Strategic Management... 100 Slides High
PRODUCT DIVERSITY
Joint venture
Foreign branch
Foreign subsidiary
Licensing/
Joint venture
Foreign branch
Licensing/
Joint venture
Export Low Low
MARKET COMPLEXITY
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High
Key Words... Strategic Pyramid – Strategic Vision – Strategy Alternatives – Five Forces Model – Competitive Advantage – Generic Strategies – Growth Strategies – Diversification Strategy – BCG Matrix – GE Business Screen – Cost Strategies – Exit/Entry Barriers – Resource Analysis – Core Competencies – ProductLife-Cycle – Top-Down-Management – Industry Analysis – International Strategies – SWOT Analysis – Portfolio Analysis – McKinsey’s 7-S Framework – FivePhase Growth Model – Strategy Development – Merger&Acquisitions – Technology Strategies – Value Propositions – Ansoff Matrix – Experience Curve – Strategic Options – Window of Opportunity
The Five Tasks of Strategic Management Task 1 Developing a strategic vision and business mission
Revise as needed
Task 2
Task 3
Setting objectives
Crafting a strategy to achieve the objectives
Implementing and executing the strategy
Improve/ change as needed
Improve/ change as needed
Revise as needed
Task 4
Task 5 Evaluating performance, monitoring new developments, and initiating corrective adjustments
Recycle to tasks 1, 2, 3 or 4 as needed
Strategic Approaches to Preparing for Future Market Conditions COMPANY APPROACHES
Rapid Revolutionary Change
Reactive/Follower
Proactive/Leader
Rushing to catch up to keep from being swamped by the waves
Aggressively altering strategy to make waves and drive change
FUTURE MARKET CONDITIONS
Gradual Evolutionary Change
Revising strategy to catch the waves
Anticipating change and initiating strategic actions to ride the crest of the waves
The Strategic-Making Pyramid I A DIVERSIFIED COMPANY Responsibility of corporate-level managers
Corporate Strategy Two-Way Influence
Responsibility of business-level general managers
Business Strategies Two-Way Influence
Responsibility of heads of major functional activities within a business unit or division
Functional Strategies (R & D, manufacturing, marketing, finance, human resources, etc.) Two-Way Influence
Responsibility of plant managers, geographic unit managers, and lowerlevel supervisors
Operating Strategies (regions and districts, plants, departments within functional areas)
The Strategic-Making Pyramid II
A SINGLE – BUSINESS COMPANY Responsibility of executive-level managers
Business Strategy Two-Way Influence
Responsibility of heads of major functional activities within a business
Functional Strategies (R & D, manufacturing, marketing, finance, human resources, etc.) Two-Way Influence
Responsibility of plant managers, geographic unit managers, and lowerlevel supervisors
Operating Strategies (regions and districts, plants, departments within functional areas)
Identifying Strategy for a Single Business Moves to respond and react to changing conditions in the macroenvironment and in industry and competitive conditions Planned, proactive moves to outcompete rivals
Efforts to build competitive advantage
Scope of geographic coverage
BUSINESS STRATEGY
Collaborative partnerships and strategic alliances with others
Key functional strategies to build competitively valuable recource strengths and capabilities
R & D, technology, engineering strategy
Supply chain management strategy
Manufacturing strategy
Sales, marketing, promotion & distribution strategies
Human resources strategy
Financial strategy
The Networking of Strategic Visions, Missions, Objectives, and Strategies LEVEL 1 Responsibility of corporate-level managers LEVEL 2 Responsibility of business-level general managers
Overall Corporate Scope and Strategic Vision
Corporate-Level Objectives
Corporate-Level Strategy
Two-Way Influence
Two-Way Influence
Two-Way Influence
Business-Level Strategic Vision and Mission
Business-Level Objectives
Two-Way Influence LEVEL 3 Responsibility of heads of major functional activities within a business unit or division
Functional Area Missions
Two-Way Influence LEVEL 4 Responsibility of plant managers, geographic unit managers, and managers of front-line operating units
Operating Unit Missions
Two-Way Influence Functional Objectives Two-Way Influence
Operating Unit Objectives
