that share similar strategies: o Breadth of product & The Limitations of SWOT Analysis geographic scope - Strengths may not lead to an o Price/quality advantage o Degree of vertical integration - SWOT’s focus on the external o Type of distribution environment - is too narrow Strategic Groups Within Industries - SWOT gives a one-shot view of a moving target - SWOT overemphasizes a single dimension of strategy Value-Chain Analysis - Value-chain analysis looks at the sequential process of value-creating activities o Value is the amount buyers are willing to pay for what a - Strategic groups as an analytical firm provides tool o How is value created within o Helps identify barriers to the organization? mobility that protect a group o How is value created for from attacks by other groups other organizations in the o Helps identify groups whose overall supply chain or competitive position may be distribution channel? marginal or tenuous o The value received must o Helps chart the future exceed the costs of direction of firms’ production o strategies Example: Streamlining the Value Chain Value Chain - IBM & SAP have teamed up to help firms reduce value chain inefficiencies & improve operational effectiveness - Benefits of value chain streamlining: o Commonality between parts & suppliers o Integration of sales forecasting & inventory management Primary Activity: Inbound Logistics o Lowered transaction, - Inbound logistics is primarily infrastructure & operating associated with receiving, costs storing & distributing inputs to o Deliver products to market the product: faster o Material handling o Warehousing Value-Chain Analysis o Inventory control - Primary activities contribute o Vehicle scheduling to the physical creation of the o Returns to suppliers product or service; the sale & transfer to the buyer; and Primary Activity: Operations service after the sale: - Operations include all o Inbound logistics activities associated with o Operations transforming inputs in to the o Outbound logistics final product form: o Marketing & sales o Machining o Service o Packaging - Support activities either add o Assembly value by themselves or add o Testing or quality value through important control relationships with both primary o Printing activities & other support o Facility operations activities: o Procurement Primary Activity: Outbound o Technology Logistics development - Outbound logistics includes o Human resource collecting, storing, & management distributing the product or o General administration service to buyers: o Finished goods o Warehousing o Material handling o Delivery vehicle operation o Order processing  o Scheduling & dependence on one distribution supplier Primary Activity: Marketing & Sales Support Activity: Technology - Marketing & sales activities Development involve purchases of products Technology development is related & services by end users and to a wide range of activities: includes how to induce buyers o Effective R&D activities to make those purchases: for process & product o Advertising initiatives o Promotion o Collaborative o Sales force relationships between management R&D and other o Pricing & price quoting departments o Channel selection o State-of-the-art o Channel relations facilities & equipment o Excellent professional Primary Activity: Service qualifications of - Service includes all actions personnel associated with providing o Organizational culture service to enhance or to enhance creativity & maintain the value of the innovation product: o Installation Support Activity: Human Resource o Repair Management o Training - Human resource o Parts supply management consists of o Product adjustment activities involved in recruitment, hiring, training & Support Activity: Procurement development, & compensation - Procurement involves how of all types of personnel: the firm purchases inputs o Effective employee used in its value chain: retention mechanisms o Procurement of raw o Quality relations with material inputs trade unions o Optimizing quality & o Reward & incentive speed programs to motivate o Minimizing associated all employees costs o Development of Support Activity: General collaborative win-win Administration relationships with - General administration suppliers involves o Analysis & selection of o Effective planning alternative sources of systems to attain inputs to minimize overall goals & objectives  o Excellent relations with o Combines an internal diverse stakeholder analysis of phenomena groups within a company o Effective information o With an external technology to analysis of the industry coordinate & integrate & its competitive value-creating environment activities across the o Resources can lead to value chain a competitive o Ability of top advantage management to o If they are valuable, anticipate & act on key rare, hard to duplicate environmental trends & o When tangible events, create strong resources, intangible values, culture & resources, & reputation organizational capabilities are Interrelationships Among Value- combined Chain Activities - Managers