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Global Enterprise and Competition 66.511.202 Fall 2007 Ashwin Mehta, Visiting Faculty
Approach to Global Enterprise Global Strategy  Business Strategy International Strategy Differences arise from Business to...
International Strategy , Structure & Integration Corporate/ Global Strategy Corporate Structure & Integration Business Str...
Environmental Assessment -Macro Trends -Industry Analysis -Completion -Internal Analysis (Resource,  Capabilities, etc. Mi...
Strategy - Results from Industry Analysis Competitor Analysis Development of resources and capabilities Situation Analysis...
Industry Environment Competitive Forces Competitive  Environment Technological Political/Legal Demographic Economic Socio ...
KEY QUESTION TO ASK <ul><li>What macro environmental conditions will have a material effect on our ability to implement ou...
UNDERSTANDING THE MACRO ENVIRONMENT <ul><ul><li>How stable is the political environment? </li></ul></ul><ul><ul><li>Tax po...
PRESSURES FAVORING INDUSTRY GLOBALIZATION <ul><ul><li>Interdependent countries  </li></ul></ul><ul><ul><li>Homogeneous cus...
Group Project - Template
Industry Analysis  <ul><li>Porter’s Model: </li></ul><ul><li>Assess the six forces -- </li></ul><ul><ul><ul><li>Threat of ...
<ul><ul><ul><li>ANALYSIS OF COMPETITIVE FORCES </li></ul></ul></ul><ul><li>To identify   </li></ul><ul><li>Main SOURCES of...
<ul><ul><ul><li>COMPETITIVE FORCE OF POTENTIAL ENTRY </li></ul></ul></ul><ul><li>New entrants boost competitive pressures ...
<ul><li>Threat of New Entrants -- </li></ul><ul><ul><li>Barriers to entry: </li></ul></ul><ul><ul><ul><li>Economies of Sca...
<ul><ul><ul><li>Competitive threat of outsiders entering  </li></ul></ul></ul><ul><ul><ul><li>a market is stronger when </...
KEY SUCCESS FACTORS AS BARRIERS TO ENTRY <ul><li>Key asset or requisite skill that all firms in an industry must possess i...
<ul><li>Bargaining Power of Suppliers -- </li></ul><ul><ul><li>Supplier is powerful when: </li></ul></ul><ul><ul><ul><li>S...
<ul><li>Bargaining Power of Buyers -- </li></ul><ul><ul><li>Buyer is powerful when: </li></ul></ul><ul><ul><ul><li>Buyer p...
<ul><li>Threat of Substitute Products/Services </li></ul><ul><ul><li>Substitute Products: </li></ul></ul><ul><ul><li>Those...
THREAT OF SUBSTITUTES  Soft drinks Coke Pepsi Movie rentals Block buster Hollywood video Bottled water Cable TV
<ul><ul><ul><li>PRINCIPLE OF COMPETITIVE MARKETS </li></ul></ul></ul><ul><ul><ul><li>Competitive threat of substitute </li...
IMPACT OF COMPLEMENTOR Any factor that makes it more attractive for suppliers to supply an industry on favorable terms or ...
<ul><li>Rivalry Among Existing Firms -- </li></ul><ul><ul><li>Intense rivalry related to: </li></ul></ul><ul><ul><ul><li>N...
<ul><ul><ul><ul><li>Usually the MOST POWERFUL of the competitive forces  </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Weap...
Relative Power of other Stakeholders Government Communities Creditors Trade Associations Unions Complementors (Intel and M...
<ul><ul><ul><li>Competitive environment is unattractive when: </li></ul></ul></ul><ul><li>Rivalry is very strong  </li></u...
<ul><ul><ul><li>Competitive environment is ideal when: </li></ul></ul></ul><ul><li>Rivalry is only moderate  </li></ul><ul...
<ul><ul><ul><li>COPING WITH THE COMPETITIVE FORCES </li></ul></ul></ul><ul><li>Objective is to craft a strategy that will ...
INDUSTRY LIFE CYCLE Source: Adapted from K.  Rangan and G.  Bowman, “Beating the Commodity Magnet,” Industrial Marketing M...
Strategic Groups Attribute A (e.g. price) Attribute B (Quality, Perf, etc.) Strategic group 1 Competitor A Competitor B Co...
Group Project - Template
Group Project - Template
Group Project - Template
Group Project - Template
Group Project - Template
Group Project - Template
Group Project - Template
Group Project - Template
Group Project - Template
COMPARATIVE INDUSTRY REFORMANCE <ul><li>Semiconductor </li></ul>How do such differences in profitability materialize?  ROA...
