Business Strategy

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26177 Business Strategy for
Accountants

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

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Learning outcomes
• Summarise the strategy of an organisation in a ‘strategy
statement’.
• Identify key issues for an organisation’s strategy
according to the Exploring Strategy model.
• Distinguish between corporate, business and
operational strategies.
• Understand how different people contribute to strategy
at work.
• Appreciate the contributions of different academic
disciplines and theoretical lenses to practical strategy
analysis.


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Definitions of strategy (1)
• ‘..the determination of the long-run goals and objectives
of an enterprise and the adoption of courses of action
and the allocation of resource necessary for carrying out
these goals’
Alfred Chandler

• ‘Competitive strategy is about being different. It means
deliberately choosing a different set of activities to deliver
a unique mix of value’
Michael Porter
Sources:
A.D. Chandler, Strategy and Structure: Chapters in the History of American Enterprise,
MIT Press, 1963, p. 13
M.E. Porter, ‘What is strategy?’, Harvard Business Review, 1996, November–December,
p. 60


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Definitions of strategy (2)

• ‘..a pattern in a stream of decisions’
Henry Mintzberg

• ‘..the long-term direction of an organisation’
Exploring Strategy
Sources:
H. Mintzberg, Tracking Strategy: Toward a General Theory, Oxford University Press,
2007, p. 3


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Strategic decisions


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Three horizons for strategy (1)

• Horizon 1 :
Extend and defend core business.
• Horizon 2 :
Build emerging businesses.
• Horizon 3 :
Create viable options.


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Three horizons for strategy (2)

Figure 1.2 Three horizons for strategy
Source: M. Baghai, S. Coley and D. While, The Alchemy of Growth, 2000, Texere Publishers: Figure 1.1, p. 5


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Stakeholders

Stakeholders are those individuals or
groups that depend on an organisation to
fulfil their own goals and on whom, in turn, the
organisation depends.


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Levels of strategy (1)

News Corporation
Corporate- diversifying from print
level journalism into social
strategy networking.

Website and marketing
Business-level improvements at My
Space to attract more
strategy users.

MySpace engineers
Operational strategy increasing processing
Capacity.


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Levels of strategy (2)

• Corporate Level Strategy is concerned with
the overall purpose and scope of an
organisation and how to add value to
business units.
• Business Level Strategy is concerned with
the way a business seeks to compete
successfully in its particular market.
• Operational Level Strategy is concerned
with how different parts of the organisation
deliver the strategy in terms of managing
resources, processes and people.

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Strategy statements

Strategy statements should have three
main themes:
• the fundamental goals that the organisation
seeks, which draw on the stated mission,
vision and objectives
• the scope or domain of the organisation’s
activities
• and the particular advantages or capabilities
it has to deliver all these.


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Working with strategy (1)

All managers are concerned with strategy:
• Top managers frequently formulate and
control strategy but may also involve others in
the process.
• Middle and lower level managers have to
meet strategic objectives and deal with
constraints.
• All managers have to communicate strategy
to their teams.
• All managers can contribute to the formation
of strategy through ideas and feedback.

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Working with strategy (2)

Organisations may also use strategy
specialists:
• Many large organisations have in-house
strategic planning or analyst roles.
• Strategy consultants can be engaged from
one of many general management consulting
firms (e.g. Accenture, IBM Consulting, PwC).
• There are a growing number of specialist
strategy consulting firms (e.g. McKinsey &Co,
The Boston Consulting Group).


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Strategy’s three branches

Figure 1.3 Strategy’s three branches


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The exploring strategy model

Figure 1.4 The Exploring Strategy Model


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Strategic position

Environment

The Goals,
Capability Strategic Objectives or
Position Purpose

Culture


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Strategic position (2)

Fundamental questions for Strategic
Position:
• What are the environmental opportunities and
threats?
• What are the organisation’s strengths and
weaknesses?
• What is the basic purpose of the organisation?
• How does culture shape strategy?


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Strategic choices (1)

Strategic choices involve the options for
strategy in terms of both the directions in
which strategy might move and the methods
by which strategy might be pursued.