Business-Level Strategy
Two-Way Influence Functional Strategies
Two-Way Influence
Operating Strategies
Factors Shaping the Choice of Company Strategy STRATEGY-SHAPING FACTORS EXTERNAL TO THE COMPANY Economic social, Company Competitive political, opportunities conditions regulatory and and threats to and overall community the company‘s industry citizenship well-being attractiveness considerations
The mix of considerations that determines a company‘s strategic situation
Company resource strengths, weaknesses, competencies, competitive capabilities
Personal ambitions, business philosophies, ethical principles of key executives
Shared values and company culture
STRATEGY-SHAPING FACTORS INTERNAL TO THE COMPANY
Conclusions concerning how internal & external factors stack up
Identification and evaluation of strategy alternatives
Crafting a strategy that fits the overall situation
A Company‘s Macroenvironment
MACROENVIRONMENT IMMEDIATE INDUSTRY & COMPETITVE ENVIRONMENT Suppliers
Substitute
COMPANY Rival Firms
Buyers New Entrants
The Economy at large
The Five-Forces Model of Competition Firms in other industries offering Substitute Products
Suppliers of raw materials, parts, components or other resource inputs
RIVALRY AMONG COMPETING SELLERS
Potential New Entrants
Buyers
Mobilizing Company Resources to Produce Competitive Advantage
Competitive Advantage Strategic Assets and Market Achievements Core and Distinctive Competencies Competitive Capabilities
Company Resources
Representative Company Value Chain
Primary Activities and Costs
Support Activities and Costs
Purchased Supplies and Inbound Logistics
Operations
Distribution and Outbound Logistics
Sales and Marketing
Product R & D, Technology and Systems Development Human Resources Management General Administration
Service
Profit Margin
Representative Value Chain for an Entire Industry
Supplier-Related Value Chains
Activities, Costs, and Margins of Suppliers
Company Value Chain
Internally Performed Activities, Costs and Margins
Distribution Related Value Chains
Activities, Costs and Margins of Forward Channel Allies and Strategic Partners
Customer Related Value Chains
Buyer/End User Value Chains
The Five Generic Competitive Strategies TYPE OF COMPETITVE ADVANTAGE BEING PURSUED
A Broad Cross-Section of Buyers
Lower Cost
Differentiation
Overall Low-Cost Leadership Strategy
Broad Differentiation Strategy
Best-Cost Provider Strategy
MARKET TARGET
A Narrow Buyer-Segment (or Market Niche)
Focused Low-Cost Strategy
Focused Differentiation Strategy
The Building and Eroding of Competitive Advantage
Buildup Period
Benefit Period
Erosion Period
Size of Competitive Advantage
Strategic moves are successful in producing a competitive advantage
Size of advantage achieved Imitation, duplication, and „attacks“ by rivals erode the advantage Time
Strategy Options for Local Companies in Competing against Global Challengers RESOURCES AND COMPETITIVE CAPABILITIES Tailored for home Market
Transferable to other Countries
High
Dodge Rivals by shifting to a new Business Model or Market Niche
Contend on a Global Level
Low
Defend by using „Home-Field“ Advantages
Transfer Company Expertise to Cross-Border Markets
INDUSTRY PRESSURES TO GLOBALIZE
The Three Strategy Horizons for Sustaining Rapid Growth Strategy Horizon 3 Strategy Horizon 2
Portfolio of Strategy Initiatives
„Medium-Jump“
Strategy Horizon 1 „Short-Jump“
initiative to fortify and extend current businesses
initiatives to leverage existing resources and capabilities to pursue growth in new businesses Moderate
revenue and profit gains now, but foundation laid for sizable gains over next 2-5 years
„Long-Jump“
initiatives to sow the seeds for growth in in businesses of the future Minimal
revenue gains now and likely losses, but potential for significant contribution to revenues and profits in 5-10 years
Immediate
gains in revenues and profits Time
Value Chains for Related Businesses Representative Value Chain Activities Support Activities
Business A
Supply Chain Activities
Technology
Operations
Sales and Marketing
Distribution
Customer Service
Competitively valuable opportunities for technology or skills transfer, cost reduction, common brand name usage, and cross-business collaboration exist at one or more points along the value chains of A and B.
