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Case Analysis Additionally, there is a case analysis requirement. Writing skills, following the APA format, will be emphasized. Depending on the number of students in this class and the 30 cases in the Hitt, Ireland & Hoskisson text, a team approach to the case analysis requirement may be required. If necessary, each student will be asked to pair up with another student and select a case from the Hitt, Ireland & Hoskisson text of interest to you both. In any case, you should e-mail the instructor with the case name and the team member names, if applicable, as soon as possible to get the case you select. A first-comefirst-served approach is in effect for case selection and to ensure that each team has a unique case. The case analysis is, of course, a strategic level analysis. Your analysis should include a proposed Case Abstract Vision Statement, the actual and proposed Mission Statement, and an External Audit, listing opportunities and threats, and applying appropriate strategic tools from the Hitt, Ireland & Hoskisson text (see Preparing an Effective Case Analysis, preceding the cases, in the Hitt, Ireland & Hoskisson text). Additionally, execute an Internal Audit, again listing opportunities and threats, a Financial Ratio Analysis, and, again, applying appropriate strategic tools from the Hitt, Ireland & Hoskisson text. More information will be provided as the course progresses. You are expected to be proactive in this course. The case analysis should be between 10-15 double-spaced pages in MS Word and in the .doc format, excluding charts, tables and diagrams, and should include the cover sheet at the end of this document. The cover sheet should be copied into the front of your final document and completed electronically. See Lesson Plan for due dates. NB: If you are employed in an industry similar to any of the cases, you may be able to draw on your work experience to add quality/perspective to the analysis. Case Analysis Requirements: You will develop a strategic analysis of the company/case selected to demonstrate the concepts of strategic planning and strategic posture. Your analysis should not repeat the material in your selected case. The instructor has read the cases. Simply use the case information as foundational material to your analysis. Again, e-mail the instructor with your company choice as soon as possible to ensure that another student has not selected your choice. The objective of this strategic decision-making project is to demonstrate your knowledge, skills, and abilities for identifying, analyzing, evaluating, and proposing an action plan and set of recommendations for a strategic decision-making issue(s). Specifically, the analysis should demonstrate the following: - Your ability to identify all of the pertinent strategic issues by providing a sharply focused diagnosis of the strategic issues with the existing situation. - Your knowledge, skills, and abilities to analyze and evaluate the strengths, weakness, opportunities, and threats, are a critical requirement for this project. Furthermore, you must ensure your project fully addresses all of the following five criteria: 1. The utilization of strategic management concepts from the Hitt, Ireland & Hoskisson textbook, and classroom discussions is mandatory regardless of the case you choose. The purpose of this requirement is to demonstrate your comprehension of the strategic decision-making process. 2. Your analysis must be both reasonable and objective. Do not submit a one-sided argument that omits any likely evidence which conflicts with your evaluation. Do not be biased by your personal knowledge or emotions. Instead, concentrate on offering a balanced analysis and evaluation of the issues. Phrases such as, "I think," "I feel," and "I believe," have no application to analysis and must be avoided. 3. Remember, for your case analysis, you should only use the data/information supplied for the case. Cases are snapshots of organizations at a particular instant in time. The case analysis should include: 1. a short vision statement; 2. a strategic assessment of the case selected 3. a description of the current strategic posture and processes of the organization, with consideration of alternative scenarios and associated risks. Case analysis papers, again, should be between 10-15 double-spaced pages in MS Word in the .doc format and, again, should include a cover sheet. The cover sheet template is at the end of this document. Potential Outline for a Case Analysis: Overall outline for your paper: 1. Title Page - Your title page creates the first impression for your paper. It should list the 2. 3. 4. 5. 6. 7. 8. name of your case/company, the names of team members, and the date submitted. You may want to get fancy and add graphic from your company's web site! Outline/Table of Contents - Show the outline and the page numbers where each section starts. (Hint: The outline should be very similar to THIS list - minus my comments!) Executive Summary - This should show the content of the entire paper in 1-2 pages. Note that this is a SUMMARY, not an introduction to your paper. Write the executive summary LAST. Every topic in the remainder of the paper should be summarized here! Company History and Background. What were the pertinent milestones for the company? Include significant changes in corporate structure, mergers, sell-offs, or acquisitions of other companies. Industry and Competitive Analysis. What type of market does your company work in? (monopoly, pure competition, etc.) Who are the major players in the industry? Where does your company stand in the rankings within the industry? What is your company's competitive edge? What are the competitors' competitive edges that are standing in the way? Use the Analysis Tools to help you look at the industry "big picture." Company Analysis: Analysis of the Company's Current Situation. Demonstrate that you understand the "big picture" of the company. What are the "big deal" issues that are currently facing the company? Describe the analysis tools you chose and why you used them. For this you may want to use charts and graphs (from MS Excel) that show the results of your research and analysis. Findings and Conclusions. What are the big "ah has" from your analysis? Use bullet statements to define your findings (what you figured out about your company). Remember that the conclusions don't have to be dismal! If the company is achieving success in most areas, that's the conclusion. Recommendations - Describe your concrete, specific recommendations for the company's next steps. Again, if the company is doing well, the conclusion may be to "stay the course." If, however, there are problems, you must give specific recommendations for how to fix them. CASE ANALYSIS FOR STARBUCKS CORPORATION I. Case Profile/ Company History Three Seattle entrepreneurs started the Starbucks Corporation in 1971. Their prime product was the selling of whole bean coffee in one Seattle store. By 1982, this business had grown tremendously into five stores selling the coffee beans, a roasting facility, and a wholesale business for local restaurants. Howard Schultz, a marketer, was recruited to be the manager of retail and marketing. He brought new ideas to the owners, but was turned down. Schultz in turn opened his own coffee bar in 1986 based on Italian coffee cafes, selling brewed Starbucks coffee. By 1987, Schultz had expanded to three coffee bars and bought Starbucks from the original owners for $4 million. He changed the name of his coffee bars from Il Giornale to Starbucks. His intention for the company was to grow slowly with a very solid foundation. He wanted to create a top-notch management by wooing top executives from other well-known corporations. For the first two years, Starbucks losses doubled as overhead and operating expenses increased with Starbucks' expansion. Schultz stood his ground and did not sacrifice long term integrity and values for short-term profit. By 1991, Starbucks' sales increased by 84% and the company was out of debt. Starbucks grew to 26 stores by 1988. By 1996 it grew to 870 stores with plans to open 2000 stores by the year 2000. II. Situational Analysis Strategic Analysis Business Level-Strategy: The business strategy of Starbucks' is identical to the corporate level strategy since the company is a single business company, focusing on only coffee-related products and retail stores. Corporate Level-Strategy: Starbucks corporate strategy has been to establish itself as the premier purveyor of the finest coffee in the world, while maintaining their uncompromised principles as the grow. The firm principles of the company are seen with its maintenance of a great and proven work environment for every staff member in its retail stores. It upholds diversity and promises the highest standards for its products. The company satisfies customers and gives back to the community and the environment. Also, Starbucks persists to be profitable and it is. They live by a strict, slow growth policy completely dominating a market before setting its sights further abroad. This strategy has gained them the advantage of being one of the fastest growing companies in the country. Structure and Control Systems: Starbucks believes that their employees are one of their important assets in that their only sustainable advantage is the quality of their workforce. They have accomplished building a national retail company by creating pride in the labor produced through an empowering corporate culture, exceptional employee benefits, and employee stock ownership programs. The culture towards employees is laid back and supportive. Employees are empowered by management to make decisions without management referral and are encouraged to think of themselves as a part of the business. Management stands behind these decisions. Starbucks has avoided a hierarchical organizational structure and has no formal organizational chart. The company has both functional and product based divisions. There is some overlap in these divisions with some employees reporting to two division heads. III. SWOT Analysis Starbucks has become a well-known company for selling the highest quality coffee beans and best tasting coffee products. It was one of the first companies to realize that the real money to be made was in beverage retailing, not just coffee beans. Starbucks created a coffee for the coffee connoisseurs and go to great lengths to acquire only the highest quality of coffee beans. They have set new precedence by outbidding the European buyers for an exclusive crop of coffee beans, which produces one of the best coffees in the world. Roasters of Starbucks coffees are extensively trained for one year. Starbucks has the distinction of being the public's educator on Expresso. They have also recently started to expand to packaged and prepared tea in response to the growing demand for this product. There are no other national coffee bar competitors in the same scale as Starbucks. Starbucks is the only competitor in the coffee bar market that has a recognized brand image. The difference between Starbucks and other coffeehouses is that they own all their stores and do not franchise. Starbucks stores operates in most metropolitan areas of the United States and also has a direct mail business to serve customers in every state. They have introduced gourmet flavored decaffeinated coffees as well as specialty flavors and whole bean coffees for the faithful coffee drinkers. They have also added light lunch fare to their menu. Starbucks had recently expanded its emphasis internationally. There are opportunities waiting in possible joint ventures with other corporations to design new product associations with Starbucks' coffee. Although Starbucks has enjoyed tremendous success in the past few years, there are a few obstacles looming. Since the popularity of the coffee house idea has grown, some cities wish to issue regulations on the coffeehouses due to complaints of late night patrons becoming uncontrollable. The cost of coffee beans is expected to rise in the future due to lower supply, which may tighten the margins on coffee merchants. The higher costs have cut into markets, which have heightened the competition in a crowded market. There is an enthusiasm of health consciousness growing in the United States. People are cutting down on caffeine but the consumption of decaffeinated coffee has not seen an increase. Although Starbucks does not have major national competitors, they do have regional ones. Tourists become confused when ordering, since they cannot simply order a cup of coffee. Although Starbucks is interested in gaining recognition and growth in Europe, they will not be pioneers in the European coffee market as they were in the United States. Internal Strengths and Weaknesses Strengths Weaknesses Brand name recognition Non-pioneer in global market Quality Products Narrow Product line Potential Internal Strengths Complicated Products Good Marketing Skills Well Developed Corporate strategy Location Visionary leader Distribution Manufacturing competencies Exclusive marketing rights Environmental Opportunities and Threats Opportunities Threats Expand into Foreign Markets Change in consumer tastes Widen Product Range City regulations Diversify into new Growth Businesses Increase in domestic competition Apply brand name capital in new areas Changes in economic factors Downturn in economy IV. Recommendation Analysis Starbucks has become a great successful company in the coffee bean and beverage business and its strategy has been very effective. From the beginning, Schultz, the company's owner, has professed a strict, slow growing policy. He feels it is also important to keep all the stores company owned to improve and grow the business