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Strategic Challenges For Dubai Islamic Bank (DIB):
A Case Study
Student:
Student ID:
Module: MGT523 Strategic Management
Supervisor: Dr Stephen Wilkins
Tuesday, November 14, 2017
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Strategic Challenges For Dubai Islamic Bank (DIB)
THE CASE DESCRIPTION
The Islamic banking system and financial institutions are touted as one of the up and coming
economic sectors with more than US $1 trillion in assets handled and managed globally. Dubai
Islamic Bank (DIB), which was established in 1975, is considered the first Islamic bank in the
world and with more than ninety branches over UAE boundaries (DIB, 2017) and a 1.7 million
customer base, as the most significant Islamic bank in the UAE. With respect to significant
competitors, five Islamic banks out of 46 banks in the UAE currently provide Islamic products,
services and solutions (DIB, 2017). Needless to say, DIB is one of these Islamic banks and the
other four which have been considered as crucial, competitive players in the UAE are the Abu
Dhabi Islamic Bank, the Emirates Islamic Bank, the Noor Islamic Bank PJSC and the Sharjah
Islamic Bank.
Over time, DIB has diversified its portfolio by tapering its products and services to specific client
needs. Accordingly, the bank has classified its products and services into three categories as per
client profiles: firstly, personal banking, such as personal, auto, home finances and cards, with
the addition of various types of accounts, internet banking services and phone banking.
Secondly, the bank offers business banking which provides business finances, cash management,
trade, and treasury services, and so on. Thirdly, DIB offers corporate banking such as investment
banking and real estate. Also, DIB contributes to corporate social responsibility “CSR” as an
integral part of the bank’s vision, strategic objectives and philosophy. Owing to this, DIB won
the award for their contributions in CSR in 2009 in the Middle East ‘emeafinances’ (DIB, 2017),
and consequently enjoys the status and reputation that comes with such an award.
The chart below (Figure 1) shows that total income has increased every year for the previous
three years.
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Figure 1. Total Income
The total income for DIB increased by 37% in 2015 compared with that of 2014 and by 44% in
2016 compared with that of 2014, assuming that 2014 is the base year for this comparison. The
bank’s net profit (in AED) is shown in Figure 2.
Figure 2. Net Profit
In addition, it is necessary to appreciate the size or portion of income from properties, compared
with the total revenue from 2014 to 2016. As demonstrated in the table below, the percentage of
return on the properties has declined from 4.79% to 4.73% reaching 2.72% in 2016, which is
the lowest year compared to 2014 and 2015.
2014 2015 2016
Income from properties 298,570 356,941 234,744
Total income 6,230,527 7,545,940 8,635,961
% income from proportions VS total income 4.79% 4.73% 2.72%
Figure 3. Property versus total income (in AED '000)
Like all of its competitors, DIB is considering the extent to which it should expand locally,
regionally and internationally. Moving forward with such a strategic step will be either be
6,230,527
7,545,940
8,635,961
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
AED’000 AED’000 AED’000
2014 2015 2016
2,803,726
3,839,260 4,050,051
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
AED’000 AED’000 AED’000
2014 2015 2016
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encouraged or discouraged by DIB decision-makers. Furthermore, it is of the essence to calculate
whether investment in real estate would be the right option for DIB’s strategic objectives and
mission and if it would consequently increase its growth, revenue and profits. DIB already has
experience market entry into Pakistan and the Sudan.
Firstly, Dubai Islamic Bank Pakistan Limited (DIBPL) established in 2006, is 100% owned
by DIB – UAE and has a strategy to expand with 60+ branches across 26 cities in Pakistan. The
total assets held by DIBPL is AED 1.4 billion with deposits over AED 1.1 billion. DIB-UAE has
a clear strategy to expand within Pakistan boundaries (DIB, 2017).
Secondly, the Bank of Khartoum – Sudan (BoK) with 50 branches, 17 in Khartoum (the
capital of Sudan) and 33 distributed in the region under DIB management, is acting as a
commercial bank ("Bank of Khartoum - Subsidiaries: About DIB | DUBAI ISLAMIC BANK"
2017).
Moreover, with respect to DIB’s investment in the real estate industry, DIB has taken on board the
task of contributing to the building of the UAE, from the airport to the business hub. Therefore, its
investment in the real estate sector is one of the strategic initiatives that reflect its commitment to
the country, hence DIB has a significant market share in the real estate industry in terms of
providing credit services to leading international and local developing engineering and contracting
firms. Owing to the DIB’s essential role as a leading supplier of real estate finance, it is
inadvertently supporting construction, residential units, commercial buildings, along with the
expertise of real estate development. At the same time, DIB is creating solutions to meet customer
needs and fulfil their requirements flexibly. The added value for DIB in this sector is that DIB is
providing competitive prices commensurate with Sharia ethics and principles. Accordingly, the
experience of DIB in DEYAAR and EMIRATES REIT is clarified below.
In 2002, Deyaar was established with a capital of AED18.375 million and considered as one of
the leading real estates in the region by focusing its growth on prime locations such as Business
Bay, the Marina, JLT, Tecom, and so on. The company had strategic expansion objectives and
expanded in the UK, Lebanon, Kazakhstan and the USA, with the aim of maximising investor
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profits and delivering viable Real Estate solutions ("About Deyaar - Learn More about Deyaar
UAE Here" 2017).
Emirates- REIT is a joint development by DIB and Eiffel Management. The strategic mission of
the company is to renew confidence in the real estate sector in the UAE and to maximise the
revenue and profit for the organisation (REIT): Real Estate Investments Trusts in France (REIT
2017).
Question 1: Will entering new countries and markets prove the correct choice for DIB’s
decision-makers in achieving the company’s strategic vision of expansion, which includes
maximising the bank’s revenue and profits?
Question 2: Should DIB continue investment in the real estate industry, especially given that
the property sector is facing challenges and losses, as ultimately, it is not the core business of DIB?
TEACHING NOTES
Question 1: Will entering new countries and markets prove the correct choice for DIB’s
decision-makers in achieving the strategic vision of expansion, which includes maximising the
bank’s revenue and profits?
It is evident from DIB’s vision that the bank is one of the most advanced Islamic financial
institutions globally. Such an accolade was mentioned by the CEO of DIB group himself in his
interview with Forbes 2016 (Claudine Coletti 2016) while discussing the bank’s regional and
international expansion strategy.
To achieve DIB’s expansion strategy as stated by the DIB CEO, students may suggest using the
VRIO framework as an internal strategic analysis tool, to give a deep insight into the bank’s
resources. Barney & Hesterly (2008) argue that the VRIO framework is defined as the
mechanism to identify organisational resources and capabilities as well as to assess competitive
opportunities. The VRIO context is related to value once the resources are capable of dealing
with external opportunities. The VRIO framework can be achieved, as mentioned above, by
focusing on the quality of knowledge that has been collected and creating an innovative strategy
to override all problems in a systematic way (Barney & Hesterly 2008).
Therefore, students may suggest that DIB uses its own intellectual capital to set up DIB branches
abroad in that it is difficult to find personnel knowledgeable with respect to Sharia compliance in
banking. The table below illustrates the VRIO analysis for DIB.
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Resources
V a
lu a
b le
?
R a
re ?
C o
st ly
t o
i m
it a
te ?
C a
p a
b le
o f
b ei
n g
e x
p lo
it ed
?
Overall Evaluation (out of 10)
Competitive implications
1. Staff expertise
in Islamic
products
Yes Yes Yes No 8/10, working in Islamic banking systems are
rare compared with the conventional banks as
most educational bodies graduate commercial
accountants rather than Islamic accountants.
2. Credit
department
Yes Yes Yes No 7/10, its importance emanates from DUAL
rules to improve Islamic financing and
maintain minimum risks.
3. Admin staff Yes No No No 6/10, comprising the most significant number
of employees in DIB, this team is essential as
they handle all the internal processes,
documents, and policies.
4. IT Yes No No No 5/10, they are necessary technical staff to
solve IT issues.
5. Marketing team Yes No No No 6/10, the creative team is responsible for
introducing new products and services that
have been aligned with Sharia norms.
6. Investment
Team
Yes No Yes No 6/10, responsible for a growth strategy that
has been aligned with the DIB vision and
mission by utilising the assets of the bank to
generate profits.
Students may also suggest using the Key Factors for Success (KFS) approach as an external
strategic analysis tool, which would enable DIB to develop their strategy for entering a new
market. One of the critical success factors that customers and shareholders rely on is banking
efficiency with respect to international banking assets. The diagram below (Figure 4) emphasises
the share of participation banking assets of Islamic banks only as compared to conventional
banks, as per the PwC study (World Islamic Banking Competitiveness Report, 2016).
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Figure 4. World Islamic Banking Competitiveness Report 2016
For DIB to achieve success in its international entry venture, it should scrutinise the culture,
customer needs (Figure 5) and values of all countries in which it wishes to invest. A crucial factor
for consumers is to build trust that the bank is following Sharia norms and principles. On the other
hand, it is imperative to find a solution to one of the most challenging and risky aspects of the
entire Islamic banking industry is that conventional banks instigate an Islamic window, e.g.
Mashreq is a commercial bank and has started offering Mashreq Islamic products. This kind of
business is considered a significant threat to the Islamic banking entity.
It is clear from the VRIO table that DIB has the expertise, the knowledgeable staff and the
product differentiation, i.e. Islamic products to make inroads into an international market. It is
also clear that their staff’s Sharia compliance knowledge is difficult to imitate and constitutes a
competitive advantage for DIB, and one on which it should focus as a potential success variable.
