Download to read offline
Strategy-Course-Notes+(1).pdf
- 1. “Strategy is aboutmaking choices; it’s about deliberately choosing to be different.” - Michael Porter Strategy
- 2. Successful strategies 2 The goalsthe company wants to achieve have been formulated after a deep analysis of the competitive environment 1 They are based on goals that are simple, consistent, and long-term 4 And finally, the people responsible for achieving these goals are strong-willed and have solid decision-making capabilities 3 They objectively consider a company’s resources and exploit them in an effective manner What makes a manager great?
- 3. Which industry orindustries should the company compete in? Corporate vs. Business strategy Corporate strategy Business strategy What would be the geographical scope of our operations – national, international, global? Should we diversify our business, and if yes, at what level? Organization in terms of product development, marketing, production, sales, customer service, and distribution? In-house, or outsourced? Should the company enter alliances or make acquisitions? What type of resources and capabilities should our company develop to gain a competitive advantage over competitors? What is an efficient way to manage different business units to achieve strategic synergies? How should the company monitor the industry environment, so its strategies conform to the market needs?
- 4. Mission statement, visionstatement, values MISSION STATEMENT addresses the question “What is the fundamental reason for our organization’s existence?” VISION STATEMENT describes the desired future position of the company “What do we want to achieve in the future?” and “Who do we want to become?” VALUE STATEMENT defines the firm’s values and place constraints on how the organization pursues its goals “To accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible”, Tesla “To create economic opportunity for every member of the global workforce.” LinkedIn “Impactful, dynamic, bold, open, and socially responsible behaviour”, Facebook
- 5. The industry lifecyclemodel Example Action Characteristics Stage Low customer awareness, high capital needs, low competition Consumers learn of the industry & sales and profits grow Compete and generate cash flow Look for new opportunities Absolute decrease of sales, customers abandon the market All companies have entered the market, high competition, sales peak and strop growing Enter the industry Pioneer the industry Personal care Vinyl records Car sharing services Consumer robotics INTRODUCTION GROWTH MATURITY DECLINE LOREM IPSUM
- 6. THREAT OF NEWENTRANTS Forces Response Create barriers to entry: cost advantage, Economies of scale, product differentiation, access to channels of distribution, government policies, expected retaliation Porter’s Five Forces Analysing the competitive environment in an industry 0 1
- 7. THREAT OF NEWENTRANTS Forces THREAT OF SUBSTITUTE PRODUCTS Response Create barriers to entry: cost advantage, Economies of scale, product differentiation, access to channels of distribution, government policies, expected retaliation Difficult to prevent: pinpointing which substitute products take the most business is challenging, as is creating barriers to entry for products in different industries Porter’s Five Forces Analysing the competitive environment in an industry 0 1 0 2
- 8. THREAT OF NEWENTRANTS Forces THREAT OF SUBSTITUTE PRODUCTS RIVALRY AMONG EXISTING FIRMS Response Create barriers to entry: cost advantage, Economies of scale, product differentiation, access to channels of distribution, government policies, expected retaliation Difficult to prevent: pinpointing which substitute products take the most business is challenging, as is creating barriers to entry for products in different industries Estimate concentration ratio, determine how fragmented the competition in an industry is, and adapt your competitive model accordingly Porter’s Five Forces Analysing the competitive environment in an industry 0 1 0 2 0 3
- 9. THREAT OF NEWENTRANTS Forces THREAT OF SUBSTITUTE PRODUCTS RIVALRY AMONG EXISTING FIRMS BARGAINING POWER OF BUYERS Response Create barriers to entry: cost advantage, Economies of scale, product differentiation, access to channels of distribution, government policies, expected retaliation Difficult to prevent: pinpointing which substitute products take the most business is challenging, as is creating barriers to entry for products in different industries Estimate concentration ratio, determine how fragmented the competition in an industry is, and adapt your competitive model accordingly Higher switch costs, and fewer options minimize it. Also, the more fragmented the number of clients is, the smaller their bargaining power Porter’s Five Forces Analysing the competitive environment in an industry 0 1 0 2 0 3 0 4
