lecture10 strategy
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Strategy:Sustainability through DQE
Prof. Spyros Lioukas, Dr Irini Voudouris
Athens University of Economics and Business
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Objectives
Learners will:• understand the meaning of strategy• understand the contribution of strategy to
successful performance• identify the framework for strategic analysis• understand how to control for successful
strategies• identify alternative strategic options• identify how the DQE approach leads to
strategies for sustainability
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
“Strategy is the direction and scope of an organization over
the long term, which achieves competitive advantage for
the organization through its configuration of resources within
a changing environment and to fulfill stakeholders
expectations”.
Johnson & Scholes, “Exploring Corporate Strategy”, 2002.
What is Strategy?
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Elements of successful strategy
Successful implementation
Well defined long-term goals
Appraisal of the environment
Knowledge of own resources &
capabilities
Successful Strategy
R. Grant “Contemporary Strategy Analysis”, 2000
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Strategic Analysis Framework
feedback
Strategy formulation
Strategy implementation
Stakeholders expectations
Environment Analysis
Opportunities - Threats
Internal analysisResources & capabilities
StrategyStrategy(MOST)
mission, objectives, strategy, tactics
Strategic optionsEvaluation, choice
Strategic planActions, programs
Evaluation, Control
Implementation of actions/ programs
DQE
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Analysis of external environment
• Objectives– Identify the main macro-environmental forces that
influence an industry– Identify the main structural features of an industry that
influence competition and profitability• Evaluate the attractiveness of an industry
– Evaluate trends within industries to forecast future changes in industry profitability
– Identify opportunities– Identify Critical Success Factors
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Macro-Macro-environmentenvironment
IndustryIndustry
MarketMarket
FirmFirm
External environment: Levels
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Macro-environment: PESTEL framework
• Political (P)– Government stability– Taxation policy– Trade regulation
• Social (S)– Demographics– Lifestyle changes– Social trends– Education levels– Consumerism
• Environmental (E)– Environmental regulation– Waste management– Energy issues
• Economical (Ε)– GNP trends– Inflation– Unemployment
• Technological– Rate of technological
changes– Technology transfer
policy– Government and industry
spending on research and development
• Legal (L)– Employment Laws– Health and safety
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
The macro-environment affects the industry environment which affects the firmR. Grant, Contemporary Strategy Analysis, 2000
From macro-environment to industry analysis
National/ National/ International International
EconomyEconomy
TechnologyTechnologyGovernmentGovernment
Natural Natural environmentenvironment
Social & Social & demographical demographical
structurestructure
Firm
Industry
environment
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Threat
Threat of
Entrance
Suppliers
Potential entrants
Substitutes
Buyers
Industry competition
Existing competitors
Bargaining Power
Bargaining Power
Supplements
Bargaining Power
Porter 5 forces framework +supplements
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
The value network: Profitability
High Power of Buyers
High Power of suppliers
Profit Margin for suppliers
SUPPLIERS
- TITORS
BUYERS- -
COMPE-
TITORS
BUYERS
NEW ENTRANTS
SUBSTITUTES
NEW ENTRANTS
SUBSTITUTES
Profit margin for buyers
SU
PP
LIE
RS
COMPE
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Competition: • What drives competition?
• How intense is
competition? • How can we obtain a
superior competitive position?
Customers:•Who are they?•What do they want?
Critical Success Factors
Conditions of success
Critical Success Factors (KSF)
DQE
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Internal Analysis
• Objectives– Understand the role of resources and capabilities in
strategy formulation– Identify the resources and capabilities of a firm– Understand the importance of unique resources and
core competences for competitive advantage creation and profitability
– Understand the importance of design, quality and environmental posture as unique resources and capabilities
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Firm’s capital
Natural Capital
Social Capital
Financial Capital
Customers
Human Capital
Knowledge
Resources & Capabilities
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Appraising resources
• Tangible resources– Financial, eg.
• Borrowing capacity
• Internal funds/ generation
– Physical, eg.• Land & buildings
• Plant & equipment
• Technology
• Raw materials
• Intangible resources– Technology, eg.
