7031-AS2-3
Sa1_Jyyy
Topic2CompanyDiagnosisFinal.pptxMN7031 Topic 2 – How Do We Diagnose Company Strategy?
londonmet.ac.uk
Daniel Jones
Module Overview
Business Simulation – Cesim Global Challenge
1. How and Why Do Businesses Grow?
2. How Do We Diagnose Company Strategy?
5. How Do We Make Sense of the VUCA External Environment?
8. Does Your Simulation Company Need A New Strategy?
10. Why DO Firms Undertale Acquisitions, Mergers and Alliances?
7. How Is Your Simulation Company Performing?
11. How Do Companies Innovate Successfully?
12. Does Strategic Alignment Matter?
4. Why Are Some Industries More Profitable Than Others?
3. How Does A Company Create Competitive Advantage?
6. How Do We Identify future opportunities and threats?
9. Summative Assessment Presentations
Strategic Diagnosis
External
Internal
Global
National
Regional
Local
PESTEL
5 Forces
Blue Ocean Theory
Industry Lifecycle
Competitor Analysis
Scenario Planning
Resource Based View
Core Competencies
Organisational Structure
Culture
Systems
Market Analysis
Red Queen Theory
Theories and Frameworks
Business Model
We will look at competitors in a later topic.
Industry (or Sector)
Development stage
Markets and Competitors
Market Segments
Scope of activities
The Organisation
Resources
Capabilities
Competencies
Politics
The Macro-environment
Concentration
Value network
Products and/or services
Critical success factors
Resource commitment
Economics
Social
Technological etc.
Today’s Agenda
Lecture
Business models
Value Chains
Company Resources – Tangible and Intangible
Core Competencies
Evaluating company resources
Strategy – Outside-In or Inside Out?
Structure, Culture and Systems
Paradox of Control and Chaos
How To Analyse A Company
Strategy Mapping
Simulation – Practice Round 2
Business Model
Business Model – How A Firm Makes Profit
A business model is the configuration of resources, activities and product/service offerings intended to create value for customers – the way a firm conducts its business
It shows how a firm is executing its strategy currently
A firm must be able to:
design a product or service more closely fitted to client needs than rival firms
develop and supply the superior product
Value Chain
A value chain is an integrated set of value creation processes leading to the supply of product or service offerings
Value chains differ significantly but primary activities are:
inbound logistics
operations
outbound logistics
marketing and sales
service
Each firm also needs: procurement, technology development, human resource management, and firm infrastructure
The Value System
Johnson, G. et al., 2013, Exploring Corporate Strategy: Texts and Cases, 10th, Harlow: Pearson p 87
Product and Service Offerings
The key question is which products and services should be developed and which markets should be served
Companies that do not focus on a limited set of product-market combinations risk:
low economies of scale
slow organisational learning
unclear brand image
unclear corporate image
high organisational complexity
limits to flexibility
M&S
Food
Clothing
Home Furnishings
Resources, Capabilities and Competencies
Resources, Capabilities and Competencies and the Link to Strategy
Hill et al, 2015
Able to do things
Able to do things successfully or efficiently
Distinctive Competencies
Competitive advantage is based upon distinctive competencies. Distinctive competencies are firm-specific strengths that allow a company to differentiate its products from those offered by rivals, and/or achieve substantially lower costs than its rivals.
Resources
A company’s resources can be divided into two types:.
Tangible resources are physical entities, such as land, buildings, manufacturing plants, equipment, inventory, and money.
Intangible resources are nonphysical entities that are created by managers and other employees, such as brand names, the reputation of the company, the knowledge that employees have gained through experience. We could also include the intellectual property of the company, including patents, copyrights, and trademarks.
Valuable resources are more likely to lead to a sustainable competitive advantage if they are rare, in the sense that competitors do not possess them, and difficult for rivals to imitate; that is, if there are barriers to imitation.
Capabilities
Capabilities refer to a company’s resource-coordinating skills and productive use.
These skills reside in an organisation’s rules, routines, and procedures.
More generally, a company’s capabilities are the product of its organisational structure, processes, control systems, and hiring strategy. They specify how and where decisions are made within a company, the kind of behaviours the company rewards, and the company’s cultural norms and values.
Resources, Capabilities, and Competencies
The distinction between resources and capabilities is critical to understanding what generates a distinctive competency.
A company may have firm-specific and valuable resources, but unless it also has the capability to use those resources effectively, it may not be able to create a distinctive competency. Additionally, it is important to recognize that a company may not need firm-specific and valuable resources to establish a distinctive competency so long as it has capabilities that no other competitor possesses.
In sum, for a company to possess a distinctive competency, it must—at a minimum— have either:
(1) a firm-specific and valuable resource, and the capabilities (skills) necessary to take advantage of that resource, or
(2) a firm-specific capability to manage resources (as exemplified by Nucor).
Distinctive competencies shape the strategies that the company pursues, which lead to competitive advantage and superior profitability. However, it is also very important to realise that the strategies a company adopts can build new resources and capabilities or strengthen the existing resources and capabilities of the company, thereby enhancing the distinctive competencies of the enterprise.