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Business-
level

Corporate-
level International
Strategic
Choices

Acquisitions &
Innovation
Alliances


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Fundamental questions for Strategic
Choice:
• How should business units compete?
• Which businesses to include in the portfolio?
• Where should the organisation compete
internationally?
• Is the organisation innovating appropriately?
• Should the organisation buy other companies,
form alliances or go it alone?


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Strategy in action (1)

Strategy in action is about how strategies
are formed and how they are implemented.
The emphasis is on the practicalities of
managing.


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Processes

Organising Evaluating
Strategy
in Action

Changing Practice


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Fundamental questions for Strategy in
Action
• Which strategies are suitable, acceptable and
feasible?
• What kind of strategy-making process is
needed?
• What are the required organisation structures
and systems?
• How should the organisation manage necessary
changes?
• Who should do what in the strategy process?

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Exploring strategy in
different contexts
The Exploring Strategy Model can be applied in
many contexts.
In each context the balance of strategic issues
differs:
• Small Businesses (e.g. Purpose and Growth
issues)
• Multinational Corporations (e.g. Geographical
Scope and Structure/Control issues)
• Public Sector Organisations (e.g. Service/Quality
and Managing Change issues)
• Not For Profit Organisations (e.g. Purpose and
Funding issues)

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The strategy lenses (1)

The strategy lenses are ways of looking at
strategy issues differently in order to generate
many insights. Looking at problems in
different ways will raise new issues and new
solutions.


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The strategy lenses (2)

Strategy can be seen as:
• Design
• Experience
• Variety (Ideas)
• Discourse


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The strategy lenses summary

Table C.ii A summary of the strategy lenses


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Chapter summary (1)

• Strategy is the long-term direction of an organisation. A
‘strategy statement’ should cover the goals of an
organisation, the scope of the organisation’s activities and
the advantages or capabilities the organisation brings to
these goals and activities.
• Corporate-level strategy is concerned with an
organisation’s overall scope; business-level strategy is
concerned with how to compete; and operational strategy
is concerned with how resources, processes and people
deliver corporate- and business-level strategy.
• Strategy work is done by managers throughout an
organisation, as well as specialist strategic planners and
strategy consultants.

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Chapter summary (2)
• Research on strategy context, content and process
shows how the analytical perspectives of economics,
sociology and psychology can all provide practical
insights for approaching strategy issues
• The Exploring Strategy Model has three major elements:
understanding the strategic position, making strategic
choices for the future and managing strategy-in-action.
• Strategic issues are best seen from a variety of
perspectives, as exemplified by the four strategy lenses
of design, experience, variety and discourse.


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The Strategic Position
The Environment


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The strategic position
• How to analyse an organisation’s position in the
external environment.
• How to analyse the determinants of strategic
capability – resources, competences and the
linkages between them.
• How to understand an organisation’s purposes,
taking into account corporate governance,
stakeholder expectations and business ethics.
• How to address the role of history and culture in
determining an organisation’s position.

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited31
2011

32

Learning outcomes (1)

• Analyse the broad macro-environment of
organisations in terms of political, economic,
social, technological, environmental (‘green’) and
legal factors (PESTEL).

• Identify key drivers in this macro-environment
and use these key drivers to construct alternative
scenarios with regard to environmental change.


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Learning outcomes (2)

• Use Porter’s five forces analysis in order to
define the attractiveness of industries and sectors
and to identify their potential for change.
• Identify successful strategic groups, valuable
market segments and attractive ‘Blue Oceans’
within industries.
• Use these various concepts and techniques in
order to recognise threats and opportunities in
the marketplace.


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Layers of the business environment

Figure 2.1 Layers of the business environment


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The PESTEL framework (1)

The PESTEL framework categorises
environmental influences into six main types:
political, economic,
social, technological,
environmental legal

Thus PESTEL provides a comprehensive list of
influences on the possible success or failure of
particular strategies.


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• Political Factors: For example, Government
policies, taxation changes, foreign trade
regulations, political risk in foreign markets,
changes in trade blocks (EU).

• Economic Factors: For example, business
cycles, interest rates, personal disposable
income, exchange rates, unemployment rates,
GDP trends.

