WEEK 2: VISION, MISSION & VALUES + ENVIRONMENTAL ANALYSIS I types of environment TYPE 1: General Environment... 3

Transcription

1 TABLE OF CONTENTS WEEK 2: VISION, MISSION & VALUES + ENVIRONMENTAL ANALYSIS I types of environment... 3 TYPE 1: General Environment... 3 TYPE 2: Competitive Environment... 3 Vision, Mission and Values... 1 WEEK 3: ENVIRONMENTAL ANALYSIS II... 2 The General Macro-Environment... 2 The Competitive Environment... 3 ASSESSMENT 1: Porter s Five Forces Model... 4 ASSESSMENT 2: How the Internet and Digital Technologies Influences Industry... 9 ASSESSMENT 3: Limitations and Caveats ASSESSMENT 4: Strategic Groups within Industries WEEK 4: Internal Analysis I... 1 Resources... 1 Tangible Resources... 1 Intangible Resources... 2 Organisational Capabilities... 2 Key Assumptions of Resource-based View (RBV)... 3 Distinctive Resources or Capabilities... 4 Is the resource VALUABLE?... 4 Is the resource RARE?... 4 Is it INIMITABLE? (Barriers to Imitation)... 5 Is it NON-SUBSTITUTABLE?... 6 Appropriability... 7 WEEK 5: Internal Analysis II... 8 Element 1: Primary Activities... 9 Element 2: Support Activities WEEK 6: Business-level Strategy I... 1 GENERIC STRATEGY 1: Cost Leadership Strategy... 1 ELEMENT 1: Economies of Scale... 1 ELEMENT 2: Economics of Learning (Experience Curve)... 2 ELEMENT 3: Production Technique & Product Design... 2 ELEMENT 4: Input Costs try to reduce... 2 GENERIC STRATEGY 2: Differentiation... 7 GENERIC STRATEGY 3: Focus Strategy Page 1 of 72

2 FOCUS STRATEGY 1: Focused Cost Leadership FOCUS STRATEGY 2: Focused Differentiation GENERIC STRATEGY 4: Combination Strategies integrating overall low cost and differentiation APPROACH 1: Automated and flexible manufacturing systems APPROACH 2: Exploiting the profit pool concept for competitive advantage APPROACH 3: Coordinating the extended value chain by way of information technology WEEK 8: Corporate-Level Strategy Vertical Integration Vertical Integration Possible VI Synergy Sources (reasons for VI) Strategic Alliances (SAs) Tapered VI (i.e. partial VI) VI: Final Assessment WEEK 9: Corporate-Level Strategy - Horizontal Scope of the Firm Diversification Common motives for Diversification Porter guidelines for profitable diversification Types of Diversification Sources of Synergy SOURCE 1: Leveraging core competencies SOURCE 2: Sharing Value-Chain Activities SOURCE 3: Exercising Market Power (Pooled Negotiating Power) SOURCE 4: Portfolio Planning SOURCE 5: Restructuring / Parenting WEEK 10 International Strategy (1) Environmental Elements: the Game Field Globalisation Porter s Diamond: National Competitiveness in a given Industry Factors affecting a nation s competitiveness Week 11: International Strategy (2) Potential Gains from International Expansion Potential Risks of International Expansion Achieving Competitiveness in International Markets conflicting pressures firms face when they expand into global markets Four strategies to compete in global markets Page 2 of 72