further. To further grow, Starbucks will need to expand further in other areas of the United States as well as internationally. Future joint ventures will expand the products into grocery and convenience store shelves through bottled beverages and ice cream flavors. Other joint ventures will allow further expansion into the brewery business, which will produce beer with Starbucks' coffee beans. Other partnerships will bring new products for Starbucks, such as jazz CDs, and tandem units with bagel bakeries. As the company expands, the culture and corporate strategy must be maintained for success. This will ensure the health of the organization throughout any future expansion. ADDITIONAL: ADDITIONAL RESEARCH: Wake up and smell the coffee -- Starbucks is everywhere. The US's #1 specialty coffee retailer, Starbucks operates nearly 4,000 coffee shops in a variety of locations (office buildings, shopping centers, airport terminals, supermarkets) in some 20 countries worldwide. Starbucks sells coffee drinks and beans, pastries, and other food items and beverages, as well as mugs, coffeemakers, coffee grinders, and storage containers. The company also sells its beans to restaurants, businesses, airlines, and hotels, and it offers mail-order and online catalogs. Starbucks has expanded into coffee ice cream (with Dreyer's) and makes Frappuccino, a bottled coffee drink (with PepsiCo). Starbucks Corporation NASD : SBUX Sector: Consumer/Non-Cyclical Industry: Food Processing STARBUCKS BUSINESS SUMMARY Starbucks Corporation purchases and roasts high quality whole bean coffees and sells them, along with fresh, rich-brewed coffees, Italian-style espresso beverages, cold blended beverages, a variety of pastries and confections, coffee-related accessories and equipment, and a line of premium teas, primarily through its Company-operated retail stores. In addition to sales through its Company-operated retail stores, Starbucks sells coffee and tea products through other channels of distribution (specialty operations). Starbucks, through its joint venture partnerships, also produces and sells bottled Frappuccino coffee drink and a line of premium ice creams. The Company's objective is to establish Starbucks as the most recognized and respected brand in the world. Company-Operated Retail Stores As of the fiscal year ended October 1, 2000, Starbucks had 2,619 Company-operated stores in 34 states, the District of Columbia and five Canadian provinces (which comprise the Companyoperated North American retail operations), as well as the United Kingdom, Thailand and Australia (which comprise the Company-operated international retail operations). Companyoperated retail stores accounted for approximately 84% of net revenues during fiscal 2000. All Starbucks stores offer a choice of regular and decaffeinated coffee beverages, including at least one "coffee of the day," a broad selection of Italian-style espresso beverages, cold blended beverages, a selection of teas and distinctively packaged, roasted whole bean coffees. Starbucks stores also offer a selection of fresh pastries and other food items, sodas, juices, and coffeemaking equipment and accessories. Each Starbucks store varies its product mix depending upon the size of the store and its location. Larger stores carry a broad selection of the Company's whole bean coffees in various sizes and types of packaging, as well as an assortment of coffee and espresso-making equipment and accessories such as coffee grinders, coffee makers, espresso machines, coffee filters, storage containers, travel tumblers and mugs. Smaller Starbucks stores and kiosks typically sell a full line of coffee beverages, a more limited selection of whole bean coffees and a few accessories such as travel tumblers and logo mugs. Approximately 15% of Starbucks stores carry a selection of "grab and go" sandwiches and salads. During fiscal 2000, the Company's retail sales mix by product type was approximately 73% handcrafted beverages, 14% food items, 8% whole bean coffees, and 5% coffee-making equipment and accessories. Specialty Operations Starbucks specialty operations strive to develop the Starbucks brand outside the Companyoperated retail store environment through a number of channels. Starbucks specialty operations include retail store licensing agreements, wholesale accounts, grocery channel licensing agreements and joint ventures. Starbucks specialty operations also include direct-to-consumer marketing channels. In certain licensing situations, the licensee is a joint venture in which Starbucks has an equity ownership interest. During fiscal 2000, specialty revenues (which include royalties and fees from licensees as well as product sales) accounted for approximately 16% of the Company's net revenues. Although the Company does not generally relinquish operational control of its retail stores in North America, in situations in which a master concessionaire or another company controls or can provide improved access to desirable retail space, the Company may consider licensing its operations. As part of these arrangements, Starbucks receives license fees and royalties and sells coffee and related products for resale in the licensed locations. Employees working in the licensed locations must follow Starbucks detailed store-operating procedures and attend training classes similar to those given to Starbucks store managers and employees. As of October 1, 2000, the Company had 530 licensed stores in continental North America. Starbucks retail stores located outside of North America, the United Kingdom, Thailand and Australia are operated through a number of joint venture and licensing arrangements with prominent retailers. During fiscal 2000, the Company expanded its international presence by opening 184 new international licensed stores, including the first stores in Lebanon, the United Arab Emirates, Qatar, Hong Kong and Shanghai. At fiscal year end, the Company had 154 stores in Japan, 47 in Taiwan, 28 in China, 28 in Singapore, 27 in the Philippines, 20 in Hawaii, 15 in New Zealand, 14 in Malaysia, six in South Korea, five in the United Arab Emirates, four in Kuwait, three in Lebanon, and one in Qatar. Starbucks also sells whole bean and ground coffees to several types of wholesale accounts, including office coffee distributors and institutional foodservice management companies that service business, industry, education and healthcare accounts, and hotels, airlines and restaurants. In fiscal 1998, Starbucks entered into a long-term licensing agreement with Kraft Foods, Inc. to accelerate the growth of the Starbucks brand into the grocery channel in the United States. Pursuant to such agreement, Kraft manages all distribution, marketing, advertising and promotions for Starbucks whole bean and ground coffee in grocery, warehouse club and mass merchandise stores. By the end of fiscal 2000, the Company's whole bean and ground coffees were available throughout the United States in approximately 16,000 supermarkets. The Company has two non-retail domestic 50-50 joint ventures. The North American Coffee Partnership, a joint venture with the Pepsi-Cola Company, a division of PepsiCo, Inc. , was formed in fiscal 1994 to develop and distribute ready-to-drink coffee-based products. By the end of fiscal 2000, the joint venture was distributing bottled Frappuccino coffee drink to approximately 250,000 supermarkets, convenience and drug stores and other locations throughout the United States and Canada. The Company formed a joint venture with Dreyer's Grand Ice Cream, Inc. in fiscal 1996 to develop and distribute Starbucks premium coffee ice creams. By the end of fiscal 2000, the joint venture was distributing a variety of ice cream and novelty products to over 21,000 supermarkets throughout the United States. The Company makes fresh Starbucks coffee and coffee-related products conveniently available via mail order and on-line. Starbucks publishes and distributes a mail order catalog that offers its coffees, certain food items and select coffee-making equipment and accessories, and the Company maintains a web site at www.starbucks. com with an on-line store that allows customers to browse for and purchase coffee, gifts and other items via the Internet. The Company believes that its direct-to-consumer operations support its retail store expansion into new markets and reinforce brand recognition in existing markets. INDUSTRY FINANCIAL SUMMARY SBUX purchases, roasts and sells high quality whole bean coffees, rich-brewed coffees, Italianstyle espresso beverages, cold blended beverages and a variety of pastries. For the 26 weeks ended 4/1/01, net sales rose 25% to $1.30 billion. Net income rose 40% to $81.2 million. Revenues reflect the opening of new retail stores and higher comparable store sales. Net income also reflects a higher gross margin due to an increase in sales prices. Case Analysis: Your task is to identify and propose a fact-based solution to the most important areas of managerial concern. Narrow these areas to as few as possible. Two or three is normally appropriate for your in-depth attention. Your ability to zero in on the killer concerns facing management in a situation will serve you well in case analyses. In preparing yourself for a case discussion, the following steps are recommended: Diagnosis; Analysis of Alternatives; Choice; Plan and Persuasion. In a sense, the guiding questions really can be summarized using the following questions: (1) What are the problems? (2) How do you analyze them? (3) What decisions do you propose and why? (4) Be action oriented! The following approach is often helpful: 1. Read the first and last paragraphs to get a sense of the context of the situation. Look for any non-standard exhibits as these may give an indication of the type of useful information that may be needed to analyze the situation. 2. Skim the case and develop a hypothesis for the causes of the problem and its probable solution. 3. Reread the case more carefully searching for evidence to support or disprove your hypothesis. Perform only those analyses that go toward answering specific questions you have formulated in advance. 4. Always come to conclusions and make (or recommend) the required decisions. 5. Lay out the specific actions that need to be taken to implement the decision. What, Why, Who, When, How and What resources (people, time, money, facilities) are required? Where will you get them if they are not available? 6. One last thing. All implementation plans have risks. An adequate analysis identifies the key, action-specific, implementation risks and how you intend to mitigate/manage them. 1 1. SWOT Purpose: Analyze a company’s Strengths, Weaknesses, Opportunities, and Threats in order to build on a company’s strengths; exploit opportunities; counter threats; correct weaknesses. The purpose of the SWOT analysis is to analyze through a brainstorming manner and internal (strengths and weaknesses) and external (opportunities and threats) to the firm. The goal is to identify strengths in the organization that can be built upon, weaknesses that can be improved, opportunities that can be implemented, and threats that need to be monitored and potentially develop countermeasures for. The benefits of SWOT are that it is very simple and can be used during a “back of the napkin” conversation or in a board room. Also it can be iterated as many times as necessary. It can be adapted to business units or divisions or corporations. It is flexible in its scope. SWOT limitations include the fact that it is not quantitative. SWOT is a qualitative tool with the usefulness to confirm relative changes or magnitudes or impacts of strengths, weaknesses, opportunities, or threats over time. Alternative to SWOT could be five forces competitive analysis in conjunction with the value chain analysis. The generic competitive strategies and the two framework that Porter developed (framework for global competitors, and the framework for multi-business companies). All these tools can be used to analyze the strategic posture and positioning of the organization as SWOT does. Origin of SWOT: SWOT is so widely used and accepted as being part of the common domain that most people forget that the originator of SWOT was Shaw (19XX). Company Internal Characteristics: Strengths – Distinctive competence that gives a firm a comparative advantage. (ie Microsoft’s user base have proven to be a key strength on which it built its aggressive entry in to Internet services) Weaknesses – Deficiencies that impede the firm’s effectiveness (i.e. limited financial capacity was a weakness recognized by Southwest Airlines, which charted a selective route expansion strategy to build the best profit record in a deregulated airline industry.) Company External Characteristics: Opportunities – Favorable situation in external environment. Identification of a previously overlooked market segment, changes in competitive or regulatory circumstances, technological changes, and improved buyer or supplier relationships could represent opportunities for the firm. Threats – Unfavorable situation in the external environment. The entrance of new competitors, slow market growth, increased bargaining power of key buyers or suppliers, technological changes, and new or revised regulations could represent threats to a firm’s success. Diagram: 2 Opportunities Overcome Grow Strengths Weaknesses Restructure Diversify Threats SWOT Benefits: 1. Ease of Use (graphically shown) 2. Provides a framework for managerial discussion 3. Allows an organization to match opportunities and treats to strengths and weaknesses. SWOT Limitations: 1. Ease of Use (not quantitative) 2. Subjective – non-empirical analysis 3. Biased manager’s perception influence the analysis 4. Few clear-cut recommendations SWOT Conclusion: SWOT is widely used to achieve an overview of a company’s strategic situation. Then the given company can form an overall effective strategy (Grow, Overcome, Diversify, or Restructure) based on the strongest fit between the internal resources and external situation. 