TWO THEORIES FOR HOW AND WHY SOME FIRMS PERFORM BETTER THAN OTHERS <ul><li>A firm’s  resources  and capabilities determine...
RESOURCES AND CAPABILITIES: BUILDING BLOCKS OF STRATEGY  <ul><li>The inputs that firms use to create goods and services </...
<ul><ul><ul><li>COMPANY STRENGTHS & WEAKNESSES </li></ul></ul></ul><ul><li>A firm’s strategy must be well-matched to its  ...
<ul><ul><ul><li>SIGNIFICANCE OF A COMPANY’S STRENGTHS & WEAKNESSES </li></ul></ul></ul><ul><li>STRENGTHS are significant t...
<ul><ul><ul><li>TYPES OF CORE COMPETENCIES </li></ul></ul></ul><ul><li>Superior skills in producing high quality product  ...
What made Wal-Mart a BIG Success?* Why is Wal-Mart able to justify bigger stores? Why Wal-Mart alone have cost structure l...
*: Competing on Capabilities, Stalk, Evans; Shulman
Value Chain – another strategy development factor Linked set of value-creating activities <ul><ul><ul><li>THE VALUE CHAIN ...
Industry Value Chain Upstream Value Chain Company’s Value Chain Downstream Value Chain Buyer/User Value Chain Activities, ...
Value Chain System Cost competitiveness depends on Costs of internally performed activities Costs of value chains of suppl...
The Value Chain System SUPPLIERS value chain matter - suppliers incur costs in creating and delivering inputs used in Firm...
Firm Value Chain <ul><ul><li>Inbound shipment of top titles </li></ul></ul><ul><ul><li>Warehousing </li></ul></ul><ul><ul>...
USING VALUE CHAINS TO GAIN COMPETITIVE ADVANTAGE Identical Differentiated Find a  different  way to perform activities  Fi...
TRADE OFF PROTECTION YOUR RIVALS CHOOSE NOT TO COPY YOU  Selected difference between Southwest and large Airlines Southwes...
INNOVATION AND INTEGRATION OF THE VALUE CHAIN     Transferred assembly and delivery to the consumer Choose an entirely dir...
STRATEGIC LEADERSHIP “ Companies that overlook the role of leadership in the early phases of strategic planning often find...
SENIOR VS. MIDDLE MANAGERS Senior Middle Decide how to use other resources and capabilities, configure their firm’s value-...
SWOT Analysis Opportunities Threats Strengths Weaknesses Situation Analysis External factors Internal factors Widely used ...
<ul><li>Situational Analysis: </li></ul><ul><ul><li>Process of finding a strategic fit between external  opportunities  an...
External Analysis Environmental (Macro) Trends Economic Technological Political Socio-Cultural Industry Trends Industry Ev...
Internal Analysis Resources Value Chain Financial Physical Human Management Organization Culture Tangibles Intangibles In-...
<ul><li>Business Acumen * </li></ul><ul><ul><li>linking insightful assessment of external environment with keen awareness ...
Competitive Forces --- Exercises and Questions 1: Discuss Porter’s Competitive Forces in the Budget Airline Industry (Budg...
Push for Cosmopolitanism: The Gillette Case* *: Global Cosmopolitans, Rosabeth Moss Kanter, Strategy+Business World class ...
Push for Cosmopolitanism: The Gillette Case* Pre 1980’s – “Stone Age” Theory of marketing slow spread from home to hinterl...