3 WEEK 2: VISION, MISSION & VALUES + ENVIRONMENTAL ANALYSIS I Environment Analysis 2 TYPES OF ENVIRONMENT TYPE 1: GENERAL ENVIRONMENT Composed of factors external to an industry, and usually beyond a firm s control, that affect a firm s strategy. Includes Little ability to predict them Even less ability to control them Their impact can vary across industries Demographic Sociocultural Political/Legal Technological Economic Global TYPE 2: COMPETITIVE ENVIRONMENT Sometimes called the task or industry environment; includes factors that pertain to an industry and affect a firm s strategy. Includes Competitors (existing and potential) Customers Suppliers Porter s five-force model Creating an Environmentally Aware Organisation Environmental Environmental Scanning Monitoring Broad surveillance of a firm s external environment Identify the changes and trends that may matter to the firm Identifying the consequential trends Broader; Identification of the critical changes Tracking the evolution of Environmental trends Sequences of events Streams of activities Few important trends; Deeper analysis Competitive Intelligence Define and understand rivals & industry Identify competitors moves Intelligence gathering (data) Interpretation of intelligence data Helps a firm avoid surprises Forecasts Plausible projections about Direction of environmental change Scope of environmental change Speed of environmental change Intensity of environmental change Page 3 of 72

4 VISION, MISSION AND VALUES VISION: organisational goals that evoke powerful and compelling mental images. A vision may or may not succeed depends on whether everything else happens according to a firm s strategy. Leaders must develop and implement a vision. Managers need to have not only a vision but also a plan to implement it. Examples: Disneyland To be the happiest place on earth Medtronic Restoring patients to full life Wells Fargo We want to satisfy all of our customers financial needs and help them succeed financially McDonald s Our vision is to be the world s best quick service restaurant Google To organise the world s information and make it universally accessible and useful Reasons visions fail The walk does not match the talk An idealistic vision can arouse employee enthusiasm but can also be dashed if employees find that senior management s behaviour is not consistent with the vision. Irrelevance Visions unrelated to environmental threats, opportunities or an organisation s resources and capabilities often ignore the needs of those who are expected to buy into them. Employees reject visions that are not anchored in reality. Not the Holy Grail A vision simply cannot be viewed as a magic cure for an organisation s illness. Too much focus leads to missed opportunities EG: Samsung wanted to become one of the 10 largest car makers by Samsung had bypassed staged entry through a joint venture or initial supply contract and borrowed heavily to build a stateof-the-art research and design facility, erecting a greenfield factory, with cutting-edge robotics instead. Samsung Auto suffered big losses and was divested for a fraction of the initial investment. An ideal future unreconciled with the present Visions must be anchored in reality otherwise people have difficulty identifying with a vision that paints a rosy picture of the future but does not account for the often hostile environment in which the firm competes or that ignores some of the firm s weaknesses. MISSION STATEMENTS: a set of organisational goals that include both the purpose of the organisation and the basis of its competition and competitive advantage. Effective mission statements incorporate the concept of stakeholder management, suggesting that organisations must respond to multiple constituencies. These constituencies include customers, employees, suppliers, and owners are the primary stakeholders, but others may also play an important role. Mission statements also have the greatest impact when they reflect an organisation s enduring, overarching strategic priorities and competitive positioning. Employees of organisations or departments are usually the mission s most important audience. The mission should help to build a common understanding of purpose and commitment to nurture. A good mission statement: Addresses each principal theme Communicate why an organisation is special and different Have values other than profits Should change when competitive conditions dramatically change or the firm is faced with new threats or opportunities. Page 1 of 72

5 WEEK 3: ENVIRONMENTAL ANALYSIS II THE GENERAL MACRO-ENVIRONMENT Political/Legal Demographic Global Industry Environment Economic Technological Sociocultural Demographic Segment Political/Legal Segment Technological Segment Economic Segment Global Segment Sociocultural Segment Aging population Rising or declining affluence Changes in ethnic composition Geographic distribution of population Greater disparities in income levels Competition and anti-monopoly laws Intellectual property protection laws Environmentally protective laws: carbon price Deregulation Taxation laws Contract law Genetic engineering Emergence of Internet technology Computer-aided design/computer-aided manufacturing systems (CAD/CAM) Wireless communication Nanotechnology 3D Printing Interest rates Unemployment Consumer Price index Trends in GDP Changes in stock market valuations Middle class growth Increasing global trade Currency exchange rates Emergence of the Indian and Chinese economies Trade agreements (NAFTA, EU, ASEAN) Creation of WTO (decreasing tariffs/free trade in services) More women in the workforce Dual-income families Increase in temporary workers Greater concern for healthy diets and physical fitness Greater interest in the environment Postponement of having children Page 2 of 72