• Socio-cultural Factors: For example,
population changes, income distribution, lifestyle
changes, consumerism, changes in culture and
fashion.

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• Technological Factors: For example, new
discoveries and technology developments,
ICT innovations, rates of obsolescence,
increased spending on R&D.
• Environmental (‘Green’) Factors: For
example, environmental protection
regulations, energy consumption, global
warming, waste disposal and re-cycling.
• Legal Factors: For example, competition
laws, health and safety laws, employment
laws, licensing laws, IPR laws.

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Key drivers of change

Key drivers for change:
• The environmental factors likely to have a high
impact on the success or failure of strategy.
• For example, the birth rate is a key driver for
those planning nursery education provision in
the public sector.
• Typically key drivers vary by industry or sector.


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Using the PESTEL framework

• Apply selectively –identify specific factors which
impact on the industry, market and organisation in
question.
• Identify factors which are important currently but
also consider which will become more important in
the next few years.
• Use data to support the points and analyse trends
using up to date information
• Identify opportunities and threats – the main point
of the exercise!


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Scenarios

Scenarios are detailed and plausible views of how
the environment of an organisation might develop in
the future based on key drivers of change about
which there is a high level of uncertainty.

• Build on PESTEL analysis .
• Do not offer a single forecast of how the
environment will change.
• An organisation should develop a few alternative
scenarios (2–4) to analyse future strategic options.


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Carrying out scenario analysis (1)

• Identify the most relevant scope of the study – the
relevant product/market and time span.
• Identify key drivers of change – PESTEL factors
that have the most impact in the future but have
uncertain outcomes.
• For each key driver select opposing outcomes
where each leads to very different consequences.


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Carrying out scenario analysis (2)

• Develop scenario ‘stories’ - That is, coherent
and plausible descriptions of the environment
that result from opposing outcomes
• Identify the impact of each scenario on the
organisation and evaluate future strategies in
the light of the anticipated scenarios.
• Scenario analysis is used in industries with long
planning horizons for example, the oil industry
or airlines.


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Scenarios for the global financial
system, 2020

Illustration 2.2


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Industries, markets and sectors

An industry is a group of firms producing
products and services that are essentially the
same. For example, automobile industry and
airline industry.
A market is a group of customers for specific
products or services that are essentially the same
(e.g. the market for luxury cars in Germany).
A sector is a broad industry group (or a group of
markets) especially in the public sector (e.g. the
health sector)


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Porter’s five forces framework

Porter’s five forces framework helps identify the
attractiveness of an industry in terms of five
competitive forces:
• the threat of entry,
• the threat of substitutes,
• the bargaining power of buyers,
• the bargaining power of suppliers and
• the extent of rivalry between competitors.
The five forces constitute an industry’s ‘structure’.


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The five forces framework (1)

Figure 2.2 The five forces framework
Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster Adult Publishing Group, from Competitive Strategy: Techniques for Analyzing Industries and
Competitors by Michael E. Porter. Copyright © 1980, 1998 by The Free Press. All rights reserved


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The Threat of Entry & Barriers to Entry
• The threat of entry is low when the barriers
to entry are high and vice versa.
• The main barriers to entry are:
 Economies of scale/high fixed costs
 Experience and learning
 Access to supply and distribution channels
 Differentiation and market penetration costs
 Government restrictions (e.g. licensing)
• New Entrants must consider retaliation
from organisations already in the market

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Threat of Substitutes
Substitutes are products or services that
offer a similar benefit, but by a different
process. Customers will switch to
alternatives (the threat increases) if the
price or performance of the substitute is
superior (e.g. aluminium maybe more
expensive than steel but it is more cost
efficient for some car parts). The substitute
may benefit from an innovation that
improves customer satisfaction (e.g. high
speed trains quicker than airlines between

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The bargaining power of buyers
Buyers are the organisation’s immediate
customers, not necessarily the ultimate
consumers. If buyers are powerful, then
they can demand cheap prices or product /
service improvements to reduce profits .
Buyer power is likely to be high when:
 Buyers are concentrated
 Buyers have low switching costs
 Buyers can supply their own inputs (backward
vertical integration)

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The bargaining power of suppliers
Suppliers supply what organisations need
to produce the product or service. Powerful
suppliers can eat into an organisation’s
profits. Supplier power is high when:
The suppliers are concentrated (few of them).
Suppliers provide a specialist or rare input.
Switching costs are high (it is disruptive or
expensive to change suppliers).
Suppliers can integrate forwards (e.g. low cost
airlines have cut out the use of travel agents).