I worked for 10 years for Capgemini, a firm that had a wide range of technology capabilities that enabled it to provide the design and build large and complex IT systems successfully. These capabilities, combined with the intangible resources of the firm, gave Capgemini a distinctive competence in Systems Integration. At the time. however. Capgemini lacked the ability to win large IT service contracts and was losing market share in services to EDS.
I moved to EDS to understand the companies deal making Competence, which was very strong, but embedded in a relatively small number of people. Unfortunately the EDS delivery capability, particularly System Integration, was far less strong than Capgemini.
Ultimately Capgemini acquired the deal making competence mainly through selective recruitment of key people, but EDS failed to with a number of over-ambitious projects because it lacked the necessary capabilities and some key resources; for example the right project management culture, to create the necessary delivery competence.
Types of Firm Resources
British Plaster Board
British Plaster Board (BPB) achieved sustainable competitive advantage by gaining control of the locations in the UK where gypsum mining was possible.
3M: Evolution of Products & Capabilities
Carborundum
mining
Sandpaper
Scotchtape
Road signs
& markings
Post-it notes
Audio tape
Surgical tapes
& dressings
Videotape
Acetate
film
Floppy disks &
data storage
products
Pharmaceuticals
Housewares/kit-
chen products
Abrasives
Adhesives
New-product
development &
introduction
Thin-film
technologies
PRODUCTS
CAPABILITIES
Materials sciences
Health sciences
Microreplication
Flexible
circuitry
Minnesota Mining and Manufacturing
Not All Resources Are Equal
Core Competencies and Dynamic Capabilities
Core Competencies - Prahalad and Hamel(1990)
Those competencies that define a firm’s fundamental business
A core competence may be distinctive when a firm is markedly better than its competitors, or the competency is difficult to replicate
Should a firm outsource an activity that is part of a core competency?
Dynamic Capabilities
The firms ability to integrate, build and reconfigure internal and external competencies to address rapidly changing environments
Two Perspectives On Shaping The Business Model
Outside-in versus inside-out perspective
Structure, Culture, and Systems
Linking Individuals to the Business Model
Organisational Structure - Refers to the clustering of tasks and people into smaller groups
Organisational Processes - Refers to the arrangements, procedures and routines used to control and coordinate the people and units within the organisation.
Organisational Culture - Refers to the worldview and behavioral patterns shared by the members of the same organisation.
McKinsey 7 S Framework
https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/enduring-ideas-the-7-s-framework#
Components of the Organisational System
Organisational Processes Depend on the Enabling Information Systems
As organisations grow and acquire information systems in support of their processes they, to an extent, “hard-wire” their ways of working. Changing their information systems can be expensive and time consuming, particularly when change is radical.
See Mckensey article on Digital Transformation.
Organisational Structuring Criteria
Paradox Of Control And Chaos
Managers want to control the development of the organisation but understand that letting go of control is often beneficial
Need for top-down imposition and bottom-up initiative
Demand for top management control – top managers need to be able to direct developments in the organisation and to have the power to make the necessary changes. They need strategic control.
Demand for organisational chaos – a period of disorder is often a prerequisite for strategic renewal, allows experimentation, pilot projects, encourages self-organization and frees the way for bottom-up ventures
Organisational Leadership Versus Organisational Dynamics Perspective
Different Leadership Styles Among European Executives
Sweden and Finland consensus’ style (lower power distance, low masculinity)
Germany and Austria ‘working towards a common goal’ (specialists working together within a rule-bound structure)
France ‘managing from a distance’ (focus on planning, high power distance)
UK, Ireland and Spain ‘leading from the front’
Where was the company founded and where is the main centre of power?
Ikea – Sweden
Standard Bank – South Africa
Fujitsu – Japan
Capgemini – France?
Strategic Analysis of A Firm
Component Models
One approach to diagnosis is to start by using component models to examine how the many different aspects of an organisation are working.
... and to combine these assessments to build a ‘big picture’ of how the organisation is functioning as a whole.
Difficult to do from outside the organisation.
Management
practices
Work unit
climate
Motivation
Structure
Systems
(policies and procedures)
Tasks and individual roles
Individual needs and values
Leadership
Mission
and
strategy
Organisation
culture
Holistic Models
An alternative approach is to start by looking at the ‘big picture’ before drilling down to explore particular components in more detail.
This might be by a series of executive and senior management interview to gain an overview of possible problems as perceived from above.
Management
practices
Work unit
climate
Motivation
Individual and
organizational performance
Structure
Systems
(policies and procedures)
Tasks and individual roles
Individual needs and values
External
environment
Leadership
Mission
and
strategy
Organization
culture
Strategy Diagnosis – An Iterative and Incremental Process
Start with the 7 areas in the diagram, beginning with financial performance over the last 5 years:
Is the business profitable?
Is it growing or declining?
How does it compare with the rest of its industry?