Business B
Supply Chain Activities
Technology
Operations
Sales and Marketing Support Activities
Distribution
Customer Service
Value Chains for Unrelated Businesses Representative Value Chain Activities Support Activities
Business A
Supply Chain Activities
Technology
Operations
Sales and Marketing
Distribution
Customer Service
An absence of competitively valuable strategic fits between the value chain for Business A and the value chain for Business B
Business B
Supply Chain Activities
Technology
Operations
Sales and Marketing
Support Activities
Distribution
Customer Service
Strategy Options for a Company that is Already Diversified Make New Acquisitions and/or Enter into Additional Strategic Partnerships
Divest Some of the Company‘s Existing Business
To
To
To
To
narrow the company‘s business base and scope of operations
build positions in new related/ unrelated industries
eliminate weak-performing businesses from portfolio
strengthen the position of business units in industries where the firm already has a stake
To
eliminate businesses that no longer fit
Strategy Options for a Diversified Company Become a Multinational, Multi-Industry Enterprise
Restructuring the Company‘s Portfolio of Businesses
To
By
To
By
succeed in globally competitive core businesses against international rivals capture strategic fit benefits and win a competitive advantage via multinational diversification
selling poorly performing or noncore business units using cash from divestitures plus unused debt capacity to make new acquisitions
Identifying a Diversified Company‘s Strategy – What to Look for Approach to allocating investment capital and resources across business units
Efforts to capture cross-business strategic fits
Moves to divest weak or unattractive businesses
Whether diversification is based narrowly in a few industries or broadly in many industries
A Diversified Company‘s Strategy
Moves to build positions in new industries via acquisitions, merger, internal start-up, or alliances
Whether the businesses the company has diversified into are related, unrelated, or a mixture of both Whether the scope of company operations is mostly domestic, increasingly multinational or global Moves to strengthen positions in existing businesses via new acquisitions
A Representative Nine-Cell Industry Attractiveness-Competitive Strength Matrix COMPETITIVE STRENGTHS/BUSINESS POSITION Strong
High
LONG-TERM INDUSTRY ATTRACTIVENESS
Average
Business F
Weak
Business A
Medium Business C
Business B
High priority for investment Low Business E
Business D
Medium priority for investment Low priority for investment
The Eight Big Managerial Components of Implementing Strategy Building an organisation with competencies, capabilities, and resource strengths
Exercising the strategic leadership needed to drive implementation forward
Allocating ample resources to strategy-critical activities
The Strategy implementer‘s action agenda Shaping the work environment and corporate culture to fit the strategy
Tyring rewards and incentives to the achievement of key strategic targets
What to do now vs. later What requires much time and personal attention What can be delegated to others
Installing information, communication, and operating systems
Establishing strategysupportive policies
Instituting best practices and pushing for continuous improvement
The Components of Building a Capable Organization
Staffing the Organization Putting
together a strong management team Recruiting and retaining talented employees
Building Core Competencies and Competitive Capabilities Developing
a competence/capability portfolio suited to current strategy Updating and reshaping the portfolio as external conditions and strategy change
Structuring the Organization and Work Effort Organizing
business functions and processes, value chain activities, and decision making
AN ORGANIZATION CAPABLE OF GOOD STRATEGY EXECUTION
Value Chain (as a Percent of Total Price to the Consumer)
31
100
31%
6 18
Value added related to distribution and marketing
45
69%
Purchasing Production
R&D Sales & Marketing
Price to Consumer
Value added related to supply and assembly
Why do Mergers Fail? FINISH START
Length of the integration process (86% of companies admitted having inadequate communication channels)
Excessive competition for leading positions
Focusing on the old organizational chart rather than new business processes
Conflicting goals among newly merged departments (76% of surveyed companies only focused on cost reductions)
Disregard for the needs of employees (61% of the companies surveyed defined reduction in headcount as the main goal to produce quick success)
Concepts for integration are not detailed enough. The acquired company is supposed to accept the company culture of the purchaser
Disregard for change in the process of integrating in new partner (only 32% had an active risk management in place)
The Value Chain Single-Industry Firm Supplier Value Chains
Supplier Value Chains
Channel Value Chains
Buyer Value Chains
Channel Value Chains
Buyer Value Chains
Diversified Firm Firm Value Chain Business Unit Value Chain
Supplier Value Chains
Business Unit Value Chain
Business Unit Value Chain
The Generic Value Chain
FIRM INFRASTRUCTURE
HUMAN RESOURCES MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT
INBOUND OPERATIONS LOGISTICS
Marketing Management Advertising
OUTBOUND LOGISTICS
MARGIN
MARKETING & SALES
Sales Force Sales Force Administration Operations
Technical Literature
SERVICE
Promotion
Risks of the Generic Strategies
