strategy-analysis-09 u shah

8/8/2019 Strategy-Analysis-09 u shah

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EBBM06 Strategic CaseAnalyses

Introduction and Overview of the StrategicProcess What is strategy?

The strategic management process The creation of strategy Strategy in specific contexts

Andrew Henley 2009


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EBBM06 Introduction

Strategies: actions and activities designedand implemented to achieve designated

purposes

Strategies are means to ends To some extent all managers are involved

in the strategy process


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EBBM06 Introduction

Mintzberg five perspectives on strategy

Strategy

Vision

Plan

TacticPosition

Pattern

Source: T&M,Fig 1.1


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EBBM06 Introduction

Three distinct themes within the study ofstrategic management How do factors acting on the organisation from

outside determine the choice of strategy? - Thestrategic environment How do the actions of other organisations

determine the choice of strategy? - The

competing organisation How does the nature of leadership in the

organisation affect the choice of strategy? The individual strategist


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EBBM06 Introduction Environment Values - Resources

Environment-market

-competition

Values-of the leader

-of stakeholders

Resources-competencies

-capabilities

SWOT

Creation ofstrategies


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EBBM06 Introduction

Strategic fit

Values

EnvironmentResources

Strengthsand

weaknesses

Opportunitiesand threats

Leadershipand culture

Thompson, p. 54,T&M, pp125-30describe non-congruentexamples

Strategic fit orcongruency

Competition


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EBBM06 Introduction

Levels of strategy

The search for competitive advantage inparticular business functions or activitieswhich comprise elements of the valuechain

Functionalstrategy

The market positioning of a particularproduct or service line, in the search forcompetitive advantage

Competitivestrategy

The strategic approach of the organisation

as a whole

Corporate

strategy


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EBBM06 Introduction

The purpose of strategy to exploit synergybetween functions and

business units within the organisation in order to change for the better.

So functional strategies must fit with theorganisations competitive position, and mustcomplement each other

Outcome a stronger competitive position,sustained by innovation and improvement

Achieving change depends on the qualities ofthe strategic leader


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Adaptive strategiesin a dynamicenvironment

EBBM06

Discarded(inappropriate)

strategies

Implementation ofintended strategies but with incremental

changes

Actualstrategiespursued

Emergentstrategy with

learning

Intendedstrategies

Formallyplanned

strategies

Leadership

vision

Strategy Creation (source T&M Fig 1.8)


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EBBM06

Situation appraisal:review of objectives

Situationassessment:

SWOT

Clarification ofobjectives

Corporatestrategy

Competitivestrategies

Strategicdecisions

Implementation

Monitorprogress

Where are we?

Whereare wegoing?

Howare wegetting

there?

Howarewedoing?

Leadershipand culture

The Strategy Cycle (source T&M Fig 1.5)


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EBBM06 Mission and Objectives

Analysing the Organisations Mission andObjectives The Business Model

Mission, vision and objectives Objectives: models of the organisation Social responsibility objectives and business

ethics


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The Business Model The organisations recipe for success Key components:

Products/services

Customers Competitive logic the reason for buying

Could be based on price or on difference

Market positioning Narrow product/service; broad customer range

Board product/service; narrow customer segment

Narrow range for a targeted niche

Broad range; broad customer range


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EBMR06

Where do vision andmission fit into strategy?

Long-term

objectives

Strategies

Short-termobjectives

Standards ofbehaviour

Values

Vision

MissionPurpose why orgn

exists

Strategicparadigm

how the orgn

adds value, forwhom

Source: T&M, Fig 2.2


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A vision statement describes what organisationaspires to become in the futureWe are the worlds local bank (HSBC)Our global quest is to improve the quality of human

life by enabling people to do more, feel better andlive longer (GlaxoSmithKline)

Sony doesnt serve markets; Sony makes marketsThe worlds favourite airline (British Airways)


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A mission statement describes the reason anorganisation exists, what it does and who itseeks to produce for/serve.To provide our customers with safe, good value,

point-to-point air services. To effect and to offer aconsistent and reliable product and fares appealing toleisure and business markets on a range of Europeanroutes. To achieve this we will develop our peopleand establish lasting relationships with our

suppliers. (EasyJet)


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EBMR06 Mission and Objectives Characteristics of good mission statements (Ackoff

1986): Formulation of objectives that enable progress to be

measured

Differentiate organisation from competitors

Define the business that the organisation wants to bein (but isnt necessarily in)

Relevant to all stakeholders

Exciting and inspiring


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Objectives Key questions:

What objectives is the organisation actually followingand achieving?

