Summary of Business Management Topics 3, 4, 5, 6, 7 PDF

Environmental Analysis (Topic 3) 1. The Business Environment Definition: The context influencing a firm's strategy and performance, comprising factors beyond the firm’s control. o Goal: Identify external threats and opportunities. Types of Environments: o General Env...

Environmental Analysis (Topic 3) 1. The Business Environment Definition: The context influencing a firm's strategy and performance, comprising factors beyond the firm’s control. o Goal: Identify external threats and opportunities. Types of Environments: o General Environment: Broad external factors (political, economic, socio-cultural, technological, ecological, demographic). o Competitive Environment: Immediate context (competitors, suppliers, customers). 2. General Environment Analysis Purpose: Identify external influences on performance to spot opportunities and threats. Key Dimensions: o Political & Legal: Tax policies, labor laws, trade regulations. o Economic: GDP trends, inflation, unemployment. o Demographic: Age structure, migration, population diversity. o Socio-cultural: Lifestyles, values, education levels. o Technological: R&D, innovation, tech transfer. o Ecological: Climate change, resource availability. Methods: o Porter’s Diamond: Explains why firms from certain countries are competitive. o Scenarios Method: Models future environments to prepare adaptable strategies. 3. Industrial Districts Definition: Geographic clusters of interconnected firms and institutions. o Features: ▪ Mix of competition and cooperation. ▪ Increased productivity, innovation, and lower entry barriers. Benefits: o Productivity: Access to specialized resources. o Innovation: Quick adaptation to trends. o New Businesses: Easier market entry and funding. 4. Defining the Competitive Environment Purpose: Determine industry boundaries and dynamics. Steps: o Define industry boundaries (supply vs. demand). o Map and analyze strategic groups. Concepts: o Competitive Environment = Industry Sector. o Competitors may overlap industries or segments. 5. Industry Structure Analysis (Porter’s Five Forces) Five Forces: o Threat of New Entrants: Barriers like economies of scale, government policy. o Threat of Substitutes: Products offering better price or quality. o Bargaining Power of Suppliers: High when substitutes are limited. o Bargaining Power of Customers: High with bulk purchases or low switching costs. o Rivalry Among Competitors: High with low differentiation or many similar-sized firms. Key Applications: o Spot opportunities and threats. o Guide competitive strategies. 6. Limitations of Five Forces Model Weaknesses: o Not all forces have equal weight. o Ignores dynamic and hypercompetitive industries. o Lacks focus on complementary products. 7. Industry Segmentation & Strategic Groups Definition: Clusters of firms with similar strategies in an industry. o Advantages: ▪ Better understanding of specific competition. ▪ Identifying barriers to group movement. Steps: o Identify strategic dimensions. o Build a map of strategic groups. o Analyze groups as distinct environments. Refined Summary for Internal Analysis (Topic 4) 1. Purpose of Internal Analysis Identify a firm’s strengths and weaknesses to pursue a competitive advantage. Key questions: o What do we do better than others? o What are the key variables to analyze for understanding the firm? 2. Key Elements of a Firm’s Identity Legal Structure: Public, private, cooperatives, etc. Ownership Type: Family-owned, concentrated, or diffuse. Size: Small, medium, or large, measured by turnover or resources. Geographical Scope: Local, national, multinational. Age: Start-up, mature, or old.  Scope of Operations: Combination of products, markets, technologies, and target customers. 3. Strategic Profile and Functional Analysis Functional Analysis: Examines production, marketing, HR, and finance. Strategic Profile: Highlights strengths and weaknesses via variables evaluated on a Likert scale (1-5). o Limitations: ▪ Static: Snapshot in time. ▪ Relative: Compared to rivals or benchmarks. ▪ Subjective: Dependent on managers’ perceptions. 4. Value Chain Analysis Definition: Breakdown of operations adding value to products/services. o Primary Activities: Inbound logistics, operations, outbound logistics, marketing, sales, and after-sales service. o Support Activities: Procurement, technology, HR management, and infrastructure. Objective: Identify sources of competitive advantage. Interrelations: o Horizontal Links: Coordination between internal activities. o Vertical Links: Integration with suppliers and customers. 5. Resources and Capabilities Resources: o Tangible: Physical assets (machinery, finances). o Intangible: Non- physical (brand, reputation, knowledge). o Human: Knowledge, skills, commitment. Capabilities: o Developed through combining resources and routines. o Distinctive capabilities create competitive advantage. o Types: ▪ Functional: Address technical/management issues. ▪ Cultural: Linked to organizational attitudes and values. 6. Dynamic Capabilities Definition: Ability to adapt and renew resources to address changing environments. Purpose: o Reinvent existing capabilities. o Build resilience against competition. 