BUSINESS STRATEGIC MANAGEMENT ESSAY

Notes: Ch. 2 (a) - External Analysis

(1/30/2017)

I. Introduction

A. The best strategy for any firm is ultimately a unique (different) construction reflecting (fitting with) that firm's particular circumstances.

B. So, one must match (fit) a firm's strategy with its internal and external conditions.

C. Corporate Strategy = what industry(ies) should we compete in and not compete in?

1. Business Strategy = how should we compete in a given industry? (Note - this should be a follow-up question after answering the prior line)

D. Elements of Industry Structure including the determinants of:

1. customer power

2. supplier power

3. competitor power

a. barriers to entry for new entrants

b. threats of substitution

c. rivalry

E. Considerations When Assessing A Firm's External Environment Include:

1. potential for market growth (or shrinkage)

2. profit margins

3. the scope of competitive rivalry

4. demand and supply conditions

5. how and to what degree, if any, is the market segmented

6. what is the pace of technological change

F. What Are Some of the Issues that an External Analysis Should Show Us?

1. the attractiveness (or lack thereof) of industry profitability

2. let success factors (KSF's)

3. what are the competitive forces

4. how intense is the competition

5. what are the driving forces

6. are there any barriers to entry, and if so, what are they

a. economies of scale

b. product differentiation

short tank?? New sauce…

c. capital requirements

d. access to channels of distribution

e. government policy

f. cost disadvantages independent of scale

i. know how

ii. learning experience

iii. process management

II. Models That Are Used to Help Analyze a Firm's Environment

SW(internal) OT(external)

A. Porter's Five Forces and PESTLE Models (please see prior notes on these topics)

FIVE FORCES

1. Supplier Power (how many potential supplier, quality cost…)

2. Buyer(costumers) Power (Costumer analysis…)

3. Group of competitor:

1. Rival

2. Substitute (buy food after class, but too many people in five guys, buy pizza or hamburger)

3. New entry

- Have resources, name cognition (want to buy spray for kitchen and bathroom clean…LAISON?? Success for so longer. CORAX?? Change the chemical compound, be success)

PESTLE (OLD WAY: PESTLE, NEW WAY: PESTEL)

1. Political

2. Economic

3. Social conditions: social analysis, how people different from before or after

4. Technology

5. Legal environment (old way)

6. Environment (new way)

7. Legal environment

B. Structure - Conduct - Performance (S-C-P) Model

1. Structure = industry structure, so look at such factors as:

a. the competitors - the number of them, their strengths/weaknesses, etc.

b. the products - homogenous/heterogeneous, etc.

c. the cost of entry and exit (notice ties to Porter's Model)

2. Conduct = the strategies that are implemented by firms in the industry

why they working, why not

3. Performance =

a. performance of individual firms (key focus)

b. performance of the economy (used less by businesses using this model and more when the government uses this model to determine governmental regulation)

c. the range of performance: (BUZZ WORD)

e.g. continue (position can change—JB team, 5 pitch/3 good—CA, flu season 2 sick, 1 left—competitive parity now. Flu got worse, no good left, just 2—competitive disadvantage)

i. competitive disadvantage

ii. competitive parity

iii. competitive advantage

aa. temporary

bb. sustained (for long time)

4. Linkage - note how these factors influence one another, particularly how industry structure sets the range of available options (conduct) and performances - so structure surely impacts the other two elements of this model

1. many options and few constraints

2. few options and few constraints

3. many options and many constraints

4.few options and many constraints

BUZZ: scp—structural functionalism

III. Examples of Industry Structure and the Resulting Strategies, etc.

A. Emerging Industries = early, formative stage industries like wireless Internet communication, HDTV, online education, and electronic banking)

1. Two Critical Issues

a. how do we finance initial operations until sales and revenues take off? - and -

b. what market segments and competitive advantages should be chosen or are available?

2. Strategic Avenues Often Taken By Firms In Such An Industry:

a. win the early race for industry leadership

i. be risk-taking, bold and creative;

ii. differentiation strategies work best;

b. perfect our technology, quality & performance features;

c. once a dominant technology surfaces, adopt it quickly

d. form strategic alliances with key suppliers;

e. acquire or ally with companies with related or complimentary expertise;

f. capture first mover advantages;

g. pursue new customer groups, user applications, and enter new geographic areas;

h. make it easy and cheap for 1st time buyers to try your first generation product; and

i. use price cuts to attract price sensitive buyers (although prestige pricing - if it fits - may suggest doing just the opposite).