What objectives might it follow, and what scope does ithave to follow these?

What specific objectives should it follow in the future?

Objectives should be SMART: Specific

Measurable Achievable

Realistic

Time-led (when is the objective to be achieved?)


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EBBM06 Mission and Objectives Objectives: Market models of profit maximisation

Notapplicable

BlockedConsiderableUniqueOnePureMonopoly

YesDifficultDepends ondegree of

collusion

Standardisedor

differentiated

FewOligopoly

YesFairly easySomeDifferentiatedManyMonopolisticcompetition

NoneFreeNoneStandardizedor almost

identical

ManyPurecompetition

Non-pricecompetition

Entryconditions

Control overprice

Product typeNumberof firms

Market

Source: adapted from T&M Table 2.1


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EBBM06 Mission and Objectives Objectives: stakeholder models

Under theories based on profit-maximisation, theshareholder is paramount (The social responsibility ofbusiness is to make profit Milton Friedman)

Stakeholder models consider the roles and interests of

all involved in or affected by the performance of thebusiness: employees, managers, suppliers, distributors,customers, government as well as investors

Some are internal and some external

Both can affect current and future strategy


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EBBM06 Stakeholder objectives can be

complementary or conflicting

Satisfiedcustomers

Motivatedemployees

Highfinancialreturns

enable

reward

create

Competitor-driven need to

cut costs

Source: T&M Fig 2.4(adapted)

Market-drivenexpectations

Short- andlong-termfinancialexpectations


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EBBM06 Mission and Objectives Objectives: the goals of the strategic leader

May be crucial in determining objectives, especially inSMEs (small and medium-sized enterprises)

Entrepreneurial leaders

lifestyle businesses

Strategic leaders may pursue personal objectives,rather than allowing managers and/or stakeholders toshape objectives

The ethical stance of the leader


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Social responsibility objectives and businessethics Can cover a wide range of contemporary issues

Product safety and treatment of customers

Treatment of employees non-discrimination Honesty policies regarding the acceptance of bribes

Protection of the nature environment carbon footprint

Social responsibility in the community

Corporate social responsibility (CSR)

Corporate citizenship (CC) Some of these are internal some are external


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EBBM06 Mission and Objectives Good business ethics may just be good business, and

not necessarily in conflict with financial/profitobjectives But many organisations do see such responsibilities as

a threat

Compliance adds to unit cost and so underminescompetitive position

An alternative view is that CSR is enlightened self-interest

Indirect evidence (from the financial performance of

ethical managed investment funds) provides somesupport for the second view

Ethically managed investments do notunderperform relative to non-ethical, but may bemore risky


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EBBM06 Mission and Objectives Ethical stance

Offensive:Ethical demands threaten

the business

Defensive:Ethical demands undermine

profitability

Indifferent:

Ignore ethical demandsand they will go away

Innovative:Seek ways to capitalise on

ethical demands

Thedevelopm

ento

f

theethical

organis

ation


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EBBM06 Mission and Objectives For example Porter (1995) suggests that many

companies mistake compliance with environmentalregulation as a threat, rather than as an opportunityto develop efficient ways of using resources

But multinational companies may strategicallyrelocate to countries with the lowest environmentalregulation For example the Union Carbide disaster in Bhopal in

1984

For the engaged organisation social responsibilitycan become part of corporate culture


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EBBM06 Environmental context

Analysing the Business Environment Purpose

To understand in detail the environment in whichthe organisation operates

To consider how the forces present in theenvironment pose opportunities and threats


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EBBM06 Environmental Context

