Brief Introduction Definitions Enterprise Strategies Restructuring Local Examples Small is nice?

Transcription

1 Marco Abela

2 Brief Introduction Definitions Enterprise Strategies Restructuring Local Examples Small is nice?

3 Why concentrate at micro level? Best approach is to put oneself in the shoes of the enterprise Benefits

4 Enterprise An economic activity of providing goods and services undertaken by a service, commercial, industrial etc. entity. The primary motive is profit and not mere employment for oneself and others

5 Competitiveness Ability of a firm to offer products and services that meet the quality standards of the local and world markets at prices that are competitive and provide adequate returns on the resources employed or consumed in producing them. a comparative concept of the ability and performance of an enterprise to sell and supply goods and/or services in a given market

6 Restructuring Enterprises adapting to a new environment. Bringing about a drastic or fundamental internal change that alters the relationships between different components or elements of an organization or system

7 Strategic management is about taking "strategic decisions In practice, a thorough strategic management process has three main components

8

9 An important part of business strategy is concerned with ensuring that these resources and competencies are understood and evaluated - a process that is often known as a "Strategic Audit

10 Resource Audit Value Chain Analysis Core Competencies Analysis Performance Analysis Portfolio Analysis SWOT Analysis

11 The resource audit identifies the resources available to a business. Some of these can be owned (e.g. plant and machinery, trademarks, retail outlets) whereas other resources can be obtained through partnerships, joint ventures or simply supplier arrangements with other businesses.

12 the ability of the business to "finance" its chosen strategy. An audit of financial resources would include assessment of the following factors: Existing finance funds Ability to raise new funds

13 The heart of the issue with Human Resources is the skills-base of the business. An audit of human resources would include assessment of the following factors: Existing staffing resources Changes required to resources

14 Wide range of operational resources concerned with the physical capability to deliver a strategy. These include: Production facilities Marketing facilities Information technology

15 It is easy to ignore the intangible resources of a business when assessing how to deliver a strategy - but they can be crucial. Intangibles include: Goodwill Reputation Brands Intellectual Property

16 Describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings: (1) Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); and (2) Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others ("outsourced").

17 Activity Inbound logistics Operations Description All those activities concerned with receiving and storing externally sourced materials The manufacture of products and services - the way in which resource inputs (e.g. materials) are converted to outputs (e.g. Products) Outbound logistics Marketing and sales Service All those activities associated with getting finished goods and services to buyers Essentially an information activity - informing buyers and consumers about products and services (benefits, use, price etc.) All those activities associated with maintaining product performance after the product has been sold

18 Activity Description Procurement This concerns how resources are acquired for a business (e.g. sourcing and negotiating with materials suppliers) Human Resource Management Those activities concerned with recruiting, developing, motivating and rewarding the workforce of a business Technology Development Activities concerned with managing information processing and the development and protection of "knowledge" in a business Infrastructure Concerned with a wide range of support systems and functions such as finance, planning, quality control and general senior management

19 Value chain analysis can be broken down into a three sequential steps: 1) Break down a market/organisation into its key activities under each of the major headings in the model; 2) Assess the potential for adding value via cost advantage or differentiation, or identify current activities where a business appears to be at a competitive disadvantage; 3) Determine strategies built around focusing on activities where competitive advantage can be sustained

20 Core competencies are those capabilities that are critical to a business achieving competitive advantage. The starting point for analysing core competencies is recognising that competition between businesses is as much a race for competence mastery as it is for market position and market power. Goal is to focus attention on competencies that really affect competitive advantage

21 result of a specific unique set of skills or production techniques that deliver value to the customer Unique value and not a me too business "Me too" businesses (with nothing unique to distinguish them from their competition) are doomed to compete on price: The only thing they can do to make themselves the customer's top choice is drop price. And as other "me too" businesses do the same, profit margins become thinner and thinner. The question, though, is where this uniqueness comes from, and how it can be sustained

22 Hamel and Prahalad give three tests to see whether they are true core competences: Relevance: Firstly, the competence must give your customer something that strongly influences him or her to choose your product or service. If it does not, then it has no effect on your competitive position and is not a core competence. Difficulty of Imitation: Secondly, the core competence should be difficult to imitate. This allows you to provide products that are better than those of your competition. And because you're continually working to improve these skills, means that you can sustain its competitive position. Breadth of Application: Thirdly, it should be something that opens up a good number of potential markets. If it only opens up a few small, niche markets, then success in these markets will not be enough to sustain significant growth.

