Theme 1 and 2 Flashcards
what is strategy?
What are Strategies?
Strategies are set of choices made by CEO , or board or excutives .
it result in creating a superior value for customer and shareholders.
it is like a hypothesis because no one can guarantee a good outcome or ensure beneficial results for the organization
context, content and process ?
all three together form a strategy
context : what is our present situation ?
content : where do we want to go from here ?
process: how are we going to get there ?
Proactive and Reactive Stratrgies?
Proactive : strategy elements include both continued and new initiatives
Reactive : (Emergent) strategy elements that are required due to unanticipated developments and market conditions, Emergent strategy should be flexible adapting using trial and error process ( Honda case )
How can Internal + external+ purpose create a strategy ?
internal analysis refers to capabilities
external analysis refers to what is going in the industry
Purpose is related to the Vision, Mission and Values
what is the Willingness to pay ?
the more unique the value is the more customer are willing to pay ,higher the customers are willing to pay the higher profit you will achieve and the way to raise the willingness to pay is by offering superior value to customers.
• A company’s aim is always to push up the willingness to pay among customers and push down the cost because it means that the company can increase prices and generate more profit (economic profit)
what is the economic profit ?
it is the difference between price and the cost , which means the difference between the value proposition and the value chain activities
what is the value proposition
- Value proposition is WHAT the company offers and to who
- The value proposition is related to the price, which means the better the value proposition is the more the customers are willing to pay which enables a company to increase their price
what is the value chain activity
- It is the HOW which means what are the activities and the tools that a company to achieve the value proposition
- Related to the cost
what is a competitive advantage ?
in what that you are better than others .
it is where you meet customer needs more effectively with products or services that customer value more highly
Rent creating factor?
external industry analysis
- attractiveness of the industry
Industry attractiveness ?
• the industry is very important and its attractiveness depends on three factors
o the intensity of competition (explained by 5 forces of Michael porter)
o demand and supply
o regulations
Is the attractiveness of the industry relevant to the organization? Does industry matter
• When a large numbers of companies in a certain industry are making on average more than other companies in other industries is when this industry is more attractive
• Attractiveness in an industry will attract people to invest in it
• Investing in a non-attractive industry requires you to be above average in order to generate profit as much as an attractive industry
• when a industry is not attractive that doesn’t mean that you cant make money because there might be companies that are performing way better than the average industry and making tons of money
o example IKEA when the industry average profit was only 4.9% IKEA was achieving 22.9%
SUSTAINABLE COMPETITIVE ADVANTAGE
- competitive advantage for long term ,sustainable
- Giving buyers lasting reasons to prefer a firm’s products or services over those of its competitors on the long term
- Satisfy customer on the long run
INNOVATION
• Innovation in business is giving another life to a certain company
• Because of the fast changing world, all companies have to innovative in order to stay alive
example : the video curve that was changed into DVD then Blue ray , now we are having a streaming service
Sweet spot ?
it is when your company capabilities meet with your customer needs, while competitors cannot reach this spot.
• The sweet spot is where you use your capabilities to accomplish the customer needs and this is when you can excel
Vision?
it fosters commitment from your employees
• Emotions need to exist in a vision (you need to give your employees a dream) (like how steve jobs gave a dream to apple employees)
• It ensures an understanding of what the company is looking for in the future
• Vision demonstrates the future strategic direction the company needs to go
• A vision is not only inspiring the employees it also inspires customers and make them believe in you company which will make them buy and support you more
Mission?
- It is the identity of the organization
- It is describing the value chain activities of the company to accomplish a certain goal
- It is describing who we are and what we do
MICHEAL PORTER 5 FORCES INDUSTRY ANALYSIS
forces that affect your organization performance because they enhance competition
• Competitors
Competitors will squeeze your profit margin
• Bargaining power of buyers
Example in phone industry the power of customers of Samsung is higher than apple customers because they can change to other android competitors but apple customers have low buying power because they don’t have a replacement for the IOS that is why apple generates more profit
• Bargaining power of suppliers
Example of coca cola company: coca cola needs bottles and cans so the suppliers are bottle and can manufacturers and when they tried to push their power and increase their prices which will increase the cost of coca cola. But because coca cola is a big giant they decided to buy a can manufacturer to indicate to the suppliers that coca cola have a big power over them and can substitute them whenever they want, So the bargaining power of supplier in this case is low and will not affect the profitability of the company as if they had more power
• New entrants
This is what happened with Netflix when Disney decided to enter the streaming industry business and now they are competing and big threat to Netflix, the same happened with apple and amazon
New entrance are an additional factor that determine the attractiveness and the profitability of an industry
• Substitute products
Coffee is a sub for tea, gin is a sub for beer
Sub product can increase competition because customers will have another option to choose especially if subs can position and market themselves in a good way
This also what happened with Starbucks when they introduce their products in Asian markets where they didn’t like coffee and where too attached to tea but Starbucks managed to do it
what is a concentrated industry
- For example the manufacturing aircrafts industry which has only two manufacturers such as Boeing. This industry is concentrated into only two organizations which control the market (there are a few other firms but they are small
- In this kind of any industry there is not many competitors which means the profitability is good
- But this industry is prone to economic environment and these organizations are seriously affected and may lose all their profitability
- Because companies invest a lot in these industries, they cannot leave and quit when something goes bad like now with the corona situation because they have a lot invested in (exit barrier here is the high investment)
Exit barriers
As described in the concentrated market, aircraft manufacturers cannot just exit the market and shut down their business because this industry have very hard exit barriers
Entry barriers
For the same aircraft industry the entry barriers are also very hard and that is because it needs a lot of technology and capital which makes this industry extremely hard to enter
PEST ANALYSIS
PEST analysis measures the macro-environmental factors that may impact a business organization.
any PEST change will directly affect the industry.
P : political : change in government policy ( taxation )
E : Economic: change in the level of economic activity ( growth rates)
S : Social : change in demographics or social structure
T : Technological : Development of new products, information or communication technologies.
for a company is it better to be the best or to provide unique product or service?
Having unique value proposition makes more sense because you position yourself in a higher value proposition that is different because you avoid competitive wars.
being unique (on your own terms) that allows you to deliver value to
customers who are willing to pay a proper price for your value proposition.
If you want to be the best, that is going to be a hard game. The best is not necessarily the best
strategy. It is much easier to play your own game, to be unique.
example : Profit margin iPhone vs Samsung:
® iPhone: 40%
® Samsung: 17%
What is the reason for this? Google owns the Android system. Any Samsung you buy, the hardware
manufacture you buy, they have to share the profit with Google. Apple has created a very open ecosystem.
They own every detail. This explains the profitability issue.
what is Apple strategy ?
- Apple strategy is that they managed to create a system that is unique and only available for Apple products which is the IOS, compared to Samsung or galaxy this strategy enabled Apple to reduce cost by having their own system not like Samsung or any other devices which are paying for Android system. That is the reason which allowed Apple to be able to achieve revenue of around 40% which is higher than Samsung’s revenue which is 18%.
- When Apple created this superior value to their customers it was able to push up the willingness to pay among customers. And push down the supplier bargaining power , which extended the profit margin
- What apple stands for? Their status is being different, they are unique
- Steve jobs had a very clear and inspiring vision and it was a dream which helped him fostering commitment from his team
