Ch3 - Internal Environment

Question 1

What are strategic drivers?

Answer 1

The strategic drivers consider what differentiates an organization from its competitors.
It involves analysis of the key markets in which the organization operates, as well as its key customers, the products and services it provides, the channels in which the products or services are delivered, and the organization’s competitive advantage.
The key strategic drivers of an organization include:
* industry and markets
* customers
* products/services
* channels

Question 2

What is Strategic Group Mapping ?

Answer 2

Strategic group mapping is a technique used to visualize the competitive landscape of an industry. It involves grouping companies within an industry based on similar strategic characteristics, such as product quality, pricing, distribution channels, technological capabilities, and target market segments.

Question 3

What is the procedure for constructing a strategic group map?

Answer 3

The procedure for constructing a strategic group map and deciding which firms belong in which strategic group is straightforward:
* Identify the competitive characteristics that differentiate firms in the industry typical variables are price/quality range (high, medium, low); geographic coverage (local, regional, national, global); degree of vertical integration (none, partial, full); product-line breadth (wide, narrow); use of distribution channels (one, some, all); and degree of service offered (no-frills, limited, full)
* Plot the firms on a two-variable map using pairs of these differentiating characteristics.
* Assign firms that fall in about the same strategy space to the same strategic group.
* Draw circles around each strategic group making the circles proportional to
the size of the group’s respective share of total industry sales revenues.

Question 4

What is core competency?

Answer 4

An organization’s combination of technological and managerial know-how, wisdom and experience are a complex set of capabilities and resources that can lead to a competitive advantage compared to a competitor.
For core competencies, it is characteristic to have a combination of skills and techniques, which makes the whole organization utilize these several separate individual capabilities. Therefore, core competencies cannot be built on one capability or single technological know-how, instead, it has to be the integration of many resources.

Question 5

Conditions for anything to be considered as a core competency.

Answer 5

1. Difficult for competitors to imitate - This can provide a company an edge compared to competitors. It allows the company to provide better products or services to market with no fear that competitors can copy it.
2. Customer value - When purchasing a product or service it has to deliver a fundamental benefit for the end customer in order to be a core competence.
3. application of competencies to other markets - Core competence must be applicable to the whole organization; it cannot be only one particular skill or specified area of expertise.

Question 6

Criteria for building a core competency.

Answer 6

Capabilities that are valuable, rare, costly to imitate, and non-substitutable are core competencies.

Question 7

Sustainability of Competitive Advantage or how to check whether CA are sustainable or not.

Answer 7

The sustainability of competitive advantage and a firm’s ability to earn profits from its competitive advantage depends upon four major characteristics of resources and capabilities:
i. Durability: The period over which a competitive advantage is sustained depends in part on the rate at which a firm’s resources and capabilities deteriorate.
ii. Transferability: The easier it is to transfer resources and capabilities between companies, the less sustainable will be the competitive advantage which is based on them.
iii. Imitability: How easily and quickly can the competitors build the resources and capabilities on which a firm’s competitive advantage is based? This is the true test of imitability.
iv. Appropriability: Appropriability refers to the ability of the firm’s owners to appropriate the returns on its resource base. Even where resources and capabilities are capable of offering sustainable advantage, there is an issue as to who receives the returns on these resources.

Question 8

When to opt for cost leadership strategy?

Answer 8

Striving to be a low-cost producer in an industry can especially be effective,
* when the market is composed of many price-sensitive buyers and
* when there are few ways to achieve product differentiation.

Question 9

risks of pursuing cost leadership

Answer 9

Some risks of pursuing cost leadership are;
* that competitors may imitate the strategy, therefore driving overall industry profits down;
* that technological breakthroughs in the industry may make the strategy ineffective; or that buyer interests may swing to other differentiating features besides price.

Question 10

actions for achieving cost leadership strategy

Answer 10

To achieve cost leadership, following actions could be taken:
1. Prompt forecasting of demand of a product or service.
2. Optimum utilization of the resources to achieve cost advantages.
3. Achieving economies of scale; thus, lower per unit cost of product/service.
4. Standardisation of products for mass production to yield lower cost per unit.
(Example of McDonald’s)
5. Invest in cost saving technologies and using advance technology for smart efficient working.
6. Resistance to differentiation till it becomes essential.

Question 11

Advantages of Cost Leadership Strategy

Answer 11

1. Rivalry – Competitors are likely to avoid a price war, since the low-cost firm will continue to earn profits even after competitors compete away their profits.
2. Buyers – Powerful buyers/customers would not be able to exploit the cost leader firm and will continue to buy its product.
3. Suppliers – Cost leaders are able to absorb greater price increases from suppliers before they need to raise prices for customers.
4. Entrants – Low-cost leaders create barriers to market entry through their continuous focus on efficiency and cost reduction.
5. Substitutes – Low-cost leaders are more likely to lower the costs to induce existing customers to stay with their products, invest in developing substitutes, and even purchase patents.

Question 12

Disadvantages of Cost Leadership Strategy

Answer 12

1. Cost advantage may not last long as competitors may imitate cost reduction techniques.
2. Cost leadership can succeed only if the firm can achieve higher sales volume.
3. Cost leaders tend to keep their costs low by minimizing cost of advertising, market research, and research and development, but this approach can prove to be expensive in the long run.
4. Technological advancement areas a great threat to cost leaders.

Question 13

when to opt for differentiation

Answer 13

Differentiation strategy should be pursued only after a careful study of buyers’ needs and preferences to determine the feasibility of incorporating one or more differentiating features into a unique product that features the customers’ desired attributes.