The organisation has to maintain fit orcongruence between its externalenvironment and its resources Ability to make this match is a reflection of the

organisations capacity for strategic thinking


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Synergy Ansoff (1987): resources combined and managed so that

the sum is greater than the sum of the parts (2+2=5) Three basic synergy opportunities:

Functional

Strategic complementary strategies across the organisation

Managerial

Competitiveness is from different functions and activitiesand the effectiveness of linking these together

It is also derived from the interdependency of difference

products, services, businesses within the organisation


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Organisational learning Strategic thinking considers past, present and future

but past may not be a good indicator of futuretrends

Organisational learning the ability to learn from thepast, be aware of current competencies and gainfuture insight


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EBBM06

Experience,Emergenceof currentstrategies

Futurestrategies

Learning fromexternal

sources

Synthesisinginternal

changes andlearning

Awareness ofcompetitor

activity

Awareness ofenvironmentaldevelopments

Organisationallearning

The strategically successful organisationlearns how to synthesise these varioussources of information in order to dealwith future uncertainty


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Changing business environments Becoming more turbulent Managing them is demanding, requires flexibility, and

ability to break with the past

Global organisations must understand the globalcontext relying on the home market for bothcustomers and production is no longer feasible formany


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The environment is: Uncertain requires risk-taking and entrepreneurial

leadership past strategies may no longer work Complex organisations have to become more

complex to respond; entails awareness of changeand ability to manage change

Dynamic organisations face rapid technologicalchange (in both products and processes)


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Theorganisation

The businessenvironment

Political

Econ

omicSocial

Suppliers

Custo

mers

Industry

competito

rs

Tec

hn

ica

l/

Tec

hno

log

ica

l

Source: T&M,Fig 3.1


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EBBM06 Tools for Analysis

Analysis of Stakeholders

Should be kept fullyinformed of events

and progress

Should not beprioritised at

expense of otherstakeholders

Low

Top priority essential they areboth informed and

satisfied

Should be satisfieddespite lack of

stakeholder interestHigh

Relative

power

HighLow

Strength of active interest in organisationStakeholder significancegrid (Mendelow, 1991)


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EBBM06 Tools for Analysis PEST(EL) Analysis focus on different

environmental forces (shocks) Political Economic Sociocultural Technological

(Environmental/Ecological Legal)


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EBBM06

TheOrganisation

Johnson, Scholes and Whittington, p. 68Which are affecting the organisation?Which are the most important? nowand in the future

PoliticalGovernment stabilityTaxation policyForeign trade regulationsSocial welfare policies

LegalCompetition lawEmployment lawHealth and safetyProduct safety

Environmental/Ecological

Env. protection lawsWaste disposalEnergy consumption

TechnologicalGovt spending on researchGovt and industry focus ontechnological effortInnovations and discoveriesSpeed of technology transferRates of obsolescence

EconomicBusiness cyclesGNP trendsInterest ratesInflationUnemploymentDisposable incomes

Socio-culturalDemographicsIncome distributionSocial mobilityLifestyle changesAttitudes to work andleisureConsumerism

Education levels


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Ansoffs six factors (1987) Factors determining the degree of turbulence in the

business environment Changeability of the market environment

Speed of change

Intensity of competition

Fertility of technology

Discrimination by customers

Pressures from governments and influence groups

By attaching scores to each we can get on overallmeasure


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Ansoff (continued) The more turbulent the business environment, the

more aggressive the firm will have to be in terms of: Competitive strategies

Entrepreneurialism

Change orientation


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EBBM06 Tools for Analysis Porters Five Forces: analysing the competitive

environment

Rivalry amongstexisting firms in

the industry

Threat of newentrants

Bargaining powerof suppliers

Threat ofsubstitute

products orservices

Bargaining powerof buyers


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EBBM06 Tools for Analysis The threat of entry

Sources of barriers to entry Economies of scale new entrants need to make

substantial investment to achieve scale Product differentiation new entrants need to make

substantial investment in advertising and promotionto establish brand identity Capital requirements - new entrants need substantial

capital investment to establishment market presence(specialised equipment, R&D, marketing)

