mba thesis presentation-chrysafinosen

DIMITRIS CHRYSAFINOS

Qualitative and Quantitative Analysis of Greek Business

Strategy in Economic Crisis

MBA Thesis

Supervisor: Professor AUEB Spyridon Lioukas

Athens, February 2014

Contents of the presentation

1. Survival and profitability approaches in recessionary environment

2. Investigation of the Greek business strategy during recession

3. Statistical analysis of qualitative data questionnaires

4. Connecting research results to business performance as obtained by financial

statements

5. Qualitative-comparative analysis of profitability factors using fuzzy sets

6. Proposals of research extension

Survival and profitability characteristics in recessionary

environment (1)

• Strategic business planning : significant alterations during the financial crisis

• Drastic Cost reduction policy : less likely to follow the competition in the medium term

• Finance (subsidiaries, foreign ownership, long-term loans)

• Efficient hybrid strategies: reducing operating costs in relation to competition, investment

in marketing and targeted upgrading assets COST INNOVATION!

survival and profitability characteristics in recessionary

environment (2)

• innovation

• flexible structures allow early change; focus on continuous information

• R & D, technological investments: medium term results, success insofar developed relevant skills

• diversification of risk : branches with little correlation, “recession-proof” market segments

• aggressive marketing, promotion, advertising: beneficial mainly for B2C

• maintain incentives to staff

Methodological approach

objectives:

• investigation of Greek business strategy in Crisis- statistical research

• Identification of correlation between strategic firm features and financial

results

• shaping a “Crisis resilience” business profile

Investigation of the Greek business strategy in Crisis (1)

Research fundamentals

1. PHASE I : Extraction of industries / companies from dbase ICAP (2010-2013)

2. PHASE II: Strategic feature questionnaire design

3. PHASE III : Questionnaire “calibration”, to identify methodological weaknesses

and restrictions

4. PHASE IV : Submission of questionnaires, .txt and online versions

5. PHASE V: Collection, storage, coding of responses

6. PHASE VI : Benchmarking btw questionnaires


QUESTIONNAIRE TOPICS

• Innovation

• Extroversion

• Corporate culture

• Employee policy

• Access to finance

• Cost Reduction Strategies

11 questions

scale: 1 = very little, 5 = very much


• Submission to 290 companies and experts

• 54 companies

• Response Rate: 12.5%

THE RESEARCH

• Participation of specialized executives (CEOs, CFOs, GMs, ...)

• Participation of industry experts

• Participation of sectoral studies Editors


The sample

Sample with sectoral range

• high-tech services

• FMCG

• Construction Companies

• Material industries

• Public Sector

Statistical analysis of qualitative data questionnaires (1)

• Application of quantitative statistical analysis (N> 30)

• Correlation between the questionnaire responses

• Impact of cost reductions in strategic qualitative factors

• Statistical analyses

whole sample

distinction btw hi tech / non-hi tech


COST REDUCTION STRATEGIES (sample set)

• Over 70% of enterprises: large to very large decreases of operating costs

• Over 40% business: severe layoffs

• ~ 1/3 business maintained personnel and wages unchanged


ACCESS TO FINANCING (sample set)

examination of balance sheets executives Over- or underestimated the firm’s funding capability


INNOVATION

• Innovation rating: avg: 3.75/ 5,

st.dev. = 1.05

• 66.7% of businesses consider they develop great

product innovation

• only half of sample companies say they adopt

innovative marketing.

• a key source of innovation: in-house

R&D / staff

• less than 30% of the sample considered

customers or suppliers a major

innovation source

introversion, inability of monitoring developments in the industry


EXPORTS

• 22% of business: no or minimum export activity

(up to 2% of turnover)

• Only 10% of exports over 40% of turnover

• 40 purely Greek businesses: Average export

contribution to turnover, 17%

internationalization processes

1. Direct exports

2. Partnerships with local businesses

• 55.6% active in foreign markets


HORIZONTAL DIFFERENTIATION

• 17% of the sample (15% of purely Greek), active More than one uncorrelated

sectors

• the participation of the second industry branch in turnover is significant for only

3 firms (> 10%)

• Minimum diversification of risk due to sectoral failures


BUSINESS MANAGEMENT AND CORPORATE CULTURE

• Strong family type culture seemed to prevail over culture based on professional

managers

• Half of companies have developed a hybrid corporate culture

• 80% of company leaders indicate that staff is of high or very high level

• 70% said staff very fit to corporate culture

STAFF


STATISTICAL RESULTS Chi-square, Multiple Regression, ANOVA ...