2. BALANCED SCORECARD Origin:  Kaplan/Norton developed the balanced scorecard in 1992: Robert S. Kaplan and Norton, David P. “The Balanced Scorecard – Measured That Drive Performance,” Harvard Business Review. January – February, 1992: 71-79.  4 measures integral to the balanced scorecard: Financial, Customer, Internal, Learning & Growth. (Memory phrase: “Find the Customer Internally to Learn and Grow).  Provides a framework for balancing shareholder and strategic goals….driving action from the corporate to the division to the unit to the department to the person.  Links the 4 measures into cause/effect strategies Purpose: 3    Translate strategy into operational terms Align key management processes to performance objectives. Assist in monitoring strategy. Example Diagram: 1. Balanced Scorecard in relation to human resource strategy Financial Targets Initiatives Sub category of initiatives supported by Human Resource 1. Support for improving financial management 2. Financial contribution of HR (ROI) Customer Targets Initiatives Sub category of initiatives supported by Human Resource 1. Support for improving employee-customer interactions Internal Targets Initiatives Sub category of initiatives supported by Human Resource 1. Support for improving internal management Knowledge Targets Initiatives Human Resource Initiatives 1. Developing core skills and competencies 2. Targeted development of skills Human Resource Strategy 3. Nissan Forklift Example of Balanced Scorecard right after impact of west coast longshoreman’s lockout was most prevalently felt. Snap-Shot CUSTOMER PERSPECTIVE Current Strategic Goal Percent On-Time Delivery-Truck Cust. Satisfaction Fill Rate Adjusted On-Time Delivery-PDC Cust. Satisfaction Lead Time Reduction-Weeks Cust. Satisfaction Avg # Warranty Claims per 1000 Units Quality YTD Period Goal Current Variance Oct Oct Oct Sep 99.0% 93.0% 5.00 16.46 75.1% 93.2% 7.95 34.00 (23.9%) 0.2% (2.95) (17.54) INTERNAL BUSINESS PROCESS Strategic Goal Period Goal Current Variance On-Time Del Int-Component MO On-Time Del Int-Truck MO Cust. Satisfaction Cust. Satisfaction Cust. Satisfaction Cust. Satisfaction Quality Cust. Satisfaction Cust. Satisfaction Oct Oct Sep Sep Oct Oct Oct 99.0% 99.0% 99.0% 99.0% 1,000 95.0% 97.0% 50.8% 85.8% 97.1% 86.5% 4,730 85.2% 85.1% (48.2%) (13.2%) (1.9%) (12.5%) (3,730) (9.8%) (11.9%) GROWTH-Employee & Business Strategic Goal Period Goal Current Variance Number of Improvement Ideas Number of Safety Incidents Market Share - I, IV, V Market Share - II, III Parts Sales - Dollars in 1000s Engine Sales - Units Emp. Satisfaction Emp. Satisfaction Profitab ility Profitab ility Profitab ility Profitab ility Oct Oct Sep Sep Oct 9 of 23 Sep 29 0 10.0% 4.5% 4,289 502 9 1 9.1% 1.9% 3,227 919 (20) (1) (0.9%) (2.6%) (1,062) 417 Strategic Goal Period Goal Current Variance Value-cost reduction Value-cost reduction Value-cost reduction Profitab ility Profitab ility Oct Sep Aug Sep Sep 218,334 8.70 80.0% 14.1% 12.7% 31,924 7.09 76.0% 15.1% 10.0% (186,410) (1.61) (4.0%) 1.0% 2.7% On-Time Delivery Ext-Plant Suppliers On-Time Delivery Ext-PDC Suppliers # of Internal & Supplier Rejects-PPM Inventory Location Accuracy-Plant Inventory Location Accuracy-PDC FINANCIAL PERSPECTIVE Material Price Savings Inventory Turns Labor Efficiency Improvements Gross Profit Operating Expenses Period YTD Goal Oct Oct Oct YTD 99.0% 93.0% 5.00 16.46 Period YTD Goal Oct Oct Sep Sep YTD YTD YTD 99.0% 99.0% 99.0% 99.0% 1,000 95.0% 97.0% Period YTD Goal YTD YTD YTD YTD YTD Proj YTD 290 0 10.0% 4.5% 38,787 4537 Period YTD Goal YTD Sep Aug YTD YTD 1,880,332 8.70 80.0% 14.1% 12.7% Actual Variance 75.1% 93.2% 7.95 30.05 (23.9%) 0.2% (2.95) (13.59) Actual Variance 50.8% 85.8% 97.1% 86.5% 6,659 86.8% 89.7% (48.2%) (13.2%) (1.9%) (12.5%) (5,659) (8.2%) (7.3%) Actual Variance 194 33 8.5% 3.7% 32,934 5540 (96) (33) (1.5%) (0.8%) (5,853) 1,003 Actual Variance 518,770 7.09 76.0% 12.9% 13.0% (1,361,562) (1.61) (4.0%) (1.2%) (0.3%) 10/14/2002 4 Benefits:  Provides balance between short /long-term strategies.  Better service quality leading to increased customer satisfaction.  Increased customer satisfaction leading to customer loyalty. Limitations:  Strategic Planning and Operational Budgeting are often separated in many organizations  Highly subjective and requires experienced judgment and business acumen to use  It assumes the “market” recognizes the value of assets  Often not linked to targeted improvement for strategic objectives 1. VALUE CHAIN ANALYSIS Origin: Value chain analysis is introduced in the book Competitive Strategy, Porter (1980). The value chain of a firm are activities that transform inputs into outputs that buyers/customers value. Value Chain and Competitive Advantage: According to Competitive Advantage, Porter (1985), Competitive advantage stems from the many discrete activities a firm performs in designing, producing, marketing, delivering, and supporting its product. A cost advantage, for example, may stem from such disparate sources as a low-cost physical distribution system, a highly efficient assembly process, or superior sales force utilization. Differentiation can stem form similarly diverse factors, including the procurement of high quality raw materials, a responsive order entry system, or a superior product design. A systematic way of examining all the activities a firm performs and how they interact is necessary for analyzing the sources of competitive advantage. A firm’s value chain is embedded in a larger stream of activities Porter terms the value system. A firm’s product eventually becomes part of its buyer’s value chain. Every firm’s value chain is composed of nine generic categories of activities which are linked together in characteristic ways. The firm’s value chain activities are linked to each other and to the activities of its suppliers, channels, and buyers. Customer Value:  Activities that differentiate the products  Activities that lower its cost  Activities that meet the customer’s need quickly  Definition of value: that quality of a thing according to which it is thought of as being more or less desirable, useful, estimable, important……degree of worth…..merit.  In competitive terms, value is the amount buyers are willing to pay for what a firm provides them. Value is measured by total revenue, a reflection of the price a firm’s product commands and the units it can sell. 5  The value chain displays total value, and consists of value activities and margin. Value activities are the physically and technologically distinct activities a firm performs. Margin is the difference between total value and the collective cost of performing the value activities Explanation:  Process perspective  Divided into two main categories: Primary (production line); Support (other related staff)  Looks at the cost advantages and disadvantages at each activity  Value activities can be divided into two broad types, primary activities and support activities. Primary activities are the activities involved in the physical creation of the product and its sale and transfer to the buyer as well as after-sale assistance. In any firm, primary activities can be divided into the five generic categories. Support activities support the primary activities and each other by providing purchased inputs, technology, human resources, and various firmwide functions. The dotted lines reflect the fact that procurement, technology development, and human resource management can be associated with specific primary activities as well as support the entire chain. Firm infrastructure is not associated with particular primary activities but supports the entire chain. Primary Activities:  Inbound Logistics – Activities associated with receiving, storing, and disseminating inputs to the product, such as material handling, warehousing, inventory control, vehicle scheduling, and returns to suppliers.  Operations - Activities associated with transforming inputs into the final product form, such as machining, packaging, assembly, equipment maintenance, testing, printing, and facility operations.  Outbound Logistics – Activities associated with collecting, storing, and physically distributing the product to buyers, such as finished goods warehousing, material handling, delivery vehicle operation, order processing, and scheduling.  Marketing & Sales – Activities associated with providing a means by which buyers can purchase the product and inducing them to do so, such as advertising, promotion, sales force, quoting, channel selection, channel relations, and pricing  Service – Activities associated with providing service to enhance or maintain the value of the product such as installation, repair, training, parts supply, and product adjustment Support Activities:  General Administration (Firm Infrastructure) – Firm infrastructure consists of a number of activities including general management, planning, finance, accounting, legal, government affairs, and quality management.  Human Resource Management – Human resource management consists of activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel 6   Research, Technology, and Information System Development – Every value activity embodies technology, be it know-how, procedures, or technology embodied in process equipment. Procurement – Procurement refers to the function of purchasing inputs used in the firm’s value chain. Strengths  Breakdown operations into specific functions  Utilizes activity based costing  Compatible with R.B.V.’s analysis of intangible assets  Allows management to target  Shows where the company’s “center of gravity” is (core competencies) Weaknesses  Time consuming and ties up assets  Very different from traditional accounting methods  Costs could be arbitrary  Does not look at external environment Diagnosing Competitive Advantage: It is necessary to define a firm’s value chain for competing in a particular industry. Each generic category can be divided into discrete activities. For example marketing and sales could be subdivided into marketing management, advertising, sales force administration, sales force operations, technical literature, promotion. Analyzing each discrete activity within the firm in comparison to the competition will allow the identification of competitive advantage or areas where improvement is necessary to actually achieve a competitive advantage. Value activities are related by linkages within the value chain. Linkages are relationships between the way one value activity is performed and the cost or performance of another. For example, purchasing high-quality, precut steel sheets can simplify manufacturing and reduce scrap. Linkages exist not only within a firm’s value chain but between a firm’s chain and the value chains of suppliers and channels called vertical linkages. Channel linkages are similar to supplier linkages. Channels have value chains through which a firm’s product passes. Buyers also have value chains, and a firm’s product represents a purchased input to the buyer’s chain. Understanding the value chains of industrial, commercial, and institutional buyers is intuitively easy because of their similarities to that of a firm. Understanding households’ value chains is less intuitive, but nevertheless important. A firm’s differentiation stems from how its value chain relates to its buyer’s chain. Competitive scope can have a powerful effect on competitive advantage, because it shapes the configuration and economics of the value chain. There are four dimensions of scope that affect the value chain.  Segment Scope. The product varieties produced and buyers served.  Vertical Scope. The extent to which activities are performed in-house instead of by independent firms.  Geographic Scope. The range of regions, countries, or groups of countries in which a firm competes with a coordinated strategy. 