B. High Velocity, Turbulent Markets

1. A big problem = managing change

2. Strategic Postures that are often taken:

a. react to change;

b. anticipate change; and

c. lead change.

3. Strategic Moves include:

a. invest heavily into R&D to stay on the cutting edge of technology;

b. develop and maintain the organizational capability to respond quickly to the moves of rivals and to new developments;

c. develop and rely on strategic alliances with suppliers and companies making tie-in products;

d. initiate fresh actions every few months (do not be just reactionary - be proactive, too); and

e. make your products stand out in the changing market (make them fresh and exciting);

C. Maturing Industries

1. Characteristics

a. Buyer demand slows, creating more head-to-head competition

b. Buyers become more sophisticated and drive harder bargains

c. Competition puts greater emphasis on cost and service

d. Capacity expansion is tapped out

e. Innovation and new end-use applications drop

f. International competition increases

g. Industry profitability falls

h. Competitor ranks thin due to mergers, acquisitions, closings and consolidations

2. Strategic Moves

a. Prune marginal products and models

b. Reinvent (innovation) you value chain

i. Find less costly, more efficient ways

c. Focus on cost reduction

d. Increase sales to present customers

e. Acquire rivals if the price is low enough

f. Go global

g. Add new competencies and capabilities

i. Make them harder to imitate, and

ii. Make them more adaptable to changing customer demands

3. Usual Mistakes

a. Steering a middle course between low cost and differentiation

b. Being slow to adopt existing competencies and capabilities to stiffening competitive pressures

c. Concentration on maintaining short-term profits instead of your long-term position (very Porter’esque)

d. Waiting too long to respond to price-cutting by rivals

e. Failure to reduce costs soon or aggressively enough

f. Over-expending in the face of slowing growth

g. Over spending on sales and promotion in an effort to avoid a slowdown in growth

D. Other Industry Types - please see your textbook for other types of industrial structures such as fragmented industries, etc.

Ch. 3 - Internal Analysis

(2/13/2017, 2/15/2017)

I. Analytical Methods (Tools)

A. SWOT

B. RBV

C. VRIO

D. VCA

E. The Functional Approach

II. SWOT

A. Key elements:

1. Strengths

2. Weaknesses

3. Opportunities

4. Threats

B. A Way to Tie Some of These Together

1. Internal -> strengths & weaknesses

2. External -> opportunities & threats

C. Goal = to maximize your strengths and opportunities while minimizing your weaknesses and threats (i.e., create a competitive advantage, preferably a sustainable one)

D. Reasoning: an effective strategy fits the internal firm and the external environment

E. What Are Some Ways We Can Determine Internal Strengths and Weaknesses?

1. RBV

2. VRIO

3. Using a functional approach (not unlike structural functionalism)

III. RBV Model

A. Underlying Premise: Firms differ because each has a unique set or bundle of resources (note the word unique and the word different which are related to differentiation)

B. Types of Basic Resources

1. tangible assets

2. intangible assets (including a firm's capabilities and skills)

C. Rule: Basic resources may (should?) give a firm a competitive advantage or even a sustained competitive advantage, or competitive disadvantage, and are related to the concept of core competencies (type of resources—Buzz word)

D. What makes a resource valuable? The answers include:

1. does the asset give the firm competitive superiority (advantage)

2. is the resource in short supply and central to fulfilling our customers' needs (does it create value?) (Need to be everyone wants, and rare)

3. is the resource easily copied? Or hard to copied or required (make sure to read you book regarding competitive disadvantage, competitive parity, and competitive advantage - sustained and temporary, as well as look at the concept of isolating mechanisms (B) which are related to barriers to imitation (B)) (Sliver balls, and Shield)

Shield:

- Physically unique : location, mineral rights??, copy rights…

- Path dependent resources : Take a lot of time and money to copy, and it’s difficult to do so. Reputation, Brand recognition

- Casual ambiguity : Hard for competitor to understand how the advantage gathered. Corporate culture, Corporate personality, System you create!!— (Target/Walmart, UA/ South airline)

- Economic deterrence : Take lot of boxes to build a company, but will not get the return

4. can our firm capture or appropriate the profit (i.e., the benefits or advantages) generated by the resource? (own by yourself, or share with others)

5. will the resource rapidly depreciate? (technology depreciation)

6. are alternatives available or it is its substitutability high?

