Strategic management chapter 5 and 6 note for bba viiDocument Transcript
Unit: 5 Evaluating Company Resources and Competitive capabilitiesIdentifying company strengths and resource capabilitiesA strength is something a company is good at doing or a characteristic that gives it enhancedcompetitiveness.• A skill or important expertise: Low cost manufacturing capabilities, strong e commerceexpertise, unique advertising and promotional talents.• Valuable physical assets: Attractive location, worldwide distribution network,ownership of valuable natural resources.• Valuable organizational assets: an experienced and capable workforce, talentedemployees in key areas, motivated and energetic employees, entrepreneurship andmanagerial know how• Valuable organizational assets: Proven quality control system, key patents, computerassisted design system, well supply chain management system• Valuable intangible assets: brand name image, company reputation, buyer goodwill• Competitive capabilities: short development time in bringing new product, strongpartnerships with key suppliers, R and D capabilities• Alliances and cooperative ventures: fruitful collaborative partnership with suppliersand distribution systemDetermining the competitive value of a company resource:• Is the resource hard to copy?• How long does the resource last? The longer a resource lasts, the greater the value.• Is the resource really competitively superior to competitors?Identifying company weaknesses and resources deficienciesA weakness is something a company lacks or does poorly or a condition that puts it at adisadvantage. A company internal weaknesses can relate to• Deficiencies in competitively important skill or expertise or intellectual capital• Lack of physical organizational or intangible assets.• Missing competitive capabilities in key areas• Deficiencies in above mentioned competitivenessIdentifying a companys market opportunitiesThe market opportunities most relevant to a company are those that offer important avenues forprofitable growth those where a company has the most potential for competitive advantage andthose that match up well with the companys financial and organization resource capabilities.
Evaluate the opportunities based on• attractiveness• Match of with companys financial and organizational resources• Situation and circumancesIdentifying the threats to a companys future profitabilityA threats is unfavorable condition that put it disadvantages for the company Emergence of cheaper/better technologies Introduction of better products by rivals Onerous (burden) regulations Rise in interest rates Potential of a hostile takeover Unfavorable demographic shifts Adverse shifts in foreign exchange rates Political upheaval in a countryAre the companys prices and costs competitive?1. Assessing whether a firm’s costs are competitive with those of rivals is a crucial part ofcompany analysis2. Key analytical tools• Strategic cost analysis• Value chain analysis• BenchmarkingWhy rival companies have different costs?Companies do not have the same costs because of differences in1. Prices paid for raw materials, component parts, energy, and other supplierresources2. Basic technology and age of plant & equipment3. Economies of scale and experience curve effects4. Wage rates and productivity levels5. Marketing, promotion, and administration costs6. Inbound and outbound shipping costs7. Forward channel distribution costsWhat is strategic cost analysis?1. Focuses on a firm’s costs relative to its rivals2. Compares a firm’s costs activity by activity against costs of key rivals
Link with other activities in the company or industry value chain: when the cost of one activityis affected by how other activities are performed, costs can be managed downward by makingsure that linked activities are performed in cooperative and coordinated fashion.The percentage of capacity utilization: higher rate of percentage use, getting more costadvantage and vice versa2. Revamping value chain: Dramatic cost advantage can emerge from finding innovativeways to restructure process. The primary ways to achieve cost advantage byreconfiguring their value chain includeShifting to e business technologies: Use of the internet can enable online shopping andpurchases, online order processing and bill payment online data sharing. For example Amazon.comUsing direct to end user sales and marketing approachSimplifying product design: Unitizing computer assisted design technique, standardize parts andcomponentsReengineering of business process and layout systemDropping the "something for everyone" aproachPitfalls of Low-Cost Strategies Being overly aggressive in cutting price Low cost methods are easily imitated by rivals Becoming too fixated on reducing costsand ignoring Buyer interest in additional features Declining buyer sensitivity to price Changes in how the product is used Buyer may believe product or services are low qualityDifferentiation strategyThe essence of a differentiation strategy is to be unique in ways that are valuable to customerand can be sustained. Differentiation strategy are an attractive competitive approachwhenever buyer needs and preference are standardized product or by seller with identicalcapabilities. Incorporate differentiating features that cause buyers to prefer firm’s product orservice over brands of rivals. It also refer to find out the ways for differentiation that createvalue for buyers and that are not easily matched or cheaply copied by rivals
This grand strategy basically related with market related activities and tries to developcompetitive advantage through• Cosmetic modification of the product and service• Adding different channels of distribution• By changing the content of advertising and promotional media• By opening additional geographic market• Attractive other market segmentWhen to pursue?• When product life cycle stage reach to growth stage• When Company able to attract new customer• When favorable brand strategy2. Product developmentProduct development involves substantial modification of existing products or creation of newbut related items that can be marketed to current customers through established channel. Acompany can get competitive advantage through• Developing new product feature (color, change sound shape stronger)• Developing quality variation• Developing additional model and sizeWhen is best?• When companys initial offering response positively by the customer• When product reach to decline stage• When customer prefer modified product3. Growth and expansionThis strategy is recommend when a company in best position. In such condition company haverelatively high competitive position and high market growth rate as well. In such situation thecompany is getting rapidly markets and require substantial investment to expand.When is best?1. When the product reach growth stage of PLC2. When the product highly saleable and favorable3. When both market growth rate and competitive position is relatively high4. When company has numerous environmental opportunities and internally in strengthposition.4. Horizontal integrationThis is long term strategy of a firm is based on growth through the acquisition of one or moresimilar businesses operating at the same stage of the production marketing chain.When it pursue?• When integration provides access to new markets for the acquiring firm and eliminatedcompetitors