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Rivalry between competitors
Competitive rivals have similar products and
services aimed at the same customer group and are
direct competitors in the same industry/market
(distinct from substitutes). The degree of rivalry is
increased when :
Competitors are of roughly equal size
Competitors are aggressive in seeking leadership
The market is mature or declining
There are high fixed costs
The exit barriers are high
Low level of differentiation

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Implications of five forces analysis

• Identifies the attractiveness of industries –
which industries/markets to enter or leave.
• Identifies strategies to influence the impact of
the forces, for example, building barriers to
entry by becoming more vertically integrated.
• The forces may have a different impact on
different organisations e.g. large firms can deal
with barriers to entry more easily than small
firms.


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Issues in five forces analysis

• Apply at the most appropriate level – not
necessarily the whole industry. E.g. the European
low cost airline industry rather than airlines
globally.
• Note the convergence of industries – particularly in
the high tech sectors (e.g. digital industries -
mobile phones/cameras/mp3 players).
• Note the importance of complementary products
and services (e.g. Microsoft windows and McAfee
computer security systems are complements). This
can almost be considered as a sixth force.

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The value net

Figure 2.3 The value net
Reprinted by permission of Harvard Business Review. From ‘The Right Game’ by A. Brandenburger and B. Nalebuff, July–August 1996, pp. 57–64.
Copyright © 1996 by the Harvard Business School Publishing Corporation. All rights reserved


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Types of industry (1)

• Monopolistic industries - an industry with one firm and
therefore no competitive rivalry. A firm has ‘monopoly
power’ if it has a dominant position in the market. For
example, BT in the UK fixed line telephone market.
• Oligopolistic industries - an industry dominated by a
few firms with limited rivalry and in which firms have
power over buyers and suppliers.
• Perfectly competitive industries - where barriers to
entry are low, there are many equal rivals each with very
similar products, and information about competitors is
freely available. Few (if any) markets are ‘perfect’ but
may have features of highly competitive markets, for
example, mini-cabs in London.

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Types of industry (2)

• Hypercompetitive industries - where the
frequency, boldness and aggression of competitor
interactions accelerate to create a condition of
constant disequilibrium and change.
• Hypercompetition often breaks out in otherwise
oligopolistic industries (e.g. mobile phones).
• Organisations interact in a series of competitive
moves in hypercompetition which often becomes
extremely rapid and aggressive as firms vie for
market leadership.


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Cycles of competition

Figure 2.6 Cycles of competition
Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Hypercompetitive Rivalries: Competing in Highly Dynamic Environments by Richard A.
D’Aveni with Robert Gunther. Copyright © 1994, 1995 by Richard A. D’Aveni. All rights reserved


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The industry life cycle

Figure 2.4 The industry life cycle


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Strategic Groups
Strategic groups are organisations within an
industry or sector with similar strategic
characteristics, following similar strategies or
competing on similar bases.
• These characteristics are different from
those in other strategic groups in the same
industry or sector.
• There are many different characteristics that
distinguish between strategic groups.
• Strategic groups can be mapped on to two
dimensional charts - useful tools of analysis.

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Characteristics for identifying
strategic groups

Figure 2.7 Some characteristics for identifying strategic groups


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Strategic groups in the Indian
pharmaceutical industry

Figure 2.8 Strategic groups in the Indian pharmaceutical industry
Source: Developed from R. Chittoor and S. Ray, ‘Internationalisation paths of Indian pharmaceutical firms: a strategic group analysis’, Journal of International Management, vol. 13 (2009),
pp. 338–55


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Uses of strategic group analysis
• Understanding competition - enables focus on
direct competitors in a strategic group rather
than the whole industry (e.g. Tesco on
Sainsburys and Asda)
• Analysis of strategic opportunities - helps
identify attractive ‘strategic spaces’ within an
industry.
• Analysis of ‘mobility barriers’ Obstacles to
movement from one strategic group to another.
Barriers can be overcome to enter more
attractive groups. Barriers can be built to defend
an attractive position.