must not ignore the Types of Firm Resources importance of - Tangible resources are interrelationships among assets that are relatively easy value-chain activities to identify: - Interrelationships among o Physical assets: plant activities within the firm & facilities, location, o Expand the value machinery & chain by exchanging equipment resources o Financial assets: - Relationships among activities cash & cash within the firm and with other equivalents, borrowing stakeholders such as capacity, capacity to customers & suppliers raise equity o Technological Example: The Value Chain in resources: trade Service Organizations secrets, patents, copyrights, trademarks, innovative production processes o Organizational resources: effective planning processes & control systems Resource-Based View of the Firm - Intangible resources are - The resource-based view of difficult for competitors to the firm (RBV) account for or imitate – are  embedded in unique routines efficiency or & practices: effectiveness o Human resources: o Rare or uncommon; trust, experience & difficult to exploit capabilities of o Difficult to imitate or employees; managerial copy due to physical skills & effectiveness of uniqueness, path work teams dependency, causal o Innovation ambiguity, or social resources: technical & complexity scientific expertise & o Difficult to substitute ideas; innovation with strategically capabilities equivalent resources o Reputation or capabilities resources: brand names, reputation for Sources of Inimitability fairness with suppliers; - Physical uniqueness: reliability & product resources that are physically quality with customers unique o Path dependency: - Organizational capabilities scarce because of all are competencies or skills that that has happened a firm employs to transform along the path followed inputs into outputs; the in a resource’s capacity to combine tangible & development and/or intangible resources to attain accumulation desired ends o Causal ambiguity: o Outstanding customer impossible to explain service what caused it to exist o Excellent product or how to re-create it development o Social complexity: a capabilities result of social o Superb innovation engineering such as processes & flexibility interpersonal relations in manufacturing processes Criteria for Sustainable o Ability to hire, motivate, Competitive Advantage & retain human capital Firm Resources and Sustainable Competitive Advantages - Strategic resources have four attributes: o Valuable in formulating The Generation and Distribution of & implementing the Firm’s Profits strategies to improve - Four factors help explain the extent to which employees  and managers will be able to o How ratios are obtain a proportionately high interrelated level of the profits that they generate: Five Types of Financial Ratios o Employee bargaining power o Employee replacement cost o Employee exit costs o Manager bargaining power Evaluating Firm Performance Financial Ratio Analysis - Balance sheet - Income statement The Balanced Scorecard - Market valuation - A meaningful integration of - Historical comparison many issues that come into - Comparison with industry evaluating performance norms o Four key perspectives: - Comparison with key o How do customers see competitors us? (customer perspective) Balanced Scorecard Stakeholder o What must we excel Perspective at? (internal - Employees perspective) - Owners o Can we continue to - Customer satisfaction improve and create - Internal processes value? (innovation & - Innovation, learning & learning perspective) improvement activities o How do we look to - Financial perspectives shareholders? (financial perspective) Financial Ratio Analysis - Five types of financial ratios Limitations of the Balanced o Short-term solvency or Scorecard liquidity - Not a “quick fix” – needs o Long-term solvency proper execution measures o Needs a commitment o Asset management or to learning turnover o Needs employee o Profitability involvement in o Market value continuous process - Meaningful ratio analysis must improvement include: o Needs cultural change o Analysis of how ratios o Needs a focus on change over time nonfinancial rather  than financial o Advantages obtained either measures through differentiation or cost o Needs data on actual leadership performance Examples: Three Generic Strategies Business Level Strategy: Creating - Companies pursuing an and Sustaining Competitive overall cost leadership Advantages (Module 4) strategy: o McDonalds Sustaining a Competitive Advantage o Wal-Mart Business-level strategies - Companies pursuing a require a choice: differentiation strategy: How to overcome the five forces o Apple and achieve competitive o Target advantage? - Companies pursuing a focus Suggestion - use Porter’s three strategy: generic strategies: o Ikea o Overall cost leadership o Costco o Differentiation o Focus Overall Low-Cost Leadership Cost leadership involves Three Generic Strategies o Aggressive construction of efficient scale facilities o Vigorous pursuit of cost reductions from experience o