Risks of Cost Leadership
Risks of Cost Differentiation
Risks of Cost Focus
Cost leadership is not sustained
Differentiation is not sustained
The focus strategy is imitated
competitors
imitate technology changes other bases for costs leadership erode
competitors
imitate bases for differentiation become less important to buyers
The target segment becomes structurally unattractive structure erodes demand disappears
Proximity in differentiation is lost
Cost proximity is lost
Broadly targeted competitors overwhelm the segment the segment‘s differences from other segments narrow the advantages of a broad line increase
Cost focuses achieve even lower cost in segments
Differentiation focuses achieve even greater differentiation in segments
New focuses subsegment the industry
Three Generic Strategies
COMPETITIVE ADVANTAGE Lower Cost
Differentiation
Broad Target
1. Cost Leadership
2. Differentiation
Narrow Target
3A. Cost Focus
3B. Differentiation Focus
COMPETITIVE SCOPE
Operational Effectiveness Versus Strategic Positioning
High
Productivity Frontier
NONPRICE BUYER VALUE DELIVERED
Low Low
High RELATIV COST POSITION
Competitor Configuration and Industry Stability EXTENT OF DIFFERENTIATION/SEGMENTATION Low
Modest share difference needed for stability
Good Competitions
COMPETITORS
Bad Competitions
High
Large share difference needed for stability
Shared Value Activities and Cost Position
High
PERCENTAGE OF OPERATING COSTS OR ASSETS REPRESENTED BY THE VALUE ACTIVITY
Potentially important if cost behavior changes
Strategic interrelationships
Unimportant interrelationships
Potentially important if cost structure changes
Low Low
High SENSITIVITY TO SCALE, LEARNING, OR UTILIZATION IN THE VALUE ACTIVITY
Alternative Scope of Leader and Challenger Strategies I GEOGRAPHIC SCOPE Local
Regional
National
Global
Segment
INDUSTRY SCOPE
Industry
Related Industries
Leader Scope Possible Challenger Scope
Alternative Scope of Leader and Challenger Strategies II VERTICAL SCOPE More Extensive More Extensive Backward Forward Average Integration Integration Integration
Segment
INDUSTRY SCOPE
Industry
Related Industries
Leader Scope Possible Challenger Scope
The Wheel of Competitive Strategy
Product Line
Finance and Control
R&D
Target Market
Marketing GOALS Definition of how the business is going to compete
Objectives for profitability, growth, market share, social responsiveness etc.
Sales
Distribution
Purchasing
Labor
Manufacturing
Barriers and Profitability EXIT BARRIERS Low
High
Low
Low, stable returns
Low, risky returns
High
High, stable returns
High, risky returns
ENTRY BARRIERS
Generic Competitive Strategies
Return on Investment
Market Share
Firm‘s Strategic Needs to Remain in the Business Has Strengths Relative to Competitors for Remaining Pockets
Lacks Strengths Relative to Competitors for Remaining Pockets
Favorable Industry Structure for Decline
Leadership or Niche
Harvest or Divest Quickly
Unfavorable Industry Structure for Decline
Niche or Harvest
Divest Quickly
Five Forces Determining Segment Structural Attractiveness Criteria
Industry Attractiveness High
High
Medium
Low
• Size • Market Growth, Pricing • Market Diversity • Competitive Structure • Industry Profitability • Technical Role • Social • Environmental • Legal • Human
Criteria Business Unit Position
• Size • Growth • Share • Position • Profitability • Margins • Technical Position • Strengths/Weaknesses • Image • Pollution • People
Medium
Build Low
Hold Harvest
The Quest for Competitiveness The Quest for Competitiveness
Restructuring the Portfolio and Downsizing Headcount
Reengineering Process and Continuous Improvement
Reinventing Industries and Regenerating Strategies
Smaller
Better
Different
Finding the Limits of the Current Economic Engine Concept of „Served Market“
What customers and needs aren‘t we serving?
Could profits be extracted at a different point in the value chain?
Revenue and Margin Structure
Configuration of Skills and Assets
Flexibility and Adaptiveness
Might customers‘ needs be better served by an alternate configuration of skills and assets?
What is our vulnerability to „new rules of the game?“
Beyond „Customer-Led“ CUSTOMER TYPES Served
Unserved
Articulated
NEEDS
Unexploited Unarticulated
Opportunities
Why do Great Companies Fail?
Unparalleled track record of success
Accumulation of abundant resources
Optimized business system
No gap between expectations and performance
A view that resources will win out
Deeply etched recipes
Momentum is mistaken for leadership
Contentment with current performance
Resources substitute for creativity
Vulnerability to new rules
Failure to „reinvent leadership“
INABILITY TO ESCAPE THE PAST!
Success confirms strategy
INABILITY TO INVENT THE FUTURE!
Categories of Resource Leverage
Concentrating
Accumulating
Conserving
Recovering
Complementing
Managing Migration Paths Creating and Managing Coalitions
Learning and Experimentation in the Market
Investing in Core Competencies
Setting Standards and Influencing Regulation
Building Global Brand and Distribution
Establishing the Core Competence Agenda MARKET Existing
Existing
CORE COMPETENCIES
New
New
Fill in the blanks
White spaces
What is the opportunity to improve our position in existing markets by better leveraging our existing core competencies?
What new products or services could we create by creatively redeploying or recombining our current core competencies?
Premier plus 10
Mega-opportunities
What new core competencies will we need to build to protect and extend our franchise in current markets?