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Market segments

A market segment is a group of customers who have
similar needs that are different from customer needs in
other parts of the market.
• Where these customer groups are relatively small, such
market segments are called ‘niches’.
• Customer needs vary. Focusing on customer needs that
are highly distinctive is one means of building a secure
segment strategy.
• Customer needs vary for a variety of reasons -these
factors can be used to identify distinct market segments.
• Not all segments are attractive or viable market
opportunities – evaluation is essential.


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Bases of market segmentation (1)

Table 2.1 Some bases of market segmentation


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Who are the strategic customers?

A strategic customer is the person(s) at
whom the strategy is primarily addressed
because they have the most influence over
which goods or services are purchased.
• For a food manufacturer it is the multiple
retailers (e.g. Tesco) that are the strategic
customers not the ultimate consumer.
• For a pharmaceutical manufacturer it is the
health authorities and hospitals not the final
patient.

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Critical success factors (CSFs)
• Critical success factors are those factors that
are either particularly valued by customers or
which provide a significant advantage in terms of
cost.
• Critical success factors are likely to be an
important source of competitive advantage if
organisation has them (or disadvantage if an
organisation lacks them).
• Different industries and markets will have
different critical success factors (e.g. in low cost
airlines the CSFs will be punctuality and value
for money whereas in full service airlines it is all
about quality of service).

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Blue ocean thinking

• ‘Blue oceans’ are new market spaces where
competition is minimised.
• ‘Red Oceans’ are where industries are already well
defined and rivalry is intense.
• Blue Ocean thinking encourages entrepreneurs and
managers to be different by finding or creating market
spaces that are not currently being served.
• A ‘strategy canvas’ compares competitors according to
their performance on key success factors in order to
develop strategies based on creating new market
spaces.


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Chapter summary (1)

• Environmental influences can be thought of as layers
around an organisation, with the outer layer making up
the macro-environment, the middle layer making up the
industry or sector and the inner layer strategic groups
and market segments.
• The macro-environment can be analysed in terms of the
PESTEL factors, from which key drivers of change can
be identified. Alternative scenarios about the future can
be constructed according to how the key drivers develop.
• Industries and sectors can be analysed in terms of
Porter’s five forces – barriers to entry, substitutes, buyer
power, supplier power and rivalry. Together, these
determine industry or sector attractiveness.

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Chapter summary (2)

• Industries and sectors are dynamic, and their changes
can be analysed in terms of the industry life cycle,
comparative five forces radar plots and hypercompetitive
cycles of competition.
• In the inner layer of the environment, strategic group
analysis, market segment analysis and the strategy
canvas can help identify strategic gaps or opportunities.
• Blue Ocean strategies characterised by low rivalry are
likely to be better opportunities than Red Ocean
strategies with many rivals.
• The most important reason for environmental analysis is
to identify OPPORTUNITIES AND THREATS


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The Strategic Position
Strategic Capabilities


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Learning outcomes
• Identify what comprises strategic capabilities in terms of
organisational resources and competences and how
these
relate to the strategies of organisations.
• Analyse how strategic capabilities might provide
sustainable competitive advantage on the basis of their
value, rarity, inimitability and non-substitutability (VRIN).
• Diagnose strategic capability by means of
benchmarking, value chain analysis, activity mapping and
SWOT analysis.
• Consider how managers can develop strategic
capabilities for their organisations.


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Strategic capabilities: the key issues

Figure 3.1 Strategic capabilities: the key issues


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Resource-based strategy

The resource-based view (RBV) of strategy
asserts that the competitive advantage and
superior performance of an organisation is
explained by the distinctiveness of its
capabilities.


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Resources and competences

• Resources are the assets that organisations
have or can call upon (e.g. from partners or
suppliers),that is, ‘what we have’ .
• Competences are the ways those assets are
used or deployed effectively, that is, what we
do well’.