- 10. THREAT OF NEWENTRANTS Forces THREAT OF SUBSTITUTE PRODUCTS RIVALRY AMONG EXISTING FIRMS BARGAINING POWER OF BUYERS BARGAINING POWER OF SUPPLIERS Response Create barriers to entry: cost advantage, Economies of scale, product differentiation, access to channels of distribution, government policies, expected retaliation Difficult to prevent: pinpointing which substitute products take the most business is challenging, as is creating barriers to entry for products in different industries Estimate concentration ratio, determine how fragmented the competition in an industry is, and adapt your competitive model accordingly Suppliers can raise prices, lower the quality of supplied materials, reduce product availability. Aim to be or seem supplier independent, then their bargaining power is low Higher switch costs, and fewer options minimize it. Also, the more fragmented the number of clients is, the smaller their bargaining power. Differentiate, build brand recognition Porter’s Five Forces Analysing the competitive environment in an industry 0 1 0 2 0 3 0 4
- 11. Porter’s Five Forces Example:an analysis of the global sportswear industry (mature market) NEW ENTRANTS SUBSTITUDE PRODUCTS RIVALRY POWER OF SUPPLIER POWER OF BUYERS Low. Globally, many barriers to entry: marketing, know-how, design. Competing locally or in a niche market is easier Nike, Adidas, Asics, UA, Puma Concentration ratio 38% Market is fragmented but there are global giants, compete at local level only B2C market, customers cannot negotiate prices, but they have a lot of choice. Differentiated products are best Little uncertainty. Other clothing is a substitute but not overwhelmingly in demand Large companies obtain materials cheaply, novel entrants must pay higher prices or come up with innovative alternative
- 12. Game Theory Because decisionsmade by one company depend on decisions made by others ZERO-SUM Situations in which for one party to win, the other must lose NON-ZERO-SUM Competitors can choose whether they want to cooperate or compete CO-OP The optimal outcome depends on cooperation and communication. Like in the prisoner’s dilemma NON-CO-OP Like poker, tennis, basketball
- 13. Prisoner’s dilemma OPTIMAL GLOBAL SOLLUTION NASH’S EQUILIBRIUM Ifa player chooses a strategy and other players can’t benefit by changing their strategies. For example, if one of the prisoners confesses, they would face 0-5. Deny confessing altogether Two criminals arrested, suspected in a robbery. Police officers hold the two criminals in different interrogation rooms and offer them the following options. If one confesses and the other one doesn’t, the one who’s confessed walks away free, while the other receives a 10-year sentence. If both confess, they will receive a 5-year sentence each. And if neither one confesses, they will both walk away free.
- 14. In 1971, theAmerican government banned cigarette companies from advertising their products on TV. Instead of hurting their business, because less consumers would see their brand advertising… All four major tobacco companies registered higher profits than before. Prisoner’s dilemma Tobacco company example (real life) Win 50 million each, without spending money on advertising WORSE OPTION NASH’S EQUILIBRIUM OPTIMAL SOLUTION If Company A advertises and Company B doesn’t, then Company A will win $60 million, and Company B will win $25 million, and vice versa If both companies advertise, each wins $40 million
- 15. The lifecycle ofa company When the business idea is born. Define business plan, financial, ownership structure, etc. SEED Take a product/service to market. Fine tuning, product improving START-UP Selling to an increasing number of customers. Breaking even. Invest in new management and accounting systems. More personnel. GROWTH Operations are standardized, a stable revenue stream. Outsourcing, atomantion. ESTABLISHMENT Geographical or across products and distribution channels EXPANSION Stable sales and profits. Growth revenues slow down. Strong competition. Must decide whether to expand further or exit the investment MATURITY
- 16. The lifecycle ofa company (ctnd) Selling the company to another firm operating in the same industry or to financial investors EXIT
- 17. Competitive advantage A companyhas competitive advantage if and only if one or more of the following aspects is better than that of its competitors High brand recognition Large distribution networks Competitive advantage: when a company provides buyers with comparable value more efficiently than other firms in its industry or creates more value for its buyers Great products Talented staff
- 18. Sources of sustainablecompetitive advantage PATENTS LOYAL TEAMS DISRUPTIVE BUSINESS MODEL BRAND RECOGNITION 01 02 03 04 Intellectual property, technological breakthrough, know-how Proven teams of professionals who are unwilling to leave the brand for the competition A business model that breaks the status quo, like Facebook Pretty self-explanatory, isn’t it? ☺