Switching costs new entrants need to persuade

potential customers to incur switching costs to theirbrand Access to distribution channels new entrants may

not have access to current distribution channels Cost advantages independent of scale patents, raw

materials supply


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EBBM06 Tools for Analysis Bargaining power of suppliers/vertical integration

Affected by Concentration amongst suppliers Degree ofsubstitutabilitybetween suppliers Amount of/potential for vertical integration

Extent to which the buyer is ofimportance to thesupplier Switching costs to alternative suppliers

Bargaining power of buyers Affected by

Concentration and size of the buyer Importance to the buyer of the purchase Degree ofproduct standardisation, affecting

substitutability Ease with which buyers can switch switching costs Possibility ofvertical integration between buyer and

supplier


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EBBM06 Tools for Analysis Threat of product substitutes

Determines the elasticity of demand(sensitivity ofdemand to price)

And so limits freedom for price changes

And makes price changes by rivals more likely

Can be reduced by establishing differentiation


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EBBM06 Tools for Analysis Rivalry amongst existing competitors

Interdependencyleads to the risk ofretaliation

Affected by

Extent to which competitors are in balance

Industry growth rates slow growth increasepressure to fight over market share

High fixed costs may result in price wars as firmsseek to use spare capacity

High exit barriers leads to pressure to compete

Differentiation low differentiation increases rivalry


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SWOT Analysis Strengths Weaknesses Opportunities Threats Opportunities presented by the external environment

only have potential if the organisation can

strategically deploy resources to take advantage ofthem SWOT analysis focuses on strengths and weaknesses

in the organisations resources in order to evaluateits potential to take advantage of opportunities or to

be blown off course by threats SWOT analysis should always go alongside a SWOT

analysis of principal competitors


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EBBM06 SWOT analysis of Swansea University

ThreatsUncertainty about UK undergraduatefinanceQuality Assurance Agency

Research Assessment ExerciseVolatile international marketsLack of space inability to extendcampus/develop new campus

WeaknessesVariable research performance comparedto competitors (Cardiff)Poor fit between student demand and

subject provision in some areasLack of strong international brandSocial facilities in need of upgradingRemote from London and internationalairports

OpportunitiesMedical and health research fundingGrowing demand from internationalstudentsExternal funding for new studentaccommodationCommitment from City and Welsh

AssemblyEU Convergence funding

StrengthsAttractive locationHigh staff expertiseGood sports facilitiesWide range of programmesStrong engineering and technology baseMedical school

Strong engagement with industry andgovernment

Note: the above reflects the opinions of Professor Henley and not

Swansea University!!


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EBBM06 Tools for Analysis Notice that S and W relate to existing resources (or

lack of them) Notice that O and T are all external to the organisation SWOT analysis proceeds by identifying key strategic

issues from the lists: Questions:

How can the organisation neutralise critical weaknessesor convert them to strengths?

How can the organisation neutralise critical threats orconvert them to potential opportunities?

How can the organisation best exploit resource strengthsin relation to opportunities?

What new markets and market segments might be metusing existing strengths?

Given changing current demands, what changes areneeded to current products, processes and services?


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Opportunities Threats

Deploy strengthsto meet

opportunities

Strengths Weaknesses

to convert themto opportunities

Invest in resources toconvert weaknesses to

strengths

Marshall existing resourcesto neutralise threats


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EBBM06 Analysing the future Forecasting the future environment driving

forces General principles

Analyse the business environment to identify which

forces are most important, and why they are critical Forecast how these forces might change in the future

(many alternative forecasting methods are availableranging from the highly quantitative to qualitativemethods)

Incorporate future expectations and predictions into

management thinking, including lower level managers(closer to the ground)

Be honest and realistic about relative strengths andweaknesses


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EBBM06 Analysing the future What needs to be forecast?