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  • Full quote: “ The creation of something new is not accomplished by the intellect but by the play of instinct acting from inner necessity. The creative mind plays with the objects it loves.” - Carl Jung
  • Full quote: “ The creation of something new is not accomplished by the intellect but by the play of instinct acting from inner necessity. The creative mind plays with the objects it loves.” - Carl Jung
  • Full quote: “ The creation of something new is not accomplished by the intellect but by the play of instinct acting from inner necessity. The creative mind plays with the objects it loves.” - Carl Jung
  • Full quote: “ The creation of something new is not accomplished by the intellect but by the play of instinct acting from inner necessity. The creative mind plays with the objects it loves.” - Carl Jung
  • Full quote: “ The creation of something new is not accomplished by the intellect but by the play of instinct acting from inner necessity. The creative mind plays with the objects it loves.” - Carl Jung
  • Full quote: “ The creation of something new is not accomplished by the intellect but by the play of instinct acting from inner necessity. The creative mind plays with the objects it loves.” - Carl Jung
  • Full quote: “ The creation of something new is not accomplished by the intellect but by the play of instinct acting from inner necessity. The creative mind plays with the objects it loves.” - Carl Jung
  • Full quote: “ The creation of something new is not accomplished by the intellect but by the play of instinct acting from inner necessity. The creative mind plays with the objects it loves.” - Carl Jung
  • Transcript of "Global Enterprise and Competition 66.511.202"

    1. 1. Global Enterprise and Competition 66.511.202 Fall 2007 Ashwin Mehta, Visiting Faculty
    2. 2. Approach to Global Enterprise Global Strategy Business Strategy International Strategy Differences arise from Business to International strategy (market variations, cultures differences, etc.) Global strategy must address these variations and create a strategy to eliminate/minimize differences
    3. 3. International Strategy , Structure & Integration Corporate/ Global Strategy Corporate Structure & Integration Business Strategy Business Structure & Integration Strategy --- Global to Regional/Local
    4. 4. Environmental Assessment -Macro Trends -Industry Analysis -Completion -Internal Analysis (Resource, Capabilities, etc. Mission/Vision Objectives/Goals Strategy Options Strategy Selection -Corporate -Business -International Implementation -Structure -Leadership -Staffing -Incentives -Evaluation -Control Strategy Process
    5. 5. Strategy - Results from Industry Analysis Competitor Analysis Development of resources and capabilities Situation Analysis External Analysis Internal Analysis
    6. 6. Industry Environment Competitive Forces Competitive Environment Technological Political/Legal Demographic Economic Socio Cultural Global The External Environment The Firm
    7. 7. KEY QUESTION TO ASK <ul><li>What macro environmental conditions will have a material effect on our ability to implement our strategy successfully? </li></ul><ul><li>How stable are these characteristics? </li></ul><ul><li>What is our firm’s industry? </li></ul><ul><li>What are the characteristics of the industry? </li></ul><ul><li>What is our strategic group? </li></ul><ul><li>Who are key competitors? </li></ul><ul><li>And, many more </li></ul>These questions must be asked at national and Global levels
    8. 8. UNDERSTANDING THE MACRO ENVIRONMENT <ul><ul><li>How stable is the political environment? </li></ul></ul><ul><ul><li>Tax policies </li></ul></ul><ul><ul><li>Etc. </li></ul></ul><ul><ul><li>Projected interest rates? </li></ul></ul><ul><ul><li>Inflation? </li></ul></ul><ul><ul><li>Etc. </li></ul></ul><ul><ul><li>Lifestyle trends? </li></ul></ul><ul><ul><li>Demographic changes? </li></ul></ul><ul><ul><li>Etc. </li></ul></ul><ul><ul><li>Level of government research funding? </li></ul></ul><ul><ul><li>How mature is technology? </li></ul></ul><ul><ul><li>Etc. </li></ul></ul><ul><li>Political </li></ul><ul><li>Economic </li></ul><ul><li>Socio-cultural </li></ul><ul><li>Technological </li></ul><ul><ul><li>Is intellectual property protected? </li></ul></ul><ul><ul><li>Relevant consumer laws? </li></ul></ul><ul><ul><li>Etc. </li></ul></ul><ul><li>Legal </li></ul>
    9. 9. PRESSURES FAVORING INDUSTRY GLOBALIZATION <ul><ul><li>Interdependent countries </li></ul></ul><ul><ul><li>Homogeneous customer needs </li></ul></ul><ul><ul><li>Favorable trade policies </li></ul></ul><ul><ul><li>Large scale and scope economies </li></ul></ul><ul><li>Competition </li></ul><ul><li>Markets </li></ul><ul><li>Governments </li></ul><ul><li>Costs </li></ul>Source: Adapted from M.E. Porter, Competition in Global industries (Boston: Harvard Business School Press, 1986); G. Yip, “Global Strategy in a World of Nations, “ Sloan Management review 31:1 (1989), 29-40 <ul><ul><li>Global competitors </li></ul></ul><ul><ul><li>Global customer needs </li></ul></ul><ul><ul><li>Common technological standards </li></ul></ul><ul><ul><li>Learning and experience </li></ul></ul><ul><ul><li>Global channels </li></ul></ul><ul><ul><li>Common manufacturing and marketing regulations </li></ul></ul><ul><ul><li>Sourcing efficiencies </li></ul></ul><ul><ul><li>Favorable logistics </li></ul></ul><ul><ul><li>Arbitrage opportunities </li></ul></ul><ul><ul><li>High R&D costs </li></ul></ul><ul><ul><li>Transferable marketing approaches </li></ul></ul>
