Papers Flashcards
What are the 3 assumptions of SWOT?
- Successful firms are those which develop some ‘valuable distinctiveness’ relative to other firms.
- Firms exist in a ‘business environment’.
- Successful firms are those that achieve and maintain a good match between the opportunities and threats (O&T) that they see in their environment and their own distinctive strengths and weaknesses (S&W).
Successful firms are those which develop some ‘valuable distinctiveness’ relative to other firms.
This distinctiveness could be in terms of proprietary technology or a well-known and valued brand. It could be in terms of access to proprietary inputs such as low cost raw materials or privileged locations. It could be in terms of a distinctive capability (e.g. the ability to come up with radical innovations) or high market share which confers a unit cost advantage. Strategy thus needs to be based on some understanding of the particular firm’s strengths. It should also take into account its weaknesses, i.e. aspects of the firm where it appears to be inferior to competitors.
Firms exist in a ‘business environment’.
While some aspects of this environment – social, political, macro-economic – are most meaningful at a country or region level, it is the industry or segment level that are generally of most interest to the strategist. It is at the industry or segment level that companies focus on specific customer needs/wants, take advantage of relevant technology, deal with the regulatory context and cope with competitors. Successful firms are generally those which identify opportunities to provide new/enhanced products/services. Successful firms are also aware of threats which could adversely affect the current strategy, for example if competitors adopt a new, superior technology or if new competitors from low labour cost countries enter the industry.
Successful firms are those that achieve and maintain a good match between the opportunities and threats (O&T) that they see in their environment and their own distinctive strengths and weaknesses (S&W).
Successful firms are those that achieve and maintain a good match between the opportunities and threats (O&T) that they see in their environment and their own distinctive strengths and weaknesses (S&W). This becomes challenging when you consider that the business environment is continually evolving with changing customer preferences, technologies, regulation and competitors.
Key takeaway of SWOT
Theses premises do two things. Firstly, they suggest a ‘role’ or ‘purpose’ for strategy – to achieve and maintain an alignment between S&W and O&T over the long term. Secondly, they suggest that sound strategy needs to be based on a good understanding of S&W and O&T. This leads directly to the idea that ‘SWOT analysis’ – the systematic identification of the firm’s strengths and weaknesses and the opportunities and threats in the firms business environment – is a valuable piece of analysis to do before deciding what strategy to pursue.
When the threat of substitutes is high,
industry profitability suffers. Substitute products or services limit an industry’s profit potential by placing a ceiling on prices. If an industry does not distance itself from substitutes through product performance, marketing, or other means, it will suffer in terms of profitability— and often growth potential.
Substitutes not only limit profits in normal times, they also reduce the bonanza an indus- try can reap in good times. In emerging econo- mies, for example, the surge in demand for wired telephone lines has been capped as many consumers opt to make a mobile tele- phone their first and only phone line.
Pitfalls of 5 forces
- Defining the industry too broadly or too narrowly.
- Making lists instead of engaging in rigorous analysis.
- Paying equal attention to all of the forces rather than digging deeply into the most important ones.
- Confusing effect (price sensitiv- ity) with cause (buyer econom- ics).
- Using static analysis that ignores industry trends.
- Confusing cyclical or transient changes with true structural changes.
- Using the framework to declare an industry attractive or unat- tractive rather than using it to guide strategic choices.
Design thinking definition
Design thinking is a lineal descendant of that tradition. Put simply, it is a discipline that uses the designer’s sensibility and methods to match people’s needs with what is technologically feasible and what a viable business strategy can convert into customer value and market opportunity. Like Edison’s painstaking innovation process, it often en- tails a great deal of perspiration.
Characteristics of design thinkers
- Empathy (people first approach, human centred analysis)
- Integrative thinking (reliance not just on analytical processes, but also on the bigger picture)
- Experimentalism
- Collaboration (interdisciplinary approach)
- Optimism
Blue Ocean strategy, idea
Stop competing in overcrowded industries!
In those red oceans, companies try to out- perform rivals to grab bigger slices of exist- ing demand. As the space gets increasingly crowded, profit and growth prospects shrink. Products become commoditized. Ever-more-intense competition turns the water bloody.
How to avoid the fray? Kim and Mauborgne recommend creating blue oceans— uncontested market spaces where the competition is irrelevant. In blue oceans, you invent and capture new demand, and you offer customers a leap in value while also streamlining your costs. Results? Hand- some profits, speedy growth—and brand equity that lasts for decades while rivals scramble to catch up.
Consider Cirque du Soleil—which invented a new industry that combined elements from traditional circus with elements drawn from sophisticated theater. In just 20 years, Cirque raked in revenues that Ringling Bros. and Barnum & Bailey—the world’s leading circus—needed more than a century to attain.
The logic behind blue ocean strategy is counterintuitive:
- It’s not about technology innovation.
- You don’t have to venture into distant waters to create blue oceans.
- NEVER USE COMPETITION AS BENCHMARK - LEAP IN VALUE AND INNOVATION AND DIFFERENTIATE!
- Reduce your costs while also offering customers more value. (Cirque du Soleil)
Blue oceans denote:
Blue oceans denote all the industries not in existence today—the unknown market space, untainted by competition. In blue oceans, de- mand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. There are two ways to cre- ate blue oceans. In a few cases, companies can give rise to completely new industries, as eBay did with the online auction industry. But in most cases, a blue ocean is created from within a red ocean when a company alters the bound- aries of an existing industry. As will become ev- ident later, this is what Cirque did. In breaking through the boundary traditionally separating circus and theater, it made a new and profit- able blue ocean from within the red ocean of the circus industry.
So why the dramatic imbalance in favor of red oceans?
Part of the explanation is that cor- porate strategy is heavily influenced by its roots in military strategy. The very language of strategy is deeply imbued with military refer- ences—chief executive “officers” in “headquarters,” “troops” on the “front lines.”
Described this way, strategy is all about red ocean compe- tition. It is about confronting an opponent and driving him off a battlefield of limited territory.
Blue ocean strategy, by contrast, is about doing business where there is no competitor. It is about creating new land, not dividing up existing land. Focusing on the red ocean there- fore means accepting the key constraining fac- tors of war—limited terrain and the need to beat an enemy to succeed.
And it means denying the distinctive strength of the business world—the capacity to create new market space that is uncontested.
People have been missing these two aspects cos they focus so much on competition
One is to find and develop markets where there is little or no competition—blue oceans—and the other is to exploit and protect blue oceans. These challenges are very different from those to which strategists have devoted most of their attention.
Red Ocean strategy vs Blue Ocean strategy
- MARKET
R: Compete in existing market space.
B: Create uncontested market space. - COMPETITION
R: Beat the competition.
B: Make the competition irrelevant. - DEMAND
R: Exploit existing demand.
B: Create and capture new demand. - VALUE/COST
R: Make the value/cost trade-off.
B: Break the value/cost trade-off. - ALIGNMENT
R: Align the whole system of a company’s activities with its strategic choice of differentiation or low cost.
B: Align the whole system of a company’s activities in pursuit of differentiation and low cost.
The Simultaneous Pursuit of Differentiation and Low Cost!!!!!!