Tight cost & overhead control o Avoidance of marginal customer accounts o Cost minimization in all Overall cost leadership is activities in the firm’s value based on: chain, such as R&D, service, o Creating a low-cost position sales force, & advertising relative to a firm’s peers Cost leadership requires o Managing relationships o Learning to lower costs through throughout the entire value experience: the experience chain to lower costs curve Differentiation implies: ▪ With experience, unit costs of o Products and/or services that production processes decline are unique & valued as output increases o Emphasis on nonprice o This strategy also requires attributes for which customers competitive parity will gladly pay a premium ▪ Being “on par” with competitors A focus strategy requires: with respect to low-cost, o Narrow product lines, buyer differentiation, or other segments, or targeted strategic product geographic markets characteristics  ▪ Permits cost leaders to Differentiation translate cost advantages - Differentiation requires: directly into higher profits o A level of cost parity relative to competitors Improving Competitive Position vis-à- o Integration of multiple points vis the Five Forces along the value chain ▪ Superior material handling An overall low-cost position operations to minimize damage - Protects a firm against rivalry ▪ Accurate and responsive order from competitors processing - Protects the firm against ▪ Personal relationships with key powerful buyers customers - Provides more flexibility to ▪ Rapid response to customer cope with demands from service requests powerful suppliers who want to - 🞕 Differentiation along several increase input costs different dimensions at once - Provides substantial entry barriers due to economies of Improving Competitive Position vis-à- scale and cost advantages vis the Five Forces - Puts the firm in a favorable position with respect to An overall differentiation strategy substitute products - Creates higher entry barriers due to customer loyalty Pitfalls of Cost Leadership - Provides higher margins that - Too much focus on one or a enable the firm to deal with few value chain activities. supplier power - Increase in the cost of the - Reduces buyer power because inputs on which the advantage buyers lack suitable is based alternatives - The strategy is imitated too - Establishes customer loyalty easily and hence less threat from - A lack of parity on substitutes differentiation - Reduced flexibility Pitfalls of Differentiation - Obsolescence of the basis of a - Uniqueness that is not valuable cost advantage - Too much differentiation - Too high a price premium Differentiation - Differentiation that is easily - A differentiation strategy can imitated take many forms: - Dilution of brand identification o Prestige or brand image through product line extensions o Technology - Perceptions of differentiation o Innovation may vary between buyers and o Features seller o Customer service Focus o Dealer network - A focus strategy is based on the choice of a narrow  competitive scope within an industry. Combination Strategies: Integrating o A firm selects a segment or Low-Cost & Differentiation group of segments (or niche) - Integration of low-cost and and tailors its strategy to serve differentiation strategies makes them it difficult for competitors to o A firm achieves competitive duplicate or imitate strategy advantages by dedicating itself - The goal of a combination to these segments exclusively strategy is to provide unique - A focus strategy has two value in an efficient manner variants: o Cost focus Combination Strategies ▪ Creates a cost advantage in its - Combining overall low-cost target segment and differentiation strategies ▪ Exploits differences in cost can take several forms: behavior - Automated & flexible o Differentiation focus manufacturing systems allow ▪ Differentiates itself in its target for mass customization market - Exploitation of the profit pool ▪ Exploits the special needs of concept creates a competitive buyers advantage - Using information technology, Improving Competitive Position vis-à- firms can integrate activities vis the Five Forces throughout the extended value chain An overall focus strategy - Creates higher entry barriers Improving Competitive Position vis-à- due to cost leadership or vis the Five Forces differentiation or both - Can provide higher margins An integrated overall low-cost & that enable the firm to deal with differentiation strategy supplier power - Creates higher entry barriers - Reduces buyer power because due to both cost leadership & the firm provides specialized differentiation products or services - Can provide higher margins - Focused niches are less that enable the firm to deal with vulnerable to substitutes supplier power - Reduces buyer power because Pitfalls of Focus of fewer competitors - Erosion of cost advantages - An overall value proposition within the narrow segment reduces threat from substitutes - Highly focused products and services are still subject to Pitfalls of Combination Strategies