Customer needs How companies compete Potential “death
bells”
Islamic bank to implement
Sharia principles
Diversification of products and
services
Conventional banks
To fix a minimum interest
rate for loans
Lower the interest rate Zero interest rate
To have a distribution of
branches
Expansion (multiple service
point)
Virtual banks – online
services
Figure 5. Key Factors for Success for DIB
In this section, after having analysed the business internally and externally, it becomes possible
for a researcher to evaluate and assess a company’s performance with respect to a new entry
strategy that is likely to increase the total income, along with the profit for DIB, as shown in
Figures (1 & 2). Therefore, to discuss the opportunity of DIB expansion into other countries is
34%
13% 12%
6% 0%
5%
10%
15%
20%
25%
30%
35%
40%
GCC ASEAN South Asia Turkey & ROW
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becoming mandatory to highlight and present the DIB financial performance in two countries
(Pakistan and the Sudan).
The profit after taxation for DIB-Pakistan in 2015 was 430,555,000 Rupees, which is almost
AED 15 million and 855,540,000 Rupees in 2016, which is around AED 30 Million, as per
("Financials Archives - Dubai Islamic Bank" 2017). That means expansion was the right
strategic decision for DIB.
The net profit for BoK- DIB in 2015 was $US 56,995,000 and $US 72,330,000 in 2016, as per
the consolidated income statement for the year ending December 31st, 2016. That is almost about
AED 209 million in 2015 and AED 266 Million in 2016. The experience of the above two banks
is a clear indication that new entry was the right strategy regarding profit figures. Therefore, the
bank should study the international markets to explore the unique business opportunity for the
expansion strategy, after conducting a feasibility study as to which country is ripe for investment,
which is not within the scope of this case study.
DIB has the advantage of uniqueness and product differentiation, which can be added value for
the expansion into any country if they know how to adopt a differentiation strategy, as the majority
of world banks are commercial banks. In this case, DIB should take into consideration the quality
of service and intellectual capital of staff, considered expert in the Islamic banking industry, as
shown in VRIO table above. Gebauer, Gustafsson & Witell (2011) have highlighted the
complexity of understanding customer needs and wants which inevitably leads to service
differentiation and the exploration of new markets. In addition, DIB needs to likewise focus on
and strive to excel in what they are doing in order to reflect best practices. This should be
accompanied by delivering quality Islamic products and services, bearing in mind that DIB has
the reputation of being the first Islamic bank in the world.
Students may suggest that DIB should adopt a new market development strategy that will have a
medium risk, as shown Figure 6. Risks must always be considered against potential rewards
when evaluating international opportunities. This is on the assumption that there are potential
risks when entering new international markets that will be prompted by political matters,
economic position, Government rules and regulations, infrastructure, capital movement, and so
forth.
Moreover, according to Campbell, Stonehouse & Houston (2002), the company needs to study
culture, logistics and potential risks diligently. From the banking industry perspective, PwC has
conducted a survey to highlight the top five risk areas: dealing with reputational risks including
cultural risks, regularity compliance, cybersecurity crimes, liquidity, and talent capital (Global
Banking Outlook, 2017). Miller (1992) asserts that dealing with risks in international markets
generally and the use of the term, “Risk,” to express uncertain environmental changes most
assuredly reduces organisation predictability.
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Figure 6. The Ansoff Matrix
Question 2: Should DIB continue to invest in the real estate industry, given that the property
sector is facing challenges, losses, and ultimately, is not the core business of DIB?
Students may suggest using Product Portfolio Analysis and Resource-Based View for internal
analysis, to give a clear insight into investing in the real estate industry.
According to the Gulf News (2017), both market growth and market share have declined in the
UAE in contemporary times. Therefore, the property sector is proposing discounted deals to attract
buyers into Dubai’s property market, to increase investment in the real estate sector. The ratio of
total income that came from real estate compared with total revenue has declined from 4.79 % in
2014 to 4,73%, reaching 2.72% in 2016. As a result, from the above analysis, students may
conclude that DIB is in the “Dog’s” position given the low market growth for the real estate
industry along with the low market share for DIB.
Campbell, Stonehouse & Houston (2002), argue that firms need to differentiate themselves from
their rivals, and should not compete with the leaders in the specific industry mainly on price, but
they should try to make a profit and take advantages from market changes, in order to make it an
opportunity rather than a risk factor.
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Figure 7. The Boston Matrix
The Resource-Based View (RBV) plays a vital role in maintaining a competitive strategy for the
organisation. However, resources contain tangible and intangible assets which contribute to the
production process. The resources are considered as inputs for any production process. Zubac,
Hubbard & Johnson (2010) view resources as a valuable combination of organisational assets
and staff capabilities within an organisation that enable the development of strategies which
affect the firm’s performance and productivity. Grant (1991) states that resources are essential
pillars of management strategy; that the capabilities of the organisational resources will be able
to determine its approach and that they contribute to the firm’s profit-making capacity.
Moreover, there is a link between resources, competitive advantage, productivity and abilities.
Therefore, the company should adopt the strategy that guarantees sustainability for the growth
and differentiates the characteristics over its competitors. A second study has shed light on the
fact that resources create actual value for the organisation and that this will lead to those
resources being appreciated for the organisation (Zubac, Hubbard & Johnson 2010).
The external review examines the external factors that affect and influence the environment,
which may involve macro environment analysis. Therefore, students may suggest doing a
PESTLE analysis, which would provide a clear picture and understanding of the DIB’s external
environment. The methodology of PESTLE will handle the following terms to explore the
company’s situation (Political, Economical, Social, Technological, Legal and Environmental).
PESTLE factors are located outside the organisational control and impact on the firm to different
degrees.
The framework of PESTLE provides a full understanding and clear picture for the organisation
to empower the organisation to take competitive advantage of the opportunities and minimise the
threats and risks that are faced by an organisation’s business activities (Issa, Chang & Issa 2010).
Politics: Decentralisation, as the UAE is comprised of seven Emirates and each Emirate has its
own regulations and policies that enable flexibility and adaptability for any change. Furthermore,
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the UAE is considered a safe and secure country compared to many countries in the Middle East.
The UAE is recognised as a stable political environment which reacts positively to real estate
and furthermore, the Government has a positive attitude towards real estate developers.
Economics: The information cited regarding economic analysis has been taken from the (Annual
Economic Report 2016). Students may focus on the most important criteria. The GDP of the UAE
has risen from 1.58 trillion Dirhams in 2015, with expectations of reaching 1.8 trillion Dirhams in
2016. The inflation rate in the UAE in August 2016 increased by 0.5%, in contrast to that of August
2015, based on the information of the Federal Competitiveness and Statistics Authority. Finally,
Expo 2020, will encourage economic growth, prompt economic diversification and increase
strategic projects in different sectors, especially in real estate. This will be accompanied by higher
income for a professional workforce that will ultimately contribute and affect positively in buying
decisions. In addition, Expo would be a motivator for investors to invest in real estate for the
coming two years.
Social: With reference to the World Bank, as per (Annual Economic Report 2016), the
population increased in 2015 compared to that of 2014, with a growth rate estimated at 0.8%.
Also, the level of unemployment decreased in 2014 by 3.6% compared to 3.8% in 2013. In
addition, many initiatives support and enable UAE women, and in the student’s opinion, this
should be taken into consideration as the women are the principal decision-makers when buying
property.
Technology: One of the UAE’s ‘Vision 2021’ pillars is to acquire knowledge gleaned from
innovation and research. Furthermore, they have announced an ultimate policy for technology,
innovation and science which contains 100 initiatives in education, health, energy, water, and
innovation fields with an allocated budget of UAE 300 billion. Furthermore, Sheikh Mohammad
Bin Rashid promotes the UAE Artificial Intelligence (AI) strategy. The initiative was launched to
enhance the UAE government’s performance and productivity and to increase the level of
achievements (Gulf News, 2017). This kind of initiative will undoubtedly accelerate the delivery
process for properties as will having innovative designs that meet and exceed customers
expectations.
Legal: The Ministry of Economics has established a consumer rights department, which is
considered an important factor in stimulating an investment environment. Moreover, there are
many laws and regulations organised by the free zone authorities which are required to facilitate
business and trade between the UAE and other countries in the world (Annual Economic Report
2016). The Dubai Land Department has enacted clear legislation in terms of owning and leasing
property along with a specific formula which will guarantee the rights of both the landlord and
tenants.
Environment: the weather in the UAE is sweltering, especially in summer. Moreover, there is
good infrastructure and transportation. On the other hand, the cost of importing construction
materials is a factor that needs to be taken into consideration.
There are significant players in the real estate sector in the UAE such as Emaar, Damak, and
Aldar, according to the Gulf feature article, ‘UAE Developers top in Forbes rankings’ published
September 1st, 2016 (Report 2016). They listed ten companies as per (Appendix B). It is evident
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that the power of competitors for the three firms mentioned in the Gulf News makes it difficult
for Deyaar and Emirates REIT to compete and take control of them.
On the other hand, the education sector in the UAE is growing exponentially, and this supports
investment in the real estate sector as demand for premises will increase. Furthermore,
developers are carrying out portfolio diversifications that will enhance this demand, the
attractiveness of return on investment (ROI) and the alignment of real estate with UAE
government policies and rules when developing educational criteria across the area (JLL, 2017).
REFERENCES
(2017). [Accessed 28 October 2017]. Available at: http://bankofkhartoum.com/wp-
content/uploads/2017/05/Translated-Audited-Financial-Statment.pdf
"About Deyaar - Learn More about Deyaar UAE Here". (2017). [Accessed 28 October 2017].
Available at: http://www.deyaar.ae/en/about-us
"Bank of Khartoum - Subsidiaries: About DIB | DUBAI ISLAMIC BANK". (2017). [Accessed 28
October 2017]. Available at: http://www.dib.ae/about-dib/Subsidiaries/bank-of-khartoum
Barney, J. & Hesterly, W. (2008). Strategic management and competitive advantage.
Campbell, D., Stonehouse, G. & Houston, B. (2002). Business strategy. Oxford: Butterworth-
Heinemann.
Claudine Coletti, F. (2016). "Redefining The Norm: Setting The Stage For Islamic Banking - Forbes
Middle East". Forbes Middle East [online]. [Accessed 3 November 2017]. Available at:
https://www.forbesmiddleeast.com/en/redefining-the-norm-setting-the-stage-for-islamic-
banking/
Drucker, P. (1990). Managing the non-profit organization. New York, N.Y.:HarperCollins.