    10. 10. Group Project - Template
    11. 11. Industry Analysis <ul><li>Porter’s Model: </li></ul><ul><li>Assess the six forces -- </li></ul><ul><ul><ul><li>Threat of new entrants </li></ul></ul></ul><ul><ul><ul><li>Rivalry among existing firms </li></ul></ul></ul><ul><ul><ul><li>Threat of substitute products </li></ul></ul></ul><ul><ul><ul><li>Bargaining power of buyers </li></ul></ul></ul><ul><ul><ul><li>Bargaining power of suppliers </li></ul></ul></ul><ul><ul><ul><li>Relative power of other stakeholders </li></ul></ul></ul>
    12. 12. <ul><ul><ul><li>ANALYSIS OF COMPETITIVE FORCES </li></ul></ul></ul><ul><li>To identify </li></ul><ul><li>Main SOURCES of competitive forces and </li></ul><ul><li>STRENGTH of these pressures </li></ul><ul><ul><ul><li>Objective </li></ul></ul></ul><ul><ul><ul><li>COMPETITIVE FORCES MATTER BECAUSE: </li></ul></ul></ul><ul><ul><ul><li>To be successful, strategy must be designed </li></ul></ul></ul><ul><ul><ul><li>to cope effectively with competitive pressures - </li></ul></ul></ul><ul><ul><ul><li>objective must be to build a strong, market </li></ul></ul></ul><ul><ul><ul><li>position based on competitive advantage! </li></ul></ul></ul>
    13. 13. <ul><ul><ul><li>COMPETITIVE FORCE OF POTENTIAL ENTRY </li></ul></ul></ul><ul><li>New entrants boost competitive pressures </li></ul><ul><li>By bringing new production capacity into play </li></ul><ul><li>Through actions to build market share </li></ul><ul><li>Seriousness of threat of entry depends on </li></ul><ul><li>BARRIERS to entry </li></ul><ul><li>Expected REACTION of existing firms to entry </li></ul><ul><li>Barriers to entry exist WHEN </li></ul><ul><li>It is difficult for newcomers to enter market </li></ul><ul><li>A new entrant’s small sales volume puts it a price/cost </li></ul><ul><li>disadvantage </li></ul>
    14. 14. <ul><li>Threat of New Entrants -- </li></ul><ul><ul><li>Barriers to entry: </li></ul></ul><ul><ul><ul><li>Economies of Scale (Intel in microprocessors) </li></ul></ul></ul><ul><ul><ul><li>Product Differentiation (hi advertising in consumer goods) </li></ul></ul></ul><ul><ul><ul><li>Capital Requirements (airplane mfg) </li></ul></ul></ul><ul><ul><ul><li>Switching Costs (Windows to Linux) </li></ul></ul></ul><ul><ul><ul><li>Access to Distribution Channels (store shelf space) </li></ul></ul></ul><ul><ul><ul><li>Cost Disadvantages Independent of Size (V high mkt share) </li></ul></ul></ul><ul><ul><ul><li>Government Policy (oil drilling) </li></ul></ul></ul>
    15. 15. <ul><ul><ul><li>Competitive threat of outsiders entering </li></ul></ul></ul><ul><ul><ul><li>a market is stronger when </li></ul></ul></ul><ul><li>Entry barriers are low </li></ul><ul><li>Incumbent firms do not vigorously fight newcomer </li></ul><ul><li>Newcomer can expect to earn attractive profits </li></ul>
    16. 16. KEY SUCCESS FACTORS AS BARRIERS TO ENTRY <ul><li>Key asset or requisite skill that all firms in an industry must possess in order to be a viable competitor </li></ul><ul><li>Key success factor (KSF) </li></ul><ul><li>Ability to meet competitive pricing </li></ul><ul><li>Extensive distribution </li></ul><ul><li>Ability to raise consumer awareness </li></ul><ul><li>Broad product mix </li></ul><ul><li>Global presence </li></ul><ul><li>Well positioned bottlers and bottling capacity </li></ul><ul><li>KSFs: </li></ul><ul><li>SOFT DRINK EXAMPLE </li></ul>
    17. 17. <ul><li>Bargaining Power of Suppliers -- </li></ul><ul><ul><li>Supplier is powerful when: </li></ul></ul><ul><ul><ul><li>Supplier industry is dominated by a few companies but sells to many </li></ul></ul></ul><ul><ul><ul><li>Its product is unique and/or has high switching costs </li></ul></ul></ul><ul><ul><ul><li>Substitutes are not readily available </li></ul></ul></ul><ul><ul><ul><li>Suppliers are able to integrate forward and compete directly with present customers </li></ul></ul></ul><ul><ul><ul><li>Purchasing industry buys only a small portion of the supplier’s goods. </li></ul></ul></ul>
    18. 18. <ul><li>Bargaining Power of Buyers -- </li></ul><ul><ul><li>Buyer is powerful when: </li></ul></ul><ul><ul><ul><li>Buyer purchases large proportion of seller’s products </li></ul></ul></ul><ul><ul><ul><li>Buyer has the potential to integrate backward </li></ul></ul></ul><ul><ul><ul><li>Alternative suppliers are plentiful </li></ul></ul></ul><ul><ul><ul><li>Changing suppliers costs very little </li></ul></ul></ul><ul><ul><ul><li>Purchased product represents a high percentage of a buyer’s costs </li></ul></ul></ul><ul><ul><ul><li>Buyer earns low profits </li></ul></ul></ul><ul><ul><ul><li>Purchased product is unimportant to the final quality or price of a buyer’s products </li></ul></ul></ul>