competition from new entrants - Firms that fail to attain both & from imitation overall low-cost & - Focusers can become too differentiation strategies may focused to satisfy buyer needs  end up with neither and cost while providing a unique become “stuck in the middle” experience - Firms can also underestimate the challenges & expenses Internet-Enabled Focus Strategies associated with coordinating - The Internet and digital value-creating activities in the technologies have created extended value chain new ways of competing in a - Firms can also miscalculate narrow market segment sources of revenue and profit - Customers can access markets pools in the firm’s industry less expensively, and small firms can extend their reach - Social media allows niche firms to solicit input and respond quickly to customer feedback Internet-Enabled Combination Strategies - The Internet and digital technologies have provided all companies with greater Internet-Enabled Low-Cost Leader tools for managing costs Strategies - With lower costs for all, the net - The Internet and digital effect is fewer rather than technologies lower more opportunities for transaction costs: sustainable advantage o No in-person sales calls - The ease of comparison o Paperless transactions shopping also erodes - Disintermediation or differentiation advantages removing intermediaries also lowers transaction costs Industry Life Cycle Stages o Reduced search costs - The industry life cycle o No need for a permanent retail o Introduction location o Growth o Maturity Internet-Enabled Differentiation o Decline Strategies - Generic strategies, value- - The Internet and digital creating activities, & overall technologies have created objectives all vary over the new ways of differentiating by course of an industry life cycle enabling mass customization - Customers can judge the quality & uniqueness of a product or service by their ability to be involved in its planning & design - Lowered transaction costs allow firms to achieve parity on Industry Life Cycle Stages o Aggregate industry demand slows o Market becomes saturated, few new adopters o Direct competition becomes predominant o Marginal competitors begin to exit - Strategies: o Create efficient manufacturing operations o Lower costs as customers become price- sensitive Strategies in the Introduction Stage o Adopt reverse or breakaway - The introduction stage is positioning when: o Products are unfamiliar to Strategies in the Decline Stage consumers - The decline stage is when: o Market segments are not well- o Industry sales and profits begin defined to fall o Product features are not clearly o Price competition increases specified o Industry consolidation occurs o Competition tends to be limited - Strategies: - Strategies: o Maintaining the product o Develop a product and get position users to try it o Harvesting profits & reducing o Generate exposure so the costs product becomes “standard” o Exiting the market o Consolidating or acquiring Strategies in the Growth Stage surviving firms - The growth stage is: o Characterized by strong Turnaround Strategies increases in sales - A turnaround strategy o Attractive to potential involves reversing performance competitors decline & reinvigorating growth o When firms can build brand toward profitability through recognition o Asset & cost surgery - 🞕 Strategies: o Selected market & product o Create branded differentiated pruning products o Piecemeal productivity o Stimulate selective demand improvements o Provide financial resources to - Example = Ford Motor support value- chain activities Company - Example = Jamba Juice Strategies in the Maturity Stage - The maturity stage is when: Corporate- Level Strategy: Creating Value - Economies of scope allow through Diversification (module 5) businesses to: o Leverage core competencies Corporate-Level Strategy o Share related activities Consider: o Enjoy greater revenues What businesses should a - Related businesses gain corporation compete in? market power How can these businesses be - by: managed so they create o Pooled negotiating power “synergy” – that is, create more o Vertical integration value by working together than if they were freestanding units? Related Diversification: Leveraging Core Competencies Making Diversification Work - Core competencies reflect the - Diversification initiatives must collective learning in create value for shareholders organizations. Can lead to the through creation of value and synergy o Mergers and acquisitions if… o Strategic alliances - They create superior customer o Joint ventures value o Internal development - The value chain elements in - Diversification should create separate businesses require synergy similar skills - A firm may diversify into - They are difficult for related Businesses competitors to imitate or find o Benefits derive from horizontal substitutes for relationships Sharing intangible resources Related Diversification: such as core competencies in Sharing Activities marketing - Corporations can also achieve Sharing tangible resources synergy