7  Industry Scope. The range of related industries in which the firm competes with a coordinated strategy. Broad scope can allow a firm to exploit the benefits of performing more activities internally. Narrow scope can allow the tailoring of the chain to serve a particular target segment, geographic area or industry to achieve lower cost or to serve the target in a unique way. Conclusion: Value Chain Analysis is a good tool which highlights: Strengths & Weaknesses; Determine Competitive Advantages Diagram: [ Adapted from Dr. Barnes’ class materials] General administration Support Activities Human resource management Research, Technology, and Systems Margin development Procurement Service Inbound Logistics Operation s Outboun d logistics Marketin g and sales Margin Primary Activities Value Chain Example: Copier Manufacturer (Porter, 1985, Competitive Advantage) Firm Infrastructure Human Resource Management Technology Development Margin Recruiting Training Recruiting Recruiting Margin Margin Design of Automated System Component Design, Machine Design, Design of Assembly Line, Testing Procedures, Energy Management Information System Development Market Research, Sales Aids & Technical Literature Service Manuals and Procedures Inbound Material Component Fabrication Order Processing, Advertising, Promotion, Service Reps, Spare Parts Procurement Margin Margin 8 Handling, Inbound Inspection, Parts Picking & Delivery Inbound Logistics Assembly, Fine Tuning & Testing, Maintenance, Facilities Operation Operations Shipping Sales Force Systems Outbound Logistics Marketing & Sales Service Margin 2. GENERIC STRATEGIES Competition and Generic Strategies: According to Porter (1985) Competitive Advantage: Competition is a the core of the success or failure of firms. Competition determines the appropriateness of a firm’s activities that can contribute to its performance, such as innovations, a cohesive culture, or good implementation. Competitive strategy is a search for a favorable competitive position in an industry, the fundamental arena in which competition occurs. Competitive strategy aims to establish a profitable and sustainable position against the forces that determine industry competition. Two central questions underlie the choice of competitive strategy. The first is the attractiveness of industries for long-term profitability and the factors that determine it. The second central question in competitive strategy is the determinants of relative competitive position within an industry. The key is to build a bridge between strategy and implementation, rather than treat these two subjects independently or consider implementation scarcely at all as has been characteristic of much previous research in the field. Value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset a higher price. There are two basic types of competitive advantage: cost leadership and differentiation. Purpose: How can the firm best compete? Goal: Gain Competitive Advantage. A firm that can position itself well may earn high rates of return even though industry structure is unfavorable and the average profitability of the industry is therefore modest. The two basic types of competitive advantage (cost leadership and differentiation) combined with the scope of activities for which a firm seeks to achieve them lead to three generic strategies for achieving aboveaverage performance in an industry: Three Generic Strategies  Cost Leadership – The Low cost producer in its industry…. The firm has a broad scope and serves many industry segments, and may even operate in related industries – the firm’s breadth is often important to its cost advantage. The sources of cost advantage are varied and depend on the structure of the industry. They may include the pursuit of economies of scale, proprietary technology, preferential access to raw materials, and other factors. TV sets, for example, cost leadership requires efficient size picture tube facilities, a low-cost design, automated assembly, and global scale over which to amortize R&D. In security guard services, cost advantage requires extremely low overhead, a 9   plentiful source of low-cost labor, and efficient training procedures because of high turnover. A cost leader must achieve parity or proximity in the bases of differentiation relative to its competitors to be an above-average performer, even though it relies on cost leadership for its competitive advantage. Differentiation – A firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. The means for differentiation are peculiar to each industry. In construction equipment, for example, Caterpillar Tractor’s differentiation is based on product durability, service, spare parts availability, and an excellent dealer network. In cosmetics, differentiation tends to be based more on product image and the positioning of counters in the stores. A firm that can achieve and sustain differentiation will be an above-average performer in its industry if its price premium exceeds the extra costs incurred in being unique. A differentiator thus aims at cost parity or proximity relative to its competitors, by reducing cost in all areas that do not affect differentiation. Focus – The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others. Cost focus a firm seeks a cost advantage in its target segment, while in differentiation focus a firm seeks differentiation in its target segment. A good example of a focuser who has exploited differences in the production process that best serves different segments is Hammermill Paper. Hammermill has increasingly been moving toward relatively low-volume, high-quality specialty papers, where the larger paper companies with higher volume machines face a stiff cost penalty for short production runs. Hammermill’s equipment is more suited to shorter runs with frequent setups. Generic Strategy Characteristics/Benefits  They are simply stated. What you see is what you get!  Everyone in the company can identify with them.  Can produce above-average returns for the firm Benefits (Cost Leadership)  Tight cost control – cost reduction & efficiencies; cost cutting technologies; reduce overhead and administrative expenses  Frequent, detailed reports  Dominate market share position  Structured organization and responsibilities  Incentive based to meet quantitative targets  Maximize economies of scales Benefits (Differentiation/Unique)  Firm attempts to build customer loyalty (premium price)  Marketing channels through which it is delivered.  Its image for excellence  The feature it includes Benefits: (Focused Strategy) 10    Segments that are ignored by marketing appeals (ignored or under appreciated customer segment. Will service indicated geographical areas Tailor the product to the needs of the customer Risk /Limitations:  Cost Leadership: 1. Not sustained – competitors imitate; technology changes; other bases for cost leadership erode. 2. Proximity in differentiation is lost 3. Cost focusers achieve even lower cost in segments.  Differentiation 1. Not sustained – competitors imitate; bases for differentiation become less important to buyers. 2. Cost proximity is lost 3. Differentiation focusers achieve even greater differentiation in segments  Focus 1. Imitated by competitors 2. The target segment becomes structurally unattractive – structure erodes; demand disappears. 3. Broadly-targeted competitors overwhelm the segment – the segment’s differences form other segments narrow; the advantages of a broad line increase. 4. New focusers sub-segment the industry. Example: Each generic strategy implies different skills and requirements for success, which commonly translate into differences in organizational structure and culture. Cost leadership usually implies tight control systems, overheard minimization, pursuit of scale economies, and dedication to the learning curve; these could be counterproductive for a firm attempting to differentiate itself through a constant stream of creative new products. Structural change can shift the relative balance among the generic strategies in an industry, since it can alter the sustainability of a generic strategy or the size of the competitive advantage that results form it. The automobile industry provides a good example. Early in its history, leading automobile firms followed differentiation strategies in the production of expensive touring cars. Technological and market changes created the potential for Henry Ford to change the rules of competition by adopting a classic overall cost leadership strategy, based on low-cost production of a standard model sold at low prices. Ford rapidly dominated the industry worldwide. By the late 1920s, however, economic growth, growing familiarity with the automobile, and technological change had created the potential for General Motors to change the rules once more – it employed a differentiation strategy based on a wide line, features, and premium prices. Throughout this evolution, focused competitors also continued to succeed. Diagram: [ Porter, 1985, Competitive Advantage, Figure 1-3.] Competitive Advantage 11 Competitive Scope Broad Target Narrow Target Lower Cost Cost Cost Leadership Differentiation Cost Focus Differentiation Focus Differentiation 3. FIVE FORCES ANALYSIS The Structural Analysis of Industries: (Porter, 1985, Competitive Advantage) : The first fundamental determinant of a firm’s profitability is industry attractiveness. In any industry, whether it is domestic or international or produces a product or a service, the rules of competition are embodied in five competitive forces, the entry of new competitors, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers, the bargaining power of buyers, the bargaining power of suppliers, and the rivalry among the existing competitors The collective strength of these five competitive forces determines the ability of firms in an industry to earn, on average, rates of return on investment in excess of the cost of capital. Industry profitability is not a function of what the product looks like or whether it embodies high or low technology, but of industry structure. Some very mundane industries such as postage meters and grain trading are extremely profitable, while some more glamorous, high-technology industries such as personal computers and cable television are not profitable for many participants. The five forces determine industry profitability because they influence the prices, costs, and required investment of firms in an industry – the elements of return on investment. Buyer power influence the prices that firms can charge, for example, as does the threat of substitution. The power of buyers can also influence cost and investment, because powerful buyers demand costly service. The bargaining power of suppliers determines the costs of raw materials and other inputs. The intensity of rivalry influences prices as well as the costs of competing in areas such as plant, product development, advertising, and sales force. The threat of entry places a limit on prices, and shapes the investment required to deter entrants. The strength of each of the five competitive forces is a function of industry structure, or the underlying economic and technical characteristics of an industry. Define: Provides integrated framework for balancing shareholder and strategic goals, and extending these balanced performance measures down the organization, from corporate to divisional to individual units and departments. Model Elements: 1) Threats of new entrants. 2) Bargaining powers of lawyers. 3.) Threat of substitute products. 4.) Bargaining power of suppliers. 5) Rivalry among existing firms. 12 Purpose: A framework that can be used to determine the intensity of competitions and the level of profitability. Limitations: - It’s basis structure – conduct – performance approach to industrial organizations has been largely displaced in microeconomics by game theory. - Limited by its static nature, competition is a dynamic process. - Lack of empirical evidence as to the importance of industry environment as a determinant of firm productivity. Entry Barriers: economies of scale; proprietary product differences; brand identity; switching costs; capital requirements; access to distribution; absolute cost advantages (proprietary learning curve, access to necessary inputs, proprietary low-cost product design); government policy; expected retaliation Rivalry Determinants: industry growth; fixed (or storage) costs/value added; intermittent overcapacity; product differences; brand identity; switching costs; concentration and balance; informational complexity; diversity of competitors; corporate stakes; exit barriers Determinants of Supplier Power: Differentiation of inputs; switching costs of suppliers and firms in the industry; presence of substitute inputs; supplier concentration; importance of volume to supplier; cost relative to total purchases in the industry; impacts of inputs on cost or differentiation; threat of forward integration relative to threat of backward integration by firms in the industry. Determinants of Buyer Power:  Bargaining Leverage: buyer concentration versus firm concentration; buyer volume; buyer switching costs relative to firm switching costs; buyer information; ability to backward integrate; substitute products; pull-through  Price Sensitivity: price/total purchases; product differences; brand identity; impact on quality/performance; buyer profits; decision makers’ incentives Determinants of Substitution Threat: Relative price performance of substitutes; switching costs; buyer propensity to substitute. 13 Five Forces Model: [ Porter] Threat of new Entrants Bargaining Power of Suppliers Potential Entrants Industry Competitors Bargaining Power of Buyers Buyers Suppliers Threat of Substitute Products or Services Rivalry Among Existing Firms Substitutes 4.FRAMEWORK FOR GLOBAL COMPETIVENESS Challenges of Change…… - New Competitors - Customer Demands - Employee Demands - New Business Models - How to survive when everything is changing? Multi-domestic Industries: - Competition is segmented country to country: Retailing; Insurance; Autonomous Mgmt – Country related decisions; -Customized products; Unique distribution channels. Global Industries: - management task is increased in scope - global planning is necessary  Different environment forces  Greater distances  International operations  Information explosion - Information explosion  10 years = 2xknowledge (knowledge doubling) 14 -  keeping up is critical Global competition Planning breeds confidence 6 factors for success:  Global management team  Global Strategy  Global Ops and Products  Global Technology and R&D  Global Financing  Global marketing Location & Coordination Issues (Porter)  Operations  Marketing  Service  R&D  Purchasing Competitive Strategies:  Niche Market Exporting  Licensing/ Contract Manufacturing  Franchising  Joint Ventures  Foreign Branching  Wholly Diversified Subsidiary Diagram: [Porter’s International Strategy Options Model ( 1986 California Management Review)] International Strategy Options High Coordination of activities Low High foreign investment with extensive coordination among subsidiaries Global Strategy Country-centered strategy by multinationals with a number of domestic firms operating in only one country Export-based strategy with decentralized marketing Geographically Dispersed Geographically Concentrated Location of activities 15 Diagram: [Pearce and Robinson, 2003, Exhibit 4-13, p112] International Strategy Options High Product Diversity Joint Venture Foreign Branch Wholly owned foreign subsidiary Licensing, contract manufacturing, franchising Joint venture Foreign branch Export Licensing, contract manufacturing, franchising Joint Venture Low High Market Complexity 5.FRAMEWORK FOR BUILDING VALUE IN MULTI-BUSINESS COMPANIES Rational for Development: compelling when core competencies can be leveraged with other products or markets that are not a part of where they were created. Defined: Transforming a business company into a collection of numerous businesses across several industries or a collection of businesses. Three (3) opportunities components: [ These are compared by Potential competitive Advantages to Impediments to Achieving Enhance Value] 1) Market-related opportunities i. Shared sales force activities or shared sales office, or both. ii. Shared after-sale service and repair work iii. Shared brand name iv. Shared advertising and promotional activities v. Common distribution channels vi. Shared order processing 2) Operating Opportunities i. Joint procurement of purchased inputs ii. Shared manufacturing and assembly facilities iii. Shared inbound or outbound shipping and material handling. 