    19. 19. <ul><li>Threat of Substitute Products/Services </li></ul><ul><ul><li>Substitute Products: </li></ul></ul><ul><ul><li>Those products that appear to be different but can satisfy the same need as another product. To the extent that switching costs are low, substitutes can have a strong effect on an industry. </li></ul></ul>
    20. 20. THREAT OF SUBSTITUTES Soft drinks Coke Pepsi Movie rentals Block buster Hollywood video Bottled water Cable TV
    21. 21. <ul><ul><ul><li>PRINCIPLE OF COMPETITIVE MARKETS </li></ul></ul></ul><ul><ul><ul><li>Competitive threat of substitute </li></ul></ul></ul><ul><ul><ul><li>products is strong when </li></ul></ul></ul><ul><li>Prices of substitutes are viewed attractive by buyers </li></ul><ul><li>Buyers’ costs of switching to substitutes are low </li></ul><ul><li>Buyers view substitutes as having equal or better performance features </li></ul>
    22. 22. IMPACT OF COMPLEMENTOR Any factor that makes it more attractive for suppliers to supply an industry on favorable terms or that makes it more attractive for buyers to purchase products or services from an industry at prices higher than it would pay absent the complementor Complementor: Hot dogs + Buns More sales Three Examples Music + MP3 player More attractive offering Microsoft + Intel Market dominance/standard
    23. 23. <ul><li>Rivalry Among Existing Firms -- </li></ul><ul><ul><li>Intense rivalry related to: </li></ul></ul><ul><ul><ul><li>Number of competitors </li></ul></ul></ul><ul><ul><ul><li>Rate of Industry Growth </li></ul></ul></ul><ul><ul><ul><li>Product or Service Characteristics </li></ul></ul></ul><ul><ul><ul><li>Amount of Fixed Costs </li></ul></ul></ul><ul><ul><ul><li>Capacity </li></ul></ul></ul><ul><ul><ul><li>Height of Exit Barriers </li></ul></ul></ul><ul><ul><ul><li>Diversity of Rivals </li></ul></ul></ul>
    24. 24. <ul><ul><ul><ul><li>Usually the MOST POWERFUL of the competitive forces </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Weapons of COMPETITIVE RIVALRY </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Price </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Quality </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Performance features offered </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Customer service </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Warranties and guarantees </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Advertising & special promotions </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Dealer networks </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Product innovation </li></ul></ul></ul></ul></ul>Rivalry Among Existing Firms --
    25. 25. Relative Power of other Stakeholders Government Communities Creditors Trade Associations Unions Complementors (Intel and Microsoft)
    26. 26. <ul><ul><ul><li>Competitive environment is unattractive when: </li></ul></ul></ul><ul><li>Rivalry is very strong </li></ul><ul><li>Entry barriers are low </li></ul><ul><li>Competition from substitutes is strong </li></ul><ul><li>Suppliers & customers have considerable bargaining power </li></ul>
    27. 27. <ul><ul><ul><li>Competitive environment is ideal when: </li></ul></ul></ul><ul><li>Rivalry is only moderate </li></ul><ul><li>Entry barriers are relatively high </li></ul><ul><li>There are no good substitutes </li></ul><ul><li>Suppliers & customers are in a weak bargaining position </li></ul><ul><li>The weaker the competitive forces, the GREATER </li></ul><ul><li>an industry’s PROFITS! </li></ul>
    28. 28. <ul><ul><ul><li>COPING WITH THE COMPETITIVE FORCES </li></ul></ul></ul><ul><li>Objective is to craft a strategy that will </li></ul><ul><li>Insulate company from competitive forces </li></ul><ul><li>Influence industry’s competitive rules in company’s favor </li></ul><ul><li>Provide a strong position from which “to play the game” </li></ul><ul><li>of competition </li></ul><ul><li>Help create sustainable competitive advantage </li></ul>
    29. 29. INDUSTRY LIFE CYCLE Source: Adapted from K. Rangan and G. Bowman, “Beating the Commodity Magnet,” Industrial Marketing Management 21 (1992), 215-224; P. Kotler, “Managing Products through their Product Life Cycle,” in Marketing Management: Planning, Implementation, and Control, 7 th ed (Upper Saddle River, NJ: Prentice Hall, 1991) Market Size Time Embryonic Growing Mature In Decline Technological uncertainty Niche market – selected products for selected markets Participants emphasize problem solving – product as “solution” Customers become better informed Market expands beyond niche More competitors enter Aggressive customers Proliferation of products and markets served Market volatility and beginnings of industry consolidation Product/market contraction Further consolidation and industry regeneration
    30. 30. Strategic Groups Attribute A (e.g. price) Attribute B (Quality, Perf, etc.) Strategic group 1 Competitor A Competitor B Competitor C ..... Strategic group 2 Competitor X Competitor Y Competitor Z .....