The economy changes to key economic variables(forecasts are regularly published by government andinternational agencies)

Demographics changes in population and household

structure (market research often seeks to categorisepeople by demographic characteristics)

Political influences changes in government prioritiesand legislative programmes (often relies on opinionpolls and expert opinion)

Technology possible impact of future innovations


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EBBM06 Summary

SWOT

Genericstrategies

(competitiveadvantage)

Value ChainAnalysis /

Activity Maps

Businessenvironment

(PEST)

Competitor/Industry

Environment 5 forces

Resource Auditand Analysis


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EBBM06 Strategic Resources

Auditing and Analysing the OrganisationsStrategic Resources The resource-based view of strategy Strategic competencies Understanding the Value Chain


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EBBM06 Auditing Resources

Resources are evaluated in terms of theirstrategic significance

5 dimensions Competitive superiority does the organisation

possess something of value that rivals do not have? Barriers to replication how easily can rivals replicate

this resource? Durability how long can the first two advantages be

maintained? Substitutability can rivals neutralise the value of a

resource by substituting an alternative? Appropriability does the organisation get the real

benefits of the resource, or do they flow to suppliersor distributors?


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EBBM06 Auditing Resources Auditing the organisations strategic resources

Evaluate the profile of the principal skills andresources of the organisation

Compare the resource base with what is needed for

competitive success in the industry Compare (benchmark) with competitors to identify

relative strengths and weaknesses, and to identify(any) significant comparative advantage


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EBBM06 Auditing Resources Resources derived from key operating

elements Marketing Organisational structure

Finance Manufacturing Research and Development Human Resources

For audit purposes each of these should beconsidered in the S&W of the SWOT analysis as levels relative to competitors


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EBBM06 Auditing Resources Strategic architecture a key resource (Kay

1993) Emphasises the importance of corporate networks

and relationships External architecture

Customers Supply chain network Distributors

Internal architecture Vertical and horizontal co-operation between

managers and employees Success can be enhanced if people devote energy to

managing external demands, rather than internalconflict


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EBBM06 Resources and Competencies

Competencies and capabilities Competency an activity or process through which

the organisation deploys its resources effectively Capability the adequacy of the resources and

competencies of the organisation for it to survive andgrow Thresholdresources/competencies/capabilities

those which are essential for the organisation tocompete in a particular market

Necessary for survival


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Issues Threshold levels of capability will change, as critical

success factor changes, and as competitors enter andchange activities

Firms face trade-offs in meeting threshold capabilityfor different customer segments The problem ofredundantcapabilities to free up

funds to invest in new capabilities Threshold levels may involve complementary

resources and competencies


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Unique resources resources that critically support competitive

advantage, and that others cannot imitate or acquire

Core competencies (Hamel and Prahalad, HBR 1990)

Activities and processes through which resourcesare deployed in such a way as to achieve competitiveadvantage in ways that others cannot imitate orobtain (Johnson et al.)

Examples: a powerful brand, effective ways of

servicing retailers, effective ways of motivating asales force

More likely than unique resources


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Core competencies

Unique resources

-Tangible

-Intangible

Capabilities forcompetitiveadvantage

Thresholdcompetencies

Threshold resources

-Tangible

-Intangible

Threshold capabilities

CompetenciesResources

Strategic capabilities and competitive advantage:


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EBBM06 Value Chain Analysis The Value Chain is a means of identifying

opportunities for competitive advantage withinthe architecture of the organisation Competitive advantage created by performing critical

activities more cheaply or better (differently) thancompetitors

Questions: What are the critical activities? How can costs in these be reduced? How can differentiation be achieved?


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EBBM06 Value Chain Analysis

Primary activities

Service

Marketin

g

andsales

Outbound

logistics

Operations

Inbound

logistics

Procurement

Technology development

Human resource management

Margin

Firm infrastructure

Support

activities


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EBBM06 Value Chain Analysis Cost leadership and differentiation strategies

Cost leadership achieved by effective management ofthe key determinants of costs Acceptable quality

Sustained cost gap Differentiation achieved by

Selection of key product/service characteristics whichconsumers value (depends of how the market issegmented)

Adding costs selectively, and charging a premium price

Costs not significant to buyers must be controlled


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EBBM06 Value Chain Analysis

Primary activities

Marketing

andsales

14%

Outbound

logistics


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EBBM06 Other Key Resources

Additionalproduct or

service lines

Brand image

Customer

loyalty andrepeatpurchasing

Higher prices

and margins

Brandinvestment

Branding andreputation Key intangible

resource Customerperception of

difference Reputation relates

to customerexperience, orperception of othercustomersexperiences

Branding conveysimage to customers


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EBBM06 Other Key Resources

Information and IT Information helps decision-making by reducing

uncertainty Organisations need to get the right information (and

only the right information) to the appropriatedecision-makers Provision of hardware and software systems is not in

itself a strategic resource it is the organisationsability to use those systems effectively and efficiently

IT systems can lead to bureaucratic, formal systemsand information overload a strategicdisadvantage rather than a resource.