What new core competencies would we need to build to participate in the most exciting markets of the future?
An Alternate Conception of the Diversified Firm Banner Brand
Business Units
Core Products (Platforms)
Core Competencies
Criteria for Integration Decisions
Setup Costs
Transaction Costs
Risk
Coordination Effectiveness
Capital (e.g., equipment, acquisitions)
Information collection and processing
Possibility for unreasonable price changes
Run lengths, inventory levels
Systems development
Legal
Supply or outlet foreclosure
Capacity utilization
Training
Sales and purchasing
Insulation from market (e.g., from technical changes, new products)
Delivery performance
Quality
Vertical Market Structures NUMBER OF BUYERS One
Many
NUMBER OF SELLERS
Few
Many
Buyers dominate
No one dominates
High trading risk
Sellers dominate
Few
One
Transaction-Asset Matrix ASSET SPECIFICITY, DURABILITY, AND INDENSITY
Seldom
Low
High
Detailed, standardized contracts (e.g., office lease, credit sale arrangements)
Detailed, probably unique contract (e.g., major public construction projects)
Standardized transactions (e.g., groceries)
Vertical integration (e.g., bauxite, specialized auto components)
TRANSACTION FREQUENCY
Often
Primary Influence Processes BROAD ENVIRONMENT Global Political/Legal Forces
Global Economic Forces
Competitors
Customers
Financial Intermediaries
Suppliers The Organization Government Agencies and Administrators
Activist Groups
Unions
Local Communities
OPERATING ENVIRONMENT Sociocultural Forces
Technological Change
The Product Life Cycle
Unit Sales Volume
Introduction
Growth A B C
Maturity
Commodity or Decline
Time Note: A = Moderate Growth, B = Commodity, C = Decline
Internal Venturing Alternatives STRATEGIC IMPORTANCE Important
Unrelated
High Control/ No Operational Coupling Special Business Units
OPERATIONAL IMPORTANCE
Related
High Control/ Strong Operational Coupling Direct Integration
Not important No Control/ No Operational Coupling Complete Spinoff
No Control/ Strong Operational Coupling Nurturing and Contracting
The Boston Consulting Group Matrix
18% 16%
Stars
Question Marks
Cash Cows
Dogs
14%
BUSINESS GROWTH RATE
12% 10% 8% 6% 4% 2% 10X 4X
2X1.5X 1X
.5X
.2X
.1X
RELATIVE COMPETITIVE POSITION (RELATIVE MARKET SHARE)
The General Electric Business Screen COMPETITIVE POSITION Strong
Low
INDUSTRY ATTRACTIVENESS
Medium
High
Average
Weak
The Top-Down Control Cycle
Ownership of Accounting Information Read down from here
empowers Top Management to plan, analyze, and transmit instructions to the Feedback Workforce who manipulate processes and cajole customers to achieve accounting Results
The Bottom-Up Empowerment Cycle
Satisfying Customers to learn and make changes that continuously improve processes capable of Workforce to be responsive (listen) and flexible (change quickly) by empowering the Companies
to choose among global opportunities and requires Read up from here
Customers empowers Ownership of Information
Feedback
The Internal Diversification Process
Diversification Decision Desire to expand into a broad area acceptable to key stakeholders
Search and Idea Generation Development of specific new business proposals based on existing knowledge fused with newly developing knowledge
Selection, Review, and Development Ongoing selection of new products for funding
Institutionalization Test marketing and commercialization
Designs for Organizational Entrepreneurship STRATEGIC IMPORTANCE
Unrelated
OPERATIONAL RELATEDNESS
Partly Related
Strongly Related
Very Important
Uncertain
Not Important
3. High Control/ No Operational Coupling
6. Moderate Control/ No Operational Coupling
9. No Control/ No Operational Coupling
Special business units
Independent business units
Complete spin-off
2. High Control/ Some Operational Coupling
5. Moderate Control/ Some Operational Coupling
8. No Control/ Some Operational Coupling
New product business department
New venture division
Contracting
1. High Control/ Strong Operational Coupling
4. Moderate Control/ Strong Operational Coupling
7. No Control/ Strong Operational Coupling
Direct Integration
Micro new ventures department
Nurturing and contracting
The Firm‘s External Environment Remote Environment (Global and Domestic) • Economic • Social • Political • Technological • Ecological
Industry Environment (Global and Domestic) • Entry barriers • Supplier power • Buyer power • Substitute availability • Competitive rivalry Operating Environment (Global and Domestic) • Competitors • Creditors • Customers • Labor • Suppliers THE FIRM
Forces Driving Industry Competition Potential Entrants
Threat of new entrants
Bargaining power of suppliers
Industry competitors
Suppliers Rivalry among existing firms Threat of substitute products or services Substitutes