6 THE COMPETITIVE ENVIRONMENT Sometimes called the task or industry environment; includes factors that pertain to an industry and affect a firm s strategy. Includes Competitors (existing and potential) Potential competitors may include a supplier considering forward integration, for example, an automobile manufacturer acquiring a rental car company, or a firm in an entirely new industry introducing a similar product that uses a more efficient technology. Customers Suppliers To assess the competitive environments, examine: i. Porter s five-forces model ii. How the five forces are being affected by the capabilities provided by Internet technologies iii. Address some of the limitations, or caveats that managers should be familiar with iv. Address the concept of strategic groups competition tends to be more intense among firms within a strategic group than between strategic groups. Industry Structure from Industrial Organisation Perspective Page 3 of 72

7 ASSESSMENT 1: PORTER S FIVE FORCES MODEL Page 4 of 72

8 Threat of New Entrants The possibility that the profits of established firms in the industry may be eroded by new competitors Sources of entry barriers Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost disadvantages independent of scale Economies of scale Refers to spreading the costs of production over the number of units produced. The cost of a product per unit declines as the absolute volume per period increases. This deters entry by forcing the entrant to come in at a large scale and risk strong reaction from existing firms or come in at a small scale and accept a cost disadvantage. Product Differentiation When existing customers have strong brand identification and customer loyalty, differentiation creates a barrier to entry by forcing entrants to spend heavily to overcome existing customer loyalties. Capital Requirements The need to invest large financial resources to compete creates a barrier to entry especially if the capital is required for risky or unrecoverable up-front advertising or research and development (R&D). Switching Costs A barrier to entry is created by the existence of one-time costs that the buyer faces when switching from one supplier s product or service to another. Access to Distribution Channels The new entrant s need to secure distribution for its product can create a barrier to entry. Cost Disadvantages Independent of Scale Some existing competitors may have advantages that are independent of size or economies of scale. These derive from: Proprietary products Favourable access to raw materials Government subsidies Favourable government policies Page 5 of 72

9 The Bargaining Power of Buyers Buyers threaten an industry by: Forcing down prices Bargaining for higher quality or more services Playing competitors against each other A buyer group is powerful when It is concentrated or purchases large volumes relative to seller sales The products it purchases from the industry are standard or undifferentiated The buyer faces few switching costs It earns low profits The buyers pose a credible threat of backward integration The industry s product is unimportant to the quality of the buyer s products or services It is concentrated or purchases large volumes relative to seller sales If a large percentage of a supplier s sales are purchased by a single buyer, the importance of the buyer s business to the supplier increases. Large volume buyers are also powerful in industries with high fixed costs (EG: steel manufacturing) The products it purchases from the industry are standard or undifferentiated Buyers can find alternative suppliers. The buyer faces few switching costs Switching costs lock the buyer to particular sellers. Conversely, the buyer s power is enhanced if the seller faces high switching costs. It earns low profits Low profits create incentives to lower purchasing costs. On the other hand, highly profitable buyers are generally less price sensitive. The buyers pose a credible threat of backward integration Buyers going into backward integration are typically able to secure bargaining concessions. The industry s product is unimportant to the quality of the buyer s products or services When the quality of the buyer s products is not affected by the industry s product, the buyer is more price sensitive. Page 6 of 72