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Components of strategic capabilities

Table 3.1 Components of strategic capabilities


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Redundant capabilities

• Capabilities, however effective in the past, can
become less relevant as industries evolve and
change.
• Such ‘capabilities’ can become ‘rigidities’ that
inhibit change and become a weakness.


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Dynamic capabilities

Dynamic capability is the ability of an
organisation to renew and recreate its strategic
capabilities to meet the needs of changing
environments.


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Threshold and distinctive
capabilities (1)
• Threshold capabilities are those needed for
an organisation to meet the necessary
requirements to compete in a given market
and achieve parity with competitors in that
market – ‘qualifiers’.
• Distinctive capabilities are those that
critically underpin competitive advantage and
that others cannot imitate or obtain –
‘winners’.


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Core competences

Core competences1 are the linked set of
skills, activities and resources that, together:
• deliver customer value
• differentiate a business from its competitors
• potentially, can be extended and developed as
markets change or new opportunities arise.

G. Hamel and C.K. Prahalad, ‘The core competence of the
1

corporation’, Harvard Business Review, vol. 68, no. 3 (1990),
pp. 79–91.


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Strategic capabilities and
competitive advantage
The four key criteria by which capabilities can
be assessed in terms of providing a basis for
achieving sustainable competitive advantage
are:
•value,
•rarity,
VRIN1
•inimitability and
•non-substitutability

1 Jay Barney: ‘Firm resources and sustained competitive advantage’,
Journal of Management, vol. 17 (1991), no. 1, pp. 99–120.


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V – Value of strategic capabilities
Strategic capabilities are of value when they:
• take advantage of opportunities and
neutralise threats,
• provide value to customers
• provide potential competitive advantage
• at a cost that allows an organisation to realise
acceptable levels of return


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R – Rarity
• Rare capabilities are those possessed uniquely
by one organisation or by a few others only.
(E.g. a company may have patented products,
have supremely talented people or a powerful
brand.)
• Rarity could be temporary.
(Eg: Patents expire, key individuals can leave
or brands can be de-valued by adverse
publicity.)

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I – Inimitability
Inimitable capabilities are those that competitors
find difficult to imitate or obtain.
• Competitive advantage can be built on unique
resources (a key individual or IT system) but
these may not be sustainable (key people leave
or others acquire the same systems).
• Sustainable advantage is more often found in
competences (the way resources are managed,
developed and deployed) and the way
competences are linked together and integrated.


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Criteria for the inimitability of
strategic capabilities

Figure 3.2 Criteria for the inimitability of strategic capabilities


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N - Non-substitutability
Competitive advantage may not be sustainable
if there is a threat of substitution.
• Product or service substitution from a different
industry/market. For example, postal services
partly substituted by e-mail.
• Competence substitution. For example, a skill
substituted by expert systems or IT solutions


86

Criteria for the inimitability of
strategic capabilities

Figure 3.3 VRIN


87

Organisational knowledge

Organisational knowledge is the collective
intelligence, specific to an organisation,
accumulated through both formal systems and
the shared experience of people in that
organisation.

Some of this knowledge is ‘Tacit’ knowledge
that is, more personal, context-specific and
hard to formalise and communicate – so it is
difficult to imitate, for example, the knowledge
and relationships in a top R&D team.

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Benchmarking
Benchmarking is a means of understanding
how an organisation compares with others –
typically competitors.
Two approaches to benchmarking:
• Industry/sector benchmarking - comparing
performance against other organisations in the
same industry/sector against a set of
performance indicators.
• Best-in-class benchmarking - comparing an
organisation’s performance or capabilities
against ‘best-in-class’ performance – wherever
that is found even in a very different industry.
(E.g. BA benchmarked its refuelling operations
against Formula 1).

89

The value chain

• The value chain describes the categories of
activities within an organisation which,
together, create a product or service.
• The value chain invites the strategist to think of
an organisation in terms of sets of activities –
sources of competitive advantage can be
analysed in any or all of these activities.