Bargaining power of buyers
Buyers
International Strategy Options I LOCATION OF ACTIVITIES Geographically dispersed
Geographically concentrated
High
High foreign investment with extensive coordination among subsidiaries
Global strategy
Low
Country-centered strategy by multinationals with a number of domestic firms operating only one country
Export-based strategy with decentralized marketing
COORDINATION OF ACTIVITIES
International Strategy Options II
High
PRODUCT DIVERSITY
Joint venture
Foreign branch
Foreign subsidiary
Licensing/
Joint venture
Foreign branch
Licensing/
Joint venture
Export Low Low
High
MARKET COMPLEXITY
SWOT Analysis Diagram Numerous environmental opportunities
Cell 3: Supports a turnaroundoriented strategy
Cell 1: Supports an aggressive strategy Substantial internal strengths
Critical internal weaknesses Cell 4: Supports a defensive strategy
Cell 2: Supports an diversification strategy
Major environmental threats
Decay of New Product Ideas 60 Screening
55
Business analysis
Commercialization NUMBER OF IDEAS
20
Development One successful new product
15 10
Testing
5
10 20 30 40 50 60 70 80 90 100 CUMULATIVE TIME (PERCENT)
Grand Strategy Selection Matrix Overcome weaknesses
Turnaround or retrenchment Divestiture Liquidation
Vertical integration Conglomerate diversification
Internal (redirected resources within the firm)
II
I
III IV Concentrated growth Market development Product development Innovation
Horizontal integration Concentric diversification Joint venture
Maximize strengths
External (acquisition or merger for resource capability)
BCG‘s Growth/Share Matrix I RELATIVE MARKET SHARE High Star
A
Low Question Mark
High E
Divest
B D MARKET GROWTH RATE F Low
C G
Cash Cows Targeted future position in the corporate portfolio
Dog Present position in the corporate portfolio
Divest
BCG’s Growth/Share Matrix II RELATIVE MARKET SHARE 10x
Low REAL MARKET GROWTH
High
1.0x
Low
Star businesses
Question marks
Cash generating businesses
Dog businesses
10%
High
0.1x
Underlying Relationship between ROI and Market Share in the New BCG Matrix SIZE OF THE ADVANTAGE Small
Large Volume
Stalemate ROI
ROI
Few Market share
Market share
NUMBER OF WAYS TO ACHIEVE COMPETITVE ADVANTAGE
Specialization
Fragmented ROI
ROI
Many Market share
Market share
The Life-Cycle Portfolio Matrix THE BUSINESS UNIT‘S COMPETITIVE POSITION Strong Average Weak
Development A C Growth
B
D THE INDUSTRY‘S STAGE IN THE EVOLUTIONARY LIFE CYCLE
Competitive shakeout
F E
Maturity Saturation G H Decline
McKinsey 7-S Framework
Strategy
Structure
Systems
Shared Values (culture)
Style (leadership)
Skills (management) Staff (management)
Managing the Strategy-Culture Relationship POTENTIAL COMPATIBILITY OF CHANGES WITH EXISTING CULTURE
Few CHANGES IN KEY ORGANIZATIONAL FACTORS THAT ARE NECESSARY TO IMPLEMENT THE NEW STRATEGY
High
Low
Synergistic – focus on reinforcing culture
Manage around the culture 2 3 1
Many
Link changes to basic mission and fundamental organizational norms
4 Reformulate strategy or prepare carefully for long-term, difficult change
A Typical Budgeting System for Controlling Strategy Implementation Long-term objectives
Grand strategy
Annual objectives
Operating strategy
Capitalinvestment requirement
Capital budget
With which management develops MONITOR, EVALUATE, AND ADJUST
Sales forecasts
Income goals
Sales/revenue budgets
Which are broken down into overall expense and cost goals
Expenditure budgets and schedules Budgets and schedules in Manufacturing
Marketing
R&D
Administration
Financial
Production Materials Personnel Capital
Advertising Selling Personnel
Research
Overhead
Cash flow Capital
Which are consolidated into
Budgeted financial statements 1. Cash flows 2. Income statement 3. Balance sheet
Strategy is the Primary Determinant of Success or Failure
Success
Window of opportunity
Strategy
Mission, goals, and objectives
Competitive advantage Distinctive competence, comparative advantage Failure
Strategic, Tactical, and Operational Views at Various Organizational Levels
Strategic Upper management
Strategic
Middle management
First-line suppervisory employees Strategic
t0 PLANNING HORIZON
t+1
t+2+5
Greiner‘s Five-Phase Growth Model Phase 1
Phase 2
Phase 3
Phase 4
Phase 5
Large 5. Crisis of ? 4. Crisis of RED TAPE 3. Crisis of CONTROL
SIZE OF ORGANIZATION
2. Crisis of AUTONOMY 1. Crisis of LEADERSHIP
5. Growth through COLLABORATION
4. Growth through COORDINATION
3. Growth through DELEGATION 2. Growth through DIRECTION
1. Growth through CREATVITY
Small
Evolution stages Revolution stages
Young
Mature AGE OF ORGANIZATION
Firms Compete for Customers and Resources; Two Cases Case 1
Little competition for resources
Resource K Resource L Resource M
Business A
Business B
Customer X Customer Y Customer Z