E. Guidelines for Identifying and Evaluating Resources

1. break down the resource into specific competencies

2. look at the different functional areas of our firm

3. do not look merely at isolating mechanisms - instead look at organizational processes and combinations of resources (i.e., look at the system and how the resource fits it)

4. use the VCA Value chain approach

5. use RBV

6. use SW(internal)OT

IV. VRIO

A. Elements

1. value

2. rarity

3. imitability

4. organization

B. Value

1. Are our resources and capabilities valuable?

a. do they increase profit and/or reduce cost?

b. do they enable us to exploit external opportunities or to neutralize external threats?

c. do they allow us to create a competitive position (advantage)? Key question-goal

2. If so, they are a strength but, if not, they are a weakness.

3. Amongst other things, do a VCA to help answer these.

C. Rarity

1. How many firms already possess this/these resources and capabilities? And also look at how many can easily and cheaply acquire them?

2. Are these resources and capabilities rare or common?

3. Note that sometimes even if they are not exclusive to our firm, they still might generate a competitive advantage for us.

D. Imitability

1. Do firms without these resources and capabilities face a cost disadvantage in obtaining or developing them? (Buzz: imperfect imitability) This relates to the term imperfect imitability. In fact, can they obtain and develop them?

2. Forms of Imitability (not to be confused with Porter's ways to copy)

a. direct duplication

b. substitutes

3. What can create costs to imitate? Such things as:

a. unique historical conditions and path dependence

b. causal ambiguity

c. social complexity (like culture and reputation)

d. legal barriers (like patents, trademarks, and copyrights)

E. Organization

1. Is our firm organized to exploit the potential advantages our resources and capabilities offer? (Apple—Flexible, IBM—Lot of layers of management, complex)

2. You should look at such things as:

a. the formal reporting structure

b. management control systems (formal & informal)

c. compensation policies

(US air baggage handler—horrible, losing money, bad passaging survey: language missed. Southwest: refill about 30mins, earned money, US airway: Take long time…fly on time to give bounces, but the employee will care less about the baggage.)

3. Remember what we discussed earlier regarding structural functionalism. (need to fit well)

VI. VCA (Value Chain Analysis)

(2/20/2017)

A. Focus: How does our firm create value for our customers?

B. Theory: Business is a chain of activities that transfers inputs into outputs that our customers value—BUZZ: utility)

C. Sources of Customer Value include:

1. activities that differentiate our product

2. activities that lower the cost of our product: levis

3. activities that meet a customer's needs quickly

4. What does Value Chain Analysis Do?

a. take a process point of view by looking at activities and functions as opposed to arbitrary lines on an organizational chart (functional approach: apart, VCA: system)

b. divides businesses into a set of internal activities

c. looks at costs across a series of activities

d. tries to identify low cost advantages or cost disadvantages

e. looks to see how (if) each activity contributes to differentiating a firm's products

e.g., Mikel porter: related to social responsibilities, BUZZ: sustainability, promote a good environment. UNOLEVER?? ICE CREAM, household products(sustainability). 第一个发明洗衣球的公司(pod)—能继续用装pod的盒子, environmental friendly, recycle. LIQUID: 1. 80% was water, 2. transportation cost. SAVE COST: shipping cost

f. divides activities into primary and support activities

g. includes looking at a profit margin over and above the cost

E. Conducting a VCA

1. identify business activities and processes

2. allocate costs and assets to each activity (note that it can be hard to get a breakdown of activity based costs)

3. identify activities that differentiate our firm

4. examine the Value Chain and identify those activities that are critical to buyer satisfaction and market success

a. look at our firm's mission

b. note that the nature of value chains and the relative importance of activities vary by industry

c. note that the importance of value activities can vary by a firm's position in a broader value system

5. Compare ours with our competitors value chains or activities

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VII. The Functional Approach

(2/20/2017)

A. Definition = here one analyzes the strengths and weaknesses of key internal factors (aka, BUZZ: strategic factors) by breaking them down along functional lines

B. Strategic Factors are a firm's internal factors that are most critical for success in a particular competitive area

1. Requires an external focus

a. an analysis of industry conditions and trends

b. an analysis of (comparison/contrast with) our competitors

2. Requires an internal focus

a. a review of our firm's past performance and trends

b. a review of our firm's current situation

C. Result: This approach focuses managers on basic business functions, leading to a more objective and relevant internal analysis