7. Evaluating Resources and Capabilities Strategic Criteria:  o Scarcity: Unavailable to competitors. o Relevance: Aligns with key industry success factors. o Durability: Long-lasting value. o Imitability: Difficult for competitors to replicate. o Substitutability: Lack of alternatives for rivals. o Complementarity: Combined value exceeds individual parts. Appropriability: Control rights over resources to capture value. 8. Managing Resources and Capabilities Improving Provision: o External Acquisition: Alliances, purchases, or benchmarking. o Internal Development: Investing in R&D, human capital, and culture. Strategic Exploitation: o Efficiently use resources for competitive and corporate strategies. o Surplus resources drive diversification or internationalization. 9. SWOT Analysis Definition: Summarizes internal and external analysis. Components: o Strengths: Leverage for growth. o Weaknesses: Areas for improvement. o Opportunities: External factors to exploit. o Threats: Risks to mitigate. Advantages: o Simple and comprehensive. o Provides an overview of strategy. Limitations: o Lacks integration between internal and external analysis. o Static and general in application. Competitive Strategies (Topic 5) 1. Concept of Competitive Advantage and Strategy Competitive Advantage: o Key factors: ▪ Better performance compared to competitors. ▪ Related to a key success factor in the market. ▪ Must be sustainable and substantial over time. o Value created = Customer perceived value – Cost. ▪ Margin: Value retained by the firm. ▪ Customer Value Added: Value passed to the customer (perceived value - price). Competitive Strategy: o Method to achieve superior performance through offensive or defensive actions. o Types: ▪ Cost Leadership  ▪ Differentiation ▪ Market Segmentation 2. Cost Leadership Strategy Definition: Achieving lower costs than competitors while maintaining similar quality. Sources: o Economies of Scale: Increased output reduces per-unit costs. o Experience Effect: Costs decrease as cumulative production increases. o Process Redesign: Simplify production or reduce material costs. o Efficient Operations: Reducing indirect costs and maintaining flexibility. Implementation Conditions: o High price competition, standardized products, and price-sensitive customers. o Significant industry growth or new entrants. Risks: o Imitation by competitors. o Demand changes or cost inflation. o Excessive focus on cost reduction can hurt quality or innovation. 3. Differentiation Strategy Definition: Offering unique attributes perceived as valuable by customers. Sources of Differentiation: o Product Characteristics: Design, performance, quality. o Customer Experience: Enhanced service, brand reputation. o Social Responsibility: Ethical practices or eco-friendly operations. Implementation Conditions: o High variety in customer preferences. o Rapid technological changes favoring innovation. o Unique attributes difficult to imitate. Risks: o High costs of differentiation. o Price sensitivity can erode perceived value. o Counterfeit or imitation products. 4. Hybrid Strategies Definition: Combining low prices with high value-added elements. Examples: o Offering high-quality products at competitive prices. o Suitable as a transitional strategy to gain market share. Risks: o Striking a balance between cost reduction and value creation is challenging. o Risk of being "stuck in the middle" with no distinct advantage. 5. Strategies Based on the Industry Life Cycle Emergent Industries: o Strategies: Risk management, shaping industry structure, early or late entry.  o Focus: Innovation, flexible operations, and customer collaboration. Growth Industries: o Strategies: Gaining market share, product differentiation, brand recognition. o Focus: Detecting demand shifts and preparing for maturity. Mature Industries: o Strategies: Cost leadership, niche segmentation, and product/service differentiation. o Focus: Re-orienting business scope and seeking international markets. Declining Industries: o Strategies: Leadership consolidation, harvesting, or rapid withdrawal. o Focus: Maximizing short-term returns or exiting early. 6. The Strategy Clock Model Purpose: Expands on Porter’s strategies by incorporating customer value. Key Strategies: o "No Frills": Low price, low perceived value. o Low Price: Competitive pricing with average value. o Differentiation: ▪ Industry-wide: Moderate price, high perceived value. ▪ Focused: High price, niche market. o Hybrid: Balanced quality-price ratio. o Failure Strategies: High price, low valDirections for Strategic Development (Topic 6) 1. Defining the Scope of the Firm Scope of the Firm: Range of products and markets in which the firm operates. It determines: o The mission and identity of the firm. o Strategic decisions impacting the firm’s growth and development. Abell’s Model Dimensions: o Functions: What needs are being fulfilled? o Customer Groups: Who is being served? o Technologies: How are needs being fulfilled? Differentiation Among Segments: o Tailoring strategies for varying needs of consumer segments. o Achieved through product modifications or adjusted commercial strategies. 2. Firm Growth and Development Growth: o Quantitative increases in variables like sales, profits, or headcount. o Sign of health and competitive vitality in dynamic markets. Development: o Includes qualitative changes like restructuring the business portfolio. o Focus on value creation through better use of resources or capabilities.  