Business Strategy Cases Flashcards
What are the strategy dimensions?
- Organisational purpose (impetus for strategy activities, input) - eg. B corps / profit –> pay/avoid tax?
- Strategy Process (flow of strategy activities, throughput)
- Strategy content (Result of strategy activities, output)
- Strategy context (conditions surrounding strategy activities)
What are the aspects of the strategy process? What strategy tensions do they have?
- Strategic thinking (strategist) –> logic (defining success) v creativity (differentiate yourself): rational reasoning perspective v generating reasoning perspective
- Strategy formation (strategy) –> deliberateness (plan!) v emergence (rough idea, adjust as things come up): Stategic planning perspective v strategic incrementalism perspective
- Strategic change (organisation) –> revolution v evolution
What are the aspects of the strategy content? What strategy tensions do they have?
- Business level strategy (between functional units within 1 business unit e.g. HR, sales, R and D, logistics…) –> starting point of markets (opportunity) v resources (your strengths)
- Corporate level strategy (between business units of 1 company) –> Responsiveness v Synergy
- Network level strategy (between companies) –> Competition v Cooperation (learn from each other), e.g. software and hardware
What are the aspects of the strategy context? What strategy tensions do they have?
- Industry context –> compliance v choice
- Organisational context –> control v chaos
- International context –> globalisation v localisation
What is the strategy tension of organisational purpose?
Profitability v Responsibility
How can you structure strategy tensions as strategy paradoxes?
Graphs: y-axis = tension for A; x-axis = tension for B
- Tension as a puzzle (one optimal solution point) - “find the best”
- Tension as a dilemma (two either-or solution points - “make a choice” (A or B)
- Tension as trade-off (one optimal solution line) - “strike a balance”
- Tension as a paradox (multiple innovative reconciliations) - “Get the best of both worlds”
What are the advantages to taking a dialectical approach?
- Range of ideas: presenting opposite perspectives frame the full set of views on the topic
- Points of contention: ‘contrast function’ - brings points of contention into sharper focus
- Stimulus for bridging: ‘integrative function’ - stimulates reader to seek a way to get the best of both worlds
- Stimulus for creativity: ‘generative function’ - stimulates innovative ideas
What is the strategy synthesis model?
Graph: x-axis: Pressure for A y-axis: Pressure for B Line between top left and bottom right = trade-off line Above trade-off line is 'synthesis area' Top left = Antithesis Bottom right = Thesis
What is strategic reasoning about? What are its components?
Issue = what is the power and limitations of the human mind?
Components:
- Cognitive activities: application level (mental reasoning) - what are the intended mental tasks to increase the strategist’s knowledge
- Cognitive abilities: hardware level (mental faculties) - to what degree is the human brain limited in what it can know?) e.g. good/bad memory, fast/slow, talk/read, get advice? Know your limits!
- Cognitive maps: operating system level (mental models - what type of platform/language is “running” on our brain?) - maps of a person of how the world works
What are the cognitive activities?
Defining:
- Identifiying
- Diagnosing
Solving:
- Conceiving
- Realising
These often occur at the same time
What cognitive activities does ‘defining’ include?
- Identifying (recognising - logical, sense-making - creative) - becoming aware of challenges and acknowledging their importance - what is a problem? Objective observation v subjective interpretation (see from a particular angle)
- Diagnosing (analysing - logical, reflecting - creative) - understanding the structure of the problem and its underlying causes - what is the nature of the problem? Explicit analysis v intuitive reasoning
What cognitive activities does ‘solving’ include?
- Conceiving (formulating - logical, imagining - creative) - come up with solutions, select the most promising - how should the problem be addressed? Select, discover and figure out v invention. If can’t objectively prove which is best (calculation), use judgment
- Realising (implementing - logical, acting - creating) - problem-solving, evaluating whether consequences are positive; planning and controlling implementation activities - what actions should be taken. Can act before other steps to test certain assumptions in practice and experiment.
What are the limitations to cognitive abilities?