by sharing activities such as production facilities across their business units. - A firm may diversify into - Sharing tangible & value- unrelated Businesses creating activities can provide o Benefits derive from payoffs: hierarchical relationships o Cost savings through Value creation derived from the elimination of jobs, facilities & corporate office related expenses, or Leveraging support activities in economies of scale the value chain o Revenue enhancements through increased Related Diversification differentiation & sales growth - Related diversification enables a firm to benefit from Related Diversification: Market Power horizontal relationships across - Market power can lead to the different businesses creation of value and synergy through…  - Pooled negotiating power o Negotiating costs o Gaining greater bargaining o Contract costs power with suppliers & o Monitoring costs customers o Enforcement costs - Vertical integration - o Need for transaction specific becoming its own supplier or investments distributor through o Administrative costs o Backward integration o Forward integration Unrelated Diversification - Unrelated diversification Related Diversification: enables a firm to benefit from Vertical Integration vertical or hierarchical relationships between the corporate office & individual business units through… - The corporate parenting advantage o Providing competent central functions Related Diversification: Vertical Integration - Restructuring to redistribute 1. It is the company satisfied with assets the quality of the value that its o Asset, capital, & management present suppliers & distributors restructuring are providing? - Portfolio management 2. Are there activities in the o BCG growth/share matrix industry value chain presently being outsourced or performed Unrelated Diversification: parenting and independently by others that restructuring are a viable source of future - Parenting allows the corporate profits? office to create value through 3. Is there a high level of stability management expertise & in the demand for the competent central functions organization’s products? - In restructuring the parent 4. Does the company have the intervenes: necessary competencies to o Asset restructuring involves the execute the vertical integration sale of unproductive assets strategies? o Capital restructuring involves 5. Will the vertical integration changing the debt–equity mix, initiatives have adding debt or equity potentialnegative impacts on o Management restructuring the firm’s stakeholders? involves changes in the top management team, - The transaction cost organizational structure, & perspective reporting relationships - Every market transaction involves some - Unrelated Diversification: transaction costs: Portfolio management o Search costs  Portfolio management o Following strict & simplistic involves a better understanding rules for resource allocation of the competitive position of can be detrimental to a firm’s an overall portfolio or family of long-term viability businesses by… o Suggesting strategic Example: Goal of Diversification = Risk alternatives for each business Reduction? o Identifying priorities for the - Diversification can reduce allocation of resources variability in o Using Boston Consulting revenues & profits over time. Group’s (BCG) However… o growth/share matrix o Stockholders can diversify portfolios at a much lower cost Unrelated Diversification: Portfolio & economic cycles are difficult Management to predict, so why diversify? - Each circle represents one of - Example = General Electric’s the firm’s business units. The businesses: size of the circle represents the o Aircraft engines, power relative size of the business generation equipment, unit in terms of revenue. locomotive trains, large appliances, healthcare products, financial products, lighting, mining, oil & gas o Why is GE in so many businesses? Means of Diversification - Diversification can be accomplished via o Mergers & acquisitions And divestment o Pooling resources of other companies with a firm’s own resource base through ▪ Strategic alliances & joint - Limitations of portfolio models: ventures o SBUs are compared on only o Internal Development through two dimensions & each SBU is ▪ Corporate entrepreneurship considered a standalone entity ▪ Are these the only factors that Mergers and Acquisitions really matter? - Mergers involve a combination ▪ Can every unit be accurately or consolidation of two firms to compared on that basis? What form a new legal entity: about possible synergies? o Are relatively rare o An oversimplified graphical o The two firms are on a model substitutes for relatively equal basis managers’ experience  - Acquisitions involve one firm Mergers and Acquisitions: Divestment buying another either through - Divestment objectives include: stock purchase, cash, or the o Cutting the financial losses of a issuance of debt failed acquisition o Redirecting focus on the firm’s core o businesses o Freeing up resources to spend on more attractive alternatives o Raising cash to