90

VRIN summary

Figure 3.4 The value chain within an organisation
Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance
by Michael E. Porter. Copyright © 1985, 1998 by Michael E. Porter. All rights reserved


91

The value network

• The value network comprises the set of inter-
organisational links and relationships that are
necessary to create a product or service.
• Competitive advantage can be derived from
linkages within the value network.


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The value network

Figure 3.5 The value network
Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance
by Michael E. Porter. Copyright © 1985, 1998 by Michael E. Porter. All rights reserved


93

Uses of the value chain
• A generic description of activities –
understanding the discrete activities and how
they both contribute to consumer benefit and
how they add to cost.
• Identifying activities where the organisation
has particular strengths or weaknesses
• Analysing the competitive position of the
organisation using the VRIN criteria – thus
identifying sources of sustainable advantage.
• Looking for ways to enhance value or
decrease cost in value activities (e.g.
outsourcing)

94

Uses of the value network
• Understanding cost/price structures across
the value network – analysing the best area of
focus and the best business model .
• Identifying ‘profit pools’ within the value
network and seek to exploit these.
• The ‘make or buy’ decision: deciding which
activities to do ‘in-house’ and which to
outsource.
• Partnering and relationships – deciding who
to work with and the nature of these
relationships.

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Mapping activity systems (1)

• Identify ‘higher order strategic themes’ that is,
how the organisation meets the critical success
factors in the market.
• Identify the clusters of activities that underpin
these themes and how they fit together.
• Map this in terms of how activity systems are
interrelated.


96

SWOT analysis

SWOT summarises the strengths,
weaknesses, opportunities and threats likely
to impact on strategy development.

INTERNAL STRENGTHS WEAKNESSES
HISTORIC

EXTERNAL OPPORTUNITIES THREATS
FUTURE


97

Uses of SWOT analysis
• Key environmental impacts are identified using the
analytical tools explained in Chapter 2.
• Major strengths and weaknesses are identified
using the analytic tools explained in Chapter 3.
• Scoring (e.g. + 5 to - 5) can be used to assess the
interrelationship between environmental impacts
and the strengths and weaknesses.
• SWOT can be used to examine strengths,
weaknesses, opportunities and threats in relation
to competitors.
• SWOT can be used to generate strategic options–
using a TOWS matrix.

98

The TOWS matrix

Figure 3.6 The TOWS matrix


99

Dangers in a SWOT analysis

• Long lists with no attempt at prioritisation.
• Over generalisation – sweeping statements
often based on biased and unsupported
opinions.
• SWOT is used as a substitute for analysis – it
should result from detailed analysis using the
frameworks in Chapters 2 and 3.
• SWOT is not used to guide strategy – it is
seen as an end in itself.


100

Developing strategic capabilities (1)

Internal capability development:
• Leveraging capabilities – identifying capabilities
in one part of the organisation and transferring
them to other parts (sharing best practice).
• Stretching capabilities - building new products
or services out of existing capabilities.


101

Developing strategic capabilities (2)

• External capability development – adding
capabilities through mergers, acquisitions or
alliances.
• Ceasing activities – non-core activities can be
stopped, outsourced or reduced in cost.
• Monitor outputs and benefits – to understand
sources of consumer benefit and enhance
anything that contributes to this.
• Managing the capabilities of people – training,
development and organisation learning.

102

Chapter summary (1)

• Strategic capabilities comprise both resources and
competences.
• The concept of dynamic capabilities highlights that
strategic capabilities need to change as the market
and environmental context of an organisation
changes.
• Sustainability of competitive advantage is likely to
depend on an organisation’s capabilities being of at
least threshold value in a market but also being
valuable, relatively rare, intimable and non-
substitutable.


103

Chapter summary (2)

Ways of diagnosing organisational capabilities
include:
• Benchmarking as a means of understanding the
relative performance of organisations.
• Analysing an organisation’s value chain and value
network as a basis for understanding how value to
a customer is created and can be developed.
• Activity mapping as a means of identifying more
detailed activities which underpin strategic
capabilities.
• SWOT analysis as a way of drawing together an
understanding of strengths, weaknesses,
opportunities and threats an organisation faces.

Business Strategy

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