- Limited information sensing ability - due to physical inability to be everywhere, all the time, noticing everything - human senses can’t directly identify the way the world works and the underlying causal relationships; only see the phyiscal consequences –> using circumstantial evidence
- Limited information processing capacity - limited data processing abilities (could a computer help?): thinking through problems remains tacit (guided by knowledge they have acquired in the past) . Humans hardly ever think through a problem with full use of all available data. Cognitive heruistics focus a person’s attention on a number of key variables believed to be most important and present a number of simple decision rules to rapidly resolve an issue –> set of possible solutions to be considered is also limited in advance. Analytical thinking v intuitive (informal so based on non-explicit assumptions, variables and causal relationships, and holistic - not unravelling the problem into its parts, but retaining an integrated view)
- Limited information storage capacity - limited memory –> people store information selectively and organize the information so it can be easily retrieved when necessary. Cognitive heuristics (rules of thumb) make it more manageable.
What are cognitive maps?
Mental models: maps of a person of how the world works
- Formed by your experience of the world
- By exchanging interpretations of what you see, you enact a shared reality (group’s dominant logic or belief system)
e. g. Germans scared of inflation due to past experience
Nb. based on mutually inclusive nature of group membership, these paradigms can be complementary, overlapping yet consistent, or be inconsistent.
What are the problems with cognitive maps?
Things can change:
- “Believing is seeing” - people significantly overestimate the value of information that confirms their cognitive map and underestimate disconfirming information, and actively seek out evidence that supports their beliefs.
- high level of rigidity - they become resistant to signals that challenge their conceptions
- Leads to shared reality/world view - “group think”; deviation from the dominant logic might have adverse social and political ramifications within the group, and the individual has no ‘intellectual sounding board’ for teasing out new ideas
How can you overcome a cognitive map?
- Logical thinking: review and test key assumptions on which a strategist’s cognitive map has been based against dvelopments in the firm and its environment.
- Think about it, question it.
- Travel
- Bring in new people
What is the paradox for strategic reasoning?
Logical thinking (rational reasoning perspective) v creativity (generative reasoning perspective)
Logical thinking (rational reasoning perspective): ability of managers to critically reflect on the assumptions they hold and make their tacit beliefs more explicit
- If managers base strategic decisions on heavily biased cognitive maps –> poor results –> logical thinking helps managers escape the confines of their cognitive maps
- But does everyone come to the same strategy? But could you be quicker and so more successful through higher production, economies of scale?
Creativity: ability of managers to abandon the rules governing sound argumentation and generate new understanding
What are the indicia of the rational reasoning perspective (strategic reasoning)?
Logical-AFRO-CHICS
- Logic over creativity
- Cognitive activities are RAFI: recognising (identifying), analysing (diagnosing), formulation (conceiving) and implementation (realising)
- Objective, (partially) knowable - uses objective observations to identify problems
- Uses formal, fixed rules and vertical thinking that is deductive and computational (each step in an argument follows from the previous, based on valid principles)
- Consistency and rigor (break away from habits that may no longer be valid, and develop new approaches)
- Has incomplete information, but articulates assumptions based on known facts that can be debated
- Calculation, not judgment when selecting a solution (conceiving)
- Strategy as science
What are the indicia of the generating reasoning perspective (strategic reasoning)?
Creative-AISIRJA
- Creativity over logic (note wicked nature of strategic problems)
- Cognitive activities are: Reflecting (identifying), sense-making (diagnosing), imagining (conceiving) and doing (realising)
- Uses intuition, adhering to the current cognitive map, so is subjective and (partially) creatable (helps identify and diagnose problems)
- Informal, variable rules with lateral thinking, inductive and imaginative, using unorthodoxy and innovativeness (takes leaps of imagination, without being able to support the validity of the mental jump to generate new understanding outside the cognitive map but without objective proof)
- Judgment, not calculation when selecting a solution (conceiving)
- Strategy as an art (not science)
What is the solution to the paradox of analytical thinking v intuition in strategic reasoning?
Employ both intuitive and analytical thinking.
Intuitive pros:
- necessary and beneficial (managers have much tacit knowledge that can only be superficially tapped by analytical thinking)
- cut corners, avoid ‘paralysis by analysis’
Intuitive cons:
- risk of drawing faulty conclusions
- managers are inherently biased, as they focu attention on only a few variables and interpret them in a particular way, even when inappropriate.
What should you use - logical or creating thinking?