"Financials Archives - Dubai Islamic Bank". (2017). [Accessed 28 October 2017]. Available at:
https://www.dibpak.com/category/financials/
"Financials Archives - Dubai Islamic Bank". (2017). [Accessed 28 October 2017]. Available at:
https://www.dibpak.com/category/financials/
Gebauer, H., Gustafsson, A. & Witell, L. (2011). Competitive advantage through service
differentiation by manufacturing companies. Journal of Business Research, vol. 64 (12), pp.
1270-1280.
"Global Banking Outlook 2017". (2017). [Accessed 11 November 2017]. Available at:
http://www.ey.com/gl/en/industries/financial-services/banking---capital-markets/ey-global-
banking-outlook-2017
Grant, R. (1991). The Resource-Based Theory of Competitive Advantage: Implications for Strategy
Formulation. California Management Review, vol. 33 (3), pp. 114-135.
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Issa, D., Chang, A. & Issa, D. (2010). Sustainable Business Strategies and PESTEL
Framework. GSTF INTERNATIONAL JOURNAL ON COMPUTING, vol. 1 (1).
Miller, K. (1992). A Framework for Integrated Risk Management in International Business. Journal
of International Business Studies, vol. 23 (2), pp. 311-331.
"Mohammad Bin Rashid launches UAE Artificial Intelligence strategy". (2017). [Accessed 11
November 2017]. Available at: http://gulfnews.com/news/uae/government/mohammad-bin-
rashid-launches-uae-artificial-intelligence-strategy-1.2106998
"Overview - About DIB | DUBAI ISLAMIC BANK". (2017). [Accessed 28 October 2017].
Available at: http://www.dib.ae/about-dib/overview
Porter, M. (1996). What is Strategy?. Harvard Business Review, vol. November/December, pp. 61-
63. [Accessed 28 October 2017].
"Publications". (2017). [Accessed 28 October 2017]. Available at:
http://www.economy.gov.ae/english/Media-Section/Pages/Publications.aspx
REIT, E. (2017). "Emirates REIT". Reit.ae [online]. [Accessed 28 October 2017]. Available at:
https://reit.ae/
Report, S. (2017). "UAE developers top in Forbes rankings". GulfNews [online]. [Accessed 28
October 2017]. Available at: http://gulfnews.com/business/property/uae-developers-top-in-
forbes-rankings-1.1889119.
"The UAE Real Estate Market 2016: A Year In Review". (2017). [Accessed 11 November 2017].
Available at: http://www.jll-mena.com/mena/en-
gb/search?k=The%20uAE%20Real%20Estate%20Market
"UAE property: It's now a buyer’s market". (2017). [Accessed 11 November 2017]. Available at:
http://gulfnews.com/gn-focus/special-reports/property/uae-property-it-s-now-a-buyer-s-market-
1.2086472
"Welcome to the Official Website of Central Bank of the United Arab Emirates". (2017). [Accessed
28 October 2017]. Available at: https://www.centralbank.ae/en/
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competitiveness-report-2016/$FILE/ey-world-islamic-banking-competitiveness-report-2016.pdf
Zubac, A., Hubbard, G. & Johnson, L. (2010). The RBV and value creation: a managerial
perspective. European Business Review, vol. 22 (5), pp. 515-538.
APPENDICES
Appendix A - A list of commercial banks in the UAE
Appendix B - A list of top 10 public real estate companies in the GCC
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Appendix A - A list of commercial banks in the UAE
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Appendix B - A list of top 10 public real estate companies in the GCC
Lecture 1 - Introduction to Strategic Management.pptx
MGT523 Strategic Management
Introduction to
Strategic Management
Dr Stephen Wilkins
Key module aims
Demonstrate an ability to synthesise and to critically assess different perspectives on enterprise strategy.
Appreciate the strategic significance of value creation and competitive advantage.
Select and apply appropriate techniques of strategy analysis to obtain useful strategic insights.
Convert strategic analysis and vision into strategies appropriate to the operational context of the enterprise.
Effectively communicate and present the results of analysis.
Module assessment
| No. | Assessment | Handed | Due |
| 1 | Presentation (20 minutes) – 40% | Week 1 | Weeks 2 - 8 |
| 2 | Case Study (3,000 words) – 60% | Week 1 | Week 10 |
Core text
| Business Strategy: An Introduction (3rd Edition) by David Campbell, David Edgar and George Stonehouse Palgrave Macmillan, 2011 ISBN: 978-0-230-21858-1 |
What is strategy?
“Strategy refers to the determination of the long-run goals and objectives of the an enterprise, and the adoption of courses of action and the allocation of resources necessary for achieving these goals and objectives”
Alfred Chandler, 1962
“Strategy is a firm’s theory about how to gain competitive advantages over its competitors”
Peter Drucker, 1993
Henry Mintzberg’s Strategy Schools
| Design school | Formulated strategy, e.g. based on SWOT analysis |
| Planning school | Formal process, e.g. scenario planning |
| Positioning school | Analytical process to improve firm position, e.g. SGA |
| Environmental school | Reactive process to environmental influences |
| Cognitive school | Mental processes of manager |
| Learning school | Learning through trial and error, i.e. emergent process |
| Cultural school | Influences of organisational and regional cultures |
| Consensus school | Consensus and learning from key stakeholders |
| Power school | Influences of politics and power dynamics; negotiation |
| Entrepreneurial school | Visionary process of entrepreneurial individuals |
| Process school | Managers as defining and controlling processes |
| Configuration school | Defining desired end state and steps to get there |
Mintzberg’s 5 Ps of Strategy
Strategy as a Plan
Strategy as a Pattern
Strategy as a Position
Strategy as a Perspective
Strategy as a Ploy
What good strategy should do:
Orient
- give focus, direction and purpose
Animate
- achieve and surpass the organisation’s expectations
Integrate
- Effective coordination of activities
Strategy is a about a way of thinking that requires you to:
Think broadly and integrate different knowledge
Deal with complexity and uncertainty
Understand the importance of context
Evaluate options
Developing a competitive strategy
What value do our customers seek?
What value does the customer perceive in our offering?
What value does the customer perceive in competitors’ offerings?
Competitive strategy is the value created by a firm that matters to customers but which is different to competitors
https://www.youtube.com/watch?v=bl5cyZlay4k
Why is strategy important?
Encourages thinking beyond short term
Encourages holistic view of the firm
Helps firm cope with changing environment
Helps develop uniqueness
Makes best uses of resources and capabilities
Helps the firm to achieve its objectives
Key components of strategy
13
Purpose – vision & mission
Corporate objectives
Corporate strategies
Review & evaluation
Tactical strategies
Levels of Strategy
Student task
For each organisational level, identify two examples of strategic decisions or activities.
Prescriptive and Emergent Schools of Thought
Prescriptive school
Key writers: Ansoff, Sloan, Chandler
Definition: A prescriptive corporate strategy is one where the objectives have been defined in advance and when the main elements have been developed before the strategy commences (Lynch, 2006).
Focus:
logical, sequentially linked planning process
rational analysis
clear strategy development process
separate implementation process to achieve objectives
Student task
Identify two possible advantages and two possible disadvantages of the prescriptive approach to strategy
Emergent school
Key writers: Mintzberg, Pettigrew
Definition: Emergent corporate strategy is a strategy where the final objectives are unclear and when its elements are developed during the course of its life, as the strategy proceeds (Lynch, 2006).
Reasoning:
organisations and the environment are complex
need to accept the world as it is - work with it, don’t try to impose a strategy
strategy can evolve through learning and experimentation
the role of political bargaining, culture and compromise are important in organisations
Student task
Identify two possible advantages and two possible disadvantages of the emergent approach to strategy
APPROACHES TO BUSINESS STRATEGY
Case Study: AMAZON (Jeff Bezos, Founder)
https:// www.youtube.com/watch?v=mk0qTPqaFcw
The Strategic Planning Process
Strategic Gap
The strategic gap is the difference between where the firm is and where it wants to be
Strategic Plan
The strategic plan specifies the details of how a firm intends to close its strategic gap
Strategic Objectives – Four Perspectives
Devising effective strategies
A firm’s strategy should be:
Simple
Clear
Focused
Understood by all stakeholders
https://www.youtube.com/watch?v=6GrwY51Sbo4
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Major Components of a Strategic Plan
Contents of a Strategic Plan
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Lecture 2 - Internal Analysis 1.pptx
MGT523 Strategic Management
Internal Analysis (1)
Resources; Value Chain/System; Competencies
Dr Stephen Wilkins
Learning objectives
Understand how the resource-based view and dynamic capabilities explain competitive advantage
Appreciate the strategic role of resources
- value chain analysis
- the value system
- weaknesses of value chain and value system analysis
Evaluate use of the VRIO framework
Evaluate the role of core competencies
Internal resources and External environment
Strategy is concerned with:
1. The firm’s internal resources
- how to optimise their use and leverage them to achieve competitive advantage
2. The firm’s external environment
- how to succeed within its particular industry context and the wider social and economic environment
Effective strategy requires a linking of organisational resources with the external environmental situation.
Strategy as the link between firm
and environment
FIRM
ENVIRONMENT
STRATEGY
Competitors
Customers
Suppliers
Goals & Values
Resources &
Capabilities
Structure &
Systems
General Environment
‘Fit’?
Adapted from Grant, 2005
The concepts of ‘fit’ and ‘stretch’
Fit: adapting resources to ensure ‘fit’ with opportunities identified in the external environment
Stretch: leveraging resources and competencies likely to yield new opportunities or provide competitive advantage for the organisation
‘Fit’ is reflective of environment-based view; ‘stretch’ of resource-based view.
