so what is strategy short version.ppt
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Patrick T. GibbonsJefferson Smurfit Professor
of Strategic Management
What is strategy?
Environmental Analysis“Analysis is the
critical starting point of strategic thinking”
Kenichi Ohmae
Environmental Scanning
3-4
THE INDUSTRYENVIRONMENT
• Suppliers• Competitors• Customers
Social structure
The national/ The national/ international international
economyeconomy
TechnologyTechnology
GovernmentGovernment& Politics& Politics
The natural The natural environmentenvironment
Demographic Demographic structurestructure
Social structureSocial structure
•The Industry Environment lies at the core of the Macro Environment.
•The Macro Environment impacts the firm through its effect on the Industry Environment.
From Environmental Analysis to Industry Analysis
From Environmental Analysis to Industry Analysis
3© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com
Median return on equity (%), 1999-2007
Profitability of US Industries(selected industries only)
Profitability of US Industries(selected industries only)
HIGH PROFITABILITY LOW PROFITABILITY
Household & Personal Products 26.0 Motor Vehicles & Parts 9.3
Pharmaceuticals 21.0 Insurance Life & Health 9.1
Petroleum 20.1 Forest & Paper Products 7.3
Tobacco 21.6 Food Production 6.5
Food Consumer Products 19.5 Semiconductors & Electronic Components
6.2
Securities and Investment Banking 18.4 Network & Communications Equipment
5.9
Beverages 17.2 Telecommunications 5.8
Medical Products & Equipment 17.2 Entertainment 2.7
Scientific & Photographic Equip. 15.6 Airlines (12.6)
Commercial Banks 14.8
Computer Software 14.0
Aerospace & Defense 13.9
3 key influences:
1. The value of the product to customers
2. The intensity of competition
3. Relative bargaining power at different levels within the value chain.
The Determinants of Industry Profitability
The Determinants of Industry Profitability
5© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com
7
Porter’s Five Forces of Competition Framework
Porter’s Five Forces of Competition Framework
SUPPLIERS
POTENTIALENTRANTS
SUBSTITUTES
BUYERS
INDUSTRYCOMPETITORS
Rivalry amongexisting firms
Bargaining power of suppliers
Bargaining power of buyers
Threat of
new entrants
Threat of
substitutes
© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com
THREAT OF ENTRY•Capital requirements•Economies of scale•Absolute cost advantage•Product differentiation•Access to distribution channels•Legal/ regulatory barriers•Retaliation
SUBSTITUTECOMPETITION
• Buyers’ propensity to substitute• Relative prices & performance of substitutes
SUPPLIER POWER• Suppliers’ price sensitivity • Relative bargaining power
INDUSTRY RIVALRY•Concentration•Diversity of competitors•Product differentiation•Excess capacity & exit barriers•Cost conditions
BUYER POWER• Buyers’ price sensitivity • Relative bargaining power
The Structural Determinants of Competition
The Structural Determinants of Competition
8© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com
© 2013 Robert M. Grantwww.contemporarystrategyanalysis.com 10
Five Forces or Six?Introducing Complements
INDUSTRY COMPETITORS
Rivalry among existing firms
SUPPLIERS
SUPPLIERS SUBSTITUTES
BUYERS
Threat of substitutes
Threat of new entrants
Bargaining power of suppliers
Bargaining power of buyers
COMPLEMENTS
The suppliers of complements create
value for the industry and can exercise bargaining
power
Forecasting Industry Profitability
• If we can forecast changes in industry structure we can predict likely impact on competition and profitability.
Strategies to Improve Industry Profitability
• Which of the structural variables that are depressing profitability can we change by individual or collective strategies?
Strategic Positioning
• Once we know which structural features of the industry support profitability and which depress profitability, we can choose a favorable positioning within the industry.