    31. 31. Group Project - Template
    32. 32. Group Project - Template
    33. 33. Group Project - Template
    34. 34. Group Project - Template
    35. 35. Group Project - Template
    36. 36. Group Project - Template
    37. 37. Group Project - Template
    38. 38. Group Project - Template
    39. 39. Group Project - Template
    40. 40. COMPARATIVE INDUSTRY REFORMANCE <ul><li>Semiconductor </li></ul>How do such differences in profitability materialize? ROA ROS Grocery Store Global Auto Session 3
    41. 41. TWO THEORIES FOR HOW AND WHY SOME FIRMS PERFORM BETTER THAN OTHERS <ul><li>A firm’s resources and capabilities determine performance </li></ul><ul><li>Success issues from fundamental differences in what firms own and what they can do </li></ul><ul><li>A firm’s activities determine performance </li></ul><ul><li>Success is driven by a firm’s value chain activities: How it configures these activities to add more value than competitors </li></ul>
    42. 42. RESOURCES AND CAPABILITIES: BUILDING BLOCKS OF STRATEGY <ul><li>The inputs that firms use to create goods and services </li></ul><ul><ul><li>Undifferentiated or firms-specific </li></ul></ul><ul><ul><li>Tangible or intangible </li></ul></ul><ul><ul><li>Easy to acquire or difficult </li></ul></ul>A firm’s skill in using its resources to create goods and services. The combination of procedures and expertise that the firm relies on to engage in distinct activities in the process of producing goods and services Capabilities (competencies) Resources Strategy
    43. 43. <ul><ul><ul><li>COMPANY STRENGTHS & WEAKNESSES </li></ul></ul></ul><ul><li>A firm’s strategy must be well-matched to its </li></ul><ul><ul><li>- Internal strengths & weaknesses </li></ul></ul><ul><li>- Competitive capabilities </li></ul><ul><li>Does firm have CORE COMPETENCIES ? </li></ul><ul><li>CORE COMPETENCIES are critical to strategy-making </li></ul><ul><li>because of </li></ul><ul><li>- Capabilities provided in capitalizing on a particular </li></ul><ul><li>opportunity </li></ul><ul><li>- Competitive edge yielded in marketplace </li></ul><ul><li>- Potential for being a cornerstone of strategy </li></ul>
    44. 44. <ul><ul><ul><li>SIGNIFICANCE OF A COMPANY’S STRENGTHS & WEAKNESSES </li></ul></ul></ul><ul><li>STRENGTHS are significant to strategy-making because they can </li></ul><ul><li>- Serve as cornerstones of strategy </li></ul><ul><li>- Help build COMPETITIVE ADVANTAGE </li></ul><ul><li>A good strategy aims at correcting firm’s WEAKNESSES which can </li></ul><ul><li>- Make it vulnerable </li></ul><ul><li>- Prevent it from pursuing attractive opportunities </li></ul><ul><ul><li>- Put it at a competitive disadvantage </li></ul></ul>
    45. 45. <ul><ul><ul><li>TYPES OF CORE COMPETENCIES </li></ul></ul></ul><ul><li>Superior skills in producing high quality product </li></ul><ul><li>Superior system for delivering customer orders accurately & swiftly </li></ul><ul><li>Better after-sale service capability </li></ul><ul><li>More skill in achieving low operating costs </li></ul><ul><li>Unique formula for selecting good retail locations </li></ul><ul><li>Unusual innovativeness in developing new products </li></ul><ul><li>Better merchandising & product display skills </li></ul><ul><li>Superior mastery of an important technology </li></ul><ul><li>Unusually effective sales force </li></ul>
    46. 46. What made Wal-Mart a BIG Success?* Why is Wal-Mart able to justify bigger stores? Why Wal-Mart alone have cost structure low? Capabilities-based competitor Cross docking Investments in interlocking support systems Transportation system Managerial controls Human resources system *: Competing on Capabilities, Stalk, Evans; Shulman
    47. 47. *: Competing on Capabilities, Stalk, Evans; Shulman
    48. 48. Value Chain – another strategy development factor Linked set of value-creating activities <ul><ul><ul><li>THE VALUE CHAIN CONCEPT </li></ul></ul></ul><ul><li>A VALUE CHAIN identifies: </li></ul><ul><li>Activities, functions, & business processes that have to be performed in - </li></ul><ul><li>Designing, producing, marketing, delivering, & supporting a product or service </li></ul>Industry Value Chain and Firm Value Chain