- 19. Resources vs Capabilities RESOURCES Assetsacquired with money Tangible resources – financial or physical Intangible – tech, patents, brand awareness, copyrights Human resources – know-how, motivation, communication LOREM IPSUM CAPABILITIES A company’s ability to deploy resources towards a specific goal Using resources in an optimal way Core competence – an activity the firm does exceptionally well Core competences can be found in different functional lines of a company LOREM IPSUM Companies should build a resource-based strategy that fully exploits their current capabilities
- 20. Gaining a competitiveadvantage DEVELOP THE RESOURCES ASSESS RESOURCES APPRAISE RESOURCES ASSESS RESOURCES Identify the key success factors in your industry and the resources that would help gain them APPRAISE RESOURCES Identify and secure those resources that are scarce in the industry. The scarcer the resource, the likelier the competitive advantage DEVELOP THE RESOURCES Invest in the resources and make sure their potential is used to the fullest
- 21. Competitive advantage Cost leadership COST-LEADERSHIP 2 Operatingmore than one business, selling complementary products (production of milk and cheese) ECONOMIES OF SCOPE 1 ECONOMIES OF SCALE The more products are sold, the lower the cost per product 4 Lower wage rates, access to low-cost raw materials, or an ability to negotiate well with suppliers and to excel at procurement LOWER INPUT COST 3 PROCESS DESIGN Obtain a cost reduction from a change in the way a process is being carried out. For example, if less input is needed for each unit of output provided
- 22. Competitive advantage Differentiation DIFFERENTIATION 1 PRODUCT DIFFERENTIATION Creatinga better product than offered by competitors 2 Creating an image, symbols, and an overall positioning that reflect the way a company wants to be perceived ECONOMIES OF SCOPE If a company wants to be successful in the long-term, it needs both types of differentiation
- 23. Competitive advantage Niche /Focus strategy S D C P S SPECIALIZE Specialise in understanding the needs of a specific group of people DIFFERENTIATION Offer a differentiated product within the market segment CORE COMPETENCE Develop specific core competence which will decrease the bargaining power of buyers CONSUMER PREFERENCES Disadvantage: consumer preferences may change over time SUPPLIERS Disadvantage: suppliers have a higher bargaining power because niche companies purchase smaller quantities
- 24. Competitive advantage Using hybridstrategies Create separate business units and brands to carry out each of the competitive strategies you have chosen For each unit or brand create different policies and culture that best reflect the chosen strategy Associate the brand reputation with the corresponding prices of the products: customers associate prices with the product quality, do not confuse them SEPARATE BUSINESS UNITS POLICIES COORDINATE 01 02 03
- 25. Organic vs inorganicgrowth Organic growth – growing by expanding the existing business GROWTH STAGE MARKETING INNOVATION TARGETING UNSATISFIED NEEDS NEW TERRITORIES NEW PRODUCT If you enter an industry in its growth phase, your company will grow with the market Identify unsatisfied needs in your already existing customers and launch a new product in an existing market Offer a new product in a new market, diversify. Added bonus, if one of the industries declines, the company will be safe If you’re in a mature stage, you must win market share from your competitors with great marketing, product innovation, and niche targeting Offer your existing products or services in new territories with little or no adjustment necessary
- 26. Organic vs inorganicgrowth Inorganic growth – expanding the business through an M&A HORIZONTAL INTERGRATION Acquiring or merging with another company that operates in the same industry and the same activity Done because it makes sense from a strategic perspective Or because the target company has great growth potential and has developed a product that’s growing faster than the industry The goal: gain market share and expand to new markets without the expense of starting a business from scratch LOREM IPSUM VERTICAL INTEGRATION Expanding the company activities across the supply chain, undertaking new aspects of the business Allows the company to play a larger role in the value delivered to customers Increases control and decreases dependence on suppliers and resellers, which improves the company’s bargaining power But this also increases the organizational complexity and creates a more rigid structure LOREM IPSUM
- 27. SWOT Analysis SWOT ANALYSIS 3 Areas tatneed improvement, and place the company at a disadvantage when competing with other firms WEAKNESSES (INTERNAL) 1 STRENGTHS (INTERNAL) Core competences, competitive advantage 4 Arise in the external environment and may harm the company’s current business THREATS (EXTERNAL) 2 OPPORTUNITIES (EXTERNAL) Favorable factors existing in a company’s industry and have the potential to improve its current results and competitive positioning