Adding value
To survive, a firm must add value to its inputs – e.g. through its operations or marketing
Key challenges in strategy are how to create value and how to continue to do so under conditions of change
Resource-based view
“Successful companies… build up a strong resource base over an extended period of time, which offers them access to unfolding market opportunities in the short and medium term…For success, resources should be leading and markets following”
De Wit, B. & Meyer, R. (2004)
Strategy is “... a pattern of resource allocation that enables firms to maintain or improve their performance” Barney, J. (1991)
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‘give the market what it wants and adapt your resources accordingly’
Key focus:
BUILDING the resource base
e.g. investing in physical assets, training and developing the human resource, head-hunting, managing knowledge - focusing on key areas of strength
ANALYSIS of internal resources and competencies
Involves the identification of resources that are better than those of competitors, persuasive to the customer and available from the range of strengths contained inside the organisation.
Key requirement:
Categorising Resources
Tangible resources: the physical resources of the organisation - e.g. plant and equipment.
Intangible resources: those resources that have no physical presence but represent real benefit to the organisation. Includes:
Relational resources: relationships (with suppliers, government agencies etc.) and reputation
Competences: the knowledge, capabilities and attitude needed to operate successfully
Tangible resources – finance / plant
Intangible – brand name / reputation / human resources
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Hierarchy of Resources
Competitive Advantage
High
Low
Peripheral resources – eg – advertising, catering, transportation, legal services
Base resources – eg – information technology, administrative skills
Core resources – eg – brand, reputation, relationships, special operational capabilities, corporate culture
Breakthrough resources – eg – innovative capability – more on innovation in later lecture
Remember that it is not the resource itself that confers CA, but rather what it can do (e.g. Its capability)
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Breakthrough resources: bring a major strategic shift in an industry
Core Resources: unique to the organisation, basis of its strategic competitive advantage
Base Resources: common to many organisations, but useful to keep inside the organisation
Peripheral Resources: often bought in but can occasionally give competitive advantage
The strategic role of resources
...to add value within the transformation process
“value can be defined as the difference between the market value of output and the cost of inputs” Lynch, R. (1997)
If no value added, the business is not sustainable - full cost of inputs is not being recovered
The key reason for focusing on resources - the one thing over which the firm has control
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How can value be added?
By raising the value of outputs (sales) to the customer
or
by lowering the cost of inputs (wages, capital & material costs) into the company
Both have cost implications
e.g. investment in more efficient machinery,
investment in marketing or improving quality
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Cost reduction
often seen as a quick route to increasing value added and providing competitive advantage
a run down of possible means of cost reduction…
design in cost reduction: DFM, fewer parts & simpler process
supplier relationships: if power of supplier is low, can squeeze their price
economies of scale: lower unit cost as size of plant increases
economies of scope: where different products share certain functional costs
experience curve effects: lower cost through greater experience
but limits exist, due partly to changing technologies and constraints on process flexibility
capacity utilisation: high capacity utilisation to contribute to high fixed costs
Asks how resources are used and linked together to add value and underpin competitive advantage
what is the contribution of each value chain element?
Can be used to examine the internal activities of a single firm or product group
Can also be used to examine the whole process of production, linking suppliers to manufacturers to distributors and retailers - the value system
Value Chain Analysis
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You have probably come across the value chain in operations...
If not then you have at least come across it in Angwin last night!
{
Firm Infrastructure
Human Resource Management
Technology Development
Procurement
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
and Sales
Service
Margin (or value added)
Margin
{
Support Activities
Primary Activities
A Firm’s Value Chain (Porter)
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Inbound Logistics
Receiving goods from the supplier
Subsequent storage & distribution with the company
Activities:
materials handling
controlling stock
transport
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What are the resources for Plymouth Airport? List on whiteboard
Operations
Function responsible for
production/service delivery
e.g. in manufacturing:
machining, assembly, packaging, testing
e.g. in service sector (e.g. hotel)
reception, room service, restaurant
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What are the resources for Plymouth Airport? List on whiteboard
Outbound Logistics
Marketing and Sales
sales administration
advertising, selling etc.
Distribution of the final product to customers
e.g. collection, outbound storage, physical distribution
Services - how you bring customers to event / location
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What are the resources for Plymouth Airport? List on whiteboard
Services
e.g.
installation
repair
client training
spares
customer help lines
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What are the resources for Plymouth Airport? List on whiteboard
In all areas, managers need to consider (1) how much value is added by each activity, and (2) whether the business undertakes the activity better or worse than its competitors
e.g. better after-sales service, faster delivery
A means of identifying
competitive advantage
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Support Activities
Support activities add value, but activities are not the primary activities associated with converting inputs into saleable outputs
STUDENT TASK
Identify two support functions in a company and for each identify three ways in which the function adds value to the firm.
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What are the resources for Plymouth Airport? List on whiteboard
The Value System
supplier
manufacturer
wholesaler
retailer
Value creation also occurs in the supply &
distribution chains
Competitive advantage may come from having the best supplier or distributor
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What are the resources for Plymouth Airport? List on whiteboard
Value Chain Summary
internal process linkages - how well do internal activities link together? e.g. quality processes
sharing linkages between product groups - e.g. common procurement for materials used in different products resulting in lower price for bulk purchase
linkages from value chain to value system - e.g. integrated information management system between supplier and retailer
Uniqueness - linkages that are difficult to imitate result in competitive advantage
Sources of competitive advantage:
primary activities
support activities
value system
Also:
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Quality processes – e.g. good links between design dept and manufacturing dept so as to iron out possible quality problems
Problems with Value Chain and Value System Analysis
looks at the existing structure of the business
existing linkages and existing areas of value added
what we currently do well
strategic development may require existing structures to be broken down or radically changed
intangible resources can be missed as they are less easy to measure
analysis can be wide ranging – sometimes difficult to pin down exact nature of a firm’s resource-based competitive advantage
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The role of Core Competencies in resource-based strategy
‘a group of production skills, knowledge and technologies that enable an organisation to provide a particular benefit to customers’
(Hamel & Prahalad, 1990)
Abilities or ‘ways of doing things’ can be more important than tangible resources as they are less easily copied and they don’t deteriorate with use.
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But intangibles are still difficult ...
Also 3M in the production of flat, coated surfaces. Able to produce a wide range of products – post-its, magnetic tape, films, sticky tape, abrasives – from a common set of core competencies.
Prahalad, C.K. & Hamel, G. (1990) The core competence of the corporation, Harvard Business Review, Vol. 68, May-June.
“the way we do things” – process is difficult to copy – In your Enterprise and Innovation module you have seen approaches to keeping competencies hidden.
sub-contract non-core competencies
nurture existing core competencies
acquire (e.g. through collaboration, recruitment) competencies that are lacking
- reflected in growth of collaboration and alliances in 1990s
- quicker to collaborate than to develop, especially in hi-tech industries
Core competencies are the basis of competitive advantage...
…so nurturing competencies that are not core is wasted effort and takes managers away from what should be their main focus
Therefore:
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Note that the driver here is the achievement of CA based on a long term strategic view of core competence – not short-term cost savings.
Everyone of any size downsized / off-shored / restructured during the 80s’ and 90s’. Or began to co-operate
Core competencies
Core competencies are distinguished from other competencies in several ways:
Possessed by companies whose performance is superior
Unique to the company
Difficult to imitate
Add greater value than other competencies
Fulfil customer needs
Based on organisational skills and knowledge
Dynamic Capabilities
Dynamic capability is defined by Teece et al. (1997) as a firm’s ability to integrate, build and reconfigure tangible and intangible competencies to address rapidly changing environments.
Dynamic capabilities require:
Capability possession (distinctive resources)
Capability deployment (resource allocation)
Capability upgrading (dynamic learning)
Firms must be stable and flexible
Short and long term benefits – including survival. Consider Nokia.
VRIO Framework (Barney, 2002)
Aim: to assess how resources contribute to competitive advantage and performance
Competitive advantage is gained when a firm has resources that are Valuable, Rare, Costly to Imitate, and Difficult to Organise (VRIO).
Valuable: does it make a big difference to the firm’s cost or differentiation advantage?
e.g. early EPOS adopters.
Add Valuable column to Tayto’s resource list
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Rare: Is the resource available to competitors?
Costly to imitate – in terms of money, time and effort, e.g. early CAD systems.
Organisation – is the firm capable of exploiting its valuable, rare & difficult to imitate resources?
Possession of VRIO resources enables firms to achieve sustainable competitive advantage – to outperform other firms, to succeed where others fail.
Add RARE / INIMITABLE / ORGANISATIONAL CAPABILITY columns to Tayto’s
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Seminar Task
(1) Create a VRIO analysis grid, as shown below.
(2) Conduct a VRIO analysis for The British University in Dubai.
| Resource | Valuable? | Rare? | Costly to imitate? | Capable of being exploited? | Evaluation: Competitive implications (the extent to which the resource gives a long-term competitive advantage) |
Note: Your analysis should cover at least 15 different resources, i.e. your analysis grid will require at least 15 rows. You may state ‘Yes’ or ‘No’ or give a score out of 10. Each resource also needs an evaluative comment.
Summary
You should now be able to:
Explain how the resource-based view and dynamic capabilities explain competitive advantage
Appreciate the strategic role of resources
- value chain analysis
- the value system
- weaknesses of value chain and value system analysis
Evaluate use of the VRIO framework
Evaluate the role of core competencies
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Lecture 3 - Internal Analysis 2.pptx
MGT523 Strategic Management
Internal Analysis (2)
Vision and Mission Statements; Product Portfolio Analysis; Human Resource Management; Financial Management
Dr Stephen Wilkins
Vision and mission statements
Vision – states what the firm wants to become in the future
Mission statement – states what the firm is all about: its purpose, activities and values
Mission statements usually identify:
1. What the firm does
2. For whom the firm does it
3. What the benefits are
Our vision:
To be globally recognised as the most valued financial service provider in the Middle East
Our mission:
Everyday we make our customers' lives simpler by providing solutions that help them fulfill their financial aspirations
Our values:
Our customer centric approach: Customer focus
Our differentiation: Service excellence, Innovation
Our people: Passion for performance, Integrity, Teamwork
Plymouth University, UK
OUR VISION: to be the enterprise university
Our vision sets out the type of University we aspire to be. We are already an ambitious, world-class University. By placing enterprise at the heart of everything we do, we will develop an innovative and creative culture that empowers people.