• When integrated makes organization more strong.• When integrated will be benefited in regarding with resource availability market change• When weakness of company will be fulfilled by integration• When company is able to greatly expand its operation thereby achieving grater marketshare, improving economies of scale, increase efficiency.5. Vertical integrationThis is long term strategy of a firm involves the acquisition of business that supply the firm withinputs or serve as a customer for the firms output. For example if a shirt manufacturer acquire atextile producer by purchasing its common stock and assets. It may be either backward orforward integration.When it pursue?• When a company face different problems while distribution of final product to customeror supply raw material from supplier.• When integration is beneficial to the company• Desire to decrease dependability of supply of raw material (backward integration)• When the firm can better control its cost and thereby improve the profit margin.6. Concentric diversificationWhen diversification involves related the existing business in terms of technology, markets andproducts it is called concentric diversification. In such diversification the new business will beselected on the basis of high degree of compatibility with current business.When it pursue?• When diversification increase strength and opportunities as well as decrease weaknessand risk• When synergic effects increase the efficiency and capabilities of the company• When existing technology, market and resource can be used even after diversification andget competitive advantage.• Better use of available resources.7. Conglomerate diversificationWhen diversification is made for acquiring the most profitable business area in unrelated field.The principal and often sole concern of the acquiring firm is the profit pattern.(The principal difference between two types of diversification is that concentric acquisitionsemphasize some commonality in markets, products or technology whereas conglomerateacquisition are based on profit consideration)When to pursue?• when companys available resources are mismatch for related diversification• When unrelated diversification have high growth potentiality• When current business is unsuccessful• When current business is highly success (product mix concept)8. Stability strategyWhen company continues the previous strategy the strategy adopted is called Stability strategy.
When to pursue?• When managers are risk avoider• Incorporation of new things does not have significant impact for companys progress.• Less volatile condition• When company is getting advantage and profit from current strategy.9 Retrenchment strategyLarge number of reasons a business can find itself with declining profit. The causes of decliningprofit are different reasons. Because of this problem company cant continue their business. Insuch condition the company faces maximum threats to continue their business and difficult tosustain. Since the company faces threats and difficulties in the market, they reduce their businessactivities. When company reduces their business activities it is called retrenchment. Such kind ofreduction is in two waysCost reduction: Decreasing the work force, leasing rather than purchasing equipment, extendinglife of machineryAssets reduction: sale of land, building, and equipmentWhen to pursue?• If the country is facing economic recessions condition• If the company is facing production inefficiency problem• A innovative breakthrough by competitors• When company continuously facing loss from long time and less chances to recoupagain.10. Turnaround strategyThis is also almost similar to retrenchment strategy. This strategy again recommend when thecompany is facing maximum threats and difficulties in existing business. The turnaroundcommonly associated with change in management position. Here we change the leader topmanagement role.When to pursue?• Bringing new manager introduces needed new perspectives and raise employee moralefor the company.• Facilitate to change drastic actions which lead to potential growth of the company.• Refer (turnaround strategy)11. Defensive strategyCurrent scenario shows that the company is facing difficulties and little chance to revive. But incoming years, there is chance to grow in future by the company. In such condition, this year thecompany try to survive and will take necessary step in coming year. This is called defensivestrategy.When to pursue?• When the company have critical internal weakness and externally major environmentalthreats• When the company currently facing threats but there is chance to grow in future.
12. Liquidation strategyWhen the grand strategy is that of liquidation, t6he business is typically sold in parts. In suchcondition the strategic managers of a business are admitting failure and recognize that this actionis likely to result in great hardships to themselves and their employees.When is it best?• When firms face severe loss for long time and there is difficult to cope such loss.• When firms position lies on low industry attractiveness and low business strength in GE 9cell matrix• When firms position lies on Low market share and low market growth in BCG matrixand there is difficult survive from that position13.Joint venture/Merger/Strategic allianceJoint venture : A joint venture is a partnership in which the domestic firm and foreign firmnegotiate tie ups involving one or mere of the following: equity, transfer of technology,investment, production and marketing. Joint venture is a strategic alliance in which two or morefirms create a legally independent company to share some of their resources and capabilities todevelop a competitive advantage.Mergers: The most extensive form of participation in global markets is 100 percent ownership;which may be achieved by startup merger or acquisition.Strategic alliance: A Strategic Alliance is a formal relationship between two or more parties topursue a set of agreed upon goals or to meet a critical business need while remainingindependent organizations.When is it best?1. When the each partners to concentrate on activities that best match their capabilities.2. When the firm learning from partners & developing competences that may be morewidely exploited elsewhere3. Adequacy a suitability of the resources & competencies of an organization for it tosurvive.