Exam Revision I DSGM (Lecture 11) Dr Elvira Bolat C113, Christchurch House, Talbot campus ebolat@bournemouth.ac.uk @Elvira_Mlady
REMINDER! Exam: instructions Answer any THREE questions out of SIX Answer a TOTAL of THREE questions All questions carry equal marks Within your answers you are expected to draw on a range of appropriate models. You are expected to demonstrate knowledge of academic theory and its application in the commercial and/or not-for-profit world. Please use a separate answer booklet for each question.
Essay • Plan • Typical layout: – Introduction (linked to a topic as opposed to layout of the answer) – Main body • Start with definitions • Discuss sub-elements (i.e. first impact of history and then impact/significance of culture)
– Two option in terms of incorporating cases/examples: • Integrating cases while writing – in this scenario you need to demonstrate volume of cases • Having a single case for each major theoretical points (i.e. having completed theoretical discussion of history you then discuss Singapore Airlines case and demonstrate application of theory) – in this scenario you need to demonstrate depth knowledge of a case
– Conclusion (not necessary)
• ! You need to answer the question!
Exam: topics 1. History and Culture. 2. Strategic capabilities and their link to SCA. 3. Generic strategies and the ‘strategy clock’. 4. Organic versus non-organic growth. 5. Mergers and Acquisition. 6. How to limit the the failure of a marketing strategy during its implementation phase.
What three topics do you consider choosing at the moment?
Topic 6: How to limit the failure of a marketing strategy during its implementation phase
Core Text (2017 edition) Chapter 16, sections 16.3 and 16.4 in particular
Process of Strategising • Environmental analysis - scenario planning, decision trees, competitive advantage screening via VRIO • Strategic decision-making • Communicating the strategy • Strategy methodologies (workshops, projects)
Topic 1: Why and how history and culture of the organisation is important in the strategy development?
Core Text (2017 edition) Chapter 6
Sometimes an organisation cultural heritage can give it a unique advantage, but sometimes it can be a significant barrier to change. Johnson et al., 2017
Johnson et al., 2017
WHY?
Lock-in
Path dependency
Johnson et al., 2017
Path dependency & Strategy • Comprehensive change (e.g. airline industry) • Conservatism (costs versus benefits/harm, i.e. left-hand driving) • Path creation (Apple, Microsoft)
History – a strategic resource Learning from the past (i.e. industry characteristics, competition)
Building capabilities (i.e. Disney, automobile industry)
Legitimising strategy & change (e.g. Microsoft, HP)
! A need for historical analysis
Culture
Cultural frames of reference Johnson et al., 2017
Organisationan- based culture
Johnson et al., 2017
In-practice
In practice: Blockbuster
Johnson et al., 2017
Strategic drift “… the tendency for strategies to develop incrementally on the basis of historical and cultural influences, but fail to keep pace with a changing environment”
Johnson et al., 2017
Topic 2: Strategic capabilities and their link to SCA
Core Text (2017 edition) Chapter 4, sections 4.3. and 4.4. in particular
Defining (strategic) capability? “Strategic capability refers to the distinctive capabilities (resources and competences/capabilities) of an organisation that contribute to its long term survival or competitive advantage� Johnson et al., 2017
Resources and capabilities/competences Resources are the assets that organisations have or can call upon (e.g. from partners or suppliers) ‘what we have’
Competences are the ways those assets are used or deployed effectively, that is, the way in which an organisation generates value from its resources ‘the way we do things’ or ‘what we do well’
Resources and capabilities/competences
Johnson et al., 2017
In practice:
How strategic capabilities can enable building a sustainable competitive advantage VRIN* are the four key criteria by which capabilities can be assessed in terms of providing a basis for achieving sustainable competitive advantage are: –value, –rarity, –inimitability and –non-substitutability
*Barney suggested the VIRO framework. Johnson and Scholes have evolved this framework.
Is the capability…
• • • •
Valuable? Rare? Inimitable? Non-substitutable?
Answers ‘Yes’ mean increasing basis for sustainable competitive advantage
Competitive Advantage “… is the process of identifying a fundamental and sustainable basis on which to compete. Ultimately marketing strategy aims to deliver this advantage into the market place.’’ Drummond et al., 2008, p.152
"An advantage is durable only if competitors cannot readily imitate the producer's superior product/delivery attributes. In other words, a gap in the capability underlying the differentiation must separate the producer from his competitors; otherwise, no meaningful competitive advantage exists." (Coyne 1986)
SCA "The most important condition for sustainability is that existing and potential competitors either cannot or will not take the action required to close the gap. If the competitors can and will fill the gap, the advantage is by definition not sustainable." (Coyne 1986)
Helpful reading!
Topic 3: Generic strategies and the ‘strategy clock’: discussion of main strategies available
Core Text (2017 edition) Chapter 7, section 7.2. in particular
Porter’s generic strategies
Source: Porter 1980
The strategy clock
Source: Johnson et al. 2017
Route 1, No Frills & Route 2, Cost-leadership No Frills strategy combines a low price with low perceived product/service benefits and a focus on a price-sensitive market segment due to : – Commodity markets. – Price-sensitive customers. – High power and low switching costs. – Avoidance of major competitors.