Strategic Components: o Direction: Decide to focus on, diversify, or restructure activities. o Method: Choose internal growth, mergers, acquisitions, or alliances. 3. Basic Directions for Development Expansion: o Exploiting current products and markets. o Includes market penetration, product development, or market development. Diversification: o Entering new products and markets. o Types: ▪ Related Diversification: Leveraging existing resources. ▪ Unrelated Diversification: Targeting completely new areas. Vertical Integration: o Taking over supply (backward) or distribution (forward) stages. Restructuring: o Streamlining or rebalancing the business portfolio to enhance focus. 4. Expansion Strategies Market Penetration: o Boosting sales of existing products in current markets. o Methods: Advertising, promotions, or pricing strategies. Product Development: o Innovating or improving existing products. o Benefits: Enhanced customer image and potential synergies. Market Development: o Selling current products in new markets. o Opportunities: Geographical expansion, new industry segments. 5. Diversification Strategies Related Diversification: o Sharing resources or capabilities across businesses. o Benefits: Economies of scope and synergies. Unrelated Diversification: o Adding entirely new products/markets without connections to existing ones. o Risks: Lack of synergies and potential management challenges. 6. Vertical Integration Definition: Control over additional stages in the production or distribution chain. Reasons: o Cost reduction through economies of scope. o Improved differentiation via quality control or proprietary technology. o Enhanced market power through supply chain control.  Risks: o Increased rigidity and potential inefficiencies. o Greater complexity in management and coordination. 7. Restructuring the Business Portfolio Definition: Redefining the firm’s scope by withdrawing or entering businesses. Reasons: o Over-diversification or lack of synergies. o Competitor dynamics or market changes. Types: o Sale/Divestment: Selling underperforming units. o Harvesting: Maximizing returns before eventual withdrawal. o Winding-Up: Terminating operations and selling assets. Methods of Development (Topic 7) 1. Internal vs. External Development Internal Development: o Also called "organic growth." o A firm invests in its structure, increasing capacity (e.g., new facilities, hiring staff, or purchasing machinery). o Expands core competencies in existing or new industries. o Key Outcome: Generates new output capacity for both the firm and the economy. External Development: o Growth through acquisitions, mergers, or alliances with other firms. o Adds existing production capacity to the firm without increasing the economy’s overall output. o Key Features: ▪ Faster than internal development. ▪ Facilitates unrelated diversification or internationalization. 2. Justifications for External Development Economic Efficiency: o Reduces operating costs (economies of scale). o Lowers transaction costs via internalization or trust between partners. o Utilizes surplus funds for acquisitions. Strategic Reasons: o Gaining complementary resources or capabilities. o Overcoming entry barriers into industries or countries. o Reducing competition through horizontal mergers. o Enhancing vertical integration across production cycles. Other Reasons:  o Management’s personal interests (e.g., power, status). o Responding to industry trends or regulatory pressures. 3. Types of External Development By Method: o Merger: Two firms combine, one or both cease to exist. o Acquisition: Purchase of shares to control another firm. o Alliances: Strategic partnerships maintaining legal independence. By Relationship: o Horizontal: Between direct competitors in the same industry. o Vertical: Between firms at different stages of the production cycle. o Complementary: Non-competitors collaborating for mutual benefit. 4. Mergers and Acquisitions (M&A) Merger Types: o Pure Merger: Firms of similar size combine into a new entity. o Takeover: Acquiring firm absorbs another’s equity. o Partial Assets Transfer: Specific assets are combined into a new or existing firm. Challenges: o Valuing intangible assets. o Integration of organizational cultures and structures. o Regulatory restrictions to maintain market competition. 5. Strategic Alliances Definition: Agreements between independent firms to share resources or capabilities. Characteristics: o No dominance or loss of autonomy. o Blurred boundaries and interdependence. Advantages: o Faster and less risky than M&A. o Facilitates specialization and sharing of resources. o Reduces uncertainty through collaboration. Pitfalls: o Risk of eroding competitive advantages. o Diverging partner goals and lack of trust. 6. Types of Agreements Contractual Agreements: o Long-term contracts, franchises, licenses, and subcontracting. Shareholder Agreements: o Joint ventures, share swaps, and minority shareholdings. Inter-Organizational Networks: o Cooperative arrangements leveraging mutual strengths. 7. Managing Development Methods Key Success Factors: o Strategic and cultural fit between partners. o Clear objectives and task allocation. o Effective conflict resolution mechanisms. Monitoring and Evaluation: o Assess joint outcomes and partner-specific benefits. o Track performance against planned objectives.