Intense competition for customers
Case 2 Intense competition for resources
Resource M Resource N Resource O
b A Business
Customer X Customer Y Customer Z
Business B
Customer J Customer K Customer L
Little competition for customers
Intensity of Competition
COMPETITION FOR CUSTOMERS
COMPETITION FOR RESOURCES
Intense
Intense competitive pressure
Moderate pressure (purchasing) Case 2
Minimal
Moderate pressure (marketing) Case 1
Little competitive pressure
Intense
Minimal
Value and the Price-Performance Curve High Lesser value
Premium
Loser Good RELATIVE PRICE
Average
Commodity
Economy
Greater value Winner
Low High
Low RELATIVE QUALITY
Functional Strategy Areas Design strategies • Product/service research • Product/service development
Sourcing strategies • Procurement • Resources
Processing strategies • Process development • Operations and productivity • Fabrication • Assembly
Supporting strategies • Planning and control • Training and development • Maintenance • Legal • Etc.
Delivery strategies • Pricing • Promotion • Channels • Sales • Distribution • Service
Basic Organizational Forms for Multinational Operations Degree of parent company control
Organizational Form
Licensing
Main Characteristics
Minimum capital commitment Minimum long-term profits Risk of loss of license Minimum control over operations
Minimum
Branch operations
Low capital commitment Easy entry Risk of loss of franchise Long-term profitability is tentative
Low
Joint ventures
Substantial
Flexible capital commitment Relatively easy entry Local commitment Good opportunity for long-term profits Acquisition of local knowhow and management skills
Risk of expropriation or discriminatory action Subsidiary operations Large capital commitment Long-term profit potential is high but so is risk Close control over operations Almost complete
Types of Acquisitions Vertical integration Concentric diversification
Aluminium ingot producer
Horizontal diversification
Mining
Steel ingot producer A
Steel ingot producer B
Steel frabricator
Electronics company
Unrelated diversification
Strategic Options and the Life Cycle
PRODUCT/MARKET STAGE Embryonic or introduction
Growth
Maturity
Aging or decline
Dominant
Strong COMPETITIVE POSITION
Favorable
Wide range of strategic options
Tenable
Weak
Danger zone, Retreat to niche, withdraw, or liquidate
Attractiveness/Competitive Position Strategies COMPETITIVE POSITION Strong
High
INDUSTRY ATTRACTIVENESS
• Evaluate potential for • Grow leadership via • Seek dominance Segmentation • Maximize • Identify investment weaknesses • Build strengths
• Identify growth segments Medium • Invest strongly • Maintain position elsewhere
Low
Average
• Maintain overall position • Seek cash flow • Invest at maintenance levels
Weak • Specialize • Seek niches • Consider acquisitions
• Identify growth segments • Specialize • Invest selectively
• Specialize • Seek niches • Consider exit
• Prune lines • Minimize investment • Position to divest
• Trust leader‘s statesmanship • Sic on competitor‘s cash generators • Time exit and divest
Technology Strategies for a Sustainable Competitive Advantage Technology change Political/legal
National endowments Block
• Firm capabilities • Technology • Structure, systems and people
Run
Customer preferences and expectations
Team-up
Competition Macro-economic
Globalization
Value Propositions Across Four Quadrants
Collaborate
Create
Capability • Focuses on developing abilities • Creates a sustainable advantage
Innovation • Focuses on innovation in products, processes and services • Creates growth and industry leadership
Efficiency • Focuses on improving process efficiency • Creates better products more cheaply
Market awareness • Focuses on competitive advantage through agility and market awareness and speed • Creates asset productivity and shareholder value
Control
Compete
The Ansoff Matrix PRODUCTS AND/OR SERVICES Existing
New
Existing
Market penetration
New product development
New
Market development
Diversification
MARKETS
The Customer Growth Matrix PRODUCTS AND/OR SERVICES Existing
Existing
New
Customer loyalty
Customer extension
Customer acquisition
Customer diversification
CUSTOMERS
New
Combining Elements of the Customer Growth Matrix PRODUCTS AND/OR SERVICES Existing
Existing
Customer loyalty
New
Loyalty through extension
Customer extension
Acquisition through referral
CUSTOMERS
New
Customer acquisition
Customer diversification
Conceptual Model for the Evaluation of Product Innovation Projects PROJECT ENVIRONMENT
parent organization market
formulate
holding organization
subcontractors client
specify
organize
PROJECT
competitor
realize
Alternative Aims in Various Stadia of Product Development KNOWLEDGE BUILDING
STRATEGIC POSITIONING
is it attractive?
