PROF. DR. LÜTFİHAK ALPKAN Gebze Yüksek Teknoloji Enstitüsü İşletme Fakültesi Strategic Management
Course Outline Part 1 Introduction to Competitive Analysis Chapter 1 Planning & Measuring for Competitive Advantage Part 2 SWOT Analysis Chapter 2 External Analysis of Opportunities and Threats Chapter 3 Internal Analysis of Strenghts and Weaknesses Part 3 Choice of Strategy Chapter 4 Grand Strategies Chapter 5 Strategic Business Unit (SBU) Level Strategies Part 4 Global Competition Chapter 6 National Sources of Global Competitive Power
WEEK DATE TEACHING PLAN 1 15. 09 INTRODUCTION 2 22. 09 Ch. 1: Planning & Measuring for Competitive Advantage 3 29. 09 Ch. 1: con’t. (Comparison of Competitiveness) 4 06.10 Ch. 2: External Analysis of Opportunities and Threats 5 13. 10 Ch. 2: con’t. (RBV & Value Chain Analysis) 6 20. 10 QUIZ 1 7 27. 10 Ch. 3: Internal Analysis of Strengths and Weaknesses 8 03. 11 MIDTERM EXAM 1 9 10. 12 Ch. 4: Grand Strategies (Growth Strategies) 10 24. 12 Ch. 4: con’t. (Cooperation & Downscoping Strategies) 1 1 01. 12 Ch . 5: Strategic Business Unit (SBU) Level Strategies 12 08. 12 QUIZ 2 13 15. 12 Ch . 6 : National Sources of Global Competitive Power 14 22.12 MIDTERM EXAM 2 15 29.12 OVERVIEW
Planning & Measuring for Competitive Advantage Part 1 Introduction to Competitive Analysis Chapter 1
Time spent may have a negative impact on operational responsibilities
Conflict between planners and doers :
Strategy Formulators may not be involved in the implementation process
Strategic Intent s Vision Winning competitive battles through deciding how to leverage resources, capabilities, and core competencies. Mission An application of strategic intent in terms of products to be offered and markets to be served.
What an organization should look like once its has successfully implemented its strategies and achieved its full potential. WHAT IS A VISION ?
To be the very best in the business. Our game plan is status go…we are constantly looking ahead, building on our strengths, and reaching for new goals.
In our quest of these goals, we look at the three stars of the Brinker logo and are reminded of the basic values that are the strength of this company… People, Quality and Profitability . Everything we do at Brinker must support these core values.
We also look at the eight golden flames depicted in our logo , and are reminded of the fire that ignites our mission and makes up the heart and soul of this incredible company.
These flames are: Customers, Food, Team, Concepts, Culture, Partners, Community and Shareholders. As keeper of these flames, we will continue to build on our strengths and work together to be the best in the business.
Since our foundation, Honda has been powered by dreams. Our initial and ongoing dream is to provide genuine satisfaction to people everywhere. Providing products of the highest quality at a reasonable price, we are realizing that dream one step at a time.
Our mission: is to offer products, technologies and services that contribute to society and make people’s lives better. That’s why we’re always ahead of the curve, coming up with technologies that make mobility safer and more environmentally sustainable. We see challenges ahead and are facing them squarely, determined to build a brighter future.
I/O Model of Superior Returns The Industrial Organization Model suggests that above-average returns for any firm are largely determined by characteristics outside the firm. The I/O model largely focuses on industry structure or attractiveness of the external environment rather than internal characteristics of the firm.
Firms possess similar resources and thus pursue similar strategies.
Resources are mobile
Decision-makers – rational & act in the best interests of the firm.