• very large cost reductions, regardless of exports and sector diversification

• purely Greek businesses: stronger cost-cutting interventions

• low export business: major funding difficulties

• positive correlation btw in-house R&D and avoidance of wage reductions (R = 64%)

• innovation in relation to the industry: significant beneficial effect brought about by

innovative marketing (R = 67%)

• the level of exports as a percentage of turnover associated with direct exports (R = 64%) and not subsidiaries


SEGMENTATION hi-tech / non hi-tech firms

innovation sources: • hi-tech : suppliers, in-house R&D. • non hi- tech : staff

• hi-tech: slightly more extrovert

• hi-tech: professionals managers • non hi-tech: family management spirit

• hi-tech : financial difficulties

• hi-tech : layoffs, salary reductions

Connecting research results to business performance (1)

KPIs of business performance

• Return on assets

• turnover for the years 2010, 2011, 2012

dbase ICAP, balance sheets


Avg. change in turnover :

2010- 2011: -5.62%

2011- 2012: -7.29%

shrinking SALES

•ROA increase by 20% over the last

three years, only two companies (4.4%

of total)

• gazelles <6% of market globally

• Only one had a very high ROA (Over

15%) (pharmaceutical industry)


PROFITABILITY

• 40% of businesses remained on track of

profitability during all three years in

question

• Only 6.7% of companies that recorded

losses in 2011 managed to reverse the

situation in 2012

• Average ROA 2012: -1.05%

...gazelles ???


Features of business with significant growth

• customers, significant source of innovation

• Increased innovation in distribution

• show no notable export performance (<10%)

• customers actively participate in the formulation of new products

• professional managers

• powerful staff fit with corporate culture

• growth of ROA while reducing sales, Up to 15%

• maintaining profitability and growth while applying cost reforms


statistical tests

• not recorded correlation between average ROA and sizes of firms

• statistical significance between ROA and hi-tech / non hi-tech

segmentation

• positive correlation btw ROA with variable "Clients as a source of

innovation" and “negative” Quality Product Reduction Policy (Multiple R

= 64%)

Qualitative-comparative analysis of profitability factors using fuzzy sets

(1)

• "traditional“ Quantitative statistical methodology: meager results

quantitative analytical methods:

• "results of causes"

• Estimation of the average influence

of one or more variables in a

population of cases

• mathematical expressions (eg

general linear models)

qualitative comparative methods analysis:

•"causes of results"

• from individual results of each case, extraction

of (patterns) Causes


(2)

identification and categorization of complex types of causes and effects linking the

performance of a business and the operational and organizational features using an innovative

method:

Fuzzy Set Qualitative Comparative Analysis (fsQCA)

Target:

Combinations of cases / variables that bring concrete results, eg maintaining a profitable business on orbit

fsQCA


(3)

fsQCA

• a certain effect can occur in the presence of a set of core parameters and different combinations of peripheral variables (Fiss, 2011)

• the opposite result does not necessarily follow the absence of those parameters, can

be due to a different array of core and peripheral variables

• technique based on set theory • the variables can have a hierarchical effect (core on peripheral) on variable

configurations


(4)

fsQCA

• Shape parameter combinations to

identify standard typologies

• typology Miles & Snow


(5)

Sustainable business model- sample limitations:

• Very few highly profitable firms in the sample (ROA> 10 -15%)

• It is not possible to study the characteristics that lead to very high profitability

• ALTER THE QUESTION: What kind of business maintained sustainability under the critical

accounting years 2012-2013; resilient to crisis

• Threshold: Average ROA> 0

fsQCA

Software: fsQCA 2.0 (Peer Fiss, Marshall Business School, Univ. S. California)


(6)

Fuzzy-Set methodology

1. Variable calibration and definition of fuzzy sets

• boolean algebra - participation in a set: 0 or 1

• fuzzy Sets- gradual participation in a set

1.00 = company fully in set A. 0.80 = company mainly in set A 0.60 = company relatively more in set A than not in set A 0.40 = company relatively less in set A than not in set A 0.20 = the company most probably mainly not in set A 0.00 = the company does not belong to set A