OUR MISSION Our enterprising approach will further develop our reputation as a world-leading University and our enterprise culture will deliver sustained innovation and international impact. We will use the knowledge we create to transform lives. We will achieve this through world-class research, excellence in teaching and learning, and through our partnerships and collaborations. We will maintain our commitment to driving social inclusion, economic prosperity, and environmental quality in our local community and beyond.
Body Shop
“I just want The Body Shop to be the best, most breathlessly exciting company – and one that changes the way business is carried out. That is my vision.”
Anita Roddick, founder of The Body Shop
Mission:
We believe there is only one way to beautiful, nature’s way. We constantly seek out wonderful natural ingredients from all four corners of the globe, and we bring you products bursting with effectiveness to enhance your natural beauty and express your unique personality. And whilst we’re doing this, we always strive to protect this beautiful planet and the people who depend on it. We don’t do it this way because it’s fashionable. We do it because, to us, it’s the only way.
Mission statements should use concrete language that explains why the firm does what it does in a way that has meaning to consumers.
https://www.youtube.com/watch?v=LJhG3HZ7b4o
Organisational objectives
The overall goals, purpose and mission of a business that have been established by its management and communicated to its employees.
The organisational objectives of a firm typically focus on its long range intentions and its overall business philosophy.
Organisational objectives should be communicated in a SMART format.
Product portfolio analysis: The Boston Matrix
How marketing objectives and actions change over the product life cycle
How will competitors compete and how successful will their strategies be?
Extension strategies can prolong a product’s life
Human Resource (HR) Strategy
Definition: HR strategy refers to the actions involving the organisation’s employees that are taken to achieve the organisation’s goals and objectives.
Definition: HR planning is the process of determining an organisation’s future requirements for human resources so that they can be met.
The HR function must ensure that the organisation has (1) the right number of employees, (2) with the right attributes (experience, skills etc.), (3) in the right location, and (4) at the right time.
The HR function is responsible for HR planning, recruitment strategy, training and development strategy, employee reward strategy
The HR function should measure and monitor employee performance, share relevant information and analysis with other functions
Strategic Management and Human Resource Strategy
Question: What activities might the HR function undertake as part of its HR planning process? What information needs to be collected and analysed?
The HR strategy should also include actions and activities related to:
Design of the organisational structure
Influencing the organisational culture
STUDENT TASK: Develop a Five Year HR strategy for each of the following two companies. What actions could each company take?
Company A: Al Beer hospital needs to recruit an extra 300 nurses over the next five years to cope with the hospital’s expansion and increased demand for treatments, but there are few nurses available in the local labour market.
Company B: Nokia is facing reduced demand for its phones. It needs to reduce its workforce by 2,000 each year for the next five years.
To deal with a shortage of labour (Company A)
Reduce labour turnover
Improve pay and conditions
Re-train employees
Introduce new working methods or more technology
Give existing nurses overtime
Recruit new nurses from local labour market or overseas
What about agency workers?
To deal with a surplus of labour (Company B)
Allow natural wastage
Encourage early retirements
Voluntary or compulsory redundancies
Retrain workers for other jobs/departments
Shorten working hours
Ban overtime working
Introduce a recruitment freeze
Miles and Snow’s Culture Types – cultures categorized into four types based on how they tend to react in strategic terms.
| Dominant culture in organisation | HR strategy | Marketing strategy |
| Defenders - Prefer stability and continuity | Centralised, hierarchical Policies, procedures Bureaucracy | - Defend market share through service improvements or cost reductions |
| Prospectors - Thrive on change | Decentralised, flexible Focus on employee selection and reward | Innovation Developing new products and markets |
| Analysers Conservative Followers rather than leaders (learn from other firms) | Detailed HR planning Use of external consultants Participation | Steady growth, market penetration Market research and extensive evaluation |
| Reactors Also followers Can be impulsive | Decentralised Weak control mechanisms | React to external threats Follow hunches Follow other firms Act quickly |
Knowledge Management is concerned with creating, storing, controlling and disseminating (sharing) knowledge
Explicit knowledge – meaning clearly stated, details can be recoded
Tacit or implicit knowledge – unstated knowledge, based on individual experience
Both types of knowledge start as individual knowledge, but they must be transformed into organisational knowledge in order to improve organisational performance
Collaborative networks
A collaborative network is a network consisting of a variety of entities (e.g. organisations and people) that collaborate to better achieve common or compatible goals, and whose interactions are usually supported by computer networks.
Relate to value system approach
Stick to core competences and outsource to other organisations activities that are not core
Develop partnerships, alliances and agreements with organisations that will give the firm a competitive advantage – reduced costs; increased quality; increased speed, e.g. supply chain; increase efficiency
Pool resources and competencies to create synergies (2 + 2 = 5)
Collaboration can be horizontal (same stage of production) or vertical (different stage in the production/supply process)
Financial analysis in businesses
Profit
Liquidity
Investor reward
Gearing
EPS
ROE
Stock price
Credit rating
Dividends
Profit, EPS and ROE
Net income (Profit) = Revenue – Total costs
Net income = Revenue – (Fixed costs + Total variable costs*)
*Total variable costs = number units produced x variable cost per unit
Earning per share = Net income/Number of shares issued
Return on equity = (Net income/Total equity) x 100
Q1. Calculate the Return on Equity.
| Income Statement Data | Full Year (in $000s) |
| Sales Revenues | 200,000 |
| Operating Profit | 57,600 |
| Net Income | 45,000 |
| Balance Sheet Data | |
| Total Current Assets | 70,000 |
| Total Current Liabilities | 44,000 |
| Total Assets | 189,000 |
| L-T Debt (draw against credit line) | 35,000 |
| Total Equity | 115,000 |
| Other Financial Data | |
| Depreciation | 16,000 |
| Dividend payments | 9,000 |
Dividend yield is a ratio used by shareholders or potential shareholders.
Dividend yield = (dividend per share / current stock price) x 100
Q2. Calculate (a) Earnings per Share and (b) Dividend Yield.
| Income Statement Data | Full Year (in $000s) |
| Sales Revenues | 200,000 |
| Operating Profit | 57,600 |
| Net Income | 36,400 |
| Balance Sheet Data | |
| Total Current Assets | 70,000 |
| Total Assets | 172,000 |
| Total Current Liabilities | 26,000 |
| L-T Debt (drawn against credit line) | 46,000 |
| Total Equity | 100,000 |
| Other Financial Data | |
| Depreciation | 16,000 |
| Dividend payments | 8,000 |
| Annual dividend per share | 0.70 |
| Number of shares outstanding | 11,000 |
| Current stock price | 29.00 |
Net Profit Margin is a profitability ratio.
Net profit margin = (net income / sales revenue) x 100
Q3. Calculate Net Profit Margin.
| Income Statement Data | Quarter 1 (in $000s) |
| Sales Revenues | 60,000 |
| Production Costs | 26,500 |
| Delivery Costs | 1,600 |
| Marketing Costs | 8,500 |
| Administrative Expenses | 2,000 |
| Operating Profit | 21,400 |
| Net Interest | 750 |
| Income Before Taxes | 20,650 |
| Taxes | 4,095 |
| Net Income | 16,555 |
Payback is an investment ratio that indicates the potential risk of an investment.
Payback is the length of time it takes to pay off long term debt from net cash flow
Q4. Calculate the Payback Period.
| Income Statement Data | Full Year (in $000s) |
| Sales Revenues | 200,000 |
| Operating Profit | 47,600 |
| Net Income | 32,400 |
| Balance Sheet Data | |
| Total Current Assets | 70,000 |
| Total Current Liabilities | 26,000 |
| Total Assets | 193,000 |
| L-T Debt (draw against credit line) | 82,000 |
| Total Equity | 90,000 |
| Other Financial Data | |
| Depreciation | 4,000 |
| Dividend payments | 12,000 |
Businesses need to ensure they have adequate working capital so that they can pay expenses as they fall due.
One way of assessing a firm’s liquidity is to calculate the Current Ratio. Outcomes over 2 (i.e., 2:1) are thought prudent but many firms operate effectively with a lower ratio.
Current ratio = Current assets / Current liabilities
Q5. Calculate the Current Ratio.
| Income Statement Data | Quarter 1 (in $000s) |
| Sales Revenues | 50,000 |
| Operating Profit | 14,400 |
| Net Income | 9,555 |
| Balance Sheet Data | |
| Total Current Assets | 85,000 |
| Total Assets | 140,000 |
| Total Current Liabilities | 37,000 |
| L-T Debt (draw against credit line) | 23,000 |
| Total Equity | 90,000 |
| Other Financial Data | |
| Depreciation | 4,000 |
| Dividend payments | 2,250 |
When directors know the amount of net income (profit) the firm has made they can decide how much dividend to pay to shareholders and how much to keep in the firm as retained earnings.
Q6. Which of the following statements is true? Which are false?
| If a company earns net income of $32 million in Year 8, has 10 million shares of stock, pays a dividend of $1.20 per share, and has annual interest costs of $10 million, then | |
| (a) | the company’s dividend pay-out for the year would equal 22% of earnings. |
| (b) | the company’s retained earnings for the year would be $5 million and the $5 million in retained earnings would be shown on the company’s balance sheet as a reduction in equity investment by stockholders in Year 9. |
| (c) | the company would have Year 8 earnings per share of $1.20. |
| (d) | the company's retained earnings for the year would be $10 million (net income of $32 million less dividend payments of $12 million less interest costs of $10 million). |
| (e) | the company’s retained earnings for Year 8 would be $20 million (net income of $32 million less dividend payments of $12 million) and this would be treated on the company’s balance sheet as additional accumulated retained earnings. |
Stakeholders want to know how a business is financed. The more a firm relies on borrowed capital, the more risky the firm is generally considered, as it is more vulnerable to future increases in interest rates and lower revenues in an economic downturn.