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EBBM06 Competitive Dynamics

What is competition? Industrial structure and rivalry Competitive strategies Competitor benchmarking


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EBBM06 What is competition?

What is competition? Very few, if any companies, have no

competitors some have only one maincompetitor (e.g. Coca Cola)

Competition can range from few to many, andthe nature of competition will affect the waythe organisation responds strategically

Where competitors are few, organisations must

understand whether and how their rivals willrespond to their changes in strategy -interdependency


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EBBM06 What is competition?

Two types of decisions Some actions which are innovatory one competitor

acting on a perceived opportunity ahead of its rivals;other actions are reactive to such initiatives of rivals

Some actions represent incremental strategic changeto existing strategic intentions; other actions are whenorganisations are adapting strategies adaptivestrategic change

Constant or


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EBBM06

The CompetitiveCycle (source T&M Fig6.2)

New capacityand capabilities

as required

Reinvestmentof profits

in organisation

Productivityimprovements

Higherprices

Lowerprices

Increasedprofits

Cost reductions

Economies ofscale

growing salesand market

share

New sources of value added

Innovations to existingproducts and services

New products and services


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EBBM06 I d t i l St t &


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EBBM06 Industrial Structure &Rivalry

Is it a well knownproduct/brand?

Is it a high growthindustry?

No

No

No

Does it faceimminentcompetition?

Yes

Unlikely tooffer growthprospects

Yes

NoYes

Does it have realor perceiveddifferentiation?

Yes

Greaterpotential forgrowth

No

Is thereactive pricecompetition?

Yes

Source:T&M Fig

6.3


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EBBM06 Industrial Structure & Rivalry The most successful competitors

Create value

Create competitive advantage in delivering value

Sustain competitive advantage

Operate effectively and efficiently

Sustaining competitive advantage (Heller 1998) Supplying the right things?

in the most effective way?

at the lower possible economic cost?

and as good, if not better, than the strongestcompetitor?

targeting and serving the widest possible market?

with a unique selling proposition (USP)?

and innovating enough to make sure the answers allstay yes

EBBM06 (5) I d t i l St t &


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EBBM06 (5) Industrial Structure &Rivalry

Product differentiation and marketsegmentation Differentiation occurs if consumers perceive a

product or service to have different properties fromrivals

Differentiation is most valuable when consumersvalue the difference and will pay a premium for it

Market segments are groups of customers withbroadly similar needs/tastes

Recognises that consumers have heterogeneousneeds and preferences which cannot be met by asingle, undifferentiated product or service


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EBBM06 Industrial Structure & Rivalry Sources of differentiation

Speed of service

Reliability

Service level/product support

Design and features

Technology

Brand/corporate personality

Relationships with customers (if in a supply chain)


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EBBM06 Competitive Strategies

Competitive strategy concerns the wayinwhich organisations choose to compete andposition themselves competitive advantage isthe intended outcome of this

Porters two basic strategy parameters (1985) Parameter 1 (competitive advantage): eitherachieve

lower costs than rivals at a comparable price, or,through differentiation, add value and charge apremium price

Parameter 2 (competitive scope): the range ofmarket segments (from broad to narrow) in whichthe company seeks to compete


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The two parameters lead to three genericstrategies

3b

Differentiationfocus

3a

Cost focusNarrow

2

Differentiation

1

Cost leadershipBroad

Competitive scope

DifferentiationLower cost

Competitive advantage


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For example

Differentiationfocus

BMW/MercedesM&S/Waitrose

Cost focus

HyundaiLidl/Iceland

Narrow

Differentiation

General Motors

Tesco

Cost leadership

Toyota

Asda/Walmart

Broad

Competitive scope

DifferentiationLower cost

Competitive advantage


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EBBM06 Competitive Strategies Cost leadership