23 Black & Decker small electric motors Honda gasoline powered engines NEC semiconductors Federal Express logistics management

24 The resource audit, value chain analysis and core competence analysis help to define the strategic capabilities of a business. After completing such analysis, questions that can be asked that evaluate the overall performance of the business.

25 These questions include: How have the resources deployed in the business changed over time; this is "historical analysis How do the resources and capabilities of the business compare with others in the industry - "industry norm analysis How do the resources and capabilities of the business compare with "best-in-class" - wherever that is to be found- "benchmarking How has the financial performance of the business changed over time and how does it compare with key competitors and the industry as a whole? - "ratio analysis"

26 Benchmarking is the process of identifying "best practice" in relation to both products (including) and the processes by which those products are created and delivered. The search for "best practice" can taker place both inside a particular industry, and also in other industries (for example - are there lessons to be learned from other industries?). The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to "best practice" and to identify areas and means of performance improvement.

27 Application of benchmarking involves four key steps: 1. Understand in detail existing business processes 2. Analyse the business processes of others 3. Compare own business performance with that of others analysed 4. Implement the steps necessary to close the performance gap

28 Strategic Benchmarking Performance or Competitive Benchmarking Functional Benchmarking Internal Benchmarking External Benchmarking International Benchmarking

29 Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed. Re-aligning business strategies that have become inappropriate Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise

30 Businesses consider their position in relation to performance characteristics of key products and services. Benchmarking partners are drawn from the same sector. Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance

31 Focuses on improving specific critical processes and operations. Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services. Process benchmarking invariably involves producing process maps to facilitate comparison and analysis. Achieving improvements in key processes to obtain quick benefits

32 Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes. This sort of benchmarking can lead to innovation and dramatic improvements. Improving activities or services for which counterparts do not exist.

33 Involves benchmarking businesses or operations from within the same organisation (e.g. business units in different countries). There may be fewer barriers to implementation as practices may be relatively easy to transfer across the same organisation. However, real innovation may be lacking and best in class performance is more likely to be found through external benchmarking. Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly, throughout the organisation

34 Involves analysing outside organisations that are known to be best in class. External benchmarking provides opportunities of learning from those who are at the "leading edge". This type of benchmarking can take up significant time and resource to ensure the comparability of data and information, the credibility of the findings and the development of sound recommendations.

35 Best practitioners are identified and analysed elsewhere in the world, perhaps because there are too few benchmarking partners within the same country to produce valid results. Globalisation and advances in information technology are increasing opportunities for international projects. Where the aim is to achieve world class status or simply because there are insufficient"national" businesses against which to benchmark

36 Portfolio Analysis analyses the overall balance of the strategic business units of a business. An important objective of a strategic audit is to ensure that the business portfolio is strong and that business units requiring investment and management attention are highlighted. Traditionally, two analytical models have been widely used to undertake portfolio analysis: The Boston Consulting Group Portfolio Matrix (the "Boston Box"); The McKinsey/General Electric Growth Share Matrix

37 the first step is to identify the various Strategic Business Units ("SBU's") in a company portfolio. On the horizontal axis: relative market share - this serves as a measure of SBU strength in the market On the vertical axis: market growth rate - this provides a measure of market attractiveness

38 Build Share: here the company can invest to increase market share (for example turning a "question mark" into a star) Hold: here the company invests just enough to keep the SBU in its present position Harvest: here the company reduces the amount of investment in order to maximise the short-term cash flows and profits from the SBU. This may have the effect of turning Stars into Cash Cows. Divest: the company can divest the SBU by phasing it out or selling it - in order to use the resources elsewhere (e.g. investing in the more promising "question marks").

39

40 BCG matrix classifies businesses as low and high, but generally businesses can be medium also. Thus, the true nature of business may not be reflected. Market is not clearly defined in this model. High market share does not always leads to high profits. There are high costs also involved with high market share. Growth rate and relative market share are not the only indicators of profitability. This model ignores and overlooks other indicators of profitability. At times, dogs may help other businesses in gaining competitive advantage. They can earn even more than cash cows sometimes. This four-celled approach is considered as to be too simplistic.