The gearing ratio assesses the extent to which a firm is dependent upon long-term borrowings rather than share capital.
Ratios where the long-term borrowings are less than 50% of total capital employed are generally considered prudent.
Q7. Calculate the debt:equity ratio (gearing ratio) and show the result as % debt and % equity.
| Income Statement Data | (in $000s) |
| Sales Revenues | 50,000 |
| Operating Profit | 14,400 |
| Net Income | 9,555 |
| Balance Sheet Data | |
| Total Current Assets | 70,000 |
| Total Assets | 139,000 |
| Total Current Liabilities | 26,000 |
| Debt Outstanding (drawn against credit line) | 35,000 |
| Total Stockholders' Equity | 105,000 |
| Other Financial Data | |
| Depreciation | 4,000 |
| Dividend payments | 2,250 |
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Lecture 4 - External Analysis.pptx
MGT523 Strategic Management
External Analysis
Macroenvironment analysis (PESTEL, scenario analysis); industry analysis (Porter’s Five Forces; Key Factors for Success); intra-industry analysis (competitor profiling, strategic group analysis)
Dr Stephen Wilkins
Learning objectives
Understand the environment-based view
Appreciate the use of environmental analysis
Examine tools and techniques:
- Environmental analysis
PESTLE
Scenario analysis
- Industry Analysis
Porter’s 5-forces
Key Factors for Success
- Intra-industry Analysis
Competitor profiling
Strategic group analysis
Environment or resource focus?
Two broad views have developed on what should be the key focus of strategy:
Industry/environment-based view
Resource-based view
Different concepts and analysis tools are associated with each view.
Environment-based view
“Successful companies…are externally oriented & market-driven. They have their sights clearly set on developments in the market-place and are determined to adapt to the unfolding opportunities and threats encountered. They take their cue from customers and competitors and use these signals to determine their own game plan”
De Wit, B. & Meyer, R. (2004)
The environment
“everything and everyone outside the organisation”
Lynch, R. (1997)
Environmental analysis
“the process of searching for and gathering information on significant changes in the company’s environments”
Bennett, R. (1996)
e.g. customers, suppliers, competitors, government, distributors, pressure groups
Benefits of environmental analysis
To anticipate opportunities
To provide an early warning of threats
can then devise strategies to take advantage of opportunities
can then devise strategies to reduce impact of threats
Levels of environmental analysis
Macro-environmental analysis
- PESTEL
- Scenario building (‘What if?’ analysis)
Industry analysis
- Porter’s Five Forces
- Key Factors for Success
Intra-industry analysis
Competitor profiling
Strategic group analysis
The identifying and evaluating of Opportunities and Threats in
SWOT Analysis is a further tool that can be used in external
environment analysis.
Is it worth analysing the
macro environment using PESTEL?
Political future
Economic future
Environmental
future
Socio-cultural
future
Technological
future
Legal
future
All can have important effects, but...
1. Factors of importance vary between firms e.g. global warming
2. Expense of continuous monitoring –
cost effective?
3. Impacts on value creation is often indirect and long-term
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An impact matrix can be used to help analyse PESTEL (or environmental) factors.
Example for the Broadwoods versus Steinway case study:
| External influences* | Broadwoods | Steinway |
| Economic | High labour costs Inefficient production | + Innovations reduced production costs (can compete on price) |
| Social | ||
| Technological | ||
| Media | ||
| Political |
* You can create any categories that are applicable to your firm or industry
Scenario analysis
Scenario: “a model of a possible future environment for an organisation” (Lynch, 2005)
Scenario analysis aims not to predict the future, but to build different perspectives on how the future might unfold
Different approaches – some highly quantified (e.g. simulation modelling), others more simple and descriptive (e.g. decision trees)
By considering those variables about which there is a high level of uncertainty, alternative pictures of the future are generated – e.g. optimistic, pessimistic, neutral / no change – so that firms can generate a suitable range of plans
https://www.youtube.com/watch?v=yVgxZnRT54E
Student task
Identify three possible advantages and drawbacks of using scenario analysis
Power of
suppliers
Rivalry among
existing industry
competitors
Power of
buyers
Threat of
entrants
Threat of
substitutes
Porter’s Five Forces of Competition
for industry analysis
Horizontal
Competition
Vertical Competition
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Competence-related
Industries
The
Organisation
Company’s
industry
Product
Markets
Resource
Markets
The Resource-Based Model of Strategy
Supplier Power
Threat of
New Entrants
Buyer
Power
Threat of
Substitutes
Competitive
Rivalry
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Resource-Based Strategy Model - Five areas for analysis:
Organisation – Analyse the firm’s value-adding capabilities and its forward/backward value chain linkages
Company’s industry – Competing firms with similar products, capabilities and technology
Resource markets – Where firms obtain finance, human resources, equipment, materials and services. Consider potential suppliers, supplier capabilities, access by competitors to suppliers, substitutes
Product markets – Where products are sold. Consider buyer power, substitutes, unmet customer needs, purchasing power of customers, access to distribution channels
Competence-related industries – Analyse firms with similar competencies in other industries (threat), possibility to enter new industries (opportunity), ability of firm to leverage existing competencies and build new ones
Developing strategy through Key Factors for Success (KFS)
A way of identifying the key
factors that might lead to business success in a given industry
Encourages managers to focus
on the key issues
A very simple model, but a useful thinking tool...
Purpose is to identify resources, skills and attributes essential for
success in the industry
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What do customers
want?
How does the firm survive competition?
Analysis of Demand
Analysis of Competition
Who are our customers?
What do they want?
What drives competition?
What are the main dimensions of competition?
How intense is competition?
How can we obtain a superior competitive position?
KEY FACTORS for SUCCESS
16
What customers
want
How firms compete
Potential ‘death bells’
Example:
Low prices
Economies of scale
Cost minimisation
Negotiate cheaper buying prices
Cheaper suppliers
Food safety scares
Negative media coverage
STUDENT TASK Key Factors for Success (KFS) in the food retailing industry
Competitor Profiling
Forecast competitors’ future strategies
Predict competitors’ reactions to strategic initiatives
Work out how to influence competitors’
behaviour to your advantage
Purpose: ‘to get inside your competitor’s head’
18
Framework for Competitor Profiling
Objectives
Competitor’s current goals
Competitor’s current performance
How might its goals change?
Strategy
How is the firm competing?
e.g. innovation, marketing, product range
Assumptions
What assumptions does the
competitor hold about the industry and itself?
Resources & Capabilities
Competitors’ key strengths & weaknesses
PREDICTIONS
What strategy changes
will the competitor
initiate?
How will the competitor respond to our
strategic initiatives?
19
Strategic Group Analysis (SGA)
Whereas segmentation analysis disaggregates industries on the basis of market characteristics...
…SGA uses the characteristics of
firms as the basis for division
A strategic group is a set of firms adopting similar strategies aimed at similar customer segments (where barriers exist that restrict switching groups)
Dimensions: variables that best distinguish the strategies
and competitive positioning of firms in an industry
e.g.
Product range
Geographical scope
Product quality
20
Student task
Global motor car industry:
Position two firms into each segment of the grid
Product range
Geographical scope
Broad
Narrow
National
Global
Benefits of Strategic Group Analysis (SGA)
Indicates those strategies that have proven viable
Gives an indication of
‘strategic space’
Helps to understand industry evolution
Helps to understand who your closest competitors are
22
Summary
Understand the environment-based view
Appreciate the use of environmental analysis
Examine tools and techniques:
- Environmental analysis
PESTLE
Scenario analysis
- Industry Analysis
Porter’s 5-forces
Key Factors for Success
- Intra-industry Analysis
Competitor profiling
Strategic group analysis
Seminar task
Use strategic group analysis to identify possible strategic groups in the UAE’s hospitality sector.
Select two dimensions that distinguish the strategies and competitive positioning of hotels.
Produce a positioning chart that displays the position of 12 hotels in the UAE.
Select one strategic group and use scenario analysis to compare the future prospects of the hotels in this group.
Select one hotel from your selected strategic group (in task 2). What strategies might this hotel adopt to successfully compete in its market segment?
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Lecture 6 - International Strategies.pptx
MGT523 Strategic Management
International Strategies
Dunning’s Eclectic framework; Porter’s Diamond Framework; modes of entry
Dr Stephen Wilkins
Learning outcomes
Identify and analyse the reasons a firm may go global
Understand forms of international business strategy
Examine how distinct national competitive advantages impact a firm’s strategy
Appreciate the impacts of a global strategy on the structure of a firm
L
Student task
Identify ten reasons why a firm might go global
Market development strategy
Ansoff’s Product/Market Growth Matrix
Dunning’s OLI model (Eclectic framework)
| O | Ownership advantages Resources of the firm that are transferable across borders and which give competitive advantage Technological know-how and innovation, e.g. cars Brand name Business model, e.g. IKEA |
| L | Location advantages Value a firm creates abroad that it cannot create at home Large and growing market Natural resources Industry clustering advantages, e.g. cars in Slovakia Government policies, e.g. free trade zones in UAE |
| I | Internalisation advantages Advantages of organising the activities undertaken in two countries within a multinational firm Avoid high international transaction costs Save time and cost of assessing partners - Reduce costs of monitoring, e.g. quality, ethics |
Barriers to crossing borders
1) Political and legal
2) Commercial factors
3) Technical issues
4) Cultural factors
Porter’s Diamond for Competitive Advantage
of Nations
Factor conditions
Demand conditions
Strategy, structure and rivalry
Related and supporting industries
Government
Standardisation versus Customisation
Standardisation versus Customisation
Global strategy (Standardisation)
Common global strategy
Centralised
Coordinated
Similarities in markets allow exploitation of common strategy
Locations of functions determined by economies of scale
Fits products with world-wide acceptance
But not locally responsive
Liability of foreignness
Multi-domestic strategy (Customisation)
Unique country strategies
Independent
Markets differ in structure
Accepts
Cultural difference
Government mandates
Most functions located locally
Flexible and responsive to local needs
Does not benefit from experience curve
Loss of economies of scale
Global integration/Local responsiveness grid
(adapted from Prahalad and Doz, 1987)
Weak Strong
Strong
Weak
Forces of globalisation towards standardisation
Forces of localisation towards customisation
Global strategy
Transnational strategy
International strategy
Multidomestic strategy
Modes of entry
4) Management contracts
7) Joint ventures/partnerships
9) Foreign direct investment (FDI) – wholly owned
5) Franchising
Direct exporting
3) Licensing
2) Indirect exporting
6) Strategic alliances
8) Foreign direct investment (FDI) – majority/
minority interest
Low
High
RISK
Student task
Choose two different modes of entry. For each, identify two possible advantages and disadvantages.