15
Applying Five-Forces AnalysisApplying Five-Forces Analysis
© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com
THE FIRM
Goals & Values
Resources &Capabilities
Structure & Systems
THE INDUSTRYENVIRONMENT
•Competitors•Customers•Suppliers
STRATEGYSTRATEGY
The Firm-Strategy
Interface
TheEnvironment-Strategy
Interface
Shifting the Focus of Strategy Analysis:From the External to the Internal Environment
Shifting the Focus of Strategy Analysis:From the External to the Internal Environment
12© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com
STRATEGY
INDUSTRY KEYSUCCESS FACTORS
COMPETITIVEADVANTAGE
ORGANIZATIONALCAPABILITIES
RESOURCESTANGIBLE INTANGIBLE HUMAN
•Financial•Physical
•Technology•Reputation•Culture
•Skills/know-how•Capacity for communication & collaboration•Motivation
The Links between Resources, Capabilities and Competitive Advantage
The Links between Resources, Capabilities and Competitive Advantage
13© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com
Company Valuation ratio
Country Company Valuation ratio
Country
Yahoo! Japan 72.0 Japan Coca-Cola 7.8 US
Colgate-Palmolive 20.8 US Diageo 7.4 UK
Glaxo Smith Kline 13.4 UK 3M 7.3 US
Anheuser-Busch 12.6 US Nokia 6.7 Finland
eBay 11.2 US Sanofi-Aventis 6.3 France
SAP 10.8 Germany AstraZeneca 5.9 UK
Yahoo! 10.7 US Johnson & Johnson 5.7 US
Dell Computer 10.0 US Boeing 5.7 US
Sumitomo Mitsui Financial 8.8 Japan Eli Lily 5.6 US
Procter & Gamble 8.4 US Cisco Systems 5.5 US
Qualcomm 8.3 US Roche Holding 5.5 Switz.
Schlumberger 8.2 US L’Oreal 5.3 France
Unilever 8.1 Neth/UK Altria 5.2 US
PepsiCo 8.0 US Novartis 5.1 Switz.
Firms with the Highest Ratios of Market value to Book Value(December 2006)
Firms with the Highest Ratios of Market value to Book Value(December 2006)
14© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com
Scarcity
Relevance
Durability
Transferability
Replicability
Property rights
Relative bargaining power
Embeddedness
THE EXTENT OF THE COMPETITIVE ADVANTAGE
ESTABLISHED
SUSTAINABILITY OF THE COMPETITIVE ADVANTAGE
APPROPRIABILITY
THE PROFITEARNING POTENTIALOF A RESOURCE OR
CAPABILITY
The Rent-Earning Potentialof resources and Capabilities
The Rent-Earning Potentialof resources and Capabilities
15© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com
Assessing a Company’s Resources and Capabilities: The Case of VW
Assessing a Company’s Resources and Capabilities: The Case of VW
RESOURCES Importance VW’s relative strenght
R1. Finance 6 6
R2. Technology 7 5
R3. Plant and equipment
8 8
R4. Location 4 4
R5. Distribution 8 5
R6. Brands 6 5
CAPABILITIES Importance VW’s Relative Strenght
C1. Product Development
9 4
C2. Purchasing 7 5
C3. Engineering 7 9
C4. Manufacturing 8 4
C5. Financial Management
6 4
C6. R&D 5 4
C7. Marketing and Sales
9 4
C8. Government Relations
4 8
C9. Strategic Management
7 4Both scales range from 1 to 10 (1= very low, 10= very high)
16© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com
Rel
ativ
e S
tren
gth
Strategic Importance
Superfluous Strengths Key Strengths
Zone of Irrelevance Key Weaknesses
1
1
5 10
5
10
R1
R2
R3
R4
R5
C1
C2
C3
C4C5C6 C7
C8
(Hypothetical only)
Appraising VW’s Resources and CapabilitiesAppraising VW’s Resources and Capabilities
C9
R6
17© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com
C1 Student recruitmentC2 Course
developmentC3TeachingC4Student placementC4. Alumni relationsC5 Corporate relationsC6 ResearchC7 AdministrationC8 Financial mgt.C9 MarketingC10 ITC12 HRM
Appraising the Capabilities of a Business School (illustrative only)
Appraising the Capabilities of a Business School (illustrative only)
IMPORTANCE
- +
+
RELATIVE STRENGTH
-
Superfluous strengthC6
Key strengthC9, C3, C5
Inconsequential weaknessesC11, C10
Key weaknessesC8, C4, C2, C12, C1, C7
18© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com
Not important
Needed to play
Needed to win
1. Effective deal making
2. Rapid new product development
3. Relentless cost forms