Share price and capitalisation
Investigate the other 5 areas
The process of diagnosis may lead to questions in other areas e.g.:
Leadership
Ownership
Information Systems
Acquisition Integration
Culture
Sustainability
Etc..
Strategy
Diagnosis
Financial Performance
Competencies
Industries, Product Offerings and Market Segments
Resources – Tangible and Intangible
Business Model and Value Network
Capabilities
Competitive Advantage
Key Sources
Company Web Site – particularly investor information and company presentations and reports.
Financial Data e.g. Yahoo Finance or
Research Reports e.g. Marketline
Industry Reports
Market Reports
Industry Publications
Investment Analysts
New Papers and Magazines – on and offline
1st Sep 2014 –
Dave Lewis
Appointed
Mar 2011 –
Phillip Clarke
Appointed in Place of Terry Leahy
What’s The Problem?
New Entrants – from Germany
Changing consumer Habits
More frequent shopping
Local shopping
Online – home delivery and “click and collect”
Willing ness to switch in search of value
Reputation
Horsemeat
Profit Reporting
Killing the High Street
Strategy Mapping
Balanced Scorecard
Financial - The outcome for all profit-making organisations is a financial result for stockholders measured by a range of metrics such as return on capital, net profit margin, or growth in revenues.
Customer - In most cases, it is a positive response from the customer that creates value for the organisation by profitable sales. The metrics may include sales penetration as well as the level of customer satisfaction and loyalty.
Internal Business Processes - To increase the quality of the customer relationship, operating processes will be continually improved to enhance the quality flexibility while reducing cost of these processes. Measurements may include cycle time, asset utilisation, and quality metrics.
Learning and Growth - The driving force of value creation is through the intellectual capital, the ideas, and innovation that bring about new products and services as well as processes, sometimes with rapid discontinuous innovation. It can be measured by the development of human capability, new products to market, and growth of strategic alliances.
Gurd (2013)
Strategy Mapping – Tata Steel
Joseph(2009)
| WALMART | Productivity Strategy | Growth Strategy | |||
| Financial Perspective | Local discretion over pricing Drive down cost continuously Obsession with retail and cost reduction High asset and inventory turnover Low spend on advertising(lowest in the industry) | Locate in small towns and create a monopoly on discount retail in that area International expansion Multiple formats – discount stores, warehouse clubs, supercentres and neighbourhood stores, online | |||
| Customer Perspective | Everyday Low prices “Greeters” “Satisfaction Guaranteed | Adjust to local needs and preferences Wide range of goods Avoid stock-outs | |||
| Internal Perspective | Operations Management | Customer Management | Innovation Processes | Regulatory and Social Processes | |
| Purchasing Centralised buying Limit supplier power – max 2.5% of total Exploit technology Use of EDI and Online buying Warehousing and Distribution Own distribution system – hub and spoke rather than supplier delivers to stores Total control and large drop volumes | Store location Store format Decentralised decision making High level of service | Insourced activities allow innovation in IT, warehousing, distribution and store operations | Patriotism Traditional American Values Environmental responsibility Counter the criticisms from Unions, politicians and environmentalists Employee empowerment | ||
| Learning and Growth Perspective | Human Capital - promote from within, career opportunities, profit sharing, share ownership, empowerment, decision and consultation rights, treat as individuals and show them respect, listen to suggestions. Family atmosphere. | ||||
| Information Capital – pioneer the use of technology – EDI, EPOS, Satellite communication and RFID. Systems closely tailored to Walmart’s needs, constant analysis of POS data. Used to closely link the entire supply chain. | |||||
| Organisational Capital – Principles and values of Sam Walton – thrift, hard work, fairness, simplicity and friendliness. Management culture – the Friday and Saturday meeting’s. |
Walmart Strategy Map
Bibliography
De Wit, R & Meyer, R, (2017) Strategy, An International Perspective, Andover, Hampshire: Cengage Learning, 6th ed.
Prahalad, C. K. and Hamel, G. (1990) ‘The Core Competence of the Corporation’, Harvard Business Review, 68(3), pp. 79–91. Available at: http://0-search.ebscohost.com.emu.londonmet.ac.uk/login.aspx?direct=true&db=bth&AN=9006181434&site=ehost-live (Accessed: 10 May 2021).
Joseph, G. (2009) ‘Mapping, Measurement and Alignment of Strategy using the Balanced Scorecard: The Tata Steel Case’, Accounting Education, 18(2), pp. 117–130. doi: 10.1080/09639280802436731.
Osterwalder, A, & Pigneur, Y 2010, Business Model Generation : A Handbook for Visionaries, Game Changers, and Challengers, John Wiley & Sons, Incorporated, Chichester. Available from: ProQuest Ebook Central. [11 July 2019].
‘Porter’s generic strategies’ (2005) A to Z of Management Concepts & Models, pp. 272–277. Available at: http://0-search.ebscohost.com.emu.londonmet.ac.uk/login.aspx?direct=true&db=bth&AN=22366647&site=ehost-live (Accessed: 12 April 2021).