    49. 49. Industry Value Chain Upstream Value Chain Company’s Value Chain Downstream Value Chain Buyer/User Value Chain Activities, Costs, Margins Suppliers Internally Performed Functions Distributors, retail etc. Forward Channels Company
    50. 50. Value Chain System Cost competitiveness depends on Costs of internally performed activities Costs of value chains of suppliers and forward channel allies
    51. 51. The Value Chain System SUPPLIERS value chain matter - suppliers incur costs in creating and delivering inputs used in Firms’ value chain - cost and quality of inputs influence Firm’s cost &/or differentiation capabilities FORWARD CHANNEL value chain matter - costs and margins of downstream firms are part of price paid by ultimate end user - activities Channel allies perform affect satisfaction of end user
    52. 52. Firm Value Chain <ul><ul><li>Inbound shipment of top titles </li></ul></ul><ul><ul><li>Warehousing </li></ul></ul><ul><ul><li>Server operations </li></ul></ul><ul><ul><li>Billing </li></ul></ul><ul><ul><li>Collections </li></ul></ul><ul><ul><li>Picking and shipment of top titles from warehouse </li></ul></ul><ul><ul><li>Shipment of other titles from third- party distributors </li></ul></ul>Pricing Promotions Advertising Product information and reviews Affiliations with other websites <ul><ul><li>Returned items </li></ul></ul><ul><ul><li>Customer feedback </li></ul></ul><ul><ul><li>Financing, legal support, accounting </li></ul></ul><ul><ul><li>Recruiting, training, incentive system, employee feedback </li></ul></ul>Procurement Technology Development Human Resources Firm Infrastructure Support Activities <ul><ul><li>Inbound </li></ul></ul><ul><ul><li>Logistics </li></ul></ul><ul><ul><li>Operations </li></ul></ul><ul><ul><li>Outbound </li></ul></ul><ul><ul><li>Logistics </li></ul></ul><ul><ul><li>Marketing </li></ul></ul><ul><ul><li>& Sales </li></ul></ul><ul><ul><li>After-Sales Service </li></ul></ul>Primary Activities <ul><ul><li>CDs </li></ul></ul><ul><ul><li>Shipping </li></ul></ul><ul><ul><li>Computers </li></ul></ul><ul><ul><li>Telecom lines </li></ul></ul><ul><ul><li>Shipping services </li></ul></ul>Media <ul><ul><li>Inventory system </li></ul></ul><ul><ul><li>Site software </li></ul></ul><ul><ul><li>Pick & pack procedures </li></ul></ul><ul><ul><li>Site look & feel </li></ul></ul><ul><ul><li>Customer research </li></ul></ul><ul><ul><li>Return procedures </li></ul></ul>
    53. 53. USING VALUE CHAINS TO GAIN COMPETITIVE ADVANTAGE Identical Differentiated Find a different way to perform activities Find a better way to perform the same activities Longer-lasting advantage Shorter-term advantage (competitors catch up)
    54. 54. TRADE OFF PROTECTION YOUR RIVALS CHOOSE NOT TO COPY YOU Selected difference between Southwest and large Airlines Southwest made choices so that competitors did not copy - because copying would require them to abandon activities essential to their strategies Technology and design Operations Marketing Southwest <ul><ul><li>Single aircraft </li></ul></ul><ul><ul><li>Short segment flights </li></ul></ul><ul><ul><li>Smaller markets and secondary airports in major markets </li></ul></ul><ul><ul><li>No baggage transfers to others airlines </li></ul></ul><ul><ul><li>No meals </li></ul></ul><ul><ul><li>Single class of service </li></ul></ul><ul><ul><li>No seat assignments </li></ul></ul><ul><ul><li>Limited use of travel agents </li></ul></ul><ul><ul><li>Word of mouth </li></ul></ul>Major Airlines <ul><ul><li>Multiple types of aircrafts </li></ul></ul><ul><ul><li>Hub and spoke system </li></ul></ul><ul><ul><li>Meals </li></ul></ul><ul><ul><li>Seat assignments </li></ul></ul><ul><ul><li>Multiple classes of service </li></ul></ul><ul><ul><li>Baggage transfer to other airlines </li></ul></ul><ul><ul><li>Extensive use of travel agents </li></ul></ul>
    55. 55. INNOVATION AND INTEGRATION OF THE VALUE CHAIN     Transferred assembly and delivery to the consumer Choose an entirely direct distribution model (rather than through retailers) and outsourced component manufacturing IKEA Dell Source Assemble Deliver Area of innovation