16 iv. Shared product and process technologies or technology development or both. v. Shared administrative support activities 3) Management Opportunities i. Shared management know-how operating skills, and proprietary information. Market related Ops: Example  Sub component - Common distribution channels: General Cinema used its skills in marketing to craft a franchise for soft-drink bottling. Operating Ops: Example  Sub component – Shared product & process technologies or technology development or both: Honda of Japan entered the garden tools market from its tradition core competence in manufacturing small, internal combustion engines. Management Ops Example  Sub-component - Shared management know how, operating skills, & proprietary information or understanding key success factors…..such as 3M maintaining a strategy to have 25% of its profits from products developed in the last 5 years. Summary: - 1. Competitive advantage to the intended business. Relationship that can make the core competency more beneficial Combination of competencies unique or difficult to recreate. BCG MATRIX Growth Rate – Industry growth rate in constant dollars (GNP’s growth rate) Market Share – Sales relative to those of other competitors in the market (dividing point is usually selected to have only the two-three largest competitors in any market fall into the high market share region. History: Developed during the 1970s by the Boston Consulting Group (BCG). Designed to help senior managers identify the “cash flow requirements” of different businesses in their portfolios. Examples: -Star – Johnson & Johnson Medical Device Product Line -Cash Cow – Siemens Industrial Lighting Division -Problem Child – Cricket Wireless Phones - Dog – Electric Typewriters Advantages 17     Ease of use can be represented graphically Provides framework for managerial discussions Compares relative strengths of the firms portfolio so the firm can take positions in the competitive markets Suggests potential repositioning strategies Disadvantages  Simplistic: Uses just two dimensions  Relationship of dimensions not as clear as the model suggest.  Cash cow: low growth industries can be very competitive  Business units are treated as independent ignoring economies of scales. Market Share High Growth Rate High Low Low Star Problem Child Cash Cow Dog Conclusion: A simplistic example of how portfolios can be managed and offers some generic strategies for portfolio management. 2. INDUSTRY ATTRACTIVENESS MATRIX – Business Strength matrix Multiple Factors used to assess: - Industry attractiveness - Business strength - Expansion of the Boston Consulting Group matrix Developed by McKinsey & Company at General Electric. Description of dimensions - Industry Attractiveness: Subjective assessment based on broader possible range of “external opportunities and threats beyond the strict control of management. - Business Strengths: Subjective assessment based on how strong a competitive advantage is created by a broad range of the firm’s internal strengths and weaknesses. - Industry Attractiveness: [External]  Nature of competitive rivalry  Bargaining power of suppliers/customers 18      Threats of substitute products/ new entrants Economic factors Financial norms Some political considerations Subjective assessment based on the broadest possible range of external opportunities and threats beyond the strict control of management. Industry attractiveness Business Strength Nature of Competitive Rivalry Cost Position Number of competitors Economies of scale Size of competitors Manufacturing costs Strength of competitor’s corporate parents Overhead Price war Scrap/Waste Competition on multiple dimensions Experience effects Labor rates Proprietary processes Bargaining power of suppliers/Customers Level of Differentiation Relative size of typical players Promotional effectiveness Numbers of each Product quality Importance of purchases from or sales to Company image Ability to vertically integrate Patented products Brand awareness Threat of Substitute Products/New Entrants Response Time Sales Volatility Manufacturing flexibility Cyclicality of demand Time needed to introduce new products Market growth Delivery times Capital intensity Organizational flexibility Financial Norms Average profitability Typical leverage Credit practices Financial Strength Solvency Break-even point Cash flows Profitability Growth in revenues Sociopolitical Considerations Government regulation Community support Ethical standards Human Assets Turnover Skill level Relative wage/salary Morale Managerial commit. Unionization 19 Public Approval Goodwill Reputation Image Industry Attractiveness High Low Invest High Business Strength Medium Low Selective Growth Grow or Let go Medium Selective Growth Grow or Let Go Grow or Let Go Harvest Harvest Divest One criticism of BCG and GE Matrix is that they are static analysis (looking at only one point in time) rather than looking at the evolving picture. 3. LIFE CYCLE STRATEGY MATRIX Definition: Another portfolio approach overcome deficiencies of BCG & the business strength matrix. It better identifies developing winners or potential losers. This approach uses multi-factor approach to access competitive strength as one dimension and stage of the market life-cycle. Benefits:  Conveys large amount of information about diverse business units and corporate plans in simplified format  Illuminates similarities and differences between business units and help convey the logic behind corporate strategies for each unit with a common vocabulary  Simplifies priorities for sharing corporate resources across diverse business units.  Simple description that gives managers a sense of what they should accomplish. Limitations:  It does not address how value was being created across businesses  Accurate measurements for matrix classification not easy as matrices portrays. 20  Some find that firms with low markets share can generate superior profitability with differentiation advantages. Business Strength [Internal]  Cost Position  Level of Differentiation  Response Time  Pharmerial Strength  Human assets  Public Appraisal Characteristics/Benefits: - Allows users to consider multiple strategic issues associated with the life cycle stage - Allow users to look at the present and the future with respect to the issues - It includes basic strategic investment parameters Risk/Limitations: - The assessments are subjective - Does not address how value is being created by the firm - The portfolio approach portrays the firm as being self sufficient and ignores capital markets - Generally not very accurate - Most involved and elaborate approach to developing corporate strategy Life Cycle-Competitive Strength Matrix Conclusion:        Attempted to look at evolving patterns rather than static. Better identify “developing winners” or potential “losers” Uses a multiple factor approach to assess competitive strength as one dimension and stage of market life-cycle as the other dimension. Allows users to consider multiple strategic issues associated with each life-cycle stage. Enriches discussion of strategic options. Gives a “moving indication” of both issues – those that strategy needs to address now and those that could arise next. The recommendations are virtually identical to the other 2 approaches. 21  Stage of Market Life Cycle C o m p e t i v e S t r e n g t h Introduction High Growth Decline PUSH: Invest Aggressively Moderate CAUTION: Invest Selectively Low 1. Maturity DANGER: Harvest FACTORS MAKING IT EASIER/HARDER Factors that complicate Analysis:  Cultural differences  Economic differences  Communication differences  Political differences  Legal issues  Difficulty in building trust  Sovereignty interactions  Geographic logistics Reasons for Going Global (proactive)  Additional resources  Lower costs  Incentives  New, expanded market  Exploitation of firm-specific advantages  Taxes  Economies of scale  Synergy  Power and prestige  Protect home market via offense in competitor’s home Globalization Progression:  Ethnocentric  Polycentric 22    Regiocentric Geocentric Global If you are not global: Key Steps:     Scan Make connections Increase visibility Undertake cooperative research projects 4 generic global strategies: 1. Broad line global competition 2. Global focus strategy 3. National focus strategy 4. Protected niche strategy Competitive strategies for Firms in foreign markets 1. Niche market exporting 2. Licensing/contract manufacturing 3. Franchising 4. Joint ventures 5. Foreign branching 6. Wholly-owned subsidiaries 7. Sample strategies of global competitors Factors that make analysis easier  Globalization: World economy  Technology: Availability of information  Research and Development: Cultural awareness  Leverage resources: Develop an international template, then duplicate Globalization of the company mission 1. Components of company mission revisited 2. Product or service, market and technology 3. Company goals: Survival, growth and profitability 4. Company philosophy 5. Self-concept 6. Public image Conclusion  Environmental analysis is critical when considering global ops.  It allows positioning of firms in different global markets. 2. INDUSTRIES NOT COMPETING GLOBALLY YET 23 Domestic Industries (Industries with minimal competition or only a local service)  Railroads….only threat is from substitute products…..trucking, air, barges  Electricity generation  Laundry/Dry Cleaning  Power Generation…only threat is from substitute products……conservation, government regulations  Hair dressing  Milk  Funeral Services  Auto Repair  House Painting  Medical Services International Industries  Aerospace  Diamond mining  Military hardware  Agriculture Global Industries  Automobiles; oil; semiconductors; consumer electronics Multinational/Multi-domestic Industries  Consulting, hotels, etc. Corporate Social Responsibility (CSR) 1. DEFINITION CSR – is the belief that business has a duty to serve society as well as the financial interest of stockholders. Definition: A position that outsider’s claims be considered over insider’s claims in regard to pollution, disposal of waste, and conservation of natural resources. Milton Friedman’s view: “Few trends could so thoroughly undermine the very foundation of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible. Stakeholder approach to company responsibility Identify stakeholders Understand stakeholder claims Reconcile of claims/assignment of priorities Coordination of claims 24 a. b. c. d. 2. Social Responsibility Corporate Social Responsibility and Profitability – Friedman and Carroll CSR’s effect on the mission statement – should be a priority Social Audit – measurement of company actual social performance against the social objectives it has set. ROLE IN RELATION TO STRATEGY - A company’s right to exist depends on its responsiveness to the external environment. Federal, state, and local governments threaten increased regulation of “business” does not evolve to meet changing social needs. A responsive corporate social policy may enhance a firm’s long-term viability. With the forming of the coalition for environmentally responsibility economies (Ceres in 1989, three additional reasons emerged:  Resurgence of environmentalism  Increased buying power  The globalization of business CSR will effect the Mission Statement:  Recognize the legitimate claims of its external shareholders Social Audits  Is a tool to measure a company’s actual social performance against the social objectives it has set for itself (e.g. Ben and Jerry’s – walk the talk) CSR – 3 Valuable indicators:  Value received for:  Stockholders-through increased profits  Employees – example of working condition in Cambodia (Nike)  Local communities – benefits form industry will affect the local, as well as, the country’s standard of living Summary:  CSR will continue to be an area that receives attention as a result of voluntary efforts as the result of legislation. Other issues: Indicators of CSR  Recognition in vision and mission statements  Contributions to charitable humanitarian Institutions  Environmental Stewardship  High shareholder acceptance of CSR initiatives. Reasons for Importance 25    Broadening Public Concern Damages Reputations, Finances, and Customer and supplier relationships Business Ethics has become a central part of many corporate strategies (ie Ben and Jerry’s, Merck) Has an agent on profitability in the long run o Lower cost of capital o Facilitate acquisitions o Increase executive compensation Model: Inside Stakeholders Outside Stakeholders Company Mission 3. CORPORATE IRRESPONSIBILITY Valdez oil spill Exploiting immigrant (illegal alien) labor. Resource Based View (RBV): CSA6140 Group Exercise 6: RBV. Jay Barney proposed his Resource Based View of the Firm in 1991. Discuss and describe RBV including the rationale for its development, the types of resources included with examples, the factors making a resource valuable, the role of RBV in developing a sustainable competitive advantage. Resource-based view of the firm – firms differ based on the unique bundle of resources (the 3 basic resources below). Develop competencies based on those resources. Three basic resources:  Tangible assets – balance sheet items. (the easiest to identify….production facilities, raw materials, financial resources, real estate)  Intangible assets – goodwill, brands, patents, experience, reputation  Organizational capabilities – way of combining the assets, people, and processes to transform inputs into outputs. What makes a resource valuable?  