• Know how, R&D, design• Knowledge residing in
technical & scientific employees & teams
– Reputation• Brands, company
reputation, social responsibility, environmental proactiveness, quality
• Human resources, eg– Education, training,
experience, adaptability
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Unique resources & capabilities: The base of competitive advantage
Threshold resources
Resources
Like competitors or easy to imitate
Capabilities
Unique resources
Threshold capabilities
Core competences
Better than competitors,
difficult to imitate
DQE
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Evaluating capabilities: The functional approach
Function Examples of Capabilities
Corporate Management Financial management, strategic control, coordination of business units, social responsibility
MIS Rapid information transfer
R&D Development of new products, design, innovation
Manufacturing Flexibility, quality, design, efficiency, eco-efficiency
Marketing Design, brand management, promotion, environmental marketing
Sales & distribution Sales responsiveness, efficiency & speed of distribution, customer service
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Firm Infrastructure
Human resources management
Technology development
Procurement
Main activities
Support activities
Marketing & Sales
ServicesOperations Outbound Logistics
Inbound Logistics
Margin
The value chainPorter
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
The value system
Suppliers Direct suppliers
Company & competitors
Direct customers
Final customers
Χ
Υ
Ζ
Ε
Α
Β
Γ
Δ
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
“Linkages” capabilities: base of competitive advantage
Linkages Activities Example
internal Main-main
Main-support
Support-support
Departments’ coordination
Production information systems
Innovation, quality through employees
external Specifications & control
TQM
Change of the value chain
…suppliers. Distributors
…with suppliers & distributors
…delete activities
Integration Internal and/or external Combination of technology, design, quality, environment
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Strategy based on resources & capabilities
2. Evaluate resources and capabilities regarding profit generation possibilities
1. Identify and classify unique resources & capabilities
Strategy
Resources & Capabilities
Evaluation of Resources & Capabilities
Competitive advantage
3. Select resources & capabilities with most attractive advantage. Evaluate the sustainability of advantage
4. Formulate strategy based on most attractive resources & capabilities
Improve resources & capabilities that constitute the base of strategy
•leverage R & C
•investments, cooperation
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Summarizing external and internal analysis
Analysis SWOT– Strengths– Weaknesses– Opportunities– Threats
internal analysisinternal analysis
external analysisexternal analysis
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Stakeholders expectations
• Objectives– Understand the meaning of
stakeholders– Identify how stakeholders expectations
can influence strategy
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Organizational Stakeholders
“Stakeholders are those individuals or groups who depend on the organisation to fulfil their own goals and on whom the organisation depends”– ..people or groups (internal and external)
which have expectations and potential influence
Johnson and Scholes, “Exploring Corporate Strategy”, 2005
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Government:-Ministers-Politicians-Regional
International Organizations:-EU-others
Other organizations and bodies:-Unions-Firms associations-environmental groups
Managers
Shareholders
Employees
Investors
Customers
Partners
Suppliers
Media: -Newspapers-ΤV-Internet
Stakeholders: An example
Society
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Conflicts of expectations…
…e.g.• Short-term profit and high salaries versus long
term growth• Quality & design versus short-term profit• Environmental posture versus short-term lower-
cost • Financial independence versus reliance on
external financing in order to grow? • Multinationals: the company versus the host
country
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Strategic fit
EnvironmentResources & capabilities
Expectations& values
ERV Congruence:
Strategy matching environment, resources, values
DQE
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Strategic Options
Competitive strategies
•Low cost-price
•Differentiation
•Focus
•Hybrid (low cost & differentiation)
•DQE
Alternativedirections
•Consolidation
•Market penetration•Product development•Market development
•Diversification - related
- unrelated•DQE
Methods of development
•Internal development•Mergers
- Acquisitions•Alliances
•Joint ventures
On what basis do we compete?
To which direction?
Through which method?
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Elements of successful strategies
Unique DQE combinations
DesignQuality
Environment
Successful Strategy
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Strategic options:DQE
…Increasing cost?or
source of competitive advantage?
long-term convergence
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Aesthetic reasons
Social issues:Social issues:Cultural featuresCultural features
NeedsNeeds
Social responsibility
sustainable growth
Innovation
Easiness, comfort for the users
The need for Design strategies
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Company’svalues Focus on Focus on
excellenceexcellence
Knowledge, learning
sustainable growth?
Reputation
Market needs, networks
The need for Quality strategies
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Corporate governance
Focus on Focus on social issuessocial issues
Social responsibility:Society, employees
sustainable growth
Reputation
Pressures from stakeholders
The need for Environmental strategies
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
Environmental Strategies“Green Strategies”
Compliance cost
Green differentiation
Protection
Embeddedness
Reactive
Proactive
Regulation Market/Products
Actions towards
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DQE
Towards the Sustainable Region /DQE / 2NOO27IProject co-financed by the Structural Funds
References
• Ansoff H. I., “Corporate Strategy”, Mc Graw Hill, 1965.• Barney J., Academy of Management Executive, 16,2002.• Johnson G. and Scholes K., Whittington R. , “Exploring
Corporate Strategy, Prentice Hall,7th eds, 2005.• Grant R., “ Contemporary Strategy Analysis”, Blackwell,
2000.• Porter M.E., Competitive Advantage, New York: Free
Press, 1985.• Porter M.E., “What is Strategy?”, Harvard Business
Review, Nov.-Dec. 1996.