Strategic Management

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S19-20StrategyReviewSessionMarch2020ppt.pdf

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Strategic Management: Review Session

This slide pack has been prepared to support the course

review. Note that it should not substitute for detailed revision

of each topic area, based on the original session handouts,

recommended readings and your notes!

Assessment: 100% Final Examination

• Closed book exam

• Aims to test knowledge of overall module content

• Most questions will ask for examples

• 1.5 hour exam

• 6 written questions, covering the module’s topic areas

• All questions must be answered & carry equal marks

Strategic Management Module: Topics

• Where to compete?

• How to compete?

• What capabilities do we have/require? (resource-based view)

• Corporate level strategy

• Strategy in digital environments

• Business recovery

• Managing strategic change

Assessment: 100% Final Examination

Example question:

Explain the basic idea behind Michael Porter’s Five Force Model. Summarise why you think it is still a useful tool to consider in developing strategy.

Assessment: 100% Final Examination

Example question:

Strategic assets and capabilities have to pass the VRIN criteria.

(i) Explain what VRIN means.

(ii) Using a firm you are familiar with, give three examples of assets that would pass these criteria.

Assessment: 100% Final Examination

Example question:

What role does power play in the strategy of an organisation? Support your answer with one example of how the power of particular individuals or groups could affect the creation or implementation of strategy.

CORPORATE: What is the overall rationale

and scope of the corporation – how can the

corporate centre add value to the

constituent businesses?

BUSINESS: How can we compete effectively?

How can we deliver sustainable

competitive advantage?

OPERATIONS

MARKETING R&D FUNCTIONAL: How can the different functional operations

contribute to effective implementation of

business/corporate strategy?

Levels of Strategy

Where to

compete?

How to gain

advantage?

What

capabilities

are required?

What

capabilities

we have?

How to

change?

Business Strategy: The Five Key Questions

Strategic Management Module: Topics

• Where to compete?

• How to compete?

• What capabilities do we have/require? (resource-based view)

• Corporate level strategy

• Strategy in digital environments

• Business recovery

• Managing strategic change

The industry

Jockeying

for position

among current

competitors

Suppliers Customers

New entrants

Substitutes B

a rg

a in

in g

p o

w e

r B

a rg

a in

in g

p o

w e

Threat

of entry

Threat

of substitution

Source: Porter, 1980

Forces Governing Competition in an Industry

Industry Structure – Five Forces Determinants of New Entry Threat

Capital requirements

Economies of scale

Absolute cost advantages

- learning curve effects

Product differentiation

Access to distribution channels

Legislation

The industry

Jockeying

for position

among current

competitors

Suppliers Customers

New entrants

Substitutes

Determinants

of Supplier Power

Supplier concentration

Importance of volume to

supplier

Switching costs

Presence of substitute

inputs

Threat of forward

integration

Determinants

of Buyer Power

Bargaining leverage

Buyer concentration versus firm

concentration

Buyer volume

Buyer information

Buyer switching costs

Ability to backward integrate

Price sensitivity

Fraction of buyer’s costs

Importance to buyers quality

Buyer’s own margin position

Determinants

of Substitution Threat

Relative price performance

Switching costs

Buyer propensity to substitute

Rivalry Determinants

No/balance of competitors

Industry growth rate

Fixed costs/overcapacity

Product differentiation

Exit barriers

Diversity of competitors

Industry Analysis – So What?

• Scoring strength of each force on 1-5 scale can provide crude industry attractiveness index

• More importantly, analysis provides insight into competitive environment and allows identification of key forces driving competition

• Firm can then pursue strategies to defend/influence their position against these key forces, e.g.

• Raise barriers to entry by building brands, influencing legislation, protecting proprietary knowledge

• Select buyer groups that have less power or price sensitivity

• Build switching costs with buyers (loyalty progs; tailored services) and suppliers (dedicated arrangements)

• Build product differentiation to reduce direct rivalry

• Recognise and watch for potential substitutes

Basic Strategy Options from Industry Analysis

DEFEND - adopt a position within the industry that defends against (avoids) the strongest forces (e.g. target buyer groups with lower power)

INFLUENCE - pursue strategies that will in time change the balance of forces driving profitability in your favour (e.g. intra-industry M&A to build critical mass to gain leverage over suppliers/buyers)

EXPLOIT - adopt strategies which take advantage of changes in the nature of the forces (e.g. enter production of improving substitute product)

Macro-environmental influences: the PESTEL framework

Political

• Government stability

• Taxation policy

• Foreign trade regulations

• Social welfare policies

Environmental

• Environmental protection laws

• Waste disposal

Socio-cultural factors

• Population demographics

• Income distribution

• Social mobility

• Lifestyle changes

• Attitudes to work and leisure

• Consumerism

• Levels of education

Technological

• Government spending on research

• Government and industry focus on

technological effort

• New discoveries/development

• Speed of technology transfer

• Rates of obsolescence

Economic factors

• Business cycles

• GNP trends

• Interest rates

• Money supply

• Inflation

• Unemployment

• Disposable income

Legal

• Monopolies legislation

• Employment law

• Health and safety

• Product safety Source: Johnson & Scholes (2002)14

Strategic Management Module: Topics

• Where to compete?