Competitive superiority – fills need better than competitor. 26   Resource scarcity – short supply Imitation – can it be copied or acquired? o Physically unique o Path-dependent = what path do competitors need to follow to recreate. o Causal ambiguity = competitors can’t figure out how a firm got its advantage. o Economic deterrence = large capital investment needed. o Appropriability = who gets the profit created by a resource? o Durability = How rapidly will the resource depreciate? o Substitutability = other alternatives available? Using the Resource-Based View in internal analysis:  Disaggregate resources – break them down into more specific competencies tangible and intangible.  Utilize a functional perspective – look at all functional areas – Marketing, Sales, Manufacturing, etc. to uncover value-building resources.  Look at processes and combinations of resources to generate competitive advantage. ****Use the value chain to uncover potential resource-based sources of competitive advantage****** Other Key Items Related to Strategy 1. A theory is a set of systematically inter-related concepts or hypotheses that purport to explain and predict phenomena (i.e. a model) 2. Explicit knowledge can be explained in words. Tacit knowledge is difficult to put into words. 3. Goals: SMART (Specific, Measurable, Attainable, Relevant, Time-Based); what, why, who, when, where, how, how long, how often, how many. 4. Strategic thinking requires: efficiently adapting, continually innovating, scanning the environment, always improvising, and being different. 5. W.E. Deming, “Experience alone, without theory, teaches management nothing about what to do to improve quality and competitive position, nor how to do it.” 6. Challenges of change: new competitors, customer demands, employee demands; new businesses models; how to survive when everything is changing. 7. Levels of learning: unconscious incompetence; conscious incompetence; conscious competence; unconscious competence 8. Basic Strategic Planning: Where are we now? Where do we want to go? How do we get there? 27 Kolb’s Learning Model (1984): Sample Selection, small non-random Concrete Experience Verification Reflection & Observation Active Experimentation Deduction Abstract Conceptualization Induction The Five Tasks of Strategic Management Task 1 Develop a Strategic Vision and Mission Revise as Needed Task 2 Set Objective s Revise as Needed Task 3 Task 4 Task 5 Craft a Strategy to Achieve Objectives Implement and Execute Strategy Monitor, Evaluate, and Take Corrective Action Improve/ Change Improve/ Change Recycle as Needed Strategy: the Link between the Firm And its Environment THE FIRM THE INDUSTRY ENVIRONMENT Goals and Values STRATEGY Resources And Capabilities Structure and Systems 28 Competitors Customers Suppliers 29 Porter’s National Diamond Framework FACTOR CONDITIONS RELATED AND SUPPORTING INDUSTRIES DEMAND CONDITIONS STRATEGY, STRUCTURE, AND RIVALRY 1. 2. 3. 4. FACTOR CONDITIONS. “Home grown” resources and capabilities more important than natural endowments. RELATED AND SUPPORTING INDUSTRIES. Competitive advantage occurs in “industry clusters” (e.g. semiconductors-computers-software in the U.S.). DEMAND CONDITIONS. Discerning domestic customers drive quality and innovation (e.g. Japanese camera industry) STRATEGY, STRUCTURE, RIVALRY. E.g. domestic rivalry drives innovation and upgrading. Schein’s 3-Layer Organizational Model Cultural Attributes: Documents Physical layout Furnishings Language Jargon Work ethic Commitment Helping others Management equity 30 Artifacts & Creations Visible but hard to decipher Values Greater level of awareness Basic Assumptions Lewin’ Process for change OLD STATE UNFREEZE Awareness of need for change CHANGE Movement from Old State To New State REFREEZE Reinforce changed state NEW STATE Taken for granted 31 Strategic Thinking Requires  Efficiently Adaptting  Continually Innovating  Scanning the Environment  Always Improvising  Being Different Strategic Management Strategic Management = a set of decisions and actions that result in the formulation and implementation of plans designed to achieve a company’s objectives. Strategy = use of battles to win wars. Tactics = use of individuals/equipment etc. to win battles Strategy = creation of wealth through selling something of value. Strategic Management – 9 tasks: 1. 2. 3. 4. 5. 6. 7. Formulate the company’s mission Conduct internal analysis Assess the company’s external environment Analyze the company’s options by matching its resources with the external environment. Identify the most desirable options by evaluating each option in light of the company’s mission. Select a set of LT objectives and grand strategies that will achieve the most desirable options. Develop annual objectives and ST strategies that are compatible with the selected LT objectives and grand strategies. 32 8. 9. Implement the strategies choices by means of budgeted resource allocations in which the matching of tasks, people, structures and technologies and reward systems is emphasized. Evaluate the success of the strategic process as an input for future decisions. A. Nature and Value of Strategic Management 1. Dimensions of Strategic Decisions:  Strategic issues require top management decisions.  Strategic issues require large amounts of the firm’s resources  Strategic issues often affect the firm’s LT prosperity  Strategic issues are future oriented  Strategic issues usually have multi-functional or multi-business consequences  Strategic issues require considering the firm’s external environment. 3 levels of strategy: 1. Corporate – portfolio approach 2. Business – SBU’s 3. Functional Characteristics of Strategic management decisions    Corporate – greater risk, cost and profit potential Functional – implement the overall strategy Business – bridge decisions at the corporate and functional levels. 2. Formality in Strategic Management – degree to which participants, responsibility, authority and discretion are specified. Depends on size of the firm. Strategy maker – all levels of the firm. 3. Benefits of Strategic Management:     Enhance the firm’s ability to prevent problems Group based strategic decisions are likely to be drawn from the best available alternatives. Involvement of employees in strategy formation improves their understanding. Gaps and overlaps are reduced. 4. Risks of Strategic Management:    Time spent reduces time spent on other tasks. Formulators may not be involved in implementation. Must deal with disappointment. 5. Executive’s Views of Strategic Management – Instrumental to high performance, growing in sophistication and cost effective. 33 A. The Strategic Management Process: 1. Components of the Strategic Management Model            Mission Internal Analysis External environment Strategic analysis and choice LT objectives Generic and grand strategies Action plans and ST objectives Functional tactics Policies that empower action Restructuring, reengineering and refocusing the organization Strategic control and continuous improvement 2. Strategic Management as a process – flow of information through the above steps. Flow is reciprocal. Flow is sequential. Look at Stakeholders. Feedback is critical. Defining the Company’s Mission and Social Responsibility A. What is a company mission? = statement of the firm’s intent. Describes the firm’s product, market and technological areas of emphasis that reflects the values and priorities of the firm. 1. The need for an explicit mission:        Unanimity of purpose Basis for motivation Basis for allocating resources Establish general tone or climate Focal point for identification with firm’s purpose. Facilitate the translation of objectives and goals into a work structure. Specify organizational purposes. B. Formulating a mission 1. Basic product or service 2. Primary market 3. Principal technology 4. Company Goals: a. Survival b. Growth c. Profitability 5. Company Philosophy 34 6. Public Image a. Company self-concept b. Newest trends in Mission Components – Customers, Quality, C. Overseeing the Strategy Makers a. Board success factors – represent interests of stockholders, stakeholders, composition, structure, independent and objective, evaluate CEO. D. Agency Theory = delegation of authority to others. a. How agency problems occur  Moral hazard problem or shirking  Adverse selection      b. Problems that can result from agency: Pursue growth rather than earnings. Attempt to diversify corporate risk Avoid risk even when beneficial Try to optimize personal gain Protect their status c.    Solutions to the agency problem: Contracts Backloaded compensation – payment for future performance. Teams of executives E. Stakeholder approach to company responsibility Identify stakeholders Understand stakeholder claims Reconcile of claims/assignment of priorities Coordination of claims a. b. c. d. Social Responsibility Corporate Social Responsibility and Profitability – Friedman and Carroll CSR’s effect on the mission statement – should be a priority Social Audit – measurement of company actual social performance against the social objectives it has set. The External Environment A. Remote Environment 1. Economic factors 35 2. 3. 4. 5.       Social factors Political factors – effect on supplier function and customer function Technological factors Ecological factors – Looking for eco-efficiency B. International environment – dovetail in global module C. Industry environment D. Overview – Porter’s 5 forces E. How competitive forces shape strategy – Porter F. Contending forces 1. Threat of entry: Economies of scale Product differentiation Capital requirement Cost disadvantages independent of size Access to distribution channels Government policy 2.   Powerful suppliers: Powerful if: Dominated by a few companies and more concentrated that the industry it sells. Unique product or at least differentiated Not obliged to contend with other products for sale to the industry = Steel v. aluminum Can integrate forward Industry is not an important customer of supplier group      Powerful buyer: If: Concentrated or buys in large volumes Products it purchases are standard or undifferentiated. Products it purchases are a component and a significant portion of its cost. Earns low profits (incentive to purchase at lower costs) Product it purchases is unimportant to quality of buyers’ products.        Substitute products = price/performance tradeoff Jockeying for position = price competition, product introduction and advertising. Factors: Competitors are numerous Industry growth is slow Product lacks differentiation Fixed costs are high or product is perishable Capacity augmented in large increments. Exit barriers are high Rivals are diverse in strategies, origins and personalities    3. 4. 5. 36 G. Industry analysis and Competitive analysis 1. Industry boundaries – define the arena, focuses attention on competitors, determine key factors, gives another basis to evaluate firm’s goals. Problems in identifying industry boundaries can lead to poor planning. 2. Industry structure  concentration  economies of scale  product differentiation  barriers to entry. 3. Competitive analysis:  How do other firms identify their markets?  How similar are the benefits customers derive from the products that other firms offer?  How committed are other firms to the industry/ Mistakes  Overemphasizing current competitors; give no thought to potential entrants.  Overemphasizing large competitors; ignore small competitors  Overlooking potential international competitors. H. Operating environment 1. Competitive position:  Market share  Breadth of product line  Effectiveness of sales distribution  Proprietary and key-account advantages  Price competitiveness  Advertising/promotion  Location and age of facility  Capacity and productivity  Experience  Raw material costs  Financial position  Relative product quality  R&D advantages  Caliber of personnel  General images  Customer profile  Patents and copyrights  Union relations  Technological position  Community reputation 37 2. 3. 4. 