CASES MAIN POINTS + final exam questions Flashcards
WHY HAS THE STRATEGY BEEN SUCCESSFUL?
For a strategy to be successful (=strategic fit) it needs to
BE CONSISTENT WITH:
- EXTERNAL ENVIRONMENT: be observant of industry trends/changes; be flexible; ensure position in market; communicate core values)
- INTERNAL ENVIRONMENT: communicate company goals & make sure employees work to achieve them; motivate & coordinate activities
Corporate VS Competitive strategy
CORPORATE STRATEGY: where a firm competes, i.e. the scope of the firm’s activity in terms of industries or markets it competes in
COMPETITIVE/BUSINESS STRATEGY: how a firm competes within a particular market/industry; how they have achieved a COMPETITIVE ADVANTAGE
strategy VS tactics
STRATEGY: deploying resources to establish favourable position
TACTICS: scheme for a specific action (strategy)
PORTER’S 5 FORCES ANALYSIS ELEMENTS
Five forces that influence the intensity of competition in an industry
- BARGAINING POWER OF SUPPLIERS
- BARGAINING POWER OF BUYERS
- THREAT OF NEW ENTRY
- THREAT OF SUBSTITUTES
- RIVALRY AMONG EXISTING COMPETITORS
KEY SUCCESS FACTORS
to answer this we need to look at 2 questions:
- WHAT DO CUSTOMERS WANT?
- who are our customers
- what are their needs/wants - WHAT DOES THE FIRM NEED TO DO TO SURVIVE COMPETITION?
- what drives competition
- main dimensions of competition
- intensity of competition
- how to obtain superior competitive position
is the competitive advantage SUSTAINABLE?
A competitive advantage is sustainable when its resources and capabilities depends on 3 factors:
- DURABILITY: more durable the resources & capabilities → more sustainable your competitive advantage
- REPLICABILITY: if they are easy to copy → not sustainable
- TRANSFERABILITY: if they are easily transferable (bought & sold) → it’s not sustainable
INDUSTRY LIFE-CYCLE MODEL
consists of 4 stages: introduction; growth; maturity; decline
INTRODUCTION:
- small sales;
- low market penetration;
- little known products;
- few customers;
- novelty of technology;
- small-scale production;
- high costs;
- low quality
GROWTH:
- accelerating market penetration;
- technical improvements;
- increased efficiency;
- opening up of market
MATURITY:
- increasing market saturation;
- once saturation is reached, demand is wholly for replacement
DECLINE:
- industry becomes challenged by other industries;
- they produce technologically superior products
FORMS OF DIVERSIFICATION
3 basic forms of diversification:
related, unrelated and vertical
RELATED:
Q: Is it the same product? YES
new markets/products but related to previous
Synergies: MARKETING, PRODUCTION, OPERATING, FINANCIAL, MANAGERIAL
UNRELATED
Q: Is it the same product? NO
new markets/products but NOT related to previous
Synergies: FINANCIAL, MANAGERIAL
VERTICAL
Q: Are we our own client? YES
becomes its own supplier or customer
Synergies: MARKETING, PRODUCTION, OPERATING, FINANCIAL, MANAGERIAL
Is the company creating value?
For diversification to create shareholder value → must exploit some linkage (synergy) between the different businesses
Identify the variables used in the “Strategy clock” and explain why this model could overcome the limitations of Porter’s competitive strategies:
The strategy clock’s main focus is to make companies aware of their position in the market compared to their competitors.
Application of strategic clock is to extend Porter’s 3 strategic positions to 8, and explains the cost and perceived value combination many companies use and also identifying the possibility of success for each strategy.
- low price & low value added
- low price
- hybrid
- differentiation
- focused differentiation
- risky high margins
- monopoly pricing
- loss of market share
explain the different levels of strategy, give an example for each level
CORPORATE STRATEGY: the scope of the firm in terms of the industries, markets it competes in; this strategy includes vertical integration, acquisitions, new ventures allocation or resources. It’s the strategy that tells you where to compete
example: when multinational companies sell homogenous products around the world
COMPETITIVE STRATEGY: this strategy explains the way a firm got its competitive advantage, how it competes in a given environment; to be successful, a firm needs to create and sustain a competitive advantage by exploiting its valuable resources & capabilities
example: mobile phone companies differentiate their phones from others by different designs & colours
FUNCTIONAL STRATEGY: it’s used to know how to use and apply resources & capabilities within each functional area; content used -> operations, marketing, financing, HR & technology
example: how the CEO of apple implements marketing, organises production strategy for their next launch
explain the factors that are critical in determining the extent to which innovators are able to appropriate the value of their innovations
- property rights: firm patents, copyright, trademarks & trade secrets; the effectiveness of intellectual law depends on the type of innovation being protected
- the tacitness and complexity of the technology: the extent to which innovation can be imitated by the competitor depends on the ease with which technology can be comprehended and replicated
- lead‐time: the time it will take followers to catch up
- complementary resources: diverse resources & capabilities needed to finance, produce it
advantages & risks of non-related diversification
ADVANTAGES:
- reduction of firm’s overall risks
- financial synergies
- managerial synergies
- exploit economies of scope
- value creation
RISKS:
- no operational, marketing & production synergies
- sometimes managerial knowledge is difficult to transfer
- dispersion of interest
- high cost of managing & coordinating
- sometimes high barriers to entry in new industry
methods of development & reasons
INTERNAL vs EXTERNAL development
INTERNAL: investment in its own structure
EXTERNAL: acquire or take % (control), or cooperate with other companies which already exist
REASONS FOR EXTERNAL DEVELOPMENT:
- economic efficiency: reducing costs
- market power: overtake barriers of entry, buy competitors, reduce competition