• How to compete?

• What capabilities do we have/require? (resource-based view)

• Corporate level strategy

• Strategy in digital environments

• Business recovery

• Managing strategic change

The Customer Matrix

Perceived

Use Value

(PUV)

Perceived

Price (PP)

High

Low

Average

HighAverageLow

The Customer Matrix

 a device to explore competitive strategy

 focused on a discrete segment of demand:

a group of potential customers with similar

needs and perceptions as to which use values

meet their underlying needs

 Perceived Use Value (PUV):

the benefits that customers gain from the

transaction

 Perceived Price (PP):

the cost incurred by the customers

17 © Cranfield University 2013

• Customer: Recently qualified GA Pilot,

professional, purchasing first non-flight school

headsets, to use in high traffic zones in and out of

London airspace

• Key dimensions of value (in descending order

of importance): active noise reduction, design &

comfort, durability, control mode / bluetooth tech,

warranty

• Competitors: David Clark, Lightspeed, Bose

DIMENSIONS OF PERCEIVED USE VALUE

Rating

One-X

A20

Zulu 3

ANR Design and Durability Control Mode/ Warranty

Comfort Bluetooth tech Most

Important

Least

Important30% 25% 20% 15% 10%

Dimension Weighting

David Clark DC One-X Lightspeed Zulu 3 Bose A20

Rating Rating x

Weight

Rating Rating x

Weight

Rating Rating x

Weight

Active Noise

Reduction

30 2 60 2 60 3 90

Design &

Comfort

25 1 25 3 75 1 25

Durability 20 2.5 50 2 40 2 40

Control mode /

Bluetooth

15 1 15 2 30 2 30

Warranty 10 2 20 3 30 2 20

PUV Total 100 170 235 205

Price £834 £864 £910

GA Headsets example

Perceived

Use Value

A20

DC One-X

X Zulu 3

Perceived

Price

GA Aviation Headsets example

£800 £900 160

200

170

230

180

190

210

220

£860£840£820

£860

£880

240

21 © Cranfield University Source: Professor Cliff Bowman, Cranfield School of Management

The Customer Matrix and Competitive Strategy Options

High

Perceived Price

Perceived

Use Value

Low

Low High

Low Price/

Low PUV

Low

Price

Hybrid

Focused

Differentiation

X X X X

Strategic Management Module: Topics

• Where to compete?

• How to compete?

• What capabilities do we have/require? (resource-based view)

• Corporate level strategy

• Strategy in digital environments

• Business recovery

• Managing strategic change

The Firm’s Constituent Parts

Entry Assets

Strategic Assets (“Resources”)

Liabilities Future orientated activity

Asymmetries

Strategic Assets: The VRIN Criteria

Strategic assets are those internal capabilities / resources / processes that provide “differential advantage” to the organisation, which allow it to sustain competitive advantage and superior profitability. To do this a capability must be simultaneously:

• Valuable

• Does it contribute to a relative PUV and/or relative cost advantage?

• Rare

• Is it scarce within the industry?

• Inimitable and immobile

• Can it be copied or obtained by competitors?

• Non-substitutable

• Can a different asset or capability deliver the same effect?

• Tacit Knowledge • The ways of doing things in the organisation that are not codified and

cannot be easily explained.

• Causal ambiguity • It is difficult to understand how the advantage is achieved

(e.g. based on tacit knowledge, or in tacit linkages between processes, or rooted in organisation’s culture)

• Path dependency • The asset/capability has developed in a particular way over time

• Complexity • Involves the linkage of many activities and processes, making it difficult

for others to understand and imitate

Sources of Inimitability

Categories of Strategic Asset

• Tangible Assets: location, equipment, patents, information

• System Assets: operating, quality, induction, training,

proposal writing

• Structural Assets: grouping, coordination processes,

accountability

• Knowledge Assets: technical know-how, tacit routines,

entrepreneurial insight, knowledge architecture

• Relational Assets: trust, reputation, brand, contracts,

switching costs, social capital

• Cultural Assets: creativity, cooperation, responsiveness,

professionalism, learning

Strategic Management Module: Topics

• Where to compete?

• How to compete?

• What capabilities do we have/require? (resource-based view)

• Corporate level strategy

• Strategy in digital environments

• Business recovery

• Managing strategic change

CORPORATE: What is the overall rationale

and scope of the corporation – how can the

corporate centre add value to the

constituent businesses?

BUSINESS: How can we compete effectively?

How can we deliver sustainable

competitive advantage?

OPERATIONS

MARKETING R&D FUNCTIONAL: How can the different functional operations

contribute to effective implementation of

business/corporate strategy?

Levels of Strategy

What is the

corporate

logic?

How do we

add value

to SBUs?

What is the

desired

portfolio?

What is the

current

portfolio?

How to

change?