4. Product quality5. JV management 6. Superior EH&S
management7. Managing culturally
diverse workforce8. Fast decision
making9. Customer
segmentation10.Capture synergies
across divisions11. Effective
procurement
IMPORTANCE
- +
+
RELATIVE STRENGTH
-
Superfluous strength6
Key strength9, 4, 5
Inconsequential weaknesses
10
Key weaknesses1, 2, 3, 7, 8, 11
Amoco’s Appraisal of Organizational Capabilities (illustrative only)
Amoco’s Appraisal of Organizational Capabilities (illustrative only)
19© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com
4. Develop strategy implications: (a) In relation to strengths--How can these be exploited more effectively and fully? (b) In relation to weaknesses --Identify opportunities to outsourcing activities that can be better performed by other organizations. --How can weaknesses be corrected through acquiring and developing resources and capabilities?
3. Appraise the firm’s resources and capabilities in terms of:
(a) strategic importance(b) relative strength
2. Explore the linkages between resources and capabilities
1. Identify the firm’s resources and capabilities
STRATEGY
CAPABILITIES
RESOURCES
POTENTIAL FOR
SUSTAINABLE
COMPETITIVE
ADVANTAGE
Summary: a Framework for Analyzing Resources and Capabilities
Summary: a Framework for Analyzing Resources and Capabilities
20© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com
Competitive Advantage?“if your business can
produce at a lower cost than can competitors, or if it can deliver more perceived value than competitors, or a mix of the two then you have a competitive advantage.”
Value Chain
ActivitiesValue chain involves value activities and margin
Value activities are the distinct physical and technological activities that a firm performs to create value for customers
Activities usually involve people, technology, fixed assets and information.
Primary activities are involved in the physical creation of the product and its sale and transfer to the buyer.
Support activities…
Lafley & Martin, 2013Five essential questions:
What is your winning aspiration?
Where will you play?How will you win?What capabilities must
be in place?What management
systems are required?
Source: A Playbook for Strategy, Rotman, Winter 2013
Putting Strategy in its Place
Hendrick & Fredrickson, Nov 2001, Are you sure you have a Strategy?
Strategic Analysis• Industry Analysis
• Customer/ Marketplace Trends• Environment Forecast• Competitor Analysis
• Assessment of Internal Strength, Weaknesses and Resources.
Mission• Fundamental Purpose• Value
Objectives• Specific Targets
StrategyThe Central Integrated,
externally oriented concept of how we will achieve our objectives.
Supporting Organisational Arrangements
• Structure• Process• Symbols• Reward• People
• Activities• Functional policies
and profiles
Five Major Elements of StrategyArenas – Where will we be active? Vehicles - How will we get there? Which Product Category? Internal Development? Which Market Segment? Joint Ventures? Which Geographic Area? Licensing/ Franchising? Which Core Technologies? Acquisitions? Which Value Creation Stages?
Economic Logic - How willwe obtain our return?
Lower costs through scaleAdvantages? Lower costs through scaleand replication advantages? Premium prices due toUnmatchable services? Premium services due to proprietary product features?
Staging – What will be our speed and sequence Differentiators – How will we win?of moves? Image? Price? Speed of Expansion? Customisation? Styling? Sequence of Initiatives Product Reliability?Hendrick & Fredrickson, Nov 2001, Are you sure you have a Strategy?
Arenas Vehicles
Staging Differentiators
Economic Logic
KomatsuWhat are the key characteristics of the
Chinese construction machinery market?How would you compare Komatsu’s,
Caterpillar’s and Sany’s positions in the market?
What strategies are these firms pursuing?
Competitor Analysis
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