They are partially incompatible; both require such a different mindset and range of cognitive skills that in practice it is very difficult to achieve simultaneously, both for the individual and for teams, departments and the overall firm. Commonly, conflicting styles lead to conflicting people, so a blend is not that simple. Nevertheless, both are required.
Chapter 3: Strategy formation: what is the issue of realised strategy?
How can a successful course of action be realised in practice?
2 aspects:
- Strategy formation activities (the elements of the strategic reasoning process)
- Strategy formation roles (how will the strategy formation activities be carried out):
a) top vs middle vs bottom roles
b) line vs staff roles
c) internal vs external roles
List the strategy formulation activities
M-AEIO-O-AP
Identifying
1. Mission setting
2. Agenda setting
Diagnosing:
- External assessment
- Internal assessment
Conceiving:
- Option generation
- Option selection
Realising:
- Action taking
- Performance control (how well did you implement it?)
Describe the strategy formulation activities under “identifying”
Identifying:
- Mission setting: this strongly colours the filtering of what the organisation sees as a strategic issue
- Agenda setting CMCCPP:
- Cognitive maps of strategists influence which environmental and organisational developments are identified as issues.
- Group culture impacts upon which issues are discussable or off-limits to open debate, and under what conditions discussions take place.
- Other influences: communication, political skills, sources of formal and informal power.
- -> These determine which issues make it onto the organisational agenda to be discussed and looked into further.
Describe the strategy formulation activities under “diagnosing”
Diagnosing:
3. External assessment: investigate structure and dynamics of environment surrounding the organisation: scan of direct (market) environment and the broader (contextual) environment, including what makes the system tick, and in what direction are things developing?
4. Internal assessment: investigating the capabilities and functioning of the organisation. Includes assessment of the:
- business system - (resources, value chain), and
- organisational system (org structure, processes used to control and coordinate, org culture)
AND compare to rival firms
Describe the strategy formulation activities under “conceiving”
Conceiving:
- Option generation: creating potential strategies, can be specified at varying levels of detail
- Option selection: Evaluate options. Criteria could be perceived risk, anticipated benefits, organisations’s capacity to executve, expected competitor reactions and follow-up possibilities). Sometimes formally articulated, but generally at least partially based on experience and judgment of decision-makers involved. Called “strategic decision-making”.
Describe the strategy formulation activities under “realising”
Realising:
- Action taking: perform tangible actions to realise the strategy; from setting up and operating the business system to getting the organisational system to function on a day-to-day basis
- Performance control (how well did you implement it?): Measure whether the actions being taken are in line with the option selected, and whether the results are in line with what was anticipated; can be formal or informal. Incentives, targets, performance indicators, corrective steps. Deviation could be a signal to re-evaluate the original solution or problem definition.
When is there a realised strategy?
If there is a clear pattern to the organisation’s actions
How does the allocation of strategy formation roles vary?
The main variations in division of labour are along the following dimensions.
a) Top vs middle vs bottom roles: How much empowerment of middle and lower levels is beneficial for the organisation?
- Diagnosing (external and internal assessment): more common in bottom roles
- Option selection: top management (at least decision)
b) Line vs staff roles: Which should be responsible for the strategy formation process?
- Line managers: responsible for realisation –> sometimes also given role of conceiving. Could do all strategy formation activities without staff support.
- Staff from all existing departments may provide input
- Can use staff in strategy departments: varies from general process facilitation to process ownership to full responsibility for strategy formulation.
c) Internal vs external roles: Keep strategy formation activities in-house or outsource them?
- External: diagnosis activities (external and internal assessment), or facilitate strategy formation process. Some have responsibility for option generation.
What are the arguments for a more or less formal strategy formation process?
For more formal e.g. strategic planning system with tasks, responsibilities, decision-making authority, budget, evaluative mechanisms Coordination-Control-RAP-Function:
- Easier coordination, especially of a large organisation.
- Top management has more control
- Unambiguous responsibilities, clearer accountability and stricter review of performance generally leads to a better functioning organisation.
For less formal:
- Formal planning systems have difficulty with essential strategy-making activities that are difficult to capture in procedures, e.g. ILIPSE creating new insights, learning, innovation, building political support, entrepreneurship
- Once established, planning bureaucracies create rules, regulations, procedures, checks, paperwork etc, making the system inflexible, unresponsive, ineffective and demotivating.