Corporate Strategy: Key Questions

Corporate Value Creation Logics

• Governance-based logics

• Financial Control

• Cost-based logics

• Consolidation of support activities

• Scale in core processes

• Knowledge-based logics

• Leverage of best practice

• Creative integration

Each has implications for corporate configuration and organisational design

Based on Schoenberg & Bowman, 2010 and

Bowman & Ambrosini, 2003

Evaluating Fit within the Corporate Portfolio: The Corporate Parenting Matrix

fit of parents’ characteristics with SBU

parenting opportunities = BENEFIT

High

Low

Ballast

businesses

Heartland

businesses

Value trap

businesses

Alien

businesses

fit of parent’s

characteristics

with SBU critical

success factors = FEEL

Adapted from: Goold, Campbell & Alexander, 1995

• Heartland businesses are ones to which the parent can add value without danger of

doing harm. They should be at the core of future strategy.

• Ballast businesses are ones the parent understands well but can do little for. They

would probably be just as successful as independent companies and may be worth

more to other corporate parents who could add value to them. If they are part of a

future corporate strategy, they need to be managed with a light touch and bear as little

cost of the corporate bureaucracy as possible.

• Value trap businesses are dangerous. They appear attractive because there are

opportunities for the parent to add value, but the parents’ characteristics do not fit well

with the SBUs critical success factors. Value trap businesses should only be included in

the future strategy if they can be moved into the heartland, and hence if the parent can

adjust its characteristics (unlikely!)

• Alien businesses are clear misfits. They offer little opportunity to add value and they do

not fit with the parent’s characteristics. Exit is the best strategy before value in the SBU

is destroyed.

Source: Goold, Campbell & Alexander, 1995

Evaluating the Corporate Portfolio: The Corporate Parenting Matrix

Strategic Management Module: Topics

• Where to compete?

• How to compete?

• What capabilities do we have/require? (resource-based view)

• Corporate level strategy

• Strategy in digital environments

• Business recovery

• Managing strategic change

Understanding the Concept of Value

B u

yer Firm

Su p

p lier

WTP

RC (assume incurred by the supplier)

Industry Value Chain

Value Creation

Willingness-to-pay (WTP) is the most that a buyer will pay for a product or service given the alternatives and given a take it or leave it offer. WTP ≠ price

The resource cost reflects the value of all the inputs required to produce and deliver the product or service to the buyer. RC ≠ the firm’s actual costs.

Value creation is the difference between WTP and RC

The Concept of Value Capture

B u

yer Firm

Su p

p lier

WTP

P (what the firm charges its customers)

C (what the supplier charges the firm)

RC (assume incurred by the supplier)

Industry Value Chain

Value capture by Supplier

Value capture by Firm

Value capture by Customers

Value Creation

Success breeds success in the digital world

Economic Essentials of Digital Strategy

Source: McKinsey & Company

Google

Digital Transformation

Source: McKinsey & Company

Seven Forces at Work

1. New pressures on prices and margins

2. Competitors emerge from unexpected places

3. Winner takes-all dynamics

4. Plug and play business models

5. Growing talent mismatches

6. Converging global supply and demand

7. Relentlessly evolving business models – at higher velocity

Strategic Principles for Competing in Digital Age

Strategic Management Module: Topics

• Where to compete?

• How to compete?

• What capabilities do we have/require? (resource-based view)

• Corporate level strategy

• Strategy in digital environments

• Business recovery

• Managing strategic change

Summary: Effective Recovery Strategies (key elements identified by prior research)

(Source: Schoenberg, Collier and Bowman, 2013)

 Focus on the core business coupled with retrenchment from unprofitable activities

 Clear and improved competitive positioning within the core business, with a distinctive value proposition based on an understanding of customer needs

 Strong cost control, which focuses on the elimination of high cost activities that deliver little customer value

 A positive and committed management approach, often achieved through leadership and accompanying culture change

 Controlled future development, with growth pursued only once financial stability restored and then based on recognition and leveraging of the firm’s underlying strategic capabilities

Strategic Management Module: Topics

• Where to compete?

• How to compete?

• What capabilities do we have/require? (resource-based view)

• Corporate level strategy

• Strategy in digital environments

• Business recovery

• Managing strategic change

Culture web

Symbols Rituals

& Routines

Organisation

structure

Control

Systems

Power

structures

Stories The

Paradigm

Source: Johnson, 1992

The Role of the Paradigm

Underpin organisational culture, because it is the way

that you THINK that governs the way that you ACT

As managers, paradigms

• Provide the lens through which you see the world

• Create boundaries you are not always aware of

• Help you identify and stick to recipes for success

The Paradigm

Is made up of:

• Assumptions

• Values and beliefs

that are held in common and taken for granted

“The way we do things around here”

“The status quo”

The paradigm contains assumptions and beliefs about…...

The competitive environment

How the organisation competes

The organisation’s customers

Human nature and abilities

What will ensure survival

DEFINING A CHANGE AGENDA OR “JOURNEY”

P1 P2

Use of Culture Web

Good Luck!!