Question 14

at what basis differentiation can be made?

Answer 14

There are several bases of differentiation, major being: Product, Pricing and Organization.
* Product: Innovative products that meet customer needs can be an area where a company has an advantage over competitors. However, the pursuit of a new product offering can be costly – research and development, as well as production and marketing costs can all add to the cost of production and distribution. The payoff, however, can be great as customer’s flock to be among the first to have the new product. For example, Apple iPhone, has invested huge amounts of money in R&D, and the customers’ value that. They want to be among the first ones to try the new offerings from the company.
* Pricing: It fluctuates based on its supply and demand and may also be influenced by the customer’s ideal value for a product. Companies that differentiate based on product price can either determine to offer the lowest price or can attempt to establish superiority through higher prices. For example, Apple iPhone dominates the smart phone segment by charging higher prices for its products.
* Organisation: Organisational differentiation is yet another form of differentiation. Maximizing the power of a brand or using the specific advantages that an organization possesses can be instrumental to a company’s success. Location advantage, name recognition and customer loyalty can all provide additional ways for a company differentiate itself from the competition. For example, Apple has been building customer loyalty since years and has a fanbase of consumers that are called “Apple Fanboys/Fangirls”.

Question 15

how to achieve differentiation?

Answer 15

To achieve differentiation, following strategies could be adopted by an organisation:
1. Offer utility to the customers and match products with their tastes and preferences.
2. Elevate/Improve performance of the product.
3. Offer the high-quality product/service for buyer satisfaction.
4. Rapid product innovation to keep up with dynamic environment.
5. Taking steps for enhancing brand image and brand value.
6. Fixing product prices based on the unique features of product and buying capacity of the customer.

Question 16

Advantages of Differentiation Strategy

Answer 16

1. Rivalry - Brand loyalty acts as a safeguard against competitors. It means that customers will be less sensitive to price increases, as long as the firm can satisfy the needs of its customers.
2. Buyers – They do not negotiate for price as they get special features and they have fewer options in the market.
3. Suppliers – Because differentiators charge a premium price, they can afford to absorb higher costs of supplies as the customers are willing to pay extra too.
4. Entrants – Innovative features are an expensive offer. So, new entrants generally avoid these features because it is tough for them to provide the same product with special features at a comparable price.
5. Substitutes – Substitute products can’t replace differentiated products which
   have high brand value and enjoy customer loyalty.

Question 17

Disadvantages of Differentiation Strategy

Answer 17

1. In the long term, uniqueness is difficult to sustain.
2. Charging too high a price for differentiated features may cause the customer to switch-off to another alternative. As we see a shift of iPhone users to other android flagship smart phones.
3. Differentiation fails to work if its basis is something that is not valued by the customers. Home delivery of packed snacks in 30 minutes would not even be a differentiator as the consumer wouldn’t value such an offer.

Question 18

How to achieve focus strategy?

Answer 18

To achieve focused cost leadership/differentiation, following strategies could be adopted by an organization:
1. Selecting specific niches which are not covered by cost leaders and differentiators.
2. Creating superior skills for catering such niche markets.
3. Generating high efficiencies for serving such niche markets.
4. Developing innovative ways in managing the value chain.

Question 19

Advantages of Focused Strategy

Answer 19

1. Premium prices can be charged by the organisations for their focused product/services.
2. Due to the tremendous expertise in the goods and services that the organisations following focus strategy offer, rivals and new entrants may find it difficult to compete.

Question 20

Disadvantages of Focused Strategy

Answer 20

1. The firms lacking in distinctive competencies may not be able to pursue focus strategy.
2. Due to the limited demand of product/services, costs are high, which can cause problems.
3. In the long run, the niche could disappear or be taken over by larger competitors by acquiring the same distinctive competencies.

Question 21

who/ what are stakeholders?

Answer 21

Stakeholders can be defined as any person/group of individuals, internal or external, that has an interest in, or impact on the business or corporate strategy of the organization. They have the power to influence the strategy or performance of that organization.

Question 22

Mendelow Stakeholder matrix

Answer 22

Mendelow suggests that one should analyse stakeholder groups based on Power (the ability to influence organisation strategy or resources) and Interest (how interested they are in the organisation succeeding).

Some stakeholders will hold more Power than others, and some stakeholders will have more Interest than others. For example, a big shareholder is likely to have high power and high interest in the organisation, whereas a big competitor would have high power to impact strategy, but potentially less Interest in success of rival organisation.

see categorisation of stakeholders into four groups by
Mendelow’s;
* KEEP SATISFIED Stakeholders: High power, less interested people - Organisation should put in enough work with these people to keep them satisfied with their intended information on a regular basis. For example, banks, government, customers, etc.
* KEY PLAYERS Stakeholders: High power, highly interested people - Organisation’s aim should be to fully engage this group of stakeholders, making the greatest efforts to satisfy them, take their advice, build actions and keep them informed with all information on a regular basis. For example, Shareholders, CEO, Board of Directors, etc.
* LOW PRIORITY Stakeholders: Low power, less interested people - Organisation should only monitor them with no actions to satisfy their expectations. Strategically, minimal efforts should be spent on this group of stakeholders while keeping an eye to check if their levels of interest or power change. For example, business magazines, media houses, etc.
* KEEP INFORMED Stakeholders: Low power, highly interested people - Organisation should adequately inform this group of people and communicate with them to ensure that no major issues arise. This audiences can also help with real time feedbacks and areas of improvement for an organisation. For example, employees, vendors, suppliers, legal experts, etc.