What is the paradox in strategy formation?
- Deliberate strategising: the ability to act intentionally; think before acting
- Strategy emergence: The ability to think and act at the same time and let strategy (a coherent pattern of action) emerge
Central thought: duality of wanting to intentionally design the future, while needing to gradually explore, learn and adapt to an unfolding reality. Few strategies are purely deliberate or emergent, but usually a mix between the two.
What are the pressures for deliberate strategising?
DC-COP
- Direction: Without plans and objectives, the organisation would be adrift, unable to judge what is effective behaviour
- Commitment: Plans enable early commitment to a course of action –> can invest resources and mobilise themselves, and dare to take actions that are difficult to reverse and have a long payback period.
- Coordination: Plans coordinate strategic initiatives within a firm into a cohesive pattern, avoiding overlapping, conflicting and contradictory behaviour
- Optimisation: Plans facilitate optimal resource allocation by managers evaluating and choosing the optimal course of action before committing resources to the most promising strategy and initiatives
- Programming: Plans are a means for programming all organisational activities in advance for better precision, and more reliability and efficiency.
- -> good for stable environment
What are the pressures for strategy emergence?
- Opportunism: keep an open mind to grab unforeseen opportunities and respond rapidly to new conditions
- Flexibility: Keep options open and don’t commit the organisation too early to irreversible actions and investments.
- Learning: The best way to find what works is to give it a try and learn
- Entrepreneurship: Different people in the firm will have different strategic ideas. Provide inviduals, teams or units with enough autonomy to pursue innovative initiatives. Facilitative various divergent projects simultaneously, increasing commitment or closing them down as their potential unfolds.
- Support: Getting things done in firms includes understanding the political and cultural dynamics of the organisation to build enough support to move forward and seeing where side steps or reversals are needed, pragmatically shaping strategy depending on what is feasible, not the ideal.
- -> good for dynamic environment
What is the strategic planning perspective
HAD DIFF
- Hierarchical - implemented top-down
- Advantages (DC-COP); gives organisation direction, can make commitments and prepare, achieve optimal resource allocation and coordination, programme the organisation
- Deliberateness over emergence
- Intentionally designed and executed - think first, then act
- Formally structured and comprehensive
- Forecast and anticipate, figure out the solution
What is the strategic incrementalism perspective?
Approach:
- Emergence over deliberateness
- Gradually shaped (incrementalism), finding out the solution, thinking and acting intertwined, unstructured and fragmented strategy formation
- FLE - Postpone commitments, stay flexible, experiment with and learn through parallel initiatives and increase commitments as ideas gradually prove their viability in practice
Why incrementalism: It acknowledges that strategy formation is a process of innovation and organizational development in the face of wicked problems in an unknown future.
- Wicked problems (unique, complex, linked to other problems, can be defined and interpreted in many ways, no correct answers, no delimited set of possible solutions, are interactive)
- -> action will change the problem, so the plan is outdated as soon as implementation starts.
- -> planning leads to paralysis by analysis - you are never done analysing a wicked problem! - Innovation process –> can’t plan it
- Disruptive process of organisational change –> requires broad cultural and cognitive shifts. Changing people’s cognitive maps requires complex processes of learning and unlearning. Cultural and political changes are also difficult to programme.
What is strategic renewal? What is the issue of strategic renewal?
Strategic renewal is the process of constantly enacting strategic changes to remain in harmony with external conditions.
Issue of strategic renewal: How can a path of strategic changes be followed to constantly renew the firm and avoid a situation whereby the firm ‘drifts’ too far away from the demands of the environment?
What is strategic change?
Strategic changes are directed at renewing the business and organisational systems to create a new fit between the basic set-up of the firm and the characteristics of the enviornment. They are fundamental alterations to the business system or the organisational system
E.g. a reorganisation, a diversification move, a shift in core technology, a business process redesign, a product portfolio reshuffle.
What aspects should be considered in strategic renewal?
- Areas: Does the strategic change take place in the business system or in the organisational system?