5. I. Customer profiles – Geographic, demographic, Psychographic, Buyer behavior. Suppliers – price, shipping charges, competitive products, reciprocal dependence. Creditors–stock as collateral, leverage, D/E ratio Human resources – The nature of the labor market – reputation, employment rates, availability Emphasis on environmental factors Factors in the remote environme nt Industry analysis Factors in the operating environme nt The Global Environment: Strategic Considerations for Multinational Firms A. Development of a global corporation B. Why firms globalize 1. Strategic orientations of global firms C. The start of globalization D. Complexity of the global environment E. Control problems of the global firm F. Global strategic planning 1. Multidomestic industries and global industries 2. The global challenge 3. Market requirements and product characteristics 4. International strategy options G. Globalization of the company mission 1. Components of company mission revisited 2. Product or service, market and technology 3. Company goals: Survival, growth and profitability 4. Company philosophy 5. Self-concept 6. Public image H. Competitive strategies for Firms in foreign markets 1. Niche market exporting 2. Licensing/contract manufacturing 3. Franchising 4. Joint ventures 5. Foreign branching 6. Wholly-owned subsidiaries 7. Sample strategies of global competitors 38 Environmental forecasting A. Importance of forecasting = Leads to selection of the correct strategy (hopefully). B. Select critical environmental variables –demographic, economic, political 1. Who selects the key variables? – usually top management 2. What variables should be selected? – those with a significant impact; disregarding low impact or potential major disasters that probably won’t occur. Try to aggregate the variables into gross rather than net or separate terms. C. Select sources of significant environmental information – Can use secondary information, but primary is advisable. Look at the key issues in the remote environment = economy, political, social, global, ecological, technological. Also look at the key issues in the industry environment = New entrants, bargaining power of buyer and suppliers, substitute products or services, rivalry. Key issues in the operating environment = competitive advantage, customer profiles, market changes, supplier relationships, creditors, labor markets. Evaluate forecasting techniques – Consider: Data pattern and how quickly it changes. Type of industry – more rapid change in some industries. Type of product – life span Model selected – the model you use affects the data generated. Ex-post forecasts – how many years of data give the lowest error. 1. Techniques available: quantitative and qualitative  Economic forecasts  Econometric models – complex regression equations  Single and multiple regression  Time series  Trend analysis  Estimates  Scenarios  Brainstorming  Focus groups  Simulations  Benchmarking  Market opportunity Analysis  SWOT  Critical Success factors  Social forecasts  Political  Global  Technological 2. Integrate forecast results into the strategic management process – relate the above to the industry, suppliers, competition and key resources A. Monitor the critical aspects of managing forecasts:  Identify the environmental factors that deserve forecasting D.      39   B. C. Select reputable, cost-efficient forecasting outside to reinforce the inside. Which forecasting tasks should be done in house. Sources for environmental forecasts Strategic planning forecasting tools and techniques Internal Analysis 3 conditions that essential for success of a strategy: 1. The strategy must be consistent with the conditions in the competitive environment. 2. Must place realistic requirements on the firm’s resources. 3. Must be carefully executed. This chapter relates to number 2 above. A. Resource-based view of the firm – firms differ based on the unique bundle of resources (the 3 basic resources below). Develop competencies based on those resources. B. Three basic resources: 1. Tangible assets – balance sheet items. 2. Intangible assets – goodwill, brands, patents, experience, reputation 3. Organizational capabilities – way of combining the 4 factors of production to transform inputs into outputs. C. What makes a resource valuable?  Competitive superiority – fills need better than competitor.  Resource scarcity – short supply  Imitation – can it be copied or acquired?  Physically unique  Path-dependent = what path do competitors need to follow to recreate.  Causal ambiguity = competitors can’t figure out how a firm got its advantage.  Economic deterrence = large capital investment needed.  Appropriability = who gets the profit created by a resource?  Durability = How rapidly will the resource depreciate?  Substitutability = other alternatives available? D. Using the Resource-Based View in internal analysis:  Disaggregate resources – break them down into more specific competencies tangible and intangible.  Utilize a functional perspective – look at all functional areas – Marketing, Sales, Manufacturing, etc. to uncover value-building resources.  Look at processes and combinations of resources to generate competitive advantage.  Use the value chain to uncover potential sources of competitive advantage. E. SWOT analysis 40 1. 2. 3. 4. Opportunities Threats Strengths Weaknesses Numerous Environmental Opportunities Critical Internal Weaknesse s Cell 3: Supports a turnaround strategy Cell 4: Supports a defensive strategy Cell 1: Supports an aggressive strategy Cell 2: Supports a diversification strategy Substantial Internal Strengths Major Environmental Threats F. The functional approach - Look at functional areas – what factors are most critical for success of firm. Past performance. Past trends. Internal factor analysis influenced by external environment. G. Value Chain Analysis – Insert Chart here. – How a business transforms inputs through a chain to create something of value. 3 things that create things customers value: 1. Activities that differentiate the product 2. Activities that lower its cost 3. Activities that meet the customer’s need quickly Sets of activities that occur within the business  Primary activities – physical creation of the product  Inbound logistics  Operations  Outbound logistics  Marketing and sales  Service  Support activities – assist the firm as a whole  General administration 41    HR R&D and Systems Procurement Value chain analysis:     Identify activities Allocate costs Identify activities that differentiate the firm Examine the value chain – activities that are critical to buyer satisfaction and market success. 1. Look at company mission and compare it to the activities examined = i.e low cost provider – attention to activities that lower costs. 2. The important items in a value chain vary by industry (relative importance) 3. Relative importance of value activities can vary by the broader value system that involves upstream suppliers and down stream customers and partners. H. Internal analysis: Making meaningful comparisons Whether using RBV (Resource Based View, SWOT or VCA (Value Chain Analysis), strategists rely on 4 perspectives to evaluate how their firm measures up internally: 1. Comparison with Past Performance 2. Stages of industry evolution 3. Benchmarking – Comparison with Competitors 4. Comparison with success factors in the industry Using financial ratios:     Liquidity  Current  Quick Leverage  Total debt to assets  LT debt to stockholder equity Activity  Asset turnover  Fixed asset turnover  Inventory TO  Accounts receivable TO Profitability  Return on Sales  ROI  ROE Formulating LT Objectives and Grand Strategies 42 A.        LT Objectives – Sow seeds to grow crops rather than eat the seeds. Distribute a little capital, but reinvest most of it for a LT supply. LT objectives to achieve prosperity are: Profitability Productivity Competitive Position Employee Development Employee Relations Technological Leadership Public Responsibility 1. Qualities of LT objectives  Acceptable – goals consistent with Managers preferences.  Flexible – adaptable to unforeseen or extraordinary changes in the environments.  Measurable – concretely state what will be achieved.  Motivating – high enough to challenge, but not so high as to frustrate  Suitable – suited to the broad aims of the firm.  Understandable – know what need to be achieved  Achievable – possible to be achieved. The Balanced Scorecard – Kaplan and Norton – Link LT strategy with tangible goals and actions. Linking Financial, Customer, Learning and Growth and Internal Business Processes to Vision and Strategy: Study This: 2. C Generic Strategies - Porter  Low cost leadership  Differentiation  Focus D. Grand Strategies 1. Concentrated Growth – directs the resources of the firm to the profitable growth of a single product, in a single market with a single dominant technology. Rationale for Superior Performance = aiming for growth that results from increased productivity, better coverage of its actual productmarket segment and more efficient use of its technology. Favorable climate for Concentrated Growth = Industry resistant to major technology advancement, targeted markets are not product saturated, markets sufficiently distinctive to dissuade competitors in adjacent product markets from invading and firm inputs stable in price and quantity and available in the quantity and at the time needed. Risk/Reward = low risk in stable environment/high risk in unstable environment. Least costly/least risky. 43    Increasing present customers’ rate of use. Attracting competitors’ customers Attracting non-users to buy the product. 2. Market Development – marketing present products with usually cosmetic modifications to customers in related market areas by adding channel of distribution or changing the content of advertising or promotion. Form of Concentrated Growth.  Opening additional geographic markets  Attracting other market segments 3. Product Development – Substantial modification of existing products or the creation of new, but related products that can be marketed to current customers through established channels.  Developing new product features  Developing quality variations  Developing additional models and sizes (product proliferation) 4. Innovation – Original or novel ideas. 5. Horizontal Integration – eliminate competitors and provide the acquiring firm with access to new markets. 6. Vertical Integration – acquire firms that supply inputs. Backward = shirt manufacturer acquiring textile firm. Forward = Shirt manufacturer buys clothing store chain. Horizontal Integration = Clothing store buying clothing store. 7. Concentric Diversification – spin off of internal subsidiary to separate company for synergistic possibilities. 8. Conglomerate Diversification – large firm acquires a business because it represents a promising investment opportunity. 9. Turnaround – declining firm makes concerted effort to fortify its distinctive competencies. AKA: Retrenchment. Have a strategy. Severity.  Cost reduction  Asset reduction 10. Divestiture – sell off a major component of a firm. 11. Liquidation – sell of parts; sometimes whole firm. 12. Bankruptcy – Chapter 11/Chapter 7. E. Corporate Combinations 1. Joint Ventures = separate company formed by two or more other companies. Take an equity position. 2. Strategic Alliances – partnerships where skills and assets re contributed. Outsourcing = popular form of SA. 3. Consortia = Large, interlocking relationships between businesses of an industry. Called Kirietsus in Japan and Chaebols in Korea. F. Limitations of the Grand Strategies – See Figure 7-9 text page 286. G. Selection of LT Objective and Grand Strategy Sets – Objectives = what managers want, but without insight as to how they will be achieved. Strategies = what types of actions that will be taken, but without a definition of the ends that will be achieved. H. Sequence of Objectives and Strategy Selection – does not matter. Look at achieving objectives or satisfying constraints. 44 Strategic Analysis and Choice in Single or Dominant-Product Businesses: Building Sustainable Competitive Advantages A.              Evaluating and Choosing Business Strategies: Seeking Sustained Competitive Advantage. (Porter)  Two basic issues:  What strategies are most effective at building sustainable competitive advantage for single business units?  Should dominant-product services diversify? High differentiation/ High Cost advantage = 35% ROI Low differentiation/High Cost = 26% ROI High differentiation/low cost = 22% ROI Averages across 7 Low differentiation/Low cost = 9.5% ROI industries 1. Evaluating Cost leadership opportunities – benchmarking Reduce likelihood of pricing pressure from buyers. True low cost adv. Pushes rivals into other areas New entrants must replicate every cost advantage Lessen the attractiveness of substitute products. Higher margins allow low-cost producers to withstand supplier cost increases and gain supplier loyalty. Many cost saving activities are easily duplicated Exclusive cost leadership can become a trap – lulled into false sense of security Obsessive cost cutting can shrink other competitive advantages. Cost differences decline over time. 2. Evaluating differentiation opportunities – create a unique value important to buyers. Competitive Advantage. Porter’s Value Chain Analysis - Diagram       Rivalry reduced when a business successfully differentiates itself. Buyers less sensitive to prices for effectively differentiated products. Brand loyalty is hard for new entrants to overcome. Imitation narrows perceived differentiated, rendering differentiation meaningless. Technology changes nullify past investments or learning. Cost difference between low cost competitors and differentiated business becomes too great to hold brand loyalty. 3.    Evaluating speed as a competitive advantage – Methods: Customer Responsiveness Product Development Cycle shortened. Product or Service improvement 45   Speed in delivery – JIT Information sharing and technology 4.   B. 1. Evaluating market focus as a way to competitive advantage Narrow market niches to build strong competitive advantage Create value chain that achieves differentiation, low cost and rapid response  Target certain market segment. Selected Industry Environments and Business Strategy Choices Competitive Advantage in Emerging markets – newly formed or re-formed industries. New technology example. No rules of the game. Technologies are proprietary. Competitor uncertainty because of imperfect information, High initial costs, few entry barriers, first-time buyer confused by number of non-standard products, Inability to obtain raw materials, need f...
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Running Head: Equal exchange