    56. 56. STRATEGIC LEADERSHIP “ Companies that overlook the role of leadership in the early phases of strategic planning often find themselves scrambling when it’s time to execute. No matter how thorough the plan, with-out the right leaders it is unlikely to succeed” – McKinsey & Company
    57. 57. SENIOR VS. MIDDLE MANAGERS Senior Middle Decide how to use other resources and capabilities, configure their firm’s value-chain activities, and set the context which determines how front-line and middle managers can add value <ul><li>Are better positioned than senior managers to contribute to competitive advantage and firm success in four areas </li></ul><ul><li>Entrepreneurship </li></ul><ul><li>Communications </li></ul><ul><li>Psychoanalyst </li></ul><ul><li>Tightrope walker </li></ul>Source: Quy Nguyen Huy
    58. 58. SWOT Analysis Opportunities Threats Strengths Weaknesses Situation Analysis External factors Internal factors Widely used tool Detailed analysis of the environment Manageable list Prioritized list Inclusive of ALL factors
    59. 59. <ul><li>Situational Analysis: </li></ul><ul><ul><li>Process of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses . </li></ul></ul>
    60. 60. External Analysis Environmental (Macro) Trends Economic Technological Political Socio-Cultural Industry Trends Industry Evolution Competitive Forces Opportunities - - - Threats - - -
    61. 61. Internal Analysis Resources Value Chain Financial Physical Human Management Organization Culture Tangibles Intangibles In-house activities Suppliers Partners Distributors Customers Strengths - - - Weaknesses - - -
    62. 62. <ul><li>Business Acumen * </li></ul><ul><ul><li>linking insightful assessment of external environment with keen awareness of how money can be made … most important management skill </li></ul></ul><ul><ul><li>Changes: complex; linear/continuous or exponential/abrupt </li></ul></ul><ul><ul><li>Information Technology industry…mainframe/mini to PC and Internet </li></ul></ul><ul><ul><li>Qualitative Vs Quantitative assessment </li></ul></ul><ul><ul><li>Questions: </li></ul></ul><ul><ul><ul><li>What is happening in the World today? </li></ul></ul></ul><ul><ul><ul><li>What does it mean to others? </li></ul></ul></ul><ul><ul><ul><li>What does it mean to us? </li></ul></ul></ul><ul><ul><ul><li>What would have to happen first (for the results we want to occur)? </li></ul></ul></ul><ul><ul><ul><li>What do we have to do to play a role? </li></ul></ul></ul><ul><ul><ul><li>What do we do next? </li></ul></ul></ul>*: Sharpening Your Business Acumen, Ram Charan
    63. 63. Competitive Forces --- Exercises and Questions 1: Discuss Porter’s Competitive Forces in the Budget Airline Industry (Budget Airline industry consists of players such as SouthWest, JetBlue, etc.) 2: Discuss Porter’s Competitive Forces in the PC Industry 3: Discuss different Strategic Groups in the PC industry and name a few players in each group 4: What competitive conditions will create an ideal industry scenario?
    64. 64. Push for Cosmopolitanism: The Gillette Case* *: Global Cosmopolitans, Rosabeth Moss Kanter, Strategy+Business World class company – cosmopolitan mindset that demands global culture of management Cosmopolitans Globalization Gillette Markets in 200 countries and Territories 58 facilities in 28 countries 75% of employees outside the US 70% of revenues from outside the US Classic International/Global company
    65. 65. Push for Cosmopolitanism: The Gillette Case* Pre 1980’s – “Stone Age” Theory of marketing slow spread from home to hinterlands Sophisticated and more informed consumers required a global approach Retail trade getting more advanced --- retails chains (e.g. Wal-Mart) and Internet Evolved from International to global Global strategy --- 50 states to 500 states Imperatives Innovation Organizations Standardization World Sourcing Leadership Coordination *: Global Cosmopolitans, Rosabeth Moss Kanter, Strategy+Business
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