Porter argues that there can be only one cost leader

The cost-leader doesnt charge the cheapest price aslow price may be perceived as low quality

If applied across a broad range of segments turnover

and market share should be high above averageprofits with industry average prices

Differentiation Adds cost in order to add value

Market must be capable of segmentation

Superior performance is achieved by serving customerneeds differently

Focus Must find a distinct group of customers in the case of

cost focus, customers with needs below average

From competitive strategy to profitability,


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EBBM06

Cost

P

rofit

Superior

profit

Costleadership/

cost focus:averageprice,

Lowercosts

From competitive strategy to profitability,Thompson, p. 304

profit

Differentia-tion focus:

Low cost,

Low quality

Low price

Inferiorprofit

Theaverage

No realdifferentia-

tion,

Poor costmanage-

ment

Average price

Superiorprofit

Differentia-tion:

Addedvalue,

highercosts buthigherprices

Premium price


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Critique Some companies appear to be capable of pursuing for

cost-based and differentiation strategies at the sametime

Cost-leadership may be more of a position than a

strategy (Hendry 1990) Costs must still be managed in an organisation

pursuing differentiation. Only costs that can berecouped through premium prices should be added.


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Sustaining competitive advantage Need to continually look for improvement Need to look for discrete opportunities to effect

change on industries and markets

Competitive advantage can be rooted in product andprocess technology, organisation and people All of these can be matched or overcome by

competitors, but people and people-driven processesare the most difficult to copy

Speed of competitive response is becomingincreasingly important speed depends onorganisational structure and flexibility Shorter product development

just-in-time management


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Technology

Organisation

People

Origin of competitive advantage

Sustainability of competitive

advantage

Time

ProductPatents can beovercome

ManufacturingTechniques andsystems can be learnt

Organisational processes Organisations canbe restructured

People/people drivenprocesses

Peopleprovideservice


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EBBM06 Formulating Strategy

Three key elements Planning styles and procedures Leadership vision/entrepreneurship

Innovation - intrapreneurship


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Strategy creation involves: vision, planning, adaptation Vision: pulls the organisation

(entrepreneurship) Planning: pushes the organisation (for example

by setting targets and goals) Systematic and formal Informal cerebral

Adaptation: supports and completes strategythrough intrapreneurship Emergentstrategies


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PlanningVisionary

ideas

Emergentstrategies

ImprovementsAdjustments


Competitiveadvantage

Corporate-levelstrategy

Portfolio ofbusinesses

Competitivepositioning

The Organisation

Activities


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Mintzberg (1989) Importance of strategic leader Strategy process should be explicit, conscious and

controlled Strategy process must consider strategy

implementation Visionarymode places less emphasis on choiceAdaptive and incrementalmodes place less emphasis

on analysis

Analysis Choice Implementation


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Strategy

Entrepreneur-ship

Intrapreneur-ship

Analysis andPlanning


Different organisationswill have a differentbalance across thesethree dimensions ofstrategy creation

Successfulorganisations willmaintain abalance, and will

haveentrepreneurs,intrapreneursand planners inthe mostappropriate place

Vision

Adaptatio

nPlanning


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Company growth over time

Vision

Emergent

strategicchange

Formal strategy,especially planning

Crisis

New vision

Renewedemphasis onemergence

StrategicChange source: T&MFig 8.4


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EBBM06 Planning

Strategic Planning Key distinction: informal(cerebral) planning vs.

formalplanning systems Planning is continuous and on-going

Planning at different levels Low level: description of activities and tasks

High level: definition of mission and objectives,establishment of guidelines and policies to alloworganisation to adapt to, shape and exploit itsenvironment

Value of planning lies in the thinking and theprocess,not in the planning document produced


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EBBM06 Planning

The value of strategic planning To give clarity about the nature of the business To increase awareness of strengths and weaknesses To provide recognition of opportunities and threats