help fund existing businesses - Successful divestiture Mergers and Acquisitions: Motives involves: - In high-technology & o Removing emotion from the knowledge-intensive industries, decision speed is critical: acquiring is o Knowing the value of the faster than building. business you’re - M&A allows a firm to obtain o selling valuable resources that help it o Timing the deal right expand its product offerings & o Maintaining a sizable pool of services. potential buyers - M&A helps a firm develop o Telling a story about the deal synergy: o Running divestitures o Leveraging core competencies systematically through a o Sharing activities project office o Building market power o Communicating clearly and - M&A can lead to consolidation frequently within an industry, forcing other players to merge. Strategic Alliances & Joint Ventures: - Corporations can also enter Motives new market segments by way - Strategic alliances & joint of acquisitions. ventures are cooperative relationships with potential Mergers and Acquisitions: Limitations advantages: - Takeover premiums for o Ability to enter new markets acquisitions are typically very through high ▪ Greater financial resources - Competing firms can imitate ▪ Greater marketing expertise advantages o Ability to reduce manufacturing - Competing firms can copy or other costs in the value synergies chain - Managers’ egos get in the way o Ability to develop & diffuse new of sound technologies business decisions - Cultural issues may doom the Strategic Alliances & Joint Ventures: intended benefits Limitations - Need for the proper partner:  o Partners should have o Poison pills complementary strengths - Can benefit multiple o Partner’s strengths should be stakeholders – not just unique management ▪ Uniqueness should create - Can raise ethical synergies considerations because the ▪ Synergies should be easily managers of the firm are not sustained & defended acting in the best interests of o Partners must be compatible & the shareholders willing to trust each other Entrepreneurial Strategy and Competitive Internal Development Dynamics (module 6) - Corporate entrepreneurship & new venture development - Entrepreneurial Strategy motives: - Entrepreneurship involves o No need to share the wealth value creation and the with alliance partners assumption of risk o No need to face difficulties - New value can be created in associated with combining many contexts: activities across the value o Startup ventures chains o Major corporations o No need to merge diverse o Family owned businesses corporate cultures o Nonprofit organizations - Limitations: o Established institutions o Time-consuming - Start-up venture ideas can o Need to continually develop come from new capabilities o Current or past work experiences Managerial Motives o Hobbies or suggestions by - Managerial motives: friends or family Managers may act in their own - For established firms, self interest – eroding rather opportunities can come from than enhancing value creation o Existing customers through o Suggestions by suppliers o Growth for growth’s sake o Technological developments ▪ Top managers gain more - For all firms, change or chance prestige, higher events can uncover unmet ▪ rankings, greater incomes, consumer needs more job security ▪ It’s exciting and dramatic! Entrepreneurial Strategy o Excessive egotism o Use of antitakeover tactics Managerial Motives: Antitakeover Tactics - Antitakeover tactics include: o Green mail o Golden parachutes  - In 1987, product testing Entrepreneurial Opportunities showed it was attractive to - Entrepreneurial opportunities consumers require - Operational facilities were - opportunity recognition developed to maintain the low - Two phases of activity temperatures necessary for o Discovery production ▪ Becoming aware of a new - By 2007, competitors such as business concept Frosty Bites (Mini Melts) o Evaluation had stolen market share ▪ Analyzing the opportunity to – the product idea was no determine whether it is viable longer that innovative or feasible to develop further - By 2011, Dippin’ Dots was - Discovery phase - Becoming bankrupt aware of the new business - Ice cream of the future?? concept o Can be spontaneous and Entrepreneurial Resources unexpected - Resources are essential for o Can also result from a entrepreneurial success deliberate search o Financial resources ▪ Where are the new venture o Human capital opportunities? o Social capital ▪ What might be a creative o Government resources solution to a business - Financial resources depend problem? on stage of venture - Evaluation phase - Analyzing development & venture scale the viability of an opportunity o Initial, start up financing o Talk to potential target ▪ Personal savings, family, and customers friends o Identify operational ▪ Crowdfunding requirements o Early stage financing o Conduct a feasibility analysis ▪ Bank financing, angel o What is the market potential? investors o Is the idea strong enough to o Later stage financing create value, and therefore ▪ Commercial banks, venture profits? capitalists