• Advantage: Complete exploitation of qualitative grading of 1-5 in questionnaires

• Disadvantage: "intervention" in datasets


(7)

fsQCA Fuzzy-Set methodology

Created variable configurations • "modern management " • "innovation source-external " • overall cost reduction • firm size

Computed results • average ROA • innovation


(8)

fsQCA

Fuzzy-Set methodology

• degree of innovation in relation to the competition

• innovation in marketing and distribution

• product cost

• reduce in wage costs

• reduce of total cost

• application of modern management rules

• company size

model variables


(9)

fsQCA

KPIs:

• Consistency: degree to which business with a given combination of variables form a coherent

subset of the result, i.e. having an average ROA> 0

• Combinations with high consistency values almost always lead to the result (viability, ROA> 0)

2. Selection of cases that satisfy the conditions


(10)

fsQCA 2. Selection of cases that satisfy the conditions


(11)

fsQCA 3. Run the model

('Fuzzy Truth Table Algorithm')

• Supervised solution: conditions-variables: theoretically present or absent ; user defined

"simplification "of variable combinations


(12)

fsQCA 3. Run the model

('Fuzzy Truth Table Algorithm')

• 2 critical types of solutions: parsimonious and intermediate

• Core variables : appear in both solutions

• Peripheral variables: only appear in intermediate

• Parsimonious: contain simplified variable combinations, whether they are based on easy or

difficult counterfactuals

• Intermediate : include simplified assumptions, only based on easy counterfactuals

"easy" vs. “difficult" counterfactuals

Qualitative-comparative analysis of

profitability factors using fuzzy sets

(13)

fsQCA

4. Results of the Model

SOLUTION

CONDITIONS 1a 1b 2

strategic features

Cost leadership ● x x

Innovation degree x

Innovation in distribution and marketing

● ●

Cost Reduction Strategy

wage reductions x

Overall cost reduction ● x

structural features

modern management ● ● ●

Size x x

Consistency 80.66% 84.93% 86.81%

Raw Coverage 21.13% 30.07% 24.13%

Overall Consistency: 88.78%

Overall Coverage: 42.73%

(Source for vizualitation: Fiss, 2011)

• coverage : the percentage of members the

samples that are interpreted by the solution

• consistency : whether the cases actually

belong to profitable firms


(14)

fsQCA

THE TYPOLOGIES described BY SOLUTION 1a

core parameters: • contemporary management • maintain salaries • small size

1a: peripheral variables: • low product cost • great overall cost reduction

• standard cost leadership. • flexibility • economies of scale • They offer incentives to their staff • high correlation with the formula Defender

SOLUTION 1


(fuzzy sets) (15)

fsQCA

THE TYPOLOGIES described BY SOLUTION 1b

core parameters: • contemporary management • maintain salaries • small size

1b: peripheral variables: • high product cost •negligible overall cost reduction • strong innovation in distribution and marketing

• differentiation • Flexibility • Larger shares in crisis • foundations for long term growth • new market segments by investing in marketing Crisis • They offer incentives to their staff • type Prospector

SOLUTION 1


(fuzzy sets) (16)

fsQCA

THE TYPOLOGIES described BY SOLUTION B

core parameters: • contemporary management • maintaining salaries • low innovation in relation to the competition

peripheral variables: • high product cost • negligible overall cost reduction • strong innovation in distribution and marketing

• Relatively high differentiation • profitability by maintaining high market via aggressive marketing • They offer incentives to their staff • type Analyzer

SOLUTION 2


(fuzzy sets) (17)

fsQCA THE TYPOLOGIES describeBY SOLUTION

COCLUSIONS-strategic features • both solutions identified modern management as core variable (Horizontal structures, professionals managers) • when size is relevant, it is small • innovation in distribution and marketing, identified in two of three combinations: consistent with the tactics of survival in global crises • limit cost reductions mainly in the operational aspect • healthy and sustainable effort to maintain low costs without actions that reduce the incentive of workers, eg horizontal cuts

Suggestions to develop research

• Increase and expand sample size

• Highlight viable sectors of the Greek economy

• Focus on examination of the degree of access to finance

• Further development of the method fsQCA and typologies, in combination with

quantitative methods

Thank you for your attention

Dimitris Chryssafinis

mba thesis presentation-chrysafinosen

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