To enable effective allocation and use of resources Advantages of planning

Assist in management of complex organisations Allows budget setting

Allows disparate elements to be co-ordinated Disadvantages

Cumbersome and bureaucratic


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EBBM06 Planning

Planning Gap analysis Addresses two key questions

Where does the organisation want to go? (desiredobjectives)

Where realistically can the organisation go? (realistic

objectives) Planning gap analysis addresses the difference

between answers to the two questions


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EBBM06 Planning

Stars

(break-even lowprofits)

Question Marks

(unprofitable, butwith potential for

futureinvestment)

Cash Cows

(profitable)

Dogs

(break-even,marginal profit)

Cash use

Marketgrowth

rate

High

High

Low

LowCash generationRelative market share

Boston Consulting Group Growth-Share Matrix:

Source: T&M,

Fig. 9.6


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EBBM06 Planning

Industry AttractivenessUnattractive Average Attractive

Compet i

tivePosition

Weak

Average

Strong

Cashgenerator

Earnings

generator

Growthgenerator

DirectionalPolicy Matrix:

Source: T&M,Fig. 9.7


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EBBM06 Planning

Competitiveadvantage

Industryattractiveness

Financialstrength

Environment

low

high

high low

low highstable

turbulent

SPACE: StrategicPosition and ActionEvaluation (1)

Source: T&M,Box 9.4

Example shows afinancially strong product

enjoying competitiveadvantage in an attractive

industry and stableenvironment


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EBBM06 Planning

DefensiveConservativeCompetitiveAggressiveStrategic thrust:

Rationalisation

Divestment asappropriate

Cost reductionandproduct/servicerationalisation

Invest in

search for newproducts,services andcompetitiveopportunities

Cost reduction,productivityimprovement,

Raising morecapital to follow

opportunitiesand strengthencompetitiveness

Possibly mergewith cash richcompany

Growth(acquisition)

Capitalise onopportunities

Innovate tosustaincompetitiveadv.

Strategies:

Unstable

Unattractive

Weak

Weak

Stable

Unattractive

Weak

High

Unstable

Attractive

Strong

Weak

Stable

Attractive

Strong

High

Environment:

Industry:

Competitiveness:

Financial strength:

SPACE (2):


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EBBM06 Leadership

Strategic leadership Requires solid awareness of organisations strengths,

weaknesses and capabilities, matching toenvironment, opportunities for change, likelyreactions to change

The visionary finds the ideas and sells them toothers visionary leaders are often bored by thedetail of turning vision into reality

Danger of tunnel vision Difficulty of succession to other managers


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EBBM06 Leadership

De Vries (1996) two keyleadership roles:

Effectivestrategic

leadership

Charismaticrole

Architecturalrole

Vision and direction

Empowered people

Energised people

Organisational structure

Management controland reward systems

Strategies are owned

Customers are satisfied

People enjoy work

Things can happen and changequickly



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EBBM06 Leadership

Many entrepreneurs struggle to leverage in resourcesto allow business ideas to grow, and to enableorganisations to develop

Successful entrepreneurs promote intrapreneurship(internal entrepreneurship)

Governments increasingly recognise the importanceof entrepreneurship for economic development (e.g.Welsh Development Agencys EntrepreneurshipAction Plan

Can entrepreneurs be made in the classroom?

Does entrepreneurship emerge out of immersion in aparticular business? (Mintzberg et al. 1998)

Are entrepreneurs just borne that way?

From entrepreneurship tointrapreneurship (from visionary


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EBBM06intrapreneurship (from visionaryto incremental change)

Vision

Idea/

opportunityEngagement

Action, acquisition ofresources

Team-building

Outcomeswhich reflectimprovement

Outcomeswhich reflect

difference

Organisationbuilding

Intrapreneur-

ship

Entrepreneur-

ship



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EBBM06 Intrapreneurship

Strategic leader as a promoter ofintrapreneurship The intrapreneurial organisation (1)

Four key elements (Fradette and Michaud 1998)

Organisational structure appropriate forencouraging innovation and internal networking

Recruitment of enterprising employees, withappropriate reward structure

Employees backed by appropriate support systems teamworking, mentoring

Success is visible and is rewarded, treatment ofmistakes does not discourage further new ideas


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