- Magnitude: What is the scope (how broad) and amplitude (how big) of the strategic change
- Pace: What is the speed and timing of change? Need to keep the firm in step with the shifting opportunities and threats in the environment. Move quickly in a short period of time, or move more gradually over a longer time span?
What are the areas of strategic renewal?
- Business system: the way a firm conducts its business; the specific configuration of resources, value-adding activities and product/serivce offerings directed at creating value for customers.
- Organisational system: the way the organisation has been configured; how the individuals populating a firm have been configured, and relate to one another, with the intention of facilitating the business system.
How does the business and organisational system relate to each other?
- Organisational members hold up:
- Organisational system, comprising organisational:
a) structure
b) processes
c) culture
…which holds up: - The business system
What are the components of an organisational system?
- Organisationl structure: (anatomy) (division of tasks and responsibilities)
- Organisational processes: (physiology) linking individuals and coordinating tasks
- Organisational culture: (psychology), including joint beliefs, values and norms
Which categories of criteria can be used to structure the organisation?
- Input-based
- Throughput-based
- Output-based
What input-based criteria can be used to structure the organisation?
- Supply-based structure: based on different core inputs (e.g. oil division, gas division, renewables division)
- Supply channel structure: based on different supply channels (e.g. direct purchasing unit, auction-focused unit, intermediary-based unit)
- Supplier-based structure: based on different core suppliers (e.g. supplier Bosch unit, supplier Siemens unit)
What throughput-based criteria can be used to structure the organisation?
- Functional structure: based on value-adding activities (e.g. marketing, HR)
- Technology-based structure: based on different core technologies (e.g. mechanical technology unit, electronic unit, digital unit)
- Geographic structure: based on location of activities (e.g. European division, Asia/Pacific division, Americas division)
Which output-based criteria can be used to structure the organisation?
(MAP-BBC)
- Market segment structure: based on different groups of clients served (e.g. consumer market unit, small business unit, large business unit)
- Account-based structure: based on different major clients served (e.g. BMW, Daimler)
- Product group structure: based on different products being focused on (e.g. savings and loans unit, stocks and bonds unit, foreign currencies unit)
- Business unit structure: based on different product-market combinations being focused on (e.g. retail banking unit, private banking unit, investment banking unit)
- Brand-based structure: based on different brands being used (e.g. premium brand unit, B-brand unit, private labels unit)
- Channel-based structure: based on different distribution channels being used (e.g. onling retailing unit, retail stores unit, franchisee support unit)
What are the most important questions pertaining to organisational structure?
How many management layers needed?
How much authority to delegate to lower level sof management?
What do organisational processes comprise?
- Def: The arrangements, procedures and routines used to control and coordinate the various people and units within the organisation.
- They can be institutionalised as ongoing integration mechanisms (e.g. financial budgeting and reporting processes) or just needed for a short period (e.g. task forces, committees, project teams).
- They can be more or less formal (e.g. communication via hallway gossip, personal networking, influencing decision-making through informal negotiations)
What does organisational culture comprise? What effect does it have.
- Def: The worldview and behavioural patterns shared by the members of the same organisation. It encompasses the values and norms of the organisational members.
Effect:
- It offers a filter to make sense of things
- Culture can act as a strong integration mechanism, controlling and coordinating people’s behaviour.
- BUT an organisation culture is not always homogeneous; strongly divergent sub-cultures might arise in certani units, creating ‘psychological’ barriers within the organisation.
How might the strategic renewal path look like in terms of change steps?
- A few large change steps (discontinous or disruptive change)
- Numerous small change steps (continuos change path)
What does the concept of the magnitude of change ecnompass?
- Scope of change: Narrow/broad. Broad if many aspects and parts of the firm are altered at the same time (could be comprehensive). Narrow when you focus change on a specific organisational aspect (e.g. new product development processes) or department (e.g. marketing)
- Amplitude of change: High/low. High if change is a radical departure from previous situation. Low when only a moderate adjustment
- If comprehensive and radical change –> large magnitude
- If narrow and moderate change –> small magnitude
- If a focused radical change (narrow, high) –> medium-sized change steps
- If a comprehensive moderate change (broad, low) –> medium-sized change steps
What does the concept of the pace of change encompass?