Organisational structure for competing across borders
High
High
Low
Low
Central integration
Local autonomy
Centralised hub
Centralised federation
Matrix
Transnational
Summary
Identify and analyse the reasons a firm may go global
Understand forms of international business strategy
Examine how distinct national competitive advantages impact a firm’s strategy
Appreciate the impacts of a global strategy on the structure of a firm
Case Study: Global Strategy of Plymouth Business School, UK
Questions
1. Using Ansoff’s Matrix, which growth strategy would you recommend for PBS’s international department? Justify your choice.
2. How might PBS use Porter’s Diamond for Competitive Advantage of Nations to evaluate possible host countries for an international branch campus? Your answer should include examples relating to two different countries.
3. What are the barriers that PBS might face in trying to establish a branch campus in Qatar?
4. How might institutional theory help PBS (a) understand the factors that influence its global strategy decisions (b) make decisions that will be successful?
Plymouth Business School (PBS) is a very successful operator in the international student market. It hosts many hundreds of international students at its Plymouth campus, it has partnerships with several institutions around the world and its courses are delivered internationally through various arrangements, including joint and franchised programmes. Now, PBS is considering establishing an international branch campus, possibly in Qatar.
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Lecture 8 - Social responsibility, quality, implementation and evaluation.pptx
MGT523 Strategic Management
Social responsibility; Quality; Implementation and Evaluation
Social responsibility and business ethics; quality as a strategic imperative; monitoring and evaluating business performance (triple bottom line, balanced scorecard, McKinsey’s 7S model)
Dr Stephen Wilkins
Learning objectives
Understand that evaluation is contingent upon measures of success
Explore approaches to quality and performance management
Examine suitable structures for strategy
Implementation and evaluation
Strategy has been developed as fit between
- External environment
- Internal resources and capabilities
Now it must be implemented
- Design performance management/measures
- Create the ‘correct’ structure
Student task
What measures might be used to assess a company’s performance?
Two meanings of Sustainability
Sustainable competitive advantage is possible if the sources of the advantage are not substitutable or imitable, so the firm can achieve competitive advantage over the long term.
In recent years, the concept of sustainability has been broadened to include sustainable development.
Sustainable development refers to the activities that meet the needs of the present generation without compromising the ability of future generations to meet their own needs.
Corporate sustainability (CS)
CS
Corporate social equity
Corporate environmental integrity
Corporate economic prosperity
Corporate social equity often manifests itself as corporate social responsibility (CSR) or corporate citizenship.
CSR is the concept that considers firms as corporate citizens which have ethical responsibilities that go beyond simply complying with the law.
Corporate economic prosperity is about the firm creating value and prosperity for direct (e.g. shareholders, employees) and indirect stakeholders (e.g. wider society)
Corporate environmental integrity is about the firm minimising its impact on the physical environment.
https:// www.youtube.com/watch?v=E0NkGtNU_9w
| Quality Guru | Definition of quality |
| Deming | Quality should satisfy the needs of the consumer, present and future |
| Crosby | Quality is conformance to requirements, either customer requirements or the specifications predetermined for it |
Quality is defined by a firm’s customers
The firm’s value chain must create value that customers are prepared to pay for
Customer-driven quality includes the design of goods and services, delivery, performance, reliability and after-sales service
Quality must work for the firm too, e.g. products made cost-effectively, resources used effectively, efficient processes, minimum waste of resources
Quality as a Strategic Imperative
Approaches to Quality
| Focus of performance | Quality guru |
| Total quality management; all employees contributing to quality | W. Edwards Deming |
| Setting targets; plans to achieve targets; assigning responsibility; rewarding success | Joseph Juran |
| Staff involvement; quality circles | Kaoru Ishikawa |
| Zero defects; careful design to avoid sample inspection; Just-in-Time systems | Shigeo Shingo |
| 14 step approach to management; zero defects; prevention rather than inspection; should focus on the financial costs of non-conformance | Philip Crosby |
| Visible leadership; MBWA (management by walking about); solve problems and make improvements through management-staff face-to-face contact; manage suppliers effectively; involve customers | Tom Peters |
John Oakland’s model for Total Quality Management (TQM)
Video: TQM at FedEx: https :// www.youtube.com/watch?v=6q6V5J1qDs8
Six Sigma – for continuous quality improvements
to achieve near perfection
Six Sigma is a disciplined, data-driven approach and methodology for eliminating defects (driving toward six standard deviations between the mean and the nearest specification limit, i.e. Less than 4 defects per million) in any process – from manufacturing to transactional and from product to service.
The concept was developed in 1986 by Bill Smith at Motorola. Each Six Sigma project carried out within an organisation follows a defined sequence of steps and has specific targets, for example: reduce process cycle time, reduce pollution, reduce costs, increase customer satisfaction, and increase profits.
Based on DMAIC: Define, Measure, Analyse,
Improve, Control
The Triple Bottom Line
Economic
Social
Environmental
Business ethics
A firm’s strategy should be ethical as this is generally regarded as good business practice.
What are business ethics?
Examples of ethical behaviour in business?
Benefits of behaving ethically in business?
Should firms always tell the truth?
Designing performance management
Need to monitor strategy implementation
- Most strategic plans fail due to poor implementation
- Cannot always measure outputs clearly e.g. organisational image and reputation
- Must therefore measure the process
…but which parts?
The balanced scorecard (Kaplan and Norton, HBR, 1992)
Provides an evaluative framework that goes beyond just financial performance. It helps firms assess and improve their financial performance, customer satisfaction and development of organisational capabilities.
Financial perspective
To succeed financially, how should we appear to our stakeholders?
Examples
- Liquidity ratios e.g. Acid Test
- Repeat order quantities
Market share (%)
Return on equity
Internal business process perspective
To satisfy our shareholders and customers, what business processes must we excel at?
Examples
- Average unit cost of production
- Production wastage (%)
- Output per employee (per hour)
Customer perspective
Learning and growth perspective
To achieve our vision, how should we appear to our customers?
Examples
- Average delivery time (days)
- Product returns due to defect (%)
Increase in repeat orders (%)
Increase in customer satisfaction scores
To achieve our vision, how will we sustain our ability to change and improve?
Examples
Employees with relevant qualification (%)
Average time to develop new product (months)
Number of kaizen improvements implemented per year
Organisational structure and management style
The relationships between strategy, organisational structure and management style contribute to determining a firm’s success
Greiner’s Growth Model (HBR, 1998)
Greiner claims that each growth phase has a period of stable growth followed by a crisis when major organisational change is needed
Crises might be better regarded as periods of transition – no need for panic if organised and prepared
Not all firms will go through all stages or necessarily in the same order
The model can help managers plan for the future, encouraging flexibility and contingency planning
McKinsey’s 7S model
McKinsey’s 7S model claims that for a firm to be performing well the 7Ss need to be aligned and mutually reinforcing
The elements are most likely to become misaligned during periods of change
Managers can use ‘before’ and ‘after’ matrices to identify gaps and inconsistencies between elements and to determine the changes needed
Summary
Understand that evaluation is contingent upon measures of success
Explore approaches to quality and performance management
Examine suitable structures for strategy
Did you know? ….
In this module, you learnt about or revisited
Over 20 different theories relevant to strategic management
Over 20 different techniques used by managers in strategic management
and we looked at over 15 company or industry case studies, a third of which were UAE-specific, in the form of:
Tutor-led examples
Video examples
In-class case study exercises
Seminar case study exercises
Journal articles, accessed via the module page in Blackboard
Seminar
Task: In pairs, or groups of 3, develop a balanced scorecard for The British University in Dubai (BUiD). To do this you should:
Identify the vision of BUiD (feel free to invent an appropriate one)
Identify 4 broad perspectives, central to the vision (these do not have to be Kaplan and Norton’s).
Consider how strategic performance of each perspective will be monitored over time. Provide objectives, measures and targets for each.
What might be the limitations of this approach to implementation and evaluation? Are they outweighed by the benefits?
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UK student example.pdf
Case study – Portlebay
Popcorn
Until recently, there were only 3 varieties of popcorn – sweet, salty or plain, but lately there has been
a shake-up in the snack industry with unique and exciting flavours of gourmet popcorn becoming more
popular and readily available.
Nowadays the options are endless, with companies offering flavours such as: wasabi and sweet ginger;
crispy bacon and maple syrup; caramel macchiato & whisky; and gin and tonic.
Whilst the United States were the
pioneers of flavoured popcorn,
bringing different flavours to the
market, British snack manufacturers
are now coming up with exciting new
popcorn flavours. The UK popcorn
industry is estimated to be worth £53
million a year (excluding cinema
sales). While that’s a mere ‘pop in the
pan’ compared to the £1.3 billion
spent on crisps, it does represent a
20% increase in just one year, and
that figure is forecasted to grow in
2013. (Mintel, 2013)
One of the UK manufactures keen to capitalise on the new gourmet popcorn trend is Plympton based
manufacturer, Portlebay popcorn. The company was founded by Jonty White, an ex-director from the
successful premium crisp manufacturer, Burt’s Chips. He was joined by two other ex-Burts colleagues,
former financial director Neil Adams and former business unit director Steve Wardlaw.