41 The McKinsey model argues that businesses should develop their growth strategies based on: Operational skills Privileged assets Growth skills Special relationships

42

43 Strengths, Weaknesses, Opportunities and Threats. SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment. a useful summary technique for summarising the key issues arising from an assessment of a businesses "internal" position and "external" environmental influences

44 The Key Distinction - Internal and External Issues Strengths and weaknesses are Internal factors. Opportunities and threats are external factors.

45 Technological skills leading brands distribution networks customer loyalty production quality Internal Consumer tastes liberalisation; tax rates government policies new distribution channels External

46 There are certain limitations of SWOT Analysis which are not in control of management. These include- Price increase; Inputs/raw materials; Government legislation; Economic environment; Searching a new market for the product which is not having overseas market due to import restrictions; etc. Internal limitations may include- Insufficient research and development facilities; Faulty products due to poor quality control; Poor industrial relations; Lack of skilled and efficient labour; etc

47 This process involves understanding the nature of stakeholder expectations (the "ground rules"), identifying strategic options, and then evaluating and selecting strategic options.

48 four "generic" business strategies that could be adopted in order to gain competitive advantage (Michael Porter) Based on the extent of the scope of business activities are narrow vs broad and The extent to which a business seeks to differentiate its products

49

50 This strategy involves selecting one or more criteria used by buyers in a market - and then positioning the business uniquely to meet those criteria. This strategy is usually associated with charging a premium price for the product - often to reflect the higher production costs and extra value-added features provided for the consumer. Differentiation is about charging a premium price that more than covers the additional production costs, and about giving customers clear reasons to prefer the product over other, less differentiated products.

51 With this strategy, the objective is to become the lowest-cost producer in the industry. Many (perhaps all) market segments in the industry are supplied with the emphasis placed minimising costs. If the achieved selling price can at least equal (or near)the average for the market, then the lowestcost producer will (in theory) enjoy the best profits. This strategy is usually associated with large-scale businesses offering "standard" products with relatively little differentiation that are perfectly acceptable to the majority of customers.

52 In the differentiation focus strategy, a business aims to differentiate within just one or a small number of target market segments. The special customer needs of the segment mean that there are opportunities to provide products that are clearly different from competitors who may be targeting a broader group of customers. The important issue for any business adopting this strategy is to ensure that customers really do have different needs and wants - in other words that there is a valid basis for differentiation - and that existing competitor products are not meeting those needs and wants.

53 Here a business seeks a lower-cost advantage in just on or a small number of market segments. The product will be basic - perhaps a similar product to the higher-priced and featured market leader, but acceptable to sufficient consumers. Such products are often called "me-too's".

54 Often the hardest part. When a strategy has been analysed and selected, the task is then to translate it into organisational action. Many factors, often beyond the enterprises control

55 Restructuring is a set of changes on the enterprise aimed to increase efficiency, to improve the general situation of an enterprise and to ensure its profitability over long period of time. We can define two types of restructuring: regressive and strategic.

56 Regressive restructuring includes labor shedding, cutting of real wage, reduction in social and unused production assets, and closure of unprofitable product lines the implementation of measures that will ensure good functioning of an enterprise, at least in the short-run, without significant costs

57 a radical change in strategic outlook of the firm and is accompanied by investment in new equipment, development of new products and new markets, increased product quality, structural changes in labor force, and improvements in organizational structure implementation of measures that will ensure efficient operation of an enterprise and make it competitive in the long term

58 Two main types of Strategic restructuring Hard - which results in investment in new equipment and technologies Soft - which is characterized by improvements in marketing activities, increased promotion of products etc.

59 EU Membership Global Recession North African Political Crisis

60 Removal of protective trade barriers Introduction of standards Increase in administrative burdens and costs Main threats furniture, agro-industry

61 Institute for the Promotion of Small Enterprises (IPSE) joint venture between the Malta Chamber of Commerce, the Malta Federation of Industry and the Government of Malta Tried to change the mentality of businesses Introduced strategic thinking as a normal activity ex: business planning; consumer requests Support for upgrading of operations Promotion of clusters

62 Main effect was the decrease in demand Approach was through a task-force which examined each individual case All assistance was based on the enterprises increasing their investment, Government supported the businesses through training grants

63 Malta was marketed as a stepping stone for business in Northern Africa Very strong trade links, particularly with Libya Many companies hit very hard: due to lack of strategic planning

64 Access to information Access to analytical tools Ease of business Keeping tabs with the business reality Provision of training Change of Mentality Good advice is better than money!

65 The benefits and threats of being small

66