- Timing of change: (when changes are initiated) intermittent (stop/go) or constant. If intermittent, need to determine the right moment to start. If constant, swhen to start is less important, as long as there is no peak at any one point in time.
- Speed of change: (Time span within which changes take place) high or low.
What is the paradox within strategic change?
Revolutionary change v Evolutionary change
- Revolutionary change: Change processes that do not build on the status quo, but overthrow it. Disruptive change - radical, high speed change
- Evolutionary change: Change processes whereby a constant stream of moderate changes gradually accumulates over a longer period of time. Incremental
To fundamentally transofrm the organization, a break with the past is needed, starting with a clean slate. But there is value in continuity, buildign on past experiences, investments and loyalties; to achieve lasting strategic renewal, people in the organisation will need time to learn, adapt and grow into a new organisational reality.
What are the two main reasons for a revolutionary change process?
- When organisational rigidity is so deeply rooted that smaller pushes doe not bring the firm into movement,
- When large change is needed in a short time
When might organisational rigidty be so deeply rooted that smaller pushes doe not bring the firm into movement, and so a revolutionary change process is neded?
PC-PICSS
- psychological resistance to change
- cultural resistance to change - where culture perpetuates obsolete assumptions about the market or organisation –> hard to reshape the organisational belief system
- political resistance to change (winners and losers)
- Investment lock-in (invested a lot into a certain product portfolio, activity system or technology)
- competence lock-in - the better a firm becomes at something, the more it focuses on becimnig even better. But if the firm’s competence based threatens to become outdated due to market or technolgoice changes?
- Systems lock-in: e.g. to an open standard (GAAP accounting rules) or a proprietary system (e.g. SAP)
- Stakeholder lock-in: long-term contracts, commitments to governments/communities…
Why might large change be needed in a short time, justifying a revolutionary approach to change?
- Competitive pressure (market position eroding quickly)
- Regulatory pressure
- First mover advantage: be the first, build entry barriers for late-movers, capitalise quickly on know-how that is dissipation-sensitive or for which the patent period is limited
What are the reasons for evolutionary change?
- Where strategic renewal hinges on widespread organisational learning (time is needed to experiment, reflect, discuss, test and internalise).
- Power may be too dispersed for revolutionary changes to be imposed upon the firm
What is the discontinuous renewal perspective to strategic change?
- Revolution over evolution (supporting role)
- Radical (high amplitude), comprehensive (broad scope), dramatic, sudden break with status quo
- Abrupt, unsteady, intermittent; stable and unstable states alternative
- Creative destruction; pursuing revolutionary change to gain a competitive advantage (breakthrough technology, new business model) or change industry rules –> a break with the past is needed before new methods can be adopted
- Disruptive innovation (turnaround)
- Shock therapy to fundamentally change people’s cognitive maps, solve lock-in problems.
- Under pressure things become fluid; In a crisis, people become more receptive to necessary, painful changes.
- Punctuated equilibrium; stability punctuated by episodes of revolutionary change; stability is not inherently harmful, as it allows people to get to work; downside = organisational rigidity
What is the continuous renewal perspective for dealing with strategic change? (Kaizen)
- Evolution over revolution (fall-back if all else fails); revolutionary change commonly leads to the need for further revolution at a later time; it creates its own boom-and-bust cycle through a strong organisational yearning for stability
- Uninterrupted improvement, gradual, steady, constant, continuous adjustment, persistent transient state, gradual development (long term view), organic adaptation
- Moderate, piecemeal, undramatic
- In the cold everything freezes (a crisis blunts their motivation for expeirmenting and learning as they brace for an imminent shock and seek security)
Conditions: everyone must be motivated to continuously improve (reject stability, accept bounded instability), learn and adapt
Business level strategy: what is the issue?
Competitive advantage: How can a company be successful? This depends on the unique business system it has developed to relate itself to its business environment, whereby the resource base, activity system and product/service offering are all aligned to provide goods and/or services with a superior fit to customer needs
What is the business system comprised of?
The configuration of:
1. Product/service offering: value proposition (output)
2. Activity system: value chain (throughput, an integrated set of value creation processes leading to the supply of product and/or service offerings)
3. Resource base: stock of assets (inputs, all means at the disposal of the organisation for the perofrmance of value-adding activities
…intended to create value for the customers
= The way a firm conducts its business
What are the risks of an unfocused approach to the product offering?