The trio of snack experts became interested in popcorn because of how well it could carry a flavour.
So they set about launching a range of unique products including crispy bacon and maple syrup; wasabi
and sweet ginger; and chili and lime.
White describes their product, also known as ‘kracklecorn’, as a “premium popcorn offering”,
manufactured using a hands-on process whereby the corn is hand-popped before being drizzled with
rapeseed oil and raw cane sugar to give it its distinctive brutal texture. Finally, sea salt and flavourings
are then sprinkled on to it to give the popcorn their unique tastes.
Student example – 65%
Strategic Management Assignment
In the early stages of the business, White and the other directors identified the importance of owning
their own production facilities rather than outsourcing in order to maintain control over their new product
development which the company deemed paramount to the business as “an outside supplier wouldn’t
want to get involved in extreme product development” (Bamford, 2012).
In order to finance the 10,000 sq ft factory in Plympton as well as the specialist equipment required for
the launch and brand development, the company secured two rounds of Enterprise Investment Scheme
funding from undisclosed investors, in return for a 40% stake in the business. This was achieved in
partnership with Foot Anstey’s specialist private equity team who advised them on the process. This
investment also allowed them to realise a considerable cost saving through securing state-of-the-art
second-hand packaging equipment from a Swedish supplier that found it surplus to requirements.
This production facility, along with the directors’ excellent relationships with distributors in the industry
and their reputation for reliability and quality, allowed Portlebay popcorn to launch their product in 2012.
The product hit the shelves in over 130 Tesco outlets nationwide, a number of independent delis across
the country and over 300 independent retail outlets. They are currently available in 25g individual bags
(r.r.p. 79p) and a 125g sharing bag (r.r.p. £2.69), and located on the shelves near other premium snack
products including ‘Kettle Chips’ (r.r.p. £1.99 for 150g bag) and ‘Walkers Sensations’ (rrp. £1.99 for
150g bag).
The success of the gourmet popcorn market is attributed in part to the broad trend for treats in bags
which are designed to be shared, as well as the rise of home cinemas. Supermarkets have reported
significant leaps in sales of popcorn and at Waitrose sales have nearly doubled in the past year.
Meanwhile, Tesco has extended its popcorn range to five new flavours and the supermarket's head of
snack procurement, Lee Bannerman, describes popcorn as "the biggest success story in the UK
snacking market for at least 10 years" (Usbourne, 2012).
Figure 1 Stiff competition
However, Portlebay
Popcorn do face stiff
competition, with a host of
new brands ‘popping’ up
to take advantage of the
promising market trend,
including: Metcalfe's
Skinny Topcorn, Diva
Popcorn, Peter Popple's,
Corn Again, Lord
Poppington and Love Da
Pop. Like Portlebay, most
of these brands are also
relatively new, with the
earliest launched in 2010
and are predominantly
selling their offerings
online (see figure 1). However, the UK’s biggest popcorn success story comes from Joe & Seph's
Gourmet Popcorn, launched in 2011, who have started exporting their products to countries in Europe
and the Middle East, and are even exporting back to the home of gourmet popcorn, the USA. As a
result they have also secured a lucrative contract with US Airways who provide their gourmet popcorn
to their passengers as an in-flight-snack.
Whilst Joe and Seph’s gourmet popcorn are currently leading the way, Portlebay Popcorn are snapping
at their heels and will be seeking to take advantage of their fast start in the race to win market share
and become the UK’s leading gourmet popcorn company.
Questions
1. Identify Portlebay Popcorn’s key resources and organisational capabilities and evaluate their
importance in maintaining its’ competitive advantage.
2. In terms of strategic positioning, how have Portlebay Popcorn created a competitive advantage
within the snack industry?
3. As Portlebay are seeking to expand, identify how they may grow through launching new
products or entering new markets and evaluate possible strategies.
Teaching notes
1) Identify PP’s key resources and organisational capabilities, evaluating their
importance in maintaining its competitive advantage.
An organisation may consider constructing their competitive strategy based on effective utilisation of
their unique resources and capabilities, in order to differentiate themselves from their competitors
and/or positioning themselves relative to their competitors, through product or segment differentiation
(Angwin et.al, 2011; Barney, 1991). From a resource-based view, Porter’s (1985) Value Chain analysis
could be used to explore the company’s operations in creating a competitive advantage. Having their
own production facilities, and avoiding outsourcing costs, allowing the company to maintain total control
of their product development could be considered a value-adding example that creates a competitive
advantage.
The VRIO framework is an effective tool for analysing a firm’s internal organisational strengths and
weaknesses, particularly as it evaluates the importance of an organisation’s resources and capabilities
in building a competitive advantage (Barney, 2002; Barney and Hesterly, 2005).
Value: Is the firm able to exploit an opportunity with the resource or capability?
Rarity: Is control of the resource or capability possessed by other companies in the industry?
Imitability: Is it the resource or capability difficult or expensive to imitate?
Organization: Is the firm ready and organised to make use of the resource or capability?
(Lynch, 2012)
Figure. 1
(Bord Bia, 2013)
Table 1 VRIO analysis of Portlebay Popcorn
Resources & Capabilities Value Rarity (Difficult to) Imitate
Organisation Implication
Purpose built plant and facilities
Yes Yes No Average value potential
State-of-the-art machinery Yes Yes No Average value potential
Ability to raise equity finance Yes No Limited value potential
Reputation with distributors for quality and reliability
Yes Yes Yes Yes High value potential
Innovative/creative approach to flavours
Yes No Below average value potential
Product development capabilities
Yes Yes No Average value potential
Managerial experience in premium snack market.
Yes Yes Yes Yes High value potential
Table 1 highlights that the managerial experience within the premium snack market and their reputation with distributors are of highest value to the organisation, particularly as they are very difficult to imitate and Portlebay are already leveraging this experience to allow them to secure contracts with high profile distributors such as Tesco. Whilst the more tangible resources such as purpose built manufacturing facilities and machinery do provide some value to the company, and are relatively rare within the industry, they are also somewhat imitable as there is no reason why other companies would have the capability to benchmark their facilities on Portlebay.
2) In terms of strategic positioning, how have Portlebay Popcorn created a competitive
advantage within the snack industry.
Porter’s (1980) Generic Strategy Matrix can be used to explore Pottlebay Popcorn’s strategic
positioning. The strategy which reflects the case would be Focus Strategy (differentiation), as the
company offers a unique product within a narrow segment.
Bowman’s Strategy Clock (Figure. 1) could also be used to discuss their strategy. The strategy clock
is a generic strategic framework, similar to Porter’s Generic strategy, which acknowledges the
possibility of a high-value/low-cost strategy (Angwin et.al, 2011). Bowman and Faulkner (1996) suggest
that within this framework, the viable strategy to implement will depend on the market’s perception of
the price of the product relative to other offerings, and its relative perceived value.
Portlebay’s offering is currently positioned at
‘focused differentiation’ on the strategy clock. This
position reflects a company whose offerings are a
high quality ‘premium popcorn offering’ of product,
charged at a high price point. The RRP is £2.69
which is 35% higher than for other premium snack
products, such as ‘Walkers Sensations’ and ‘Kettle
Chips’, priced around £1.99. Portelebay’s popcorn
is positioned as a premium product of high
perceived value with a variety of unique gourmet
flavours
such as crispy bacon and maple syrup; wasabi and sweet ginger; and chili and lime. The diverse
product range offered, with multiple flavours, allows Portlebay Popcorn to maximise their market share.
All these factors highlighted contribute to Portlebay Popcorns ability to develop a sustainable
competitive advantage.
3) As Portlebay Popcorn are seeking to expand and win market share, identify how they
may grow through launching new products or entering new markets and evaluate
possible strategies.
Portlebay Popcorn’s expansion can be analysed using the
Ansoff Matrix (Figure 2). Johnson et al (2008) argues that it
is a useful tool for evaluating the risk associated with the
different strategic options.
Within the UK, Portlebay’s growth is likely to be a mix of
Market Penetration and Product Development. As a
relatively new company, the directors will be seeking to
leverage their experience, contacts and reputation to supply
their existing products to additional retailers within the same
market, as well as increasing the level of supply to their
existing distributors such as Tesco. This is a particularly
appropriate strategy as they are seeking to increase their
brand exposure and loyalty within the UK popcorn market
and gain market share, through effective utilisation of their existing resources (Hooley et al, 2004).
Portlebay Popcorn have also indicated their intention to implement a Product Development strategy
through operating as a product innovator (Kuczmarski and Silver, 1982). This is highlighted by their
decision to purchase their own production facility in order to maintain control of their own product
development. This strategy involves developing new products for existing markets, which Portlebay
Popcorn plan to do through developing more popcorn flavours and expanding their existing product
range. This is particularly important as unique flavours are important choice criteria for popcorn
consumers, and the extension of their product range will allow them to satisfy a larger customer base.
However, there is always risk associated with introducing a new product, such as customers disliking
new flavours. Therefore, it is imperative that substantial market research is conducted to obtain detailed
insight into customer needs prior to the launch of the flavours in order to provide evidence of the
existence of a demand and decrease the risks of product failure (Watts et al, 1998).
In the long term, Portlebay Popcorn may also follow Joe and Sephs, who have begun to export their
products around the world. Pottlebay’s potential global expansion strategy could also be illustrated
using the Ansoff matrix. They may use a Market Development strategy through exporting their existing
products to new markets (Proctor, 2000). Alternatively they may need to implement greater
customisation to cater to different tastes, and by continuing to develop new flavours of popcorn they
may be able to open up new markets. This would be represented by a downward shift on the matrix,
from Product Development to Diversification. However, companies that implement a Diversification
strategy are usually large companies that are able to leverage their brands across different markets
(Hooley et al, 2004; Holbrook and Schindler, 1996).
Figure. 2
(Ansoff, 1957)
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