10 The Bargaining Power of Suppliers Suppliers can exert power by threatening to raise prices or reduce the quality of purchased goods and services. A supplier group will be powerful when The supplier group is dominated by a few companies and is more concentrated than the industry it sells to The supplier group is not obliged to contend with substitute products for sale to the industry The industry is not an important customer of the supplier group The supplier s product is an important input to the buyer s business The supplier group s products are differentiated or it has built up switching costs for the buyer The supplier group poses a credible threat of forward integration The supplier group is dominated by a few companies and is more concentrated than the industry it sells to Suppliers selling to fragmented industries influence prices, quality and terms. The supplier group is not obliged to contend with substitute products for sale to the industry The power of even large, powerful suppliers can be checked if they compete with substitutes. The industry is not an important customer of the supplier group When suppliers sell to several industries and a particular industry does not represent a significant fraction of its sales, suppliers are more prone to exert power. The supplier s product is an important input to the buyer s business When such inputs are important to the success of the buyer s manufacturing process or product quality, the bargaining power of suppliers is high. The supplier group s products are differentiated or it has built up switching costs for the buyer Differentiation or switching costs facing the buyers cut off their options to play one supplier against another. The supplier group poses a credible threat of forward integration This provides a check against the industry s ability to improve the terms by which it purchases. Threat of Substitute Products and Services The Threat of Substitute Products and Services The threat of limiting the potential returns of an industry by placing a ceiling on the prices that firms in that industry can profitably charge without losing too many customers to substitute products. The more attractive the price or performance ratio of substitute products, the tighter the lid on an industry s profits. Page 7 of 72

11 The Intensity of Rivalry among Competitors in an Industry The threat that customers will switch their business to competitors within the industry. Firms use tactics like price competition, advertising battles, product introductions and increased customer service or warranties. Rivalry occurs when competitors sense the pressure or act on an opportunity to improve their position. Tactics like price competition are typically highly destabilising and are likely to erode the average level of profitability in an industry. Rivals easily match price cuts, which will lower profits for all firms. Advertising battles expand overall demand or enhance the level of product differentiation for the benefit of all firms in the industry. Intense rivalry occurs when there are: Numerous or equally balanced competitors Slow industry growth High fixed or storage costs Lack of differentiation or switching costs Capacity augmented in large increments High exit barriers Numerous or equally balanced competitors Slow industry growth Turns competition into a fight for market share, since firms seek to expand their sales. High fixed or storage costs Creates strong pressures for all firms to increase capacity. Excess capacity often leads to escalating price cutting. Lack of differentiation or switching costs Where the product or service is perceived as a commodity or near commodity, the buyer s choice is typically based on price and service, resulting in pressures for intense price and service competition. Lack of switching costs has the same effect. Capacity augmented in large increments Where economies of scale require that capacity must be added in large increments, capacity additions can be very disruptive to the industry supply/demand balance. High exit barriers Exit barriers include: Specialised assets Fixed costs of exit Strategic interrelationships (EG: r/ship between business units and others within a company in terms of image, marketing, shared facilities, etc.) Emotional barriers Government and social pressures (EG: governmental discouragement of exit out of concern for job loss) Page 8 of 72

12 ASSESSMENT 2: HOW THE INTERNET AND DIGITAL TECHNOLOGIES INFLUENCES INDUSTRY Threat of New Entrants Businesses that reach customers primarily through the Internet may enjoy savings on traditional expenses such as office rent, sales-force salaries, printing and postage. This encourages more entrants who, because of the lower start-up expenses, see an opportunity to capture market share by offering a product or performing a service more efficiently than existing competitors. A new cyber entrant can use the savings provided by the Internet to charge lower prices and compete on price despite the incumbent s scale advantages. Digital technologies make it possible for young firms to provide services that are equivalent or superior to an incumbent, a new entrant may be able to serve a market more effectively, with more personalised services and greater attention to product details. A new firm may be able to build a reputation in its niche and charge premium prices. Doing so can capture part of an incumbent s business and erode profitability. EG: VOIP (Voice Over Internet Protocol) is driving prices down and lowering telecom industry profits. Access to distribution channels. Manufacturers or distributors that can reach potential outlets for their products more efficiently by means of the Internet may enter markets that were previously closed to them. However, access is not guaranteed as strong barriers to entry exist in certain industries. Page 9 of 72