- Low economices of scale
- Slow organisational learning (for specific knowledge and capabilities)
- Unclear brand image (stand for nothing)
- Unclear corporate identity (difficult to explain why its people are together in the same company, lack of internal identity)
- High organisational complexity (not a simple and manageable organisation)
- Limits to flexibility: less specialised firms are often forced into certain choices due to operational necessity (can’t alter the many standard products) due to specific procedures, routines, systems and tools
What are the key product offering questions?
Which products should be developed?
Which markets should be served?
–> limit focus on a limited number of businesses and within each business on a limited group of customers and a limited set of products
What is a business?
A set of related product-market combinations. A business is delineated in both industry and market terms
How can industries be defined?
A group of firms:
- making a similar type of product (airline industry, Swatch in watch industry)
- employing a similar set of value-adding processes (e.g. consulting, mining industries, Swatch in fashion industry so focus on fashion design and marketing)
- employing a similar set of resources (e.g. oil industry, IT industry)
How can industries be delineated?
- Traditionally defined industries
- Upstream industries (extration/growing of raw materials and their conversion into inputs for the manufacturing sector) v downstream industries (takes output of manufacturing companies and brings them to clients, often adding services)
How can the market be segmented?
- Buyer attributes/demographics (as predictors of buying criteria or buying behaviour), e.g. by geophraphy, age, education.
- Buying criteria/needs, e.g. price, purpose, style
- Buyer behaviour/actions, e.g. adoption (early or late), purchase location, use (how often)
Can have a narrow or broad market definition in each of these categories
How can a business be delineated?
- Industry (e.g. airlines railways, shipping)
- Market (e.g. London-Paris transport, London-Jamaica Transport, London-Barcelona Transport)
Typically, a business is narrower than the entire industry and the set of markets served is also limited.
e. g. ferry business (part of shipping industry serving London-Paris transport market)
e. g. Charter business (part of airline industry serving London-Jamaica and London-Barcelona Transport market, but not London-Paris)
How must companies focus their efforts?
- Select a limited number of businesses: analyse the structural characteristics of interesting businesses to judge whether they are attractive (Porter’s five forces analysis)
- Focus within each selected business on distinct market segments and target a few special product offerings to meet their needs, aligned with a focused activity system and resource base –> product positioning
What is the issue of competitive scope?
- Competitive scope is about determining in which product-market combinations within a business a firm wants to be involved (where to compete, and how).
- Can be widely-oriented or very tightly focused.
How can it be focused:
- Broad scope: large number of segments within a business, with varied product offerings, e.g. sport products for many segments
- Narrow scope:
- – segment focus (1 market segment, multiple products)
- – product focus (multiple market segments, 1 product)
- – niche focus (few customer segments and limited product line)
What are the product bases for competitive advantage?
- Price –> need low cost product offering, activity system and resource base
- Features –> different intrinsic functional characteristics (but others can copy) - need different specialised resources and activitiy systems
- Bundling - a pcakage of products/services ‘wrapped together’ e.g. Apple products, kindle, bundle with warranties or financing
- Quality - better usability, reliability, durability (through materials used, people involved, manufacturing process employed, quality assurance procedures or distribution system)
- Availability (distribution) - available at right place at right moment in right way (e.g. out-of-doors impulse ice cream purchases, emergency)
- Image - logo can double the price, e.g. Lacrosse, good reputation –> trusted business partner
- Relations (with customers) –> more intimate knowledge of the product offering), customer gains more influence on what is offered (e.g. Daimler-Bosch)
What is the Porter value chain?
Primary activities (on bottom): (IOOMS)
- in-bound logistics (receiving, storing, disseminating outputs)
- operations (transofrming inputs into final products)
- out-bound logistics (collecting, storing, distributing products/services to buyers)
- marketing and sales (providing a means by which buyers can purcahse the product and inducing them to do so)
- service (providing service to enhance or maintain the value of products)
Secondary/Support activities (on top) (FiHT-P) Firm infrastructure (all general activities that support the entire value chain, e.g. planning, legal, accounting), HR Management, Technology development, procurement (purchasing inputs)
To the right: Margin