BUSINESS INVESTMENT
do we want it?
CONCEPT What is possible? hope and fear
UNCERTAINTY
Cost
can we do it? create the future: • alternatives • analyses • choice
Option
how we gonna do it? making profit
Investment MARKET
COMMITMENT OF RESOURCES
Core Competence Management Model Distinctive assets Raw materials
Country-specific Co-specialized assets Company-specific Internal learning
Learning from resource markets
Internal alignment Competitive dynamics External interpretation
The „intelligent enterprise“
Product positioning with intended competitive advantages
Learning from output markets
Core Competencies: The Link between the Economics of the Firm & Management Cognition Interpreting the external environment
Flexible recipes and routines
CORE COMPETENCES
Understanding internal dynamics
Shared values and beliefs
Tacit knowledge and understandings
Understanding competitive dynamics
Technical Risk/Business Risk Model
High
TECHNICAL RISK
Business safe
Very risky
(Moderate Management Involvement)
(Maximum Management Involvement)
Very safe
Technically safe
(Minimal Management Involvement)
(Moderate Management Involvement)
Low High
Low BUSINESS RISK
Typical Industry Experience Curve Strategies
On-Line Inventory
Bar Code Point-of-Sale Terminals
On-Line Teller Terminals ATM, Customer Information Database
People Systems Home Computers Retail Shop Floor Systems
People Systems Home Computers Banking On-Line Inventory
Just-in-Time Manufacturing CAD/CAM, CIM Robotics Distribution through People Systems Manufacturing
Personal Computers for Customers Interorganizational Systems Distribution
The Cycle of Timing/Know-How Competition Escalating Costs and Risks on Each Cycle
The Firm builds a Technological Resource Base to Create Advantage
Then Moves into a New Market First Followers Imitate Products and Overcome Switching Costs and Brand Loyalties First Mover Throws Up Impediments to Imitation of Subsequent Products Followers Overcome the Impediments and Replicate the Resource Base of the First Mover First Mover Uses a Transformation Strategy and Abandons Product Design/ Technology-based Approach Builds Resources to Match the Follower‘s Manufacuring Skills Price War
First Mover Moves Downstream into Higher Value-added Products
First Mover Uses a Leapfrog Strategy to a New Resouce Base
Disruption and the New 7-S’s VISION PLANNING Vision for Disruption Identifying and creating opportunities for temporary advantage through understanding • Stakeholder Satisfaction • Strategic Soothsaying directed at identifying new ways to serve existing customers better or new customers that no one else serves now.
Capability for Disruption Sustaining for momentum by developing flexible capacities for • Speed • Surprise that can be applied across many actions to build a series of temporary advantages
RESOURCE PLANNING
Market Disruption
Tactics for Disruption Seizing the initiative to gain advantage by • Shifiting the Rules • Signaling • Simultaneous and Sequential Strategic Thrusts with actions that shape, mold, or influence the direction or nature of the competitors‘ responses.
PUNCH-COUNTERPUNCH PLANNING
The Cycle Price-Quality Competition – Moving up an Escalation Ladder I METHODS/TECHNOLOGIES USED TO SERVE CUSTOMERS Frequent Incremental Improvements
Existing
Radically New Method
Rapid Evolutionary Competition
Revolutionary Competition
Niche Creation
Market Creation
CUSTOMER NEEDS SERVED New
The Cycle Price-Quality Competition – Moving up an Escalation Ladder II Beliefs System
Boundary Systems
Risk to be avoided
Core Values Business Strategy
Strategic Uncertainties
Interactive Control Systems
Critical Performance Variables
Diagnostic Control Systems
The Cycle Price-Quality Competition – Moving up an Escalation Ladder III
High
Laissez-Faire Management
Professional Management
Entrepreneurial Management
Bureaucratic Management
DELEGATION OF RESPONSIBILITY
Low
Low
High USE OF FORMAL CONTROL MECHANISMS
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