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Assignment Title
Student’s Name
Course Title
Instructor’s Name
Date

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Equal exchange

Executive summary
Equal Exchange, a company, situated in the USA has been through a lot in the Fair Trade
business for decades now. The company set up in 1986 to help solve the turmoil that was facing
the farmers with an aim of eliminating the middlemen. That saw them invest $100,000 in setting
up a company that would later shape the destiny of U.S Fair Trade. Their first three years in
investment met with a lot of hurdles. However, they set up strategies that propelled them to
where they are History of Equal Exchange | Equal Exchange. (2016) among them was giving
credits to the farmers before harvest. They also conducted a thorough advertisement in the whole
of USA. However, the fall in the price of coffee had been a challenge to them some time back;
they have managed to sail through the storm.

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Equal exchange

Contents
Executive summary ..................................................................................................................... 1
Company History ........................................................................................................................ 4
Background ................................................................................................................................. 5
Industry........................................................................................................................................ 6
Company analysis ....................................................................................................................... 8
SWOT ANALYSIS of Equity Exchange .................................................................................. 11
Findings ..................................................................................................................................... 12
Conclusion................................................................................................................................. 13
Recommendations ..................................................................................................................... 13
References ..................................................................................................................................... 15

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Equal exchange

Company History
The start of Equal Exchange is dated back in 1986 by Michael Rozyne, Jonathan
Rosenthal, and Rink Dickinson. Before coming to that, they initially worked as managers at
England new cooperative where they predominantly dealt with the reforms of the American food
sector. Before the birth of the company, they frequently met discussing the changes in global
food merchandise. Their sole target was to stabilize the economic conditions alongside raising
farmers’ primary income. The outcome of their frequent meetings was the springing up of an
alternative model of trade that built long term contracts, conducted direct trade, and gave farmers
relatively higher prices as compared to those of the market for their coffee. That was a lot
dissimilar to the previous means of trade that encompassed middlemen who sold coffee to the
factories and after purchasing from the farmers.
From what they discussed, they came up with a rationale that modeled how the coffee
would be planted, bought and sold worldwide. That is what summed up into Equal Exchange
organization.
Objectives of equal exchange cooperative


The farmers given more control over their economic future.



They wanted to formalize an agency that would educate and guide the consumers on

what issues impact on the lives of the farmers.


They also wanted to provide the foods that satisfied the body and mind of consumers.



They aimed at developing a company whose workers had a direct say.

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Equal exchange



They also wanted to come ...


Anonymous
Just what I needed…Fantastic!

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