Cost-leadership strategy involves becoming the lowest-cost organisation in a domain of activity. Four key cost drivers that can help deliver cost leadership: – – – –
Lower input costs. Economies of scale. Experience. Product process and design. Source: Johnson et al. 2017
Route 4, Differentiation Differentiation involves uniqueness along some dimension that is sufficiently valued by customers to allow a price premium. Two key issues: – The strategic customer on whose needs the differentiation is based. – Key competitors – who are the rivals and who may become a rival.
Route 3, Hybrid Hybrid seeks simultaneously to achieve differentiation and low price relative to competitors. Two key issues: – Greater volumes can be achieved than competitors (e.g. Tesco). – Cost reductions are available outside its differentiated activities (e.g. IKEA). – Used as an entry strategy in a market with established competitors.
Route 5, Focus strategies (1) A focus strategy targets a narrow segment of domain of an activity and tailors its products or services to the needs of that specific segment to the exclusion of others. Two types of focus strategy: – cost-focus strategy. – differentiation focus strategy.
Route 5, Focus strategies (2) Successful focus strategies depend on at least one of three key factors: • Distinct segment needs. • Distinct segment value chains. • Viable segment economics.
Source: Johnson et al. 2017
Routes 6,7, 8! Failure strategies - do not provide perceived value for money in terms of product features, price or both. – Route 6 suggests increasing price without increasing product/service benefits to the customer (e.g. monopoly). – Route 7 iinvolves the reduction in product/service benefits whilst increasing relative price. – Route 8, reduction in benefits whilst maintaining price. Source: Johnson et al., 2017
Some drawbacks to generic strategic options
•
Low cost leadership – – –
•
Differentiation – –
•
Differentiated products are assumed to be higher priced – not always the case Company may have an objective to increase market share so it will use differentiation for this purpose and match the lower price of competitors
Competitive scope – –
•
How can more than one company be the low cost leader – contradiction to have an option of low cost leadership Competitors can reduce their costs, therefore how can a company hope to maintain cost leadership without risk Assumes technology is predictable. Radical change can alter the cost positions of competitors
Distinction between broad and narrow targets is unclear. Are they distinguished by size of market or customer type? Difficult to identify which niche is likely to prove worthwhile – generic strategies provide no useful guidance to that
Stuck in the middle
3 main strategies are • Cost leadership • Differentiation • Focus
Topic 4: Organic versus non-organic growth: evaluation of advantages and disadvantages of each option
Core Text (2017 edition) Chapter 11, section 11.5 in particular
Strategic development methods Internal development / organic growth Non-organic growth: – Mergers & acquisitions – Joint development o Joint ventures o Strategic alliances
• Innovation • Diversification • Internationalisation
Organic growth Advantages • Knowledge and learning • Spreading investment over time • No availability constraints • Strategic independence • Culture management
Disadvantages • Slow speed • High cost • High risks
Non-organic growth Advantages • Achieving synergies by combining resources and capabilities where the organisation is weak • Acquiring expertise in various markets as the newly joined parts already have an existence and expertise there
Disadvantages • Risk of not being compatible for such reasons as culture clash and extremely unrelated diversification • Many M&A fail to reap benefits within two years of consummation and many are separated shortly afterwards
Topic 5: Mergers and Acquisitions: Why M&A can fail and how to minimise risks?
Core Text (2017 edition) Chapter 11, section 11.3 and 11.3.4. in particular
M&A Overview • Merger - mutually agreed joint decision • Acquisition - one company takes over other • Both are subject to scrutiny in terms of effect on competition by Competition Commission
Reasons for M&A • To add value by synergy of complementary assets • Appropriate in static market, avoids creating excess capacity • May be driven by macro environment • To meet expectations of shareholders • To help gain market share • Exploit distinct capabilities • Fast way of entering new markets
Risks • Generally doesn’t add value to companies involved • May be overoptimistic/vague objectives for takeover • Commonly companies pay too much to acquire a company • Acquisition results in ownership of poor resources as well as desirable ones • Cultural fit is difficult to achieve, especially in cross country acquisitions
What to do to minimise risks • • • • • • • • • • • •
Involvement from the owners The practical proposition of future benefits Careful appraisal, design of the integration process Cultural integration issues to be monitored Assessment of current capacity Assessment of actual cost of a difficult integration, hence anticipation of high cost of recovery Skillful negotiation Look forward: Analysis of external factors and changes to the business environment Assessment of alternatives The backup plan Risks assessment Selling quickly
What three topics do you consider choosing at the moment?
What would make an answer Brilliant? • Depth of theoretical knowledge • Integration of theory and practice (examples – depth is key) • Wider reading • Structure of an argument (critical analysis is critical)