equity financing - Viable opportunities have the - Human capital following qualities: o Strong, skilled management o They are attractive - Social capital o They are achievable o Extensive social contacts & o They are durable strategic alliances o They are value-creating ▪ Technology, manufacturing, or retail alliances Example: The Feasibility of Frozen Treats - Federal, state, & local - Dippin’ Dots was based on an government resources innovative idea o Government contracting o Loan guarantee programs  o Training, counseling, & support - Trust people, but verify services credentials - Psychology is important – don’t Entrepreneurial Leadership ignore - Entrepreneurial leadership is - personal needs needed - Be willing to make the tough o Courage decisions o Belief in one’s convictions - Be a manager, not a technician o Energy to work hard - Invest back into the company - Leadership characteristics - Integrity is everything o Vision - Get comfortable being o Dedication and drive uncomfortable o Commitment to excellence Entrepreneurial Strategy Entrepreneurial Leadership - New ventures require an - Vision is an entrepreneur’s entrepreneurial strategy most o What are the industry o important asset conditions? o Requires transformational ▪ Five-forces analysis - barriers leadership to entry? o Ability to envision realities that o What is the competitive do not yet exist environment? o Ability to share this vision with ▪ Retaliation by established others firms? - Drive & dedication are o What are the market necessary opportunities? o Involves internal motivation - Entry strategies o Intellectual commitment - Generic strategies o Patience - Combination strategies o Stamina, willingness to work long hours Entry Strategies o Enthusiasm that attracts others - New venture entry strategies - Commitment to excellence is need to: required o Quickly generate cash flow o Commit to knowing the o Build credibility customer o Attract good employees o Providing quality goods and o Overcome the liability of services newness o Paying attention to details - Pioneering new entry o Continuously learning - Imitative new entry o Connecting the dots - Adaptive new entry o Hiring people smarter than themselves Pioneering new entry - Creating new ways to solve old Example: Lessons from a Young problems Entrepreneur - Meeting customers’ needs in a - Create massive value unique new  - way o Quicker decision-making to - Will it be accepted by upgrade technology & integrate consumers? marketplace feedback - Will it be disruptive to the - Differentiation status quo of an industry? o Using new technology - Will it be sustainable? o Deploying resources in a radical new way Imitative new entry - Focus - Imitators have a strong o Using niche strategies that fit marketing orientation the small business mold - Capitalizing on proven market successes Combination Strategies for New Ventures - Introducing the same basic - Pursuing combination product or service in another strategies segment of the market o Combine the best features of - Can we do it better than an low-cost, differentiation, and existing competitor? focused strategies - Will someone then imitate us? o Hold down expenses by having a simple structure Adaptive new entry o Create high-value products & - Capitalizes on current market services by being flexible & trends innovative - Offers a product or service that is somewhat new and Competitive Dynamics sufficiently different - New entry threatens existing - Creates new value for competitors customers - Competitive dynamics helps - Captures market share explain why strategies evolve - Is it sufficiently unique and and how to respond: different? o New competitive action - Can it be easily imitated? o Threat analysis - How can we continue to keep it o Motivation and capability to fresh and new? respond o Types of competitive action o Likelihood of competitive reaction Generic Strategies for New Ventures - Why do companies launch new - Overall cost leadership competitive actions? o Simpler organizational o To improve market position structure o To capitalize on growing demand  o To expand production capacity o The reputation of the firm that o To provide an innovative new initiates the action – the actor’s solution reputation o To obtain first mover - Choosing not to respond advantages o Forbearance o To strengthen financial o Co-opetition outcomes & capture profits ▪ Working together behind the o To grow the business scenes to achieve industrywide - Competition among incumbent efficiencies rivals can involve “hardball” strategies: Competitive Dynamics & Entrepreneurial o Devastating rivals’ profit Strategies sanctuaries - Entrepreneurial strategy o Plagiarizing with pride involves new value creation, o Deceiving the competition which o Unleashing massive & o Threatens existing competitors overwhelming force o Changes the competitive o Raising competitors’ costs dynamics of the marketplace - Threat analysis involves an - Entrepreneurial activity assessment of involves risk o Market commonality o How should I enter a market?