Lecture 4: Defining the organization's strategic direction

Question 1

What are the requirements for strategy formulation

Answer 1

1. Appraising the firm’s environment
2. Appraising the firm’s strengths, weaknesses, competitive advantages, and core competencies
3. Articulationg an ambitious strategic intent

Question 2

What are the methods for Assessing the firm’s current position

Answer 2

External Analysis
1. Porter’s Five Force Model
2. Stakeholder Analysis

Internal Analysis
1. Identify the firm’s strengths and weaknesses
-> helpful to consider each element of the value chain
2. Assess which strengths have the potential to be suitable competitive advantages

Question 3

What are Porter’s Five Forces?

Answer 3

1. Degree of existing rivalry
2. Threat of potential entrants
3. Bargaining power of suppliers
4. Bargaining power of buyers
5. Threat of Substitutes
6. The Role of Complements

Question 4

What is the Role of Complements in Porter 5?

Answer 4

The role of complements must consider:
- How important complements are in the industry
- Whether complements are differentially available for the procedures of various rivals
–> Impacting the attractiveness of their goods
- Who captures the value offered by the complements

Question 5

What is the Stakeholder Analysis?

Answer 5

1. Who are the Stakeholders
2. What does each stakeholder want
3. What resources do they contribute to the organization
4. What claims are they likely to make on the organization

Question 6

Identifying core competencies and capabilities
-> What are core competencies?

Answer 6

= A set of integrated and harmonized abilities that distinguish the firm in the marketplace

-> Competencies typically combine a set of abilities
-> Several core competencies might underlie a business unit
-> Core competencies should:

–> Be a significant source of competitive differentiation
–> cover a range of businesses
–> be hard for competitors to imitate

Question 7

Risk of Rigidities (Steifheit)

Answer 7

= When firms excel at an activity, they might become over-committed/rigid

-> Incentives and culture may reward current competencies while threatening the development of new competencies

Question 8

What are dynamic capabilities?

Answer 8

= are capabilities that enable the firm to quickly respond to change

Question 9

What is “Strategic Intent”?

Answer 9

= Long-term goal that is ambitious, builds upon, and stretches the firm’s core competencies, and draws from all levels of the organization
-> Typically looks 10-20 years in the future
-> establishes clear milestones

=> Firms should identify resources and competencies needed to close the gap between strategic intent and current position

Question 10

What is the “Red Ocean Strategy”?

Answer 10

= competing in existing market space
= Beat the competition
= Exploit existing demand
= Make the value-cost trade-off
= Align the whole system of a firm’s activities with its strategic choice of differentiation or low-cost

Question 11

What is the “Blue Ocean Strategy”?

Answer 11

= create uncontested market space
= Make the competition irrelevant
= Create and capture new demand
= Break the value-cost trade-off
= Align the whole system of a firm’s activities in pursuit of differentiation and low-cost

Question 12

Managers can challenge the industry’s strategic logic by asking these questions:

Answer 12

1. Which of the factors that the industry takes for granted should be eliminated?
2. Which factors should be reduced well below the industry’s standards?
3. Which factors should be raised well above the industry’s standards?
4. Which factors should be created that the industry has never offered?