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
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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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