Action required: External Environment General Environment Industry Environment Competitive Environment Study the external environment, especially the industry environment . I/O Model of Superior Returns
An Attractive Industry An industry whose structural characteristics suggest above-average returns are possible Action required: Locate an industry with high potential for above-average returns. I/O Model of Superior Returns External Environment General Environment Industry Environment Competitive Environment
Action required: Identify strategy called for by the industry to earn above-average returns. I/O Model of Superior Returns Selection of a strategy linked with above-average returns in a particular industry Strategy Formulation External Environment General Environment Industry Environment Competitive Environment Attractive Industry An industry whose structural characteristics suggest above-average returns are possible
Action required: Develop or acquire assets and skills needed to implement the strategy. Assets and Skills Assets and skills required to implement a chosen strategy I/O Model of Superior Returns External Environment General Environment Industry Environment Competitive Environment Attractive Industry An industry whose structural characteristics suggest above-average returns are possible Strategy Formulation Selection of a strategy linked with above-average returns in a particular industry
Strategy Implementation Selection of strategic actions linked with effective implementation of the chosen strategy I/O Model of Superior Returns External Environment General Environment Industry Environment Competitive Environment Attractive Industry An industry whose structural characteristics suggest above-average returns are possible Strategy Formulation Selection of a strategy linked with above-average returns in a particular industry Assets and Skills Assets and skills required to implement a chosen strategy Action required: Use the firm’s strengths (its assets or skills) to implement the strategy.
Action required: Maintain selected strategy in order to outperform industry rivals. I/O Model of Superior Returns External Environment General Environment Industry Environment Competitive Environment Attractive Industry An industry whose structural characteristics suggest above-average returns are possible Strategy Formulation Selection of a strategy linked with above-average returns in a particular industry Assets and Skills Assets and skills required to implement a chosen strategy Strategy Implementation Selection of strategic actions linked with effective implementation of the chosen strategy Superior Returns Earning of above-average returns
% of market share held by top 4 firms - Concentration ratio
Level of Economies of scale
Cost linked to volume
Determine s the intensity of competition
Level of Product Differentiation
Differences in product features
The Model of Industry Competition Threat of new entrants Bargaining power of buyers Bargaining power of suppliers Threat of Substitute products and services Adapted from Exhibit 2.2 Porter’s Five Forces Model of Industry Competition Porter’s Five Forces Model of Industry Competition
Ratio of Market Value to Book Value for Selected Companies Annual Market Book Ratio of Sales Value Value Market to Company ($ billions) ($ billions) ($ billions) Book Value Exhibit 4.1 Ratio of Market Value to Book Value for Selected Companies eBay 1.2 30.8 3.9 7.9 Microsoft 28.4 254.1 58.3 4.4 Intel 26.8 142.1 35.4 4.0 General Motors Corp. 182.1 20.0 9.4 2.1 Nucor (Steel) 4.8 3.9 2.3 1.7 J. C. Penney 32.3 5.0 6.4 .78 Note: The data on market valuations are as of June 16, 2003. All other financial data is based on the most recently available balance sheets and income statements.
The Central Role of Knowledge in Today’s Economy
Creation of wealth in a knowledge economy
Effective management of knowledge workers
Assets such as
Employee loyalty and commitment
Experience and skills of employees
The Central Role of Knowledge in Today’s Economy
Intellectual capital = Market value of the firm – Book value of the firm
How do companies create value in the knowledge-intensive economy?
Human capital (individual capabilities, knowledge, skills, and experience of the company’s employees and managers)
Social capital (the network of relationships that individuals have throughout the organization)
Human Capital: The Foundation of Intellectual Capital Exhibit 4.2 Human Capital: Three Interdependent Activities
R esources’ Characteristics and Implications * AIR = Average Industry Returns valuable? rare? difficult or costly to imitate? Non - substitutable? Consequences Performance Implications No No No No Competitive Disadvantage Below AIR * Yes No No Yes/No Competitive Parity AIR Yes Yes No Yes/No Temporary Advantage AIR to Above AIR Yes Yes Yes Yes Sustainable Competitive Advantage Above AIR
Assessing a Company’s Competitive Strength vs. Key Rivals
1. List industry key success factors and other relevant measures of competitive strength
2. Rate firm and key rivals on each factor using rating scale of 1 - 10 (1 = weak; 10 = strong)
3. Decide whether to use a weighted or unweighted rating system
4. Sum individual ratings to get overall measure of competitive strength for each rival
5. Determine whether the firm enjoys a competitive advantage or suffers from competitive disadvantage
Primary Activities – Inbound logistics --- Operations ----Outbound logistics ---- marketing and Sales and service
Support activities – General Administration, HRM, R&D, Systems Development
How to do a VCA
Identify key activities
Allocate costs to each activity
Identify the activities that differentiate the firm
Examine the Value Chain
Different activities may be important – industry and strategy
Importance of activities can vary based on a company position in a larger scheme of activities
Support Activities Primary Activities Value Chain Analysis Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service helps to identify which resources and capabilities can add value MARGIN MARGIN
The Value Chain System Upstream Value Chains A Company’s Own Value Chain Downstream Value Chains Internally Performed Activities, Costs, & Margins Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners Activities, Costs, & Margins of Suppliers Buyer/User Value Chains
Grand Strategies Chapter 4 Part 3 Choice of Strategy
Competitive Advantage Adapted from Exhibit 4.5 Issues to Consider in Creating Value through Human Capital, Social Capital, and Technology Source: Adapted from G. G. Dess and J. C. Picken, Beyond Productivity (New York: AMACON, 1999), pp. 63-64. Return on investment (%) 35.5 32.9 30.2 17.0 23.7 17.8 Sales Growth (%) 15.1 13.5 13.5 16.4 17.5 12.2 Gain in Market Share (%) 5.3 5.3 5.5 6.1 6.3 4.4 Sample Size 123 160 100 141 86 105 Differentiation and Cost Differentiation Cost Differentiation Focus Cost Focus Stuck in the Middle
Firms that fail to attain both strategies may end up with neither and become “stuck in the middle”
Underestimating the challenges and expenses associated with coordinating value-creating activities in the extended value chain
Miscalculating sources of revenue and profit pools in the firm’s industry
Industry Life-Cycle States: Strategic Implications
Life cycle of an industry
Emphasis on strategies, functional areas, value-creating activities, and overall objectives varies over the course of an industry life cycle
Stages of the Industry Life Cycle Adapted from Exhibit 5.8 Stages of the Industry Life Cycle
Stages of the Industry Life Cycle Generic strategies Differentiation Differentiation Differentiation Overall cost Overall cost leadership leadership Focus Market growth rate Low Very large Low to Negative moderate Number of segments Very few Some Many Few Intensity of competition Low Increasing Very intense Changing Emphasis on product design Very high High Low to Low moderate Stage Introduction Growth Maturity Decline Factor
Stages of the Industry Life Cycle Emphasis on process design Low Low to High Low moderate Major functional area(s) of concern Research and Sales and Production General Development marketing management and finance Overall objective Increase Create Defend Consolidate, market share consumer market share maintain, awareness demand and extend harvest, or product life exit cycles Stage Factor Introduction Growth Maturity Decline
GE Nine Cell Matrix Industry Attractiveness Business Strength Based on the subjective assessments on the levels of market attractiveness and business strengths, each SBU falls in one of the NINE different cells of strategic option . High Medium Low High Invest and Grow Selective Growth Grow or Let Go Medium Selective Growth Grow or Let Go Harvest Low Grow or Let Go Harvest Divest
Boston Consulting Group Matrix Portfolio of Strategic Business Units High Market Share Low Industry Growth Rate High Low $$$ 1 2 3 4
1. Stars. These are products that are in high growth markets with a relatively high share of that market. Stars tend to generate high amounts of income. Keep and build your stars.
2. Question Marks ( Problem Children ) . These are products with a low share of a high growth market. They consume